<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NO. I-922
THE GILLETTE COMPANY
- -------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
INCORPORATED IN DELAWARE 04-1366970
--------------------------- ------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
PRUDENTIAL TOWER BUILDING, BOSTON, MASSACHUSETTS 02199
- ---------------------------------------------------- -------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 617-421-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE
BOSTON STOCK EXCHANGE
CHICAGO STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
</TABLE>
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 non-affiliates
as of February 26, 1999 was approximately $51,422,000,000.*
The number of shares of Gillette Common Stock outstanding as of February
26, 1999 was 1,107,183,549.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the following documents have been incorporated by
reference into this Form 10-K as indicated:
<TABLE>
<CAPTION>
DOCUMENTS 10-K PARTS
--------- ----------
<S> <C>
1. The Gillette Company 1998 Annual Report to Stockholders
(the "1998 Annual Report")............................... Parts I and II
2. The Gillette Company 1999 Proxy Statement (The "1999
Proxy Statement")......................................... Part III
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* This amount does not include the value of 147,862 shares of Series C ESOP
Convertible Preferred Stock issued for $602.875 per share. 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.
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Gillette Company was incorporated under the laws of the State of
Delaware in 1917 as the successor of a Massachusetts corporation incorporated in
1912 which corporation was the successor of a Maine corporation organized in
1901 by King C. Gillette, inventor of the safety razor.
The Company's businesses range across several industry segments, including
blades and razors, toiletries, stationery products, electric shavers, small
household appliances, hair care appliances, oral care appliances, oral care
products and alkaline batteries for consumer products. A description of the
Company and its businesses appears in the 1998 Annual Report on the inside front
cover and at pages 6 through 17, the texts of which are incorporated by
reference. See also Item 7, "Management's Discussion" at page 5 of this report.
INDUSTRY 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 1998 Annual Report
at page 38 and is incorporated by reference.
DISTRIBUTION
In the Company's major geographic markets, traditional Gillette product
lines, Duracell batteries and Oral-B products are sold to wholesalers, chain
stores and large retailers and are resold to consumers primarily through food,
drug, discount, stationery, hardware, toy, tobacco and department stores.
Waterman and Parker products are sold to wholesalers and retailers and are
resold to consumers through fine jewelry, fine stationery and department stores,
pen specialists and other retail outlets. Braun products are sold to wholesalers
and retailers and are resold to consumers mainly through department, discount,
catalogue and specialty stores (Braun personal diagnostic appliances are also
sold directly to medical professionals). Oral-B products are marketed directly
to dental professionals for distribution to patients as well as through standard
distribution channels. In many small Gillette, Duracell, Braun and Oral-B
markets, products are distributed through local distributors and sales agents.
PATENTS
Certain of the Company's patents and licenses in the blade and razor
segment are of substantial value and importance when considered in the
aggregate. Additionally, the Company holds significant patents in its
toiletries, stationery products, Duracell, Braun, and Oral-B businesses. No
patent or license held by the Company is considered to be of material importance
when judged from the standpoint of the Company's total business. Gillette has
licensed many of its blade and razor patents to other manufacturers. In all of
these categories, Gillette competitors also have significant patent positions.
The patents and licenses held by the Company are of varying remaining durations.
TRADEMARKS
In general, the Company's principal trademarks have been registered in the
United States and throughout the world where the Company'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 the Company. In addition, a
number of other trademarks owned by the Company and its subsidiaries have
significant importance within their industries. The Company's rights in these
trademarks endure for as long as they are used or registered.
COMPETITION
The blades and razors segment is marked by competition in new technology,
as well as by competition in price, marketing, advertising and promotion to
retail outlets and to consumers. The Company's major
1
<PAGE> 3
competitors worldwide are Warner-Lambert Company, with its Schick and, in North
America and Europe, its Wilkinson Sword product lines, and Societe Bic S.A., a
French company. Additional competition in the United States and in certain other
markets is provided by the American Safety Razor Company, Inc. under its own
brands and a number of private label brands, as well as other private label
suppliers. The toiletries segment is highly competitive in terms of price,
product innovation and market positioning, with frequent introduction of new
brands and marketing concepts, especially for products sold through retail
outlets, and with product life cycles typically shorter than in the other
businesses of the Company. Competition in the stationery products segment,
particularly in the writing instruments market, is marked by a high degree of
competition from domestic and foreign suppliers and low entry barriers, and is
focused on a wide variety of factors including product performance, design and
price, with price an especially important factor in the commercial sector.
Competition in the Braun products markets is based primarily on product
performance, innovation, price and professional endorsement, with numerous
competitors in the small household and hair care appliances segments.
Competition in the Oral-B products markets is focused on product performance,
price and dental profession endorsement. The Duracell products markets are
marked by competition in product performance, innovation and price and in
marketing, advertising and promotion to retail outlets and to consumers. Many of
the Company's competitors are larger and have greater resources than the
Company.
EMPLOYEES
At year-end, Gillette employed approximately 43,100 persons, three-quarters
of them outside the United States.
RESEARCH AND DEVELOPMENT
In 1998, research and development expenditures were $209 million, compared
with $212 million in 1997 and $204 million in 1996.
RAW MATERIALS
The raw materials used by Gillette in the manufacture of products are
purchased from a number of suppliers, and substantially all such materials are
readily available.
OPERATIONS BY GEOGRAPHIC AREA
The following table indicates the geographic sources of consolidated net
sales and profit from operations of the Company for the last three years:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
NET NET NET
SALES PROFIT SALES PROFIT SALES PROFIT
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
United States.................................. 38% 44% 37% 38% 37% 41%
Foreign........................................ 62% 56% 63% 62% 63% 59%
</TABLE>
Net sales by geographic area for each of the last three years appear in the
1998 Annual Report at page 39 and are incorporated by reference.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns and leases manufacturing facilities and other real estate
properties in the United States and a number of foreign countries. The Company's
executive offices are located in the Prudential
2
<PAGE> 4
Center, Boston, Massachusetts where it holds a long term lease. The following
table sets forth the Company's principal plants:
<TABLE>
<CAPTION>
BUSINESS SEGMENT LOCATION OWNED/LEASED
---------------- -------- ------------
<S> <C> <C>
Blades & Razors Boston, MA (US) Owned
Isleworth, UK Owned
Berlin, Germany Owned
Shanghai, China* Leased
Naucalli, Mexico* Owned
Manaus, Brazil* Owned
Devens, MA(US) Leased
Toiletries St. Paul, MN (US)* Owned/Leased
Andover, MA (US) Owned
Reading, UK Owned/Leased
Stationery Santa Monica, CA (US) Leased
Saint Herblain, France Owned/Leased
Newhaven, UK Owned
Braun Kronberg, Germany Owned/Leased
Barcelona, Spain Owned/Leased
Walldurn, Germany Owned/Leased
Marktheidenfeld, Germany Owned
Mexico City, Mexico Owned/Leased
Oral-B Iowa City, IA (US) Owned
Duracell Port Elizabeth, S. Africa Owned
Aarschot, Belgium Owned
Lancaster, SC (US) Owned
LaGrange, GA (US) Owned
</TABLE>
The above facilities are in good repair, adequately meet the Company's needs and
operate at reasonable levels of production capacity.
- ---------------
* Engaged in the manufacture of products for two or more business segments.
ITEM 3. LEGAL PROCEEDINGS
The Company 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 the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
------------------------
3
<PAGE> 5
EXECUTIVE OFFICERS OF REGISTRANT
Information regarding the Executive Officers of the Company as of March 18,
1999 is set out below.
<TABLE>
<CAPTION>
NAME AND CURRENT POSITION FIVE-YEAR BUSINESS HISTORY AGE
------------------------- -------------------------- ---
<S> <C> <C>
Alfred M. Zeien Chairman of the Board and Chief Executive Officer since 69
Chairman of the Board and Chief February 1991
Executive Officer
Michael C. Hawley President and Chief Operating Officer since April 1995; 61
President and Chief Operating Executive Vice President, International Group, December
Officer 1993 - March 1995; President, Oral-B Laboratories, Inc.,
May 1989 - November 1993
Edward F. DeGraan Executive Vice President, Global Business Management, 55
Executive Vice President Gillette Grooming Products and Duracell, since January
1999; Executive Vice President, Duracell North Atlantic
Group, January 1997 - December 1998; Senior Vice President,
Manufacturing and Technical Operations, Gillette North
Atlantic Group, May 1991 - December 1996
Robert G. King Executive Vice President, Commercial Operations, Western 53
Executive Vice President Hemisphere, since January 1999; Executive Vice President,
Gillette North Atlantic Group, February 1997 - December
1998; Executive Vice President, International Group, April
1995 - January 1997; Group Vice President - Latin America,
March 1991 - March 1995
Archibald Livis Executive Vice President, Global Business Management, 60
Executive Vice President Diversified Group, since January 1999; Executive Vice
President, Diversified Group, May 1998 - December 1998;
Chairman, Braun Board of Management, October 1993 - April
1998
Jorgen Wedel Executive Vice President, Commercial Operations, Eastern 50
Executive Vice President Hemisphere, since January 1999; Executive Vice President,
International Group since February 1997 - December 1998;
President, Oral-B Laboratories, Inc., November 1993 -
January 1997; Group General Manager, Braun North America,
November 1991 - October 1993
Charles W. Cramb Senior Vice President, Finance, Chief Financial Officer and 52
Senior Vice President, Principal Accounting Officer since July 1997; Vice
Chief Financial Officer President and Controller, July 1995 - June 1997; Vice
and Principal Accounting Officer President, Finance, Planning and Administration,
Diversified Group, October 1992 - June 1995
Robert E. DiCenso Senior Vice President, Personnel and Administration, since 58
Senior Vice President July 1994; Vice President, Investor Relations, January 1993
-June 1994
</TABLE>
The Executive Officers hold office until the first meeting of the Board of
Directors following the annual meeting of the 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.
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 the Company's common
stock appears in the 1998 Annual Report on the inside back cover under the
caption "Common Stock" and at page 40 under the caption,
4
<PAGE> 6
"Quarterly Financial Information," and is incorporated by reference. As of
February 26, 1999, the record date for the 1999 Annual Meeting, there were
61,686 Gillette stockholders of record.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item appears in the 1998 Annual Report at
page 41 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 1998 Annual Report at
pages 18 through 23 under the caption, "Management's Discussion," and is
incorporated by reference.
CAUTIONARY STATEMENT
From time to time, the Company may make statements which constitute or
contain "forward-looking" information as that term is defined within the meaning
of the Federal securities laws. These statements may be identified by such
forward-looking words as "expect," "look," "believe," "anticipate," "may,"
"will" and variations of these words or other forward-looking terminology.
Forward-looking statements made by the Company are not guarantees of future
performance. Actual results may differ materially from those in the
forward-looking statements as the result of risks and uncertainties including
those listed below. The Company assumes no obligation to update any
forward-looking information:
- the pattern of the Company's sales, including variations in sales volume
within periods, which makes forward-looking statements about sales and
earnings difficult and may result in variance of actual results from
those contained in statements made at any time prior to the period's
close;
- vigorous competition within the Company's product markets, including
pricing and promotional, advertising or other activities in order to
preserve or gain market share, the timing of which cannot be foreseen by
the Company;
- the Company's reliance on the development of new products and the
inherent risks associated with new product introductions, including
uncertainty of trade and customer acceptance and competitive reaction;
- the costs and effects of unanticipated legal and administrative
proceedings;
- the impacts of unusual items resulting from ongoing evaluations of
business strategies, asset valuations and organizational structure;
- a substantial portion of the Company's sales having been made outside the
United States, making forecasting of sales more difficult;
- the impact on sales or earnings of fluctuations in exchange rates in one
or more of the Company's geographic markets;
- the impact of the year 2000 issue on the Company's order, production,
distribution and financial systems and the systems of its suppliers and
customers;
- the possibility of one or more of the global markets in which the Company
competes being impacted by variations in political, economic or other
factors, such as inflation rates, recessionary or expansive trends, tax
changes, legal and regulatory changes or other external factors over
which the Company has no control.
- the effects of rapid technological change on product development
differentiation, acceptance and costs including technological advances of
competitors;
5
<PAGE> 7
- the effects of patents including possible new patents granted to
competitors or challenges to Company patents and expiration of patents,
which affect competition and product acceptance.
ITEM 7A. DISCLOSURES CONCERNING MARKET RISK SENSITIVE INSTRUMENTS
The information required by this item appears in the 1998 Annual Report at
page 21 under the caption, "Market Risk," and is incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Financial Statements and Supplementary Data for The Gillette
Company and Subsidiary Companies appear in the 1998 Annual Report at the pages
indicated below and are incorporated by reference.
<TABLE>
<S> <C> <C>
(1) Independent Auditors' Report................................ Page 39
(2) Consolidated Statement of Income for the Years Ended
December 31, 1998, 1997 and 1996............................ Page 24
(3) Consolidated Balance Sheet at December 31, 1998 and 1997.... Page 25
(4) Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996............................ Page 26
(5) Consolidated Statement of Stockholders' Equity for the
periods ended December 31, 1998, 1997 and 1996.............. Page 27
(6) Notes to Consolidated Financial Statements.................. Pages 28
through 40
(7) Computation of per share earnings........................... Pages 24, 28,
40 and 41
(8) Quarterly Financial Information............................. Page 40
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item with respect to the Directors of the
Company appears in the 1999 Proxy Statement at pages 2 through 4, 7 and 8 under
the caption "Company Transactions with Directors and Officers," and at page 21
under the caption "Section 16(a) Beneficial Ownership Reporting Compliance," the
texts of which are incorporated by reference.
The information required for Executive Officers of the Company appears at
the end of Part I of this report at page 4.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears in the 1999 Proxy Statement
at pages 8 through 17 under the captions "Compensation of Non-Employee
Directors", "Personnel Committee Report on Executive Compensation", "Gillette
Comparative Five-Year Investment Performance", and "Executive Compensation" 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 1999 Proxy Statement at
pages 6 and 7 under the caption "Stock Ownership of Five Percent Beneficial
Owners and Management" and is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears in the 1999 Proxy Statement
at pages 7 and 8 under the caption "Company Transactions with Directors and
Officers" and is incorporated by reference.
6
<PAGE> 8
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 1998 Annual Report at the pages indicated below
and are incorporated into Part II by reference.
<TABLE>
<C> <S> <C>
(1) Independent Auditor's Report................................ Page 39
(2) Consolidated Statement of Income for the Years Ended
December 31, 1998, 1997 and 1996............................ Page 24
(3) Consolidated Balance Sheet at December 31, 1998 and 1997.... Page 25
(4) Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996............................ Page 26
(5) Consolidated Statement of Stockholders' Equity for the
periods ended December 31, 1998, 1997 and 1996.............. Page 27
(6) Notes to Consolidated Financial Statements.................. Pages 28
through 40
(7) Computation of per share earnings........................... Pages 24, 28
and 40 and 41
</TABLE>
SCHEDULES
The following schedule appears at page 12 of this report:
II. Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because they are either
not required or not applicable.
EXHIBITS
<TABLE>
<C> <S>
3(a) Composite Certificate of Incorporation of The Gillette
Company, as amended, 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.
(b) The Bylaws of The Gillette Company, as amended October 15,
1998, filed as Exhibit 3 to The Gillette Company Quarterly
Report on Form 10-Q for the period ended September 30, 1998,
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. 1-911, incorporated by
reference 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.
(c) Amendment to Certificate of Designations, Preferences and
Rights of Series A Junior Participating Preferred Stock
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, 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. 1-911, incorporated by reference herein.
</TABLE>
7
<PAGE> 9
<TABLE>
<C> <S>
(e) Certificate of Designation of the Series C ESOP Convertible
Preferred Stock of The Gillette Company, dated January 17,
1990, filed as Exhibit 4(e) to The Gillette Company Annual
Report on Form 10-K for the year ended December 31, 1989,
Commission File No. 1-922, incorporated by reference herein.
(f) 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.
(g) Form of $150,000,000 6.25% note due August 15, 2003, issued
pursuant to Registration Statement No. 33-54974 of The
Gillette Company, filed November 24, 1992, as amended May
14, 1993 and June 24, 1993 and the Trust Indenture filed
therewith as Exhibit 4.1, filed as part of Exhibit 4(f) to
The Gillette Company Annual Report on Form 10-K for the year
ended December 31, 1993, Commission File No. 1-922,
incorporated by reference herein.
(h) Form of $150,000,000 and $50,000,000 5.75% notes due October
15, 2005, issued pursuant to Registration Statement No.
33-50303 of The Gillette Company, filed September 17, 1993
and the Trust Indenture filed as Exhibit 4.1 to Registration
Statement No. 3354974 of The Gillette Company, as amended
May 14, 1993 and June 24, 1993, filed as part of Exhibit
4(f) to The Gillette Company Annual Report on Form 10-K for
the year ended December 31, 1993, Commission File No. 1-922,
incorporated by reference herein.
The Company has issued non-registered debt instruments
copies of which will be furnished to the Commission upon
request.
10 Material Contracts
*(a) The Gillette Company 1971 Stock Option Plan, as amended
filed as Appendix A to the 1997 Proxy Statement, Commission
File No. 1-922, incorporated by reference herein.
*(b) The Gillette Company Stock Equivalent Unit Plan, as amended,
filed herewith.
*(c) The Gillette Company Incentive Bonus Plan, as amended, filed
as Exhibit 10(c) to The Gillette Company Annual Report on
Form 10-K for the year ended December 31, 1997, incorporated
by reference herein.
*(d) The Gillette Company Executive Life Insurance Program, filed
as Exhibit 10(d) to The Gillette Company Annual Report on
Form 10-K for the year ended December 31, 1997, incorporated
by reference herein.
(e) Directors and Officers and Company Reimbursement Indemnity
Insurance and Pension and Welfare Fund Fiduciary
Responsibility Insurance policy, filed as Exhibit 10(e) 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.
*(f) Description of Conversion of Outside Directors' Vested
Pension Benefit into Deferred Stock Units, filed as Exhibit
10(f) 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.
*(g) The Gillette Company Deferred Compensation Plan for Outside
Directors, filed as Exhibit 10(g) 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.
*(h) Description of severance pay and benefit arrangements for
employees in the event of a change in control, filed as
Exhibit 10(j) to The Gillette Company Annual Report on Form
10-K for the year ending December 31, 1989, Commission File
No. 1-922, incorporated by reference herein.
(i) 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.
*(j) Description of agreement between The Gillette Company and
Robert J. Murray effective January 1, 1996, filed as Exhibit
10(l) to The Gillette Company Annual Report on Form 10-K for
the year ending December 31, 1995, Commission File No.
1-922, incorporated by reference herein.
</TABLE>
8
<PAGE> 10
<TABLE>
<C> <S>
*(k) Description of The Gillette Company Estate Planning Program,
filed as Exhibit 10(o) to The Gillette Company Annual Report
on Form 10-K for the year ended December 31, 1993,
Commission File No. 1-922, incorporated by reference herein.
*(l) 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, incorporated by
reference herein.
*(m) The Gillette Company Supplemental Retirement Plan, as
amended and restated June 16, 1994, filed as Exhibit 10(a)
to The Gillette Company Annual Report on Form 10-K for the
year ended December 31, 1994, Commission File No. 1-922,
incorporated by reference herein.
*(n) The Gillette Company Supplemental Savings Plan, as amended,
filed as Exhibit 10(n) 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.
(o) Multi-year 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.
(p) $2,000,000,000 364-Day Credit Agreement dated as of December
20, 1996 and amended and restated as of October 20, 1997 and
October 19, 1998 among The Gillette Company, Morgan Guaranty
Trust Company of New York, as agent and a syndicate of
domestic and foreign banks, filed herewith.
(q) Registration Rights Agreement dated as of September 12, 1996
among The Gillette Company, KKR Partners II, L.P. and DI
Associates, L.P., filed as Exhibit 10.2 to The Gillette
Company Current Report on Form 8-K filed September 16, 1996,
Commission File No. 1-922, incorporated by reference herein.
12 Computation of the ratios of current assets to current
liabilities for the years 1998, 1997 and 1996, filed
herewith.
13 Portions of the 1998 Annual Report to Stockholders of The
Gillette Company incorporated by reference in this Form
10-K, filed herewith.
22 List of subsidiaries of The Gillette Company, filed
herewith.
23 Independent Auditors' Consent, filed herewith.
24 Power of Attorney, filed herewith.
27 Financial Data Schedule (not considered to be filed).
</TABLE>
- ---------------
* Filed pursuant to Item 14(c).
B. REPORTS ON FORM 8-K
There were no reports on Form 8-K filed by the registrant during the fourth
quarter of the period covered by this report.
OTHER MATTERS
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into the following Registration Statements of the
registrant on Form S-8 (1) No. 33-27916, filed April 10, 1989, and amended
thereafter, which incorporates by reference therein Registration Statements on
Form S-8 Nos. 2-90276, 2-63951 and 1-50710, and all amendments thereto, all
relating to shares issuable and deliverable under The Gillette Company 1971
Stock Option Plan and 1974 Stock Purchase Plan and on Form S-7 No. 2-41016
relating to shares issuable and deliverable under The Gillette Company 1971
Stock Option Plan; (2) No. 33-9495, filed October 20, 1986, and all amendments
thereto, relating to shares and plan interests in The Gillette Company
Employees' Savings Plan; (3) No. 2-93230, filed September 12, 1984, and all
amendments thereto, relating to shares and plan interests in the
9
<PAGE> 11
Oral B Laboratories Savings Plan; (4) No. 33-56218, filed December 23, 1992,
relating to shares and plan interests in The Gillette Company Employees' Savings
Plan; (5) No. 33-52465, filed March 1, 1994, and all amendments thereto,
relating to shares issuable and deliverable under The Gillette Company Global
Employee Stock Ownership Plan; (6) No. 33-53257, filed April 25, 1994, and all
amendments thereto, relating to shares issuable and deliverable under The
Gillette Company Outside Director's Stock Ownership Plan; (7) No. 33-53258,
filed April 25, 1994, and all amendments thereto, relating to shares issuable
and deliverable under The Gillette Company 1971 Stock Option Plan; (8) No.
33-59125, filed May 5, 1995, and all amendments thereto, relating to shares and
plan interests in The Gillette Company Employees' Savings Plan; (9) No. 33-63707
filed October 26, 1995, and all amendments thereto, relating to shares and plan
interests in the Parker Pen 401(K) Plan; (10) No. 333-19133 filed December 31,
1996, and all amendments thereto, relating to shares issuable and deliverable
under the Duracell Shares Plan and Stock Option Plan for Key Employees of
Duracell International Inc. and Subsidiaries and (11) No. 333-25533 filed April
21, 1997, and all amendments thereto, relating to shares issuable and
deliverable under The Gillette Company 1971 Stock Option Plan.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event a claim for indemnification against such liabilities (other than the
payments by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer, or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
10
<PAGE> 12
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
of THE GILLETTE COMPANY:
Under date of February 11, 1999, we reported on the consolidated balance
sheet of The Gillette Company and subsidiary companies as of December 31, 1998
and 1997, 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, 1998, as contained in the 1998 Annual Report to Stockholders. These
consolidated financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for the year 1998. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the financial statement schedule on page 12 of this report. The
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 11, 1999
11
<PAGE> 13
THE GILLETTE COMPANY AND SUBSIDIARY COMPANIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
---------------------- ----------
CHARGED LOSSES
BALANCE AT TO CHARGED BALANCE AT
BEGINNING PROFIT CHARGED TO TO END OF
DESCRIPTION OF YEAR AND LOSS OTHER RESERVES YEAR
----------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
1998
- -----
Reserves deducted from assets:
Receivables....................... $74 $43 -- $38 $79
=== === === === ===
1997
- -----
Reserves deducted from assets:
Receivables....................... $81 $42 -- $49 $74
=== === === === ===
1996
- -----
Reserves deducted from assets:
Receivables....................... $82 $42 $ 1* $44 $81
=== === === === ===
</TABLE>
* Acquisition balances
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, Chief
Financial Officer and
Principal Accounting Officer
Date: March 31, 1999
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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
* ALFRED M. ZEIEN Chairman of the Board March 31, 1999
- ----------------------------------------------------- of Directors, Chief Executive Officer
Alfred M. Zeien and Director
* MICHAEL C. HAWLEY President, Chief Operating Officer March 31, 1999
- ----------------------------------------------------- and Director
Michael C. Hawley
* CHARLES W. CRAMB Senior Vice President, March 31, 1999
- ----------------------------------------------------- Chief Financial Officer and
Charles W. Cramb Principal Accounting Officer
* WARREN E. BUFFETT Director March 31, 1999
- -----------------------------------------------------
Warren E. Buffett
* WILBUR H. GANTZ Director March 31, 1999
- -----------------------------------------------------
Wilbur H. Gantz
* MICHAEL B. GIFFORD Director March 31, 1999
- -----------------------------------------------------
Michael B. Gifford
* CAROL R. GOLDBERG Director March 31, 1999
- -----------------------------------------------------
Carol R. Goldberg
* HERBERT H. JACOBI Director March 31, 1999
- -----------------------------------------------------
Herbert H. Jacobi
* HENRY R. KRAVIS Director March 31, 1999
- -----------------------------------------------------
Henry R. Kravis
* JORGE PAULO LEMANN Director March 31, 1999
- -----------------------------------------------------
Jorge Paulo Lemann
* RICHARD R. PIVIROTTO Director March 31, 1999
- -----------------------------------------------------
Richard R. Pivirotto
* ALEXANDER B. TROWBRIDGE Director March 31, 1999
- -----------------------------------------------------
Alexander B. Trowbridge
* MARJORIE M. YANG Director March 31, 1999
- -----------------------------------------------------
Marjorie M. Yang
*By CHARLES W. CRAMB
---------------------------------------------------
Charles W. Cramb
as Attorney-In-Fact
</TABLE>
13
<PAGE> 1
Exhibit 10(b)
THE GILLETTE COMPANY
STOCK EQUIVALENT UNIT PLAN, AS AMENDED
1. PURPOSE The purpose of the Stock Equivalent Unit Plan is to provide an
incentive and reward to key salaried employees of The Gillette Company and its
subsidiaries who can make substantial contributions to the success of the
business. To that end, the Plan provides an opportunity for such key salaried
employees to participate in that success through awards of stock equivalent
units, subject to the conditions set forth in the Plan.
DEFINITIONS Unless the context otherwise requires, the following words have the
following meanings for purposes of the Plan.
2.1 Basic stock unit - A stock equivalent unit awarded to a participant pursuant
to Section 4.2.
2.2 Committee - The Personnel Committee established by the Board of Directors of
the Company.
2.3 Company - The Gillette Company, a Delaware corporation.
2.4 Disability - Mental or physical disability, either occupational or
non-occupational in cause, which, in the opinion of the Committee, on the basis
of medical evidence satisfactory to it, prevents the employee from engaging in
any occupation or employment for wage or profit and is likely to be permanent.
2.5 Dividend equivalent unit - A stock equivalent unit, which is credited to a
participant's account as the result of conversion of amounts, credited to the
account in respect of dividends, as provided in Section 5.2.
2.6 Employee - Any person, whether or not an officer or director of the Company
or any subsidiary, who is regularly employed by the Company or a subsidiary on a
salaried full-time basis, or who, under conditions approved by the Committee, is
regularly employed by the Company or subsidiary on a salaried part-time basis.
2.7.1 Maturity date (with respect to awards made on or before 12/31/83) - When
used with respect to an award, March 15 of the tenth calendar year following the
calendar year in which the award was made.
2.7.2 Maturity date (with respect to awards made after 12/31/83) - When used
with respect to an award, March 15 of the seventh calendar year following the
calendar year in which the award was made.
2.8 Normal retirement date - In the case of any participant, the date
established by his employer as his normal retirement date (or, if no such plan
is maintained by his employer, the normal retirement date prescribed under The
Gillette Company Retirement Plan).
2.9 Plan - The Stock Equivalent Unit Plan set forth herein, as from time to time
amended.
<PAGE> 2
2.10 Share - A share of the Company's common stock as the same is constituted
from time to time.
2.11 Stock equivalent unit - A measure of value equal in amount to the value of
one share at the time of reference.
2.12 Subsidiary - 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.
2.13(A) Total credits - When used with respect to an individual account, the sum
of (a) the excess, if any, of (i) the value of that number of shares which is
equal to the number of basic stock units credited to the account in respect of
awards in designated years, after adjustment for any prior payments, over (ii)
the value on the date of the respective awards of that number of shares which
corresponds, after adjustment for stock splits, stock dividends and similar
capital changes, to the number of basic stock units referred to in (i), except
that for awards made after 12/31/78, the amount of the excess cannot exceed an
amount equal to the value on the date of the respective awards of that number of
shares which corresponds, after adjustment for stock splits, stock dividends and
similar capital changes, to the number of basic stock units referred to in (i),
plus (b) the value of that number of shares which is equal to the number of
dividend equivalent units then credited to the account in respect of such awards
plus (c) any amounts then credited to the account based on dividend payments
attributable to such awards which have not been converted into dividend
equivalent units.
2.14 Value - When used with respect to a share.
(a) On the date of an award of basic stock units, the average of the reported
high and low sales prices of the shares as quoted on a composite basis;
(b) For purposes of converting dividend credits into dividend equivalent units,
the average of the reported closing prices of the shares as quoted on a
composite basis on the last business day of the months of December, January, and
February immediately preceding the March 15 on which such conversion occurs;
(c) For purposes of determining the amount payable in respect of an interest
which becomes vested or for purposes of determining the amount payable, in cases
not covered by (d) or (e) below, in respect of an interest which previously
became vested, the average of the reported closing prices of the shares as
quoted on a composite basis on the last business day of the twelve calendar
months immediately preceding the March 15 on which such vesting occurs or the
month in which such payment becomes payable;
(d) For purposes of determining the amount payable to a terminating participant
or to the estate of a deceased participant, the average of the reported closing
prices of the shares as quoted on a composite basis on the last business day of
the twelve calendar months immediately preceding the month in which the
participant's employment terminates or the participant dies or the twelve
consecutive calendar months including and ending with that month if such
termination or death occurs on or after the last business day of that month;
(e) For purposes of determining the amount payable with respect to an award on
or after the maturity date thereof, the average of the reported closing prices
of the shares as quoted on a
2
<PAGE> 3
composite basis on the last business day of the twelve calendar months
immediately preceding such maturity date;
2.15 Unapproved Change in Control shall mean the happening of any one of the
following events, which, in each case, was not recommended to the shareholders
by a vote of at least two-thirds of the non-employee directors of the Company
then still in office who were in office two years prior to such event:
(a) Any person within the meaning of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934 (the "1934 Act"), other than the Company or any of its
subsidiaries, has become the beneficial owner, within the meaning of Rule 13d-3
under the 1934 Act, of 20% or more of the combined voting securities;
(b) A tender offer or exchange offer, other than an offer by the Company,
pursuant to which shares of the Company's common stock have been purchased;
(c) The stockholders or directors of the Company have approved an agreement to
merge or consolidate with or into another corporation and the Company is not the
surviving corporation or an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including a plan of liquidation); or
(d) During any period of two consecutive years, individuals who at the beginning
of such period constituted the board of directors cease for any reason to
constitute at least a majority thereof. For this purpose, new directors who were
elected, or nominated (or approved for nomination in the case of nomination by a
Committee of the Board) for election by shareholders of the Company, by at least
two thirds of the directors then still in office who were, or are deemed to have
been directors at the beginning of the period, shall be deemed to have been
directors at the beginning of the period.
2.16 Approved Change in Control shall mean the happening of any one of the
following events, which, in each case was recommended to the shareholders by a
vote of at least two-thirds of the non-employee directors of the Company then
still in office who were in office two years prior to such event:
(a) Any person within the meaning of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934 (the "1934 Act"), other than the Company or any of its
subsidiaries, has become the beneficial owner, within the meaning of Rule 13d-3
under the 1934 Act, of 20% or more of the combined voting securities;
(b) A tender offer or exchange offer, other than an offer by the Company,
pursuant to which shares of the Company's common stock have been purchased;
(c) The stockholders or directors of the Company have approved an agreement to
merge or consolidate with or into another corporation and the Company is not the
surviving corporation or an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including a plan of liquidation); or
(d) During any period of two consecutive years, individuals who at the beginning
of such period constituted the board of directors cease for any reason to
constitute at least a majority thereof. For this purpose, new directors who were
elected, or nominated (or approved for nomination in the case of nomination by a
Committee of the Board) for election by shareholders of the Company, by the
beginning of the period, shall be deemed to have been directors at the beginning
of the period.
3
<PAGE> 4
ADMINISTRATION
3.1 The Plan shall be administered by the Personnel 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
eligible employees of the Company and its subsidiaries shall be awarded basic
stock units; (b) to determine the times when basic stock units shall be awarded
and the number of basic stock units to be awarded to each participant; (c) to
determine the time or times when amounts may become payable with respect to
stock equivalent units within the limits provided in the Plan; (d) to prescribe
the form of the instruments evidencing any basic stock units awarded under the
Plan (which forms need not be identical); (e) to adopt, amend and rescind rules
and regulations for the administration of the Plan and the stock equivalent
units and for its own acts and proceedings; and (f) 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.
3.2 The maximum number of basic stock units which may be awarded under the Plan
is 41,400,000 subject to adjustment as determined by the Committee in event of a
dividend payable in shares, a stock split or a combination of shares. No basic
stock units may be awarded under the Plan after April 18, 2002.
PARTICIPATION
4.1 The participants in the Plan shall be such key salaried employees as may be
selected from time to time by the Committee. Directors who are not employees
shall not be eligible. The employees to whom basic stock units are awarded at
any time may include employees to whom basic stock units were previously granted
under the Plan.
4.2 Awards of basic stock units shall be made from time to time by the Committee
in its discretion. In addition, with respect to any award, the Committee shall
have discretion to provide that all or any portion of that award shall be
contingent on achievement by the participant or by any unit or units of the
Company of any performance goal or goals over any period or periods of time
ending before March 15 of the third year following the date of the award.
Notwithstanding the above, the Committee may not award more than 100,000 basic
stock units to any participant in any calendar year subject to adjustment as
provided under Section 8.3.
INDIVIDUAL ACCOUNTS
5.1 The Committee shall maintain a separate account for each award made under
the Plan. Each such account shall show the information necessary to compute the
participant's total credits in respect of each award, including the number of
basic stock units awarded to the participant, the value of an equal number of
shares on the date of the award, the amount credited to the account in respect
of dividends, as provided below, the number of dividend equivalent units
credited to the account and details as to any payments under the Plan which are
deducted from the account.
4
<PAGE> 5
5.2 Whenever the Company pays a dividend (other than a stock dividend) upon its
outstanding common stock, there shall be credited to the separate account for
each award a dollar amount equal to the value of such dividend per share
multiplied by the number of stock equivalent units credited to the account on
the record date for such dividend. However, no such credits shall be made with
respect to any award after the maturity date thereof or after the date on which
the participant ceases to be an employee. As of March 15 in each year the
aggregate of the amounts so credited to the account since the prior March 15
shall be converted into a number of dividend equivalent units by dividing such
aggregate by the value of a share.
5.3 In the event of a dividend payable in shares, or in the event of a stock
split or combination of shares, the Committee shall make a corresponding change
in the number of basic stock units and dividend equivalent units then credited
to the account.
5.4 On the maturity date of an award, the total amount payable with respect to
such award shall become a fixed amount which will not change thereafter except
that the Committee may provide for the payment of interest beginning at maturity
on amounts whose payment is deferred to a date thereafter. Such fixed amount
shall be the total credits in respect of such award on such maturity date.
5.5 Whenever a payment is made under the Plan to a participant with respect to
any award, there shall be a corresponding reduction in the number of stock
equivalent units and other amounts credited to the participant's account in
respect of such award, or in the case of a payment after maturity date or after
the date on which the participant ceases to be an employee, in the amount then
credited to the account. A similar reduction shall be made if a participant
forfeits any portion of his interest in any awards.
PAYMENT
6.1 Payments to a participant under the Plan may be made from time to time when
segments of his total credits in respect of an award become vested, or payment
may be deferred, all in accordance with rules established from time to time by
the Committee.
6.2.1 With respect to awards made on or before 12/31/83 fifteen percent of the
total credits in respect of an award shall become vested on March 15 of the
fourth calendar year following the calendar year of the award, an additional
fifteen percent thereof (or, in cases of vesting after one or more prior
payments under Section 6.3, the applicable vesting percentage thereof as
provided below) shall become vested on March 15 of the fifth, sixth, seventh,
eighth, and ninth calendar years following the calendar year of the award, and
any unvested balance thereof shall become vested on the maturity date of such
award.
6.2.2 With respect to awards made after 12/31/83 twenty percent of the total
credits in respect of an award shall become vested on March 15 of the third
calendar year following the calendar year of the award, an additional twenty
percent thereof (or, in cases of vesting after one or more prior payments under
Section 6.3, the applicable vesting percentage thereof as provided below) shall
become vested on March 15 of the fourth, fifth, and sixth calendar years
following the calendar
5
<PAGE> 6
year of the award, and any unvested balance thereof shall become vested on the
maturity date of such award.
6.2.3 Such vesting as described above shall occur only if the participant is an
employee on the date of vesting and has been an employee continuously since the
date of the award. The total credits in respect of all awards not at that time
subject to any contingency pursuant to Section 4.2 shall become fully vested if
the participant, while an employee, dies, incurs a disability, retires prior to
his normal retirement date with the consent of the Company and under conditions
approved by the Committee, or retires on or after his normal retirement date,
and the total amount payable with respect thereto shall become a fixed amount
which will not change thereafter, except that the Committee may provide for the
payment of interest on amounts whose payment is deferred to a date thereafter.
If the employment of a participant terminates as a result of the merger, sale or
other absorption or termination of operations of a subsidiary or a division, all
credits in respect of any such participant's award not at that time subject to
any contingency pursuant to Section 4.2 may become vested if the Committee, in
its sole discretion, determines such action to be in the best interests of the
Company, and the total amount payable with respect thereto shall become a fixed
amount which will not change thereafter, except that the Committee may provide
for the payment of interest on amounts whose payment is deferred to a date
thereafter. In connection with the determination of any participant's vested
rights under this paragraph 6.2.3, the Committee may retroactively remove any
contingency in effect pursuant to Section 4.2. Notwithstanding the above, in the
event of an Unapproved or Approved Change in Control, if a participant retires
prior to his normal retirement date the consent of the Company shall not be
required and all credits and all contingencies with respect to the awards of
such participant shall become fully vested and immediately payable.
6.2.3.1 In the event of an Unapproved Change in Control, all contingencies then
in effect pursuant to Section 4.2 shall be automatically removed and the total
credits in respect of all awards of a participant shall become fully vested and
payable (1) upon termination of the employment of a participant for any reason
within one year of the Unapproved Change in Control, or (2) upon termination of
the employment of a participant at any time after an Unapproved Change in
Control if such termination (a) is initiated by the Company, except that
termination for willful misconduct shall not be treated as a termination under
this subparagraph (2), or (b) is initiated by the participant for Good Reason.
In the event of an Approved Change in Control, all contingencies then in effect
pursuant to Section 4.2 shall be automatically removed and the total credits in
respect of all awards of a participant shall become fully vested and payable
upon termination of the employment of a participant after an Approved Change in
Control if such termination is (i) initiated by the Company, except that
termination for willful misconduct shall not be treated as a termination under
this sentence, or (ii) initiated by the participant for Good Reason. Good
Reason, as used herein, shall mean any of the following: Assignment of any
duties inconsistent with the position, duties, responsibilities and status of
the employee or reduction or adverse change in the nature or status of
responsibilities of the employee from those which existed on the date
immediately preceding an Approved or Unapproved Change in Control; any reduction
by the Company or any successor entity in the employees' compensation including
benefits, other than such reduction required by law or required to maintain the
tax-qualified status of any benefit Plan, from those which existed on the date
immediately preceding an Approved or Unapproved Change in Control;
6
<PAGE> 7
or the Company or any successor entity requiring the employee to be based at a
location in excess of fifty miles from the location where the employee is based
on the date immediately preceding an Approved or Unapproved Change in Control.
6.2.3.2 Notwithstanding any other provision of this Plan, (a) upon an
employer-initiated termination of employment of a participant pursuant to the
Restructuring Plan approved by the Board of Directors of the Company at its
meeting on December 18, 1986, or the Reorganization Plan approved by the Board
of Directors of the Company at its meeting on December 14, 1989, the Realignment
Plan and Parker Integration Plan approved by the Board of Directors at its
meeting held on January 7, 1994 or the Realignment Program approved by the Board
of Directors at its meeting held on September 28, 1998, or (b) upon the sale or
other disposition of the unit, division or subsidiary in which a participant is
employed pursuant to the Restructuring Plan approved by the Board of Directors
of the Company at its meeting on December 18, 1986, the Reorganization Plan
approved by the Board of Directors of the Company at its meeting on December 14,
1989 or the Reorganization and Realignment Program approved by the Board of
Directors at its meeting held on September 28, 1998, which sale or other
disposition results in the participant no longer being employed by the Company
or any of its subsidiaries, or (c) upon the sale of the Jafra Cosmetics business
pursuant to a certain Acquisition Agreement dated January 26, 1998 ("Jafra
Sale") where a participant either (i) continues to be employed by Jafra
immediately following the Jafra Sale or (ii) is terminated from the employment
of the Company or any of its subsidiaries as a direct result of the Jafra Sale,
all contingencies then in effect pursuant to Section 4.2 shall be automatically
removed except with respect to contingencies which expire on February 19, 1987.
Further, in such event, the total credits in respect of all awards of a
participant for which no contingencies remain in effect shall become fully
vested and the amount of such awards shall be fixed and payable. With respect to
awards or segments of awards which become vested under this subparagraph or any
other award or segment thereof which becomes payable by reason of the
participant's termination of employment, the participant may elect to receive
such awards upon termination of employment or may, prior to the date
participant's employment with the Company or any subsidiary terminates, elect to
defer such award in accordance with the provisions of Paragraph 6.2.3 and rules
established from time to time by the Committee. Notwithstanding the above, the
removal of contingencies and the granting of vesting and deferral rights
provided for in this Subparagraph 6.2.3.2 shall serve as partial consideration
for a settlement of all claims and disputes which the participant may have
against the Company, its subsidiaries, employees and agents and shall be subject
to the execution by the participant of a release and settlement agreement in a
form to be prescribed by the Committee.
6.2.4 In order to make proper adjustment for any previous payments under Section
6.3, the applicable vesting percentage to be used in computing vested segments
under the foregoing provisions of this Section 6.2 and in computing the amount
of a payment under Section 6.3 or Section 6.4 shall be determined as follows:
(a) In computing such vested segment or the amount or a payment under section
6.3 for awards made prior to 12/31/83, the applicable vesting percentage to be
applied to the total credits in respect of a particular award shall be equal in
value to a fraction whose numerator is fifteen (or ten in the case of the final
vested installment) and whose denominator is (i) 100 minus (ii) fifteen
7
<PAGE> 8
multiplied by the number of vested segments previously paid to the participant
under Section 6.3. Payment of each vested segment shall be considered a separate
payment.
(b) In the case of a payment under section 6.4 for awards made prior to
12/31/83, the applicable vesting percentage to be applied to the total credits
in respect of a particular award shall be equal in value to a fraction whose
numerator is (i) fifteen multiplied by the number of segments of the award which
have become vested in accordance with the foregoing provisions prior to the date
on which the participant ceases to be an employee (but not more than 100) minus
(ii) fifteen multiplied by the number of vested segments previously paid to the
participant under Section 6.3, and whose denominator is 100 minus (ii) above.
(c) In computing such vested segment or the amount or a payment under section
6.3 for awards made after 12/31/83, the applicable vesting percentage to be
applied to the total credits in respect of a particular award shall be equal in
value to a fraction whose numerator is twenty and whose denominator is (i) 100
minus (ii) twenty multiplied by the number of vested segments previously paid to
the participant under Section 6.3. Payment of each vested segment shall be
considered a separate payment.
(d) In the case of a payment under section 6.4 for awards made after 12/31/83,
the applicable vesting percentage to be applied to the total credits in respect
of a particular award shall be equal in value to a fraction whose numerator is
(i) twenty multiplied by the number of segments of the award which have become
vested in accordance with the foregoing provisions prior to the date on which
the participant ceases to be an employee (but not more than 100) minus (ii)
twenty multiplied by the number of vested segments previously paid to the
participant under Section 6.3, and whose denominator is 100 minus (ii) above.
6.3 Prior to any date on which a participant is to acquire a vested interest or
additional vested interest in the total credits in respect of an award, the
participant shall make an election, at the time and in a manner specified by the
Committee, as to the time when payment is to be made of the segment or segments
of such total credits which may become vested on such date. The participant may
elect (a) to receive payment within a reasonable time after such date or (b) to
defer payment in accordance with rules established from time to time by the
Committee. In the event of an Approved or Unapproved Change in Control, the
participant may, upon any date, revoke his election to defer receipt of any or
all interests in respect of an award and the Company shall make payment to the
participant of the value of any vested interest or interests, within a
reasonable time after such revocation and with respect to interests which have
not yet vested as of the date of such revocation, within a reasonable time after
such interests become vested. If no such election is made, payment shall be made
within a reasonable time after the date on which such vested interest or
additional vested interest is acquired.
The amount of any payment shall be computed by multiplying the total credits in
respect of the award at the time of payment, or in the case of revocation of an
election to defer, at the time of such revocation, by the applicable vesting
percentage. The Committee may provide for the payment of interest beginning upon
maturity for amounts deferred beyond maturity.
6.4 If a participant ceases to be an employee for any reason not specified in
Section 6.2, his vested interest in respect of each award shall thereupon become
a fixed amount, which will not change thereafter. Such fixed amounts shall be
determined by multiplying the total credits in respect of
8
<PAGE> 9
each award on the date of termination of employment by the applicable vesting
percentage. The participant shall thereupon forfeit his interest in any amounts
then credited to his account to the extent his interest has not become vested.
Payment of vested interests shall be made in accordance with rules established
from time to time by the Committee.
6.5 If a participant dies prior to termination of his employment, an amount
equal to his total credits in respect of all awards not subject to any
contingency pursuant to Section 4.2 shall be paid to his executor or
administrator or as otherwise provided by law valued as of the date of death.
6.6 All payments will be made in cash and will be subject to any required tax
withholdings.
AMENDMENT AND TERMINATION
7.1 The Board of Directors of the Company or the Personnel Committee of the
Board of Directors if and to the extent authorized may at any time amend the
Plan for the purposes of satisfying the requirements of any changes in
applicable laws or regulations or for any other purpose which may be permitted
by law, except that neither the Board of Directors or the Personnel Committee of
the Board of Directors may, without the approval of the stockholders of the
Company, increase the maximum number of basic stock units that may be awarded
under the Plan or increase the time within which basic stock units may be
awarded, as provided in Section 3.2, or extend the maturity date of an award
beyond March 15 of the tenth calendar year following the calendar year in which
the award was made. Notwithstanding the above, in the event of an Approved or
Unapproved Change in Control, no amendment to the Plan which provides for
prospective Plan benefits and other terms and conditions any less favorable to
Plan participants than those which existed prior to the amendment shall be
effective unless it provides that all contingencies which are then in existence
be removed and all awards which are unvested prior to such amendment shall
become immediately vested and payable.
7.2 The Board of Directors of the Company may terminate the Plan at any time
except that after an Approved or Unapproved Change in Control such Plan may not
be terminated without providing that all contingencies then in existence shall
be removed and all unvested awards shall become immediately vested and payable.
7.3 No such amendment or termination shall adversely affect the rights of any
participant (without his consent) under any award previously made or after an
Approved Change in Control deprive a participant of a benefit or right which
became operative upon an Approved Change in Control or after an Unapproved
Change in Control deprive a participant of a benefit or right which became
operative upon an Unapproved Change in Control.
MISCELLANEOUS
8.1 The interest under the Plan of any participant, his heirs or legatees shall
not be alienable by the participant, his heirs or legatees by assignment or any
other method and shall not be subject to being taken by his creditors by any
process whatsoever.
9
<PAGE> 10
8.2 The Plan shall not be deemed to give any participant or employee the right
to be retained in the employ of the Company or any subsidiary nor shall the Plan
interfere with the right of the Company or any subsidiary to discharge any
employee at any time.
8.3 In the event of a stock dividend, split-up or combinations of shares,
recapitalization for 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 used as a basis for granting awards under the
Plan, the units then outstanding or to be granted thereunder, the maximum number
of basic stock units which may be granted, the unit value 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 complete liquidation of the Company, all outstanding basic stock units and
dividend equivalent units shall thereafter accrue no further value, provided
that at least twenty days prior to the effective date of any such consolidation
or merger, the Board of Directors shall either (a) make all outstanding basic
units and dividend equivalent units immediately vested and payable, or (b)
arrange to have the surviving corporation grant replacement units to the
participants.
SEPTEMBER, 1998
10
<PAGE> 1
EXHIBIT 10(P)
COMPOSITE CONFORMED COPY
$2,000,000,000
364 - DAY CREDIT AGREEMENT
dated as of
December 20, 1996
and amended and restated as of October 20, 1997
and amended and restated as of October 19, 1998
among
The Gillette Company,
The Banks Listed Herein
and
Morgan Guaranty Trust Company of New York,
as Agent
--------------------------
J.P. Morgan Securities Inc.,
Arranger
<PAGE> 2
TABLE OF CONTENTS
Page
----
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions ............................................. 1
SECTION 1.02. Accounting Terms and Determinations ..................... 13
SECTION 1.03. Types of Borrowings ..................................... 13
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend ..................................... 14
SECTION 2.02. Notice of Committed Borrowing ........................... 14
SECTION 2.03. Money Market Borrowings ................................. 14
SECTION 2.04. Notice to Banks; Funding of Loans ....................... 19
SECTION 2.05. Notes ................................................... 20
SECTION 2.06. Maturity of Loans ....................................... 20
SECTION 2.07. Interest Rates .......................................... 21
SECTION 2.08. Facility Fee ............................................ 24
SECTION 2.09. Termination or Reduction of Commitments ................. 25
SECTION 2.10. Scheduled Termination of Commitments .................... 25
SECTION 2.11. Optional Prepayments .................................... 25
SECTION 2.12. General Provisions as to Payments ....................... 26
SECTION 2.13. Funding Losses .......................................... 26
SECTION 2.14. Computation of Interest and Fees ........................ 27
SECTION 2.15. Judgment Currency ....................................... 27
SECTION 2.16. Foreign Withholding Taxes and Other Costs ............... 28
SECTION 2.17. Regulation D Compensation ............................... 28
SECTION 2.18. Withholding Tax Exemption ............................... 29
ARTICLE III
CONDITIONS
SECTION 3.01. Effectiveness ........................................... 30
SECTION 3.02. Borrowings .............................................. 31
- ----------
* The Table of Contents is not a part of this Agreement.
i
<PAGE> 3
Page
----
SECTION 3.03. First Borrowing by Each Eligible Subsidiary ............. 32
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. Corporate Existence and Power ........................... 32
SECTION 4.02. Corporate and Governmental Authorization;
Contravention ........................................... 33
SECTION 4.03. Binding Effect .......................................... 33
SECTION 4.04. Financial Information ................................... 33
SECTION 4.05. No Material Adverse Change .............................. 34
SECTION 4.06. Compliance with ERISA ................................... 34
SECTION 4.07. Litigation .............................................. 34
SECTION 4.08. Taxes ................................................... 34
SECTION 4.09. Full Disclosure ......................................... 35
ARTICLE V
COVENANTS
SECTION 5.01. Information ............................................. 35
SECTION 5.02. Maintenance of Property; Insurance ...................... 37
SECTION 5.03. Conduct of Business and Maintenance of
Existence ............................................... 38
SECTION 5.04. Compliance with Laws .................................... 38
SECTION 5.05. Earnings to Interest Expense Ratio ...................... 38
SECTION 5.06. Negative Pledge ......................................... 38
SECTION 5.07. Consolidations, Mergers and Sales of Assets ............. 39
SECTION 5.08. Material Subsidiary Cash Flow ........................... 40
SECTION 5.09. Use of Proceeds ......................................... 40
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default ....................................... 40
SECTION 6.02. Notice of Default ....................................... 43
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment and Authorization ........................... 43
SECTION 7.02. Agent and Affiliates .................................... 43
SECTION 7.03. Action by Agent ......................................... 43
SECTION 7.04. Consultation with Experts ............................... 43
SECTION 7.05. Liability of Agent ...................................... 44
ii
<PAGE> 4
PAGE
----
SECTION 7.06. Indemnification ......................................... 44
SECTION 7.07. Credit Decision ......................................... 44
SECTION 7.08. Successor Agent ......................................... 45
SECTION 7.09. Agent's Fee ............................................. 45
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate
Inadequate or Unfair ................................... 45
SECTION 8.02. Illegality ............................................. 46
SECTION 8.03. Increased Cost and Reduced Return ...................... 47
SECTION 8.04. Base Rate Loans Substituted for Affected
Fixed Rate Loans ....................................... 49
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
OF ELIGIBLE SUBSIDIARIES
SECTION 9.01. Corporate Existence and Power ........................... 50
SECTION 9.02. Corporate and Governmental Authorization;
Contravention ........................................... 50
SECTION 9.03. Binding Effect .......................................... 50
SECTION 9.04. Taxes ................................................... 50
ARTICLE X
GUARANTY
SECTION 10.01. The Guaranty ............................................ 51
SECTION 10.02. Guaranty Unconditional .................................. 51
SECTION 10.03. Discharge Only Upon Payment In Full;
Reinstatement In Certain Circumstances .................. 52
SECTION 10.04. Waiver by the Company ................................... 52
SECTION 10.05. No Subrogation .......................................... 52
SECTION 10.06. Stay of Acceleration .................................... 53
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Notices ................................................. 53
SECTION 11.02. No Waivers .............................................. 53
SECTION 11.03. Expenses; Indemnification ............................... 54
SECTION 11.04. Sharing of Set-Offs ..................................... 54
SECTION 11.05. Amendments and Waivers .................................. 55
iii
<PAGE> 5
PAGE
----
SECTION 11.06. Successors and Assigns .................................... 55
SECTION 11.07. Collateral ................................................ 57
SECTION 11.08. Governing Law; Submission to Jurisdiction;
Service of Process ........................................ 57
SECTION 11.09. Counterparts; Integration ................................. 58
SECTION 11.10. WAIVER OF JURY TRIAL ...................................... 58
Commitment Schedule
Exhibit A - Note
Exhibit B - Money Market Quote Request
Exhibit C - Invitation for Money Market Quotes
Exhibit D - Money Market Quote
Exhibit E - Opinion of Counsel for the Company
Exhibit F - Opinion of Special Counsel for the Agent
Exhibit G - Form of Election to Participate
Exhibit H - Form of Election to Terminate
Exhibit I - Opinion of Counsel for the Borrower
(Borrowings by Eligible Subsidiaries)
Exhibit J - Assignment and Assumption Agreement
iv
<PAGE> 6
CREDIT AGREEMENT
AGREEMENT dated as of December 20, 1996 among THE GILLETTE
COMPANY, the BANKS listed on the signature pages hereof and MORGAN GUARANTY
TRUST COMPANY OF NEW YORK, as Agent.
The parties hereto agree as follows.
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. The following terms, as used
herein, have the following meanings:
"Absolute Rate Auction" means a solicitation of Money Market
Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03.
"Adjusted CD Rate" has the meaning set forth in Section
2.07(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 Morgan Guaranty Trust Company of New York in its
capacity as 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 Domestic 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 Money Market Loans, its Money Market Lending Office.
"Assessment Rate" has the meaning set forth in Section
2.07(b).
"Assignee" has the meaning set forth in Section 11.06 (c).
<PAGE> 7
"Bank" means each bank listed on the signature pages hereof,
each Assignee which becomes a Bank pursuant to Section 11.06(c), and their
respective successors.
"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 to be made by a Bank
as a Base Rate Loan in accordance with the applicable Notice of Committed
Borrowing or pursuant to Article VIII.
"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.
"CD Base Rate" has the meaning set forth in Section 2.07(b).
"CD Loan" means a Committed Loan to be made by a Bank as a CD
Loan in accordance with the applicable Notice of Committed Borrowing.
"CD Margin" has the meaning set forth in Section 2.07(b).
"CD Reference Banks" means The First National Bank of Boston,
The First National Bank of Chicago and Morgan Guaranty Trust Company of New
York.
"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 Schedule" means the Commitment Schedule attached
hereto.
2
<PAGE> 8
"Committed Loan" means a loan made by a Bank pursuant to
Section 2.01.
"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, 1998, as filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934.
"Company's 1997 Form 10-K" means the Company's annual report
on Form 10-K for 1997, as filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.
"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
3
<PAGE> 9
obligation of such Person, and (vi) all Debt of others Guaranteed by such
Person.
"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.
"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; PROVIDED that any Bank
may so designate separate Domestic Lending Offices for its Base Rate Loans, on
the one hand, and its CD Loans, on the other hand, in which case all references
herein to the Domestic Lending Office of such Bank shall be deemed to refer to
either or both of such offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
"Domestic Reserve Percentage" has the meaning set forth in
Section 2.07(b).
"Duracell Credit Facility" means the Second Amended and
Restated Credit Agreement dated as of March 29,
4
<PAGE> 10
1991, as amended, among Duracell International Inc., Duracell Inc., the
financial institutions listed on the signature pages thereof and The First
National Bank of Chicago, as 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 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.
5
<PAGE> 11
"Euro-Dollar Loan" means a Committed Loan to be made by a Bank
as a Euro-Dollar Loan in accordance with the applicable Notice of Committed
Borrowing.
"Euro-Dollar Margin" has the meaning set forth in Section
2.07 (c).
"Euro-Dollar Reference Banks" means the principal London
offices of The First National Bank of Boston, Credit Suisse and Morgan Guaranty
Trust Company of New York.
"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.
"Existing 364-Day Credit Agreement" means the 364 Day Credit
Agreement dated as of April 30, 1996, among the Company, the bank parties
thereto and Morgan Guaranty Trust Company of New York, as agent, as amended 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 Morgan Guaranty Trust Company
of New York on such day on such transactions as determined by the Agent.
6
<PAGE> 12
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or
Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the
Base Rate pursuant to Section 8.01(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).
"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 course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Indemnitee" has the meaning set forth in Section 11.03 (b).
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending one,
two, three or six months thereafter, as the Borrower may elect in the applicable
Notice of Borrowing; PROVIDED that:
(a) any Interest Period which would otherwise end on a
day which is not a Euro-Dollar Business Day shall, subject to clause
(c) below, 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;
(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
7
<PAGE> 13
in the calendar month at the end of such Interest Period) shall,
subject to clause (c) below, end on the last Euro-Dollar Business Day
of a calendar month; and
(c) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date.
(2) with respect to each CD Borrowing, the period commencing on the date of
such Borrowing and ending 30, 60, 90, or 180 days thereafter, as the Borrower
may elect in the applicable Notice of Borrowing; PROVIDED that:
(a) any Interest Period which would otherwise end on a
day which is not a Euro-Dollar Business Day shall, subject to clause
(b) below, be extended to the next succeeding Euro-Dollar Business Day;
and
(b) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date.
(3) with respect to each Base Rate Borrowing, the period commencing on the
date of such Borrowing and ending 30 days thereafter; PROVIDED that:
(a) any Interest Period which would otherwise end on a
day which is not a Euro-Dollar Business Day shall, subject to clause
(b) below, be extended to the next succeeding Euro-Dollar Business Day;
and
(b) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date.
(4) with respect to each Money Market LIBOR Borrowing, the period
commencing on the date of such 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, subject to clause
(c) below, 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;
(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
8
<PAGE> 14
in the calendar month at the end of such Interest Period) shall,
subject to clause (c) below, end on the last Euro-Dollar Business Day
of a calendar month; and
(c) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date.
(5) with respect to each Money Market Absolute Rate Borrowing, the period
commencing on the date of such Borrowing and ending such number of days
thereafter (but not less than 15 days) 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, subject to clause
(b) below, be extended to the next succeeding Euro-Dollar Business Day;
and
(b) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, or any successor statute.
"LIBOR Auction" means a solicitation of Money Market Quotes
setting forth Money Market 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" means a Domestic Loan or a Euro-Dollar Loan or a Money
Market Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money
Market Loans or any combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth in
Section 2.07(c).
"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.
9
<PAGE> 15
"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.
"Money Market Absolute Rate" has the meaning set forth in
Section 2.03(d).
"Money Market Absolute Rate Loan" means a loan to be made by a
Bank pursuant to an Absolute Rate Auction.
"Money Market 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 Money Market Lending Office by notice to
the Company and the Agent; PROVIDED that any Bank may from time to time by
notice to the Company and the Agent designate separate Money Market Lending
Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market
Absolute Rate Loans, on the other hand, in which case all references herein to
the Money Market Lending Office of such Bank shall be deemed to refer to either
or both of such offices, as the context may require.
"Money Market 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(ii)).
"Money Market Loan" means a Money Market LIBOR Loan or a Money
Market Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section
2.03(d).
"Money Market Quote" means an offer by a Bank to make a Money
Market Loan in accordance with Section 2.03.
10
<PAGE> 16
"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 Money Market Borrowing (as defined
in Section 2.03(f)) .
"Parent" means, with respect to any Bank, any Person
controlling such Bank.
"Participant" has the meaning set forth in Section ll.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 for employees of
any Person which was at such time a member of the ERISA Group.
"Prime Rate" means the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York in New York City from time to time as
its Prime Rate.
11
<PAGE> 17
"Reference Banks" means the CD Reference Banks or the
Euro-Dollar Reference Banks, as the context may require, and "Reference Bank"
means any one of such Reference Banks.
"Refunding Borrowing" means a Committed Borrowing which, after
application of the proceeds thereof, results in no net increase in the
outstanding principal amount of Committed Loans made by any Bank to any
Borrower.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Required Banks" means at any time Banks having at least 66
2/3% of the aggregate amount of the Commitments or, if the Commitments shall
have been terminated, holding Notes evidencing at least 66 2/3% of the aggregate
unpaid principal amount of the Loans.
"Revolving Credit Period" means the period from and including
the Effective Date to but excluding the Termination Date.
"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.
"Termination Date" means October 18, 1999, 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
12
<PAGE> 18
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 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 V 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 V 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 II 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 II 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 "Money
Market Borrowing" is a Borrowing under Section 2.03 in which the Bank
participants are determined on the basis of their bids in accordance therewith).
13
<PAGE> 19
ARTICLE II
THE CREDITS
SECTION 2.01. COMMITMENTS TO LEND. 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 Section from time to time in amounts such that the aggregate principal
amount of Committed Loans by such Bank at any one time outstanding to all
Borrowers shall not exceed the amount of its Commitment. 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.
Within the foregoing limits, a Borrower may borrow under this Section, repay or,
to the extent permitted by Section 2.11, prepay Loans and reborrow at any time
during the Revolving Credit Period under this Section.
SECTION 2.02. NOTICE OF COMMITTED BORROWING. The Borrower
shall give the Agent notice (a "Notice of Committed Borrowing") not later than
11:00 A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y)
the Domestic Business Day before each CD Borrowing and (z) 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 be
CD Loans, Base Rate Loans or Euro-Dollar Loans, and
(d) in the case of a Fixed Rate Borrowing, the duration
of the Interest Period applicable thereto, subject to the provisions of
the definition of Interest Period.
SECTION 2.03. MONEY MARKET BORROWINGS.
14
<PAGE> 20
(a) THE MONEY MARKET 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 Money Market 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) MONEY MARKET QUOTE REQUEST. When a Borrower wishes to
request offers to make Money Market Loans under this Section, it shall transmit
to the Agent by telex or facsimile transmission a Money Market 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 Money
Market 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 Money Market Quotes requested are to set
forth a Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market 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 Money Market
Quote Request.
15
<PAGE> 21
(c) INVITATION FOR MONEY MARKET QUOTES. Promptly upon
receipt of a Money Market Quote Request, the Agent shall send to the Banks by
telex or facsimile transmission an Invitation for Money Market Quotes
substantially in the form of Exhibit C hereto, which shall constitute an
invitation by the Borrower to each Bank to submit Money Market Quotes offering
to make the Money Market Loans to which such Money Market Quote Request relates
in accordance with this Section.
(d) SUBMISSION AND CONTENTS OF MONEY MARKET QUOTES. (i)
Each Bank may submit a Money Market Quote containing an offer or offers to make
Money Market Loans in response to any Invitation for Money Market Quotes. Each
Money Market 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 Money Market Quote Request for the first LIBOR
Auction or Absolute Rate Auction for which such change is to be effective);
PROVIDED that Money Market 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 III and VI, any Money Mark et Quote so made shall
be irrevocable except with the written consent of the Agent given on the
instructions of the Borrower.
(ii) Each Money Market 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 Money Market 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
16
<PAGE> 22
not exceed the principal amount of Money Market Loans for which offers
were requested and (z) may be subject to an aggregate limitation as to
the principal amount of Money Market Loans for which offers being made
by such quoting Bank may be accepted,
(C) in the case of a LIBOR Auction, the margin above or
below the applicable London Interbank Offered Rate (the "Money Market
Margin") offered for each such Money Market 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
"Money Market Absolute Rate") offered for each such Money Market Loan,
and
(E) the identity of the quoting Bank.
A Money Market 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 Money Market Quotes.
(iii) Any Money Market 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 Money Market 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 Money Market Quote submitted by a Bank that
is in accordance with subsection (d) and (y) of any Money Market Quote that
amends, modifies or is otherwise inconsistent with a previous Money Market Quote
submitted by such Bank with respect to the same Money Market Quote Request. Any
such subsequent Money Market Quote shall be disregarded by the Agent unless such
subsequent Money Market Quote is submitted
17
<PAGE> 23
solely to correct a manifest error in such former Money Market Quote. The
Agent's notice to the Borrower shall specify (A) the aggregate principal amount
of Money Market Loans for which offers have been received for each Interest
Period specified in the related Money Market Quote Request, (B) the respective
principal amounts and Money Market Margins or Money Market Absolute Rates, as
the case may be, so offered and (C) if applicable, limitations on the aggregate
principal amount of Money Market Loans for which offers in any single Money
Market 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 Money Market 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 Money Market Borrowing") shall specify the aggregate
principal amount of offers for each Interest Period that are accepted. The
Borrower may accept any Money Market Quote in whole or in part; PROVIDED that:
(i) the aggregate principal amount of each Money Market
Borrowing may not exceed the applicable amount set forth in the related
Money Market Quote Request,
(ii) the principal amount of each Money Market 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 Money Market Margins or Money Market 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 Money Market Margins or Money Market 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
18
<PAGE> 24
Interest Period, the principal amount of Money Market 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 Money Market 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 III 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 new Loan hereunder to a Borrower
on a day on which such Borrower is to repay all or any part of an outstanding
Loan from such Bank, such Bank shall apply the proceeds of its new 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
19
<PAGE> 25
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 3.03(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.
SECTION 2.06. MATURITY OF LOANS. Each Loan included in any
Borrowing shall mature, and the principal
20
<PAGE> 26
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 for each Interest Period
on the last day thereof. 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 CD Loan shall bear interest on the outstanding
principal amount thereof, for each day during the Interest Period applicable
thereto, at a rate per annum equal to the sum of the CD Margin for such day plus
the Adjusted CD Rate applicable to such Interest Period; PROVIDED that if any CD
Loan shall, as a result of clause (2) (b) of the definition of Interest Period,
have an Interest Period of less than 30 days, such CD Loan shall bear interest
during such Interest Period at the rate applicable to Base Rate Loans during
such period. Such interest shall be payable for each Interest Period on the last
day thereof and, if such Interest Period is longer than 90 days, at intervals of
90 days after the first day thereof. Any overdue principal of or interest on any
CD 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 higher of (i) the sum of the CD
Margin for such day plus the Adjusted CD Rate applicable to the Interest Period
for such Loan and (ii) the rate applicable to Base Rate Loans for such day.
"CD Margin" means a rate per annum equal to 0.270%.
The "Adjusted CD Rate" applicable to any Interest Period means
a rate per annum determined pursuant to the following formula:
21
<PAGE> 27
[ CDBR ]*
ACDR = [------------] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
- ----------
* The amount in brackets being rounded upward, if necessary, to the next higher
1/100 of 1%
The "CD Base Rate" applicable to any Interest Period is the
rate of interest determined by the Agent to be the average (rounded upward, if
necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid
at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the
first day of such Interest Period by two or more New York certificate of deposit
dealers of recognized standing for the purchase at face value from each CD
Reference Bank of its certificates of deposit in an amount comparable to the
principal amount of the CD Loan of such CD Reference Bank to which such Interest
Period applies and having a maturity comparable to such Interest Period.
"Domestic 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 (including without
limitation any basic, supplemental or emergency reserves) for a member bank of
the Federal Reserve System in New York City with deposits exceeding five billion
dollars in respect of new non-personal time deposits in dollars in New York City
having a maturity comparable to the related Interest Period and in an amount of
$100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as
of the effective date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any day the annual assessment rate
in effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. ss. 327.4(a) (or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for such Corporation's (or such
successor's) insuring time deposits at offices of such institution in the
22
<PAGE> 28
United States. The Adjusted CD Rate shall be adjusted automatically on and as of
the effective date of any change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the
outstanding principal amount thereof, for each day during the 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 0.145%.
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 Euro-Dollar 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 Euro-Dollar Reference Bank
to which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
(d) 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 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 equal to such overdue payment due to each of the Euro-Dollar
Reference Banks are offered to such Euro-Dollar 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).
23
<PAGE> 29
(e) Subject to Section 8.01(ii), each Money Market 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(c) as if the related Money Market LIBOR Borrowing were a
Committed Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted
by the Bank making such Loan in accordance with Section 2.03. Each Money Market
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 Money Market 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 Money Market 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.
(f) 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.
(g) 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 0.030%
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.
24
<PAGE> 30
(b) Payments. Accrued facility fees under this Section
shall be payable quarterly on each March 31, June 30, September 30 and December
31, beginning with March 31, 1997, 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).
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 and any Loans then
outstanding (together with accrued interest thereon) shall be due and payable on
such date.
SECTION 2.11. OPTIONAL PREPAYMENTS. (a) Subject in the case of
Fixed Rate Loans to Section 2.13, the Borrower may, upon at least one Domestic
Business Day's notice to the Agent, prepay any Domestic Borrowing (or any Money
Market Borrowing bearing interest at the Base Rate pursuant to Section 8.01(ii))
or upon at least three EuroDollar Business Days' notice to the Agent, prepay any
EuroDollar Borrowing, 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 Borrowing.
(b) Except as provided in subsection (a) above, the
Borrower may not prepay all or any portion of the principal amount of any Money
Market 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.
25
<PAGE> 31
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 Domestic 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 Money Market 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 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 (pursuant to Article VI or VIII
or otherwise) on any day other than the last day of the Interest Period
applicable thereto, or the last day of an applicable period fixed pursuant to
Section 2.07(d), or if a Borrower fails to borrow or prepay any Fixed Rate Loans
after notice has been given to any Bank in accordance with Section 2.04(a) or
26
<PAGE> 32
2.11(c), such Borrower shall reimburse each Bank on demand for any resulting
loss or expense incurred by it (or by an 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 failure to borrow or
prepay, PROVIDED that such Bank shall have delivered to such 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 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
27
<PAGE> 33
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 WITHHOLDING TAXES AND OTHER COSTS. (a)
All payments by an Eligible Subsidiary of principal of and interest on its Notes
and of all other amounts payable under this Agreement are payable without
deduction for or on account of any present or future taxes, duties or other
charges levied or imposed by the government of any jurisdiction outside the
United States or by any political subdivision or taxing authority thereof or
therein through withholding or deduction with respect to any such payments. If
any such taxes, duties or other charges are so levied or imposed, such Eligible
Subsidiary will pay additional interest or will make additional payments in such
amounts so that every net payment of principal of and interest on its Notes and
of all other amounts payable by it under this Agreement, after withholding or
deduction for or on account of any such present or future taxes, duties or other
charges, will not be less than the amount provided for herein. Such Eligible
Subsidiary shall furnish promptly to the Agent official receipts evidencing such
withholding or deduction.
(b) 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 the 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.
(c) 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
28
<PAGE> 34
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. WITHHOLDING TAX EXEMPTION. At least five
Domestic Business Days prior to the first date on which interest or fees are
payable hereunder for the account of any Bank, each Bank that is not
incorporated under the laws of the United States or a state thereof agrees that
it will deliver to each of the Company and the Agent two duly completed copies
of United States Internal Revenue Service Form 1001 or 4224, certifying in
either case that such Bank is entitled to receive payments from the Company
under this Agreement and the Notes without deduction or withholding of any
United States federal income taxes. Each Bank which so delivers a Form 1001 or
4224 further undertakes to deliver to each of the Company and the Agent two
additional copies of such form (or a successor form) on or before the date that
such form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Company or the Agent, in each case certifying that such Bank is
entitled to receive payments from the Company under this Agreement and the Notes
without deduction or withholding of any United States federal income taxes,
unless an event (including without limitation any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Bank from duly completing and delivering any such form with respect
to it and such Bank advises the Company and the Agent that it is not capable of
receiving such payments without any deduction or withholding of United States
federal income tax.
29
<PAGE> 35
ARTICLE III
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 364-Day
Credit Agreement;
3O
<PAGE> 36
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
January 31, 1997. 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 the Existing 364-Day Credit
Agreement, comprising the "Required Banks" as defined therein, and the Company
agree to eliminate the requirement under Section 2.09 of the Existing 364-Day
Credit Agreement that notice of optional termination of the commitments
thereunder be given three Domestic Business Days in advance, and further agree
that the commitments under the Existing 364-Day Credit Agreement 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. The Company
shall, within 30 days after the Effective Date, cause the commitments under the
Duracell Credit Facility to be terminated in their entirety and all principal,
interest and other amounts payable thereunder to be repaid in full.
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 less the aggregate principal amount
committed or outstanding (without duplication) under the Duracell
Credit Facility;
(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, in the case of a Refunding Borrowing, 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.
31
<PAGE> 37
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.
ARTICLE IV
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,
32
<PAGE> 38
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, 1996 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 1996 incorporated by
reference in the Company's 1997 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, 1998 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
33
<PAGE> 39
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, 1998,
there has been no material adverse change in the business, operations or
financial 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
1997 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.
34
<PAGE> 40
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.
ARTICLE V
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
35
<PAGE> 41
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;
(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
36
<PAGE> 42
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.
SECTION 5.02. MAINTENANCE OF PROPERTY; INSURANCE. The Company
will keep, and will cause each Subsidiary to
37
<PAGE> 43
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
38
<PAGE> 44
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 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,
distraint 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)
39
<PAGE> 45
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.
ARTICLE VI
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,
4O
<PAGE> 46
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 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
41
<PAGE> 47
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
42
<PAGE> 48
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.
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 VII
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. Morgan Guaranty Trust
Company of New York 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 Morgan Guaranty Trust Company of New York 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 VI.
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
43
<PAGE> 49
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 III, 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 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
44
<PAGE> 50
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 VIII
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 Borrowing:
(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 relevant market for such Interest Period,
or
45
<PAGE> 51
(b) in the case of a Committed Borrowing, Banks having
50% or more of the aggregate amount of the Commitments advise the Agent
that the Adjusted CD Rate or the London Interbank Offered Rate, as the
case may be, as determined by the Agent will not adequately and fairly
reflect the cost to such Banks of funding their CD Loans or Euro-Dollar
Loans, as the case may be, 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, the obligations of the Banks to make CD
Loans or Euro-Dollar Loans, as the case may be, shall be suspended. 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 Committed Borrowing, such Borrowing shall instead be made as a
Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market
LIBOR Borrowing, the Money Market 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 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 Bank shall determine
46
<PAGE> 52
that it may not lawfully continue to maintain and fund any of its outstanding
Euro-Dollar Loans to such Borrower to maturity and shall so specify in such
notice, such Borrower shall immediately prepay in full the then outstanding
principal amount of each such Euro-Dollar Loan, together with accrued interest
thereon. Concurrently with prepaying each such Euro-Dollar Loan, such Borrower
shall borrow a Base Rate Loan in an equal principal amount from such Bank (on
which interest and principal shall be payable contemporaneously with the related
Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate
Loan.
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 Committed Loans or (y) the date of the related Money Market Quote, in
the case of any Money Market 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:
(i) shall subject any Bank (or its Applicable Lending
Office) to any tax, duty or other charge with respect to its Fixed Rate
Loans, its Notes or its obligation to make Fixed Rate Loans, or shall
change the basis of taxation of payments to any Bank (or its Lending
Office) of the principal of or interest on its Fixed Rate Loans or any
other amounts due under this Agreement in respect of its Fixed Rate
Loans or its obligation to make Fixed Rate Loans (except for changes in
the rate of tax on the overall net income of such Bank or its
Applicable Lending Office imposed by the jurisdiction in which such
Bank's principal executive office or Applicable Lending Office is
located); or
(ii) 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 (i)
with respect to any CD Loan any such requirement included in an
applicable Domestic Reserve Percentage and (ii) with respect to any
Euro-Dollar Loan any such requirement with respect
47
<PAGE> 53
to which such Bank is entitled to compensation during the relevant
Interest Period under Section 2.17), special deposit, insurance
assessment (excluding, with respect to any CD Loan, any such
requirement reflected in an applicable Assessment Rate) 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
United States market for certificates of deposit or 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
48
<PAGE> 54
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 Bank, be otherwise disadvantageous to such Bank. A
certificate of any Bank claiming compensation un der 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. 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) with respect to its CD Loans or
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 Ban k, 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 CD Loans or Euro-Dollar Loans, as the case may be,
shall be made instead as Base Rate Loans (on which interest and
principal shall be payable contemporaneously with the related Fixed
Rate Loans of the other Banks), and
(b) after each of its CD Loans or Euro-Dollar Loans, as
the case may be, to such Borrower has been repaid, all payments of
principal which would otherwise be applied to repay such Fixed Rate
Loans shall be applied to repay its Base Rate Loans to such Borrower
instead.
49
<PAGE> 55
ARTICLE IX
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
5O
<PAGE> 56
or by virtue of the execution, delivery or enforcement of its Election to
Participate, this Agreement or its Notes.
ARTICLE X
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 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
51
<PAGE> 57
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, out 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 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 X 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.
52
<PAGE> 58
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 XI
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 II or Article VIII 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.
53
<PAGE> 59
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. The Company shall indemnify each Bank against
any transfer taxes, documentary taxes, assessments or charges made by any
governmental authority by reason of the execution and delivery of this
Agreement, any Election to Participate or Election to Terminate or any Note.
(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
54
<PAGE> 60
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, unless signed by all the Banks,
(i) increase or decrease the Commitment of any Bank (except for a ratable
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 percentage of the Commitments or of the aggregate unpaid
principal amount of the Notes, or the number of Banks, which shall be required
for the Banks or any of them to take any action under this Section or any other
provision of this Agreement or (v) change the provisions of Article X; PROVIDED
FURTHER that no such amendment, waiver or modification shall, 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
55
<PAGE> 61
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 VIII 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 the Company and
the Agent; 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 Money Market 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,
56
<PAGE> 62
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 ll.03(a) 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 or 8.03 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. 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 11.08. 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
57
<PAGE> 63
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 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 11.08 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 11.08 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 11.09. 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 11.10. 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.
58
<PAGE> 64
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
---------------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By
---------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON
By
---------------------------------------
Title:
By
---------------------------------------
Title:
ABN AMRO BANK N.V.
By
---------------------------------------
Title:
By
---------------------------------------
Title:
59
<PAGE> 65
BANKBOSTON, N.A.
By
----------------------------------------
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By
----------------------------------------
Title:
BANCA COMMERCIALE ITALIANA, NEW YORK BRANCH
By
----------------------------------------
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By
----------------------------------------
Title:
THE CHASE MANHATTAN BANK
By
----------------------------------------
Title:
CITIBANK, N.A.
By
----------------------------------------
Title:
6O
<PAGE> 66
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By
-----------------------------------------
Title:
By
-----------------------------------------
Title:
MELLON BANK, N.A.
By
-----------------------------------------
Title:
ROYAL BANK OF CANADA
By
-----------------------------------------
Title:
BANCO SANTANDER
By
-----------------------------------------
Title:
THE BANK OF NOVA SCOTIA
By
-----------------------------------------
Title:
BANQUE PARIBAS
By
-----------------------------------------
Title:
By
-----------------------------------------
Title:
61
<PAGE> 67
FLEET NATIONAL BANK
By
-----------------------------------------
Title:
GENERALE BANK, NEW YORK BRANCH
By
-----------------------------------------
Title:
SOCIETE GENERALE
By
-----------------------------------------
Title:
STATE STREET BANK AND TRUST COMPANY
By
-----------------------------------------
Title:
WACHOVIA BANK OF GEORGIA, N.A.
By
-----------------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Agent
By
-----------------------------------------
Title:
62
<PAGE> 68
COMMITMENT SCHEDULE
<TABLE>
<CAPTION>
Bank Commitment
---- ----------
<S> <C>
Morgan Guaranty Trust Company of New York $220,000,000
Credit Suisse First Boston 200,000,000
ABN AMRO Bank N.V. 160,000,000
BankBoston, N.A. 160,000,000
The First National Bank of Chicago 160,000,000
Banca Commerciale Italiana, New York Branch 100,000,000
Bank of America National Trust and Savings Association 100,000,000
The Chase Manhattan Bank 100,000,000
Citibank, N.A. 100,000,000
Deutsche Bank AG, New York and/or Cayman Islands Branches 100,000,000
Mellon Bank, N.A. 100,000,000
Royal Bank of Canada 100,000,000
Banco Santander 50,000,000
The Bank of Nova Scotia 50,000,000
Banque Paribas 50,000,000
Fleet National Bank 50,000,000
Genera!e Bank, New York Branch 50,000,000
Societe Generale 50,000,000
State Street Bank and Trust Company 50,000,000
Wachovia Bank of Georgia, N.A. 50,000,000
--------------
Total $2,000,000,000
==============
</TABLE>
<PAGE> 69
EXHIBIT A
NOTE
New York, New York , 19
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 last day of the Interest Period
relating to such Loan. 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 State s in Federal or other
immediately available funds at the office of Morgan Guaranty Trust Company of
New York, 60 Wall Street, 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 December 20, 1996 among The Gillette Company, the banks
listed on the signature pages thereof and Morgan Guaranty Trust Company of New
York, as
<PAGE> 70
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.
[NAME OF BORROWER]
By
----------------------------------------
Title:
- ----------
* To be deleted in case of Notes executed and delivered by the Company.
2
<PAGE> 71
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
- --------------------------------------------------------------------------------
Amount Type Amount of Maturity Notation
Date of Loan of Loan Principal Date Made By
- --------------------------------------------------------------------------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
3
<PAGE> 72
EXHIBIT B
FORM OF MONEY MARKET QUOTE REQUEST
[Date]
To: Morgan Guaranty Trust Company of New York (the "Agent")
From: [Name of Borrower]
Re: 364-Day Credit Agreement (the "Credit Agreement") dated as of December
20, 1996 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 Money Market Quotes for the following proposed Money Market
Borrowing(s):
Date of Borrowing: _______________________
Principal Amount* Interest Period** Maturity Date
- ---------------- --------------- -------------
$
Such Money Market Quotes should offer a Money Market [Margin] [Absolute
Rate]. [The applicable base rate is the London Interbank Offered Rate.]
'----------
* Amount must be $15,000,000 or a larger multiple of $1,000,000.
** 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.
<PAGE> 73
Terms used herein have the meanings assigned to them in the Credit
Agreement.
[NAME OF BORROWER]
By
------------------------------------
Title
2
<PAGE> 74
EXHIBIT C
FORM OF INVITATION FOR MONEY MARKET QUOTES
To: [Name of Bank]
Re: Invitation for Money Market Quotes to [Name of Borrower] (the
"Borrower")
Pursuant to Section 2.03 of the 364-Day Credit Agreement dated as of
December 20, 1996 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 Money Market Quotes to the Borrower for the following proposed Money
Market Borrowing(s) :
Date of Borrowing: __________________
Principal Amount Interest Period Maturity Date
- ---------------- --------------- -------------
$
Such Money Market Quotes should offer a Money Market [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].
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By
-----------------------------------------
Authorized Officer
<PAGE> 75
EXHIBIT D
FORM OF MONEY MARKET QUOTE
To: Morgan Guaranty Trust Company of New York, as Agent
Re: Money Market Quote to [Name of Borrower] (the "Borrower"
In response to your invitation on behalf of the Borrower dated _______,
19__ , we hereby make the following Money Market 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 Money Market Loan(s) in the following principal
amounts, for the following Interest Periods and at the following rates:
Principal Interest Money Market
Amount** Period*** [Margin****] [Absolute Rate*****]
- --------- --------- ------------ -------------------
$
$
[Provided, that the aggregate principal amount of Money Market Loans for which
the above offers may be accepted shall not exceed $ .]**
- ----------
* As specified in the related Invitation.
** 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
(notes continued on following page)
<PAGE> 76
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 December 20, 1996 among The Gillette Company, the Banks
listed on the signature pages thereof and yourselves, as Agent, irrevocably
obligates us to make the Money Market Loan(s) for which any offer(s) are
accepted, in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated: ______________________ By: ______________________________________
Authorized Officer
- ----------
amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger
multiple of $1,000,000.
*** 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.
**** 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"
***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%).
<PAGE> 77
EXHIBIT E
OPINION OF
COUNSEL FOR THE COMPANY
-----------------------
[Effective Date]
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
I am Vice Chairman of the Board 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 December 20, 1996 among the Company, the
banks parties thereto and Morgan Guaranty Trust Company of New York, 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 State of Ohio and 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:
<PAGE> 78
\
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 11.08 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 1995 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
2
<PAGE> 79
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 ll.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.
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,
Joseph E. Mullaney
3
<PAGE> 80
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 Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the 364-Day Credit Agreement
(the "Credit Agreement") dated as of December 20, 1996 among The Gillette
Company, a Delaware corporation (the "Company"), the banks parties thereto (the
"Banks") and Morgan Guaranty Trust Company of New York, 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 us ed 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.
<PAGE> 81
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,
2
<PAGE> 82
EXHIBIT G
FORM OF ELECTION TO PARTICIPATE
, 19
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Agent for the Banks named in the
364-Day Credit Agreement dated as of
December 20, 1996 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 IX 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 11.08 and 11.10 thereof, as if
the undersigned were a signatory party thereto.
[Tax disclosure pursuant to Section 9.04, if any]
<PAGE> 83
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.
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Agent
By
-------------------------------------
Title:
2
<PAGE> 84
EXHIBIT H
FORM OF ELECTION TO TERMINATE
, 19
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent for the
Banks named in the 364-Day Credit
Agreement dated as of December 20,
1996 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]
<PAGE> 85
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.
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Agent
By
-------------------------------------
Title:
2
<PAGE> 86
EXHIBIT I
OPINION OF
COUNSEL FOR THE BORROWER
(BORROWINGS BY ELIGIBLE SUBSIDIARIES)
[date]
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
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 December 20, 1996 among The Gillette Company
(the "Company"), the banks parties thereto and Morgan Guaranty Trust Company of
New York, 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
<PAGE> 87
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.
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,
- ----------
* The opinion in this paragraph may be given by Counsel for the Company.
2
<PAGE> 88
EXHIBIT J
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of ______, 19 __ among [ASSIGNOR] (the "Assignor"),
[ASSIGNEE] (the '"Assignee") , THE GILLETTE COMPANY (the "Company") and MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, 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 December 20, 1996 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.
<PAGE> 89
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 i t 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
- ----------
* 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
<PAGE> 90
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.
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
- ----------
* Consent is required if the Assignee is not an affiliate of the Assignor and
was not a Bank immediately prior to the assignment.
3
<PAGE> 91
[ASSIGNEE]
By:
------------------------------------
Title
[THE GILLETTE COMPANY]
By:
------------------------------------
Title
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By
-------------------------------------
Title:
4
<PAGE> 1
EXHIBIT 12
COMPUTATION OF THE RATIOS OF CURRENT ASSETS TO CURRENT
LIABILITIES FOR THE YEARS 1998, 1997 AND 1996
1998 1997 1996
---- ---- ----
Current Assets 5440 4690 4753
Current Liabilities 3478 2641 2935
---- ---- ----
Current Ratio 1.56 1.78 1.62
<PAGE> 1
EXHIBIT 13
THE GILLETTE COMPANY
Founded in 1901, The Gillette Company is the world leader in male grooming, a
category that includes blades, razors and shaving preparations. Gillette also
holds the number one position worldwide in selected female grooming products,
such as wet shaving products and hair epilation devices. The Company is the
world's top seller of writing instruments and correction products, toothbrushes
and oral care appliances. In addition, the Company is the world leader in
alkaline batteries.
Gillette manufacturing operations are conducted at 62 facilities in 25
countries, and products are distributed through wholesalers, retailers and
agents in over 200 countries and territories.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
FINANCIAL HIGHLIGHTS 1
MISSION AND VALUES 2
LETTER TO STOCKHOLDERS 3
REVIEW OF OPERATIONS 6
MANAGEMENT'S DISCUSSION 18
FINANCIAL STATEMENTS 24
HISTORICAL FINANCIAL SUMMARY 41
PRINCIPAL DIVISIONS AND SUBSIDIARIES 42
DIRECTORS AND OFFICERS 44
CORPORATE AND STOCKHOLDER INFORMATION 45
</TABLE>
<PAGE> 2
BLADES &
RAZORS
<TABLE>
<CAPTION>
BUSINESS SEGMENT SALES
$ Millions
----------
<S> <C>
94 2351
95 2635
96 2836
97 2881
98 3028
</TABLE>
Extending a remarkable record of achievement, Gillette again strengthened its
clear global leadership in blades and razors, its principal line of business.
Sales registered good progress in 1998. Profits were marginally lower,
reflecting spending to support the introduction of the revolutionary Mach3
shaving system.
Offering the first major blade edge innovation in 30 years, the Mach3 is
the only shaving system to feature three progressively aligned and independently
suspended blades to provide a closer shave in fewer strokes with less
irritation.
Since its introduction in June in North America and in September in Western
Europe, the Mach3 system has proven itself the most successful blade product
ever sold. It has surpassed every market performance measure the Company has
established, with sales and share growth increasing at a rate well ahead of the
record set by the Sensor system in its debut in 1990.
By year-end, the Mach3 shaving system was the best-selling blade and razor
in every country in which it was sold. In the United States, the Gillette share
of the blade market soared to its highest level in nearly 40 years.
Plans call for distribution of the Mach3 system to be extended to all major
markets worldwide in 1999.
As expected, the Mach3 system drew sales from other Gillette blades and
razors, although the decline in those sales was much less than the Mach3
system's sales contribution.
The Sensor family of shaving systems, the Company's previous technological
standard-bearer, generated sales above $1 billion for the fourth consecutive
year. Both the SensorExcel and Sensor shaving systems retained leading share
positions in many countries. The SensorExcel for Women shaving system
substantially increased its share of market in North America and Western Europe,
while posting exceptional sales progress in its newer markets of Latin America
and Eastern Europe.
Although sales weakened, the Atra and Trac II shaving systems maintained
important share positions in 1998, more than 20 years after their introductions.
Gillette disposable razor sales rose moderately, fueled by the strong
growth of CustomPlus razors, especially in Latin America, where they are sold
under the Prestobarba Max name. Much higher sales of the Agility women's
disposable razor also contributed to the gain. Gillette disposable razors
remained the clear market leaders worldwide, with the Good News brand the top
seller in the United States for the 23rd year in a row.
The double edge blade market continued to decline. Gillette sales fell
sharply, but the Company retained its longtime world leadership position.
Underlying its history of unparalleled success in the blade and razor
market, the Company's commitment to technological innovation and excellence will
remain the wellspring of outstanding growth prospects in the years ahead.
[PHOTOGRAPH OF GILLETTE RAZORS]
The Mach3 shaving system
PAGE 6
<PAGE> 3
SensorExcel Sensor
for Women Excel
Gillette MACH 3
[PHOTOGRAPH OF GILLETTE MACH 3 RAZOR]
ContourPlus
Sensor Gillette
for Women Agility
<PAGE> 4
Gillette
Series RIGHT
GUARD
Gillette
for Women
Satin Care
[PHOTOGRAPH OF GILLETTE FOR WOMEN SATIN CARE SHAVE GEL]
SOFT Dry
&DRI Idea
<PAGE> 5
TOILETRIES
<TABLE>
<CAPTION>
BUSINESS SEGMENT SALES
$ Millions
----------
<S> <C>
94 1162
95 1236
96 1375
97 1410
98 1214
Jafra Sales
</TABLE>
Sales and profits of the Company's toiletries business were substantially below
those of 1997, due in large part to the divestiture of the Jafra skin care and
cosmetics business in April 1998. Profits also were reduced by investment
spending to support the international rollout of the Gillette Series and Satin
Care brands.
Worldwide sales of deodorants/antiperspirants, the largest Gillette
toiletries category, recorded a slight decrease. In the United States, where the
Company's well-established deodorant/antiperspirant brands remained among the
leaders, technologically innovative clear stick versions of the Right Guard and
Gillette Series brands were the top performers, generating sales well above
those of the year before.
International deodorant/antiperspirant sales showed little change, as
considerable growth throughout Western Europe and the Middle East, primarily
reflecting brisk demand for the Gillette Series brand, was offset by weaker
sales in other regions. During the year, Satin Care deodorants/antiperspirants
for women were introduced in selected markets in Eastern Europe and Latin
America. Consumer response in both areas was quite favorable.
Paced by sizable advances in Western Europe, worldwide sales of Gillette
shave preparations rose moderately. This was chiefly attributable to the
Gillette Series brand, which posted notably higher sales in established markets
and was well-received in a number of introductory markets.
Another contributor was popular Satin Care for Women soap-free shaving gel,
whose nonaerosol form in an innovative soft touch bottle has generated strong
demand.
Reflecting these gains, Gillette brands improved their share in the United
States and many key markets abroad. This progress enabled the Company to
strengthen further its leading position in the global shave preparations
business.
Worldwide sales of Gillette after-shaves declined significantly, due
principally to shortfalls in international markets. The Company's shower gels,
sold primarily under the Gillette Series name, also recorded notably lower
sales.
In the hair care products category, the White Rain brand registered a
sizable decrease in sales. Gillette is exploring the possible sale of this
brand. Although White Rain is the third largest hair care brand in the United
States, it is not a global brand, nor is hair care one of the Company's core
product categories.
Supported by technologically innovative products, marketed with an
increasingly strong global perspective, the Company's tightly focused toiletries
business has a sound basis for future growth.
[PHOTOGRAPH OF GILLETTE SHAVING GELS AND DEODORANTS]
Satin Care for Women shaving gels
PAGE 9
<PAGE> 6
STATIONERY
PRODUCTS
<TABLE>
<CAPTION>
BUSINESS SEGMENT SALES
$ Millions
----------
<S> <C>
94 807
95 862
96 915
97 924
98 856
</TABLE>
The steady growth that has long characterized the Gillette stationery products
business was interrupted in 1998. Sales were well below those of the previous
year, and profits decreased significantly. These results were due primarily to
substantially lower sales of Parker writing instruments, chiefly related to
economic weakness in the Asia-Pacific region. Nonetheless, the Company retained
its standing as the worldwide leader in the highly competitive writing
instruments and correction products businesses.
With its well-established Paper Mate, Parker and Waterman franchises,
Gillette holds a strong position within all writing systems, price levels,
distribution channels and geographic areas.
Paper Mate writing instruments are the largest franchise in the Company's
stationery products business. Paced by advances in the United States and Western
Europe, worldwide Paper Mate sales climbed moderately, with a broad array of
writing instruments contributing.
In the low-priced category, which recorded higher sales, the strongest
gains were generated by the Comfort Mate stick ball pen. A retractable model,
introduced in the United States during the year, also was well-received.
Mid-priced Paper Mate pens achieved good sales progress worldwide. Sales of
the Flexgrip family of refillable pens moved well above those of the year
before. Dynagrip pens, led by continued brisk demand for the disposable
Dynagrip, posted a sizable gain in sales, as did Eraser Mate erasable ink pens.
At year-end, the Company introduced the Paper Mate Gel-Roller ball pen,
featuring a spring-loaded point and technologically advanced Gel-Glide ink for
superior writing performance. Initial trade and consumer response has been very
positive.
Worldwide sales of Parker writing instruments declined significantly. New
products planned for 1999, together with broadened distribution, are expected to
revitalize this well-respected brand.
Waterman writing instruments recorded somewhat lower sales, as a good
showing in the United States was unable to offset weaker sales abroad. In the
important prestige segment, the Waterman Carene fountain pen turned in a strong
sales performance in the United States and several major international markets.
Sales of Liquid Paper correction products were below those of 1997. This
reflected a substantial shortfall in sales of Liquid Paper correction fluids,
which retained their longtime position as the worldwide market leader. Liquid
Paper correction pen sales matched the prior year's record, while sales of
Liquid Paper DryLine correction films climbed sharply, fueled by sustained
demand for disposable films.
Strategies for growth in stationery products will center on further
developing this business area's strong combination of superior products,
powerful brand names and an expanding global presence.
[PHOTOGRAPH OF GILLETE STATIONERY PRODUCTS]
The Paper Mate Gel-Roller pen
PAGE 10
<PAGE> 7
FLEXGRIPultra
PARKER Liquid
PAPER MATE Paper
Gel-Roller
[PHOTOGRAPH OF THE PAPER MATE GEL-ROLLER PEN]
DYNAGRIP WATERMAN
<PAGE> 8
BRAUN ThermoScan
Flex Integral ultra speed
Braun Oral-B Plaque Remover
[PHOTOGRAPH OF BRAUN ORAL-B PLAQUE REMOVER]
AromaSelect
Shave & Shape
<PAGE> 9
BRAUN
<TABLE>
<CAPTION>
BUSINESS SEGMENT SALES
$ Millions
----------
<S> <C>
94 1348
95 1621
96 1773
97 1744
98 1740
</TABLE>
Braun sales showed little change in 1998, as good progress in North America and
Western Europe was offset by the negative effects of a severe economic downturn
in other key regions. Profits were somewhat below the previous year's record
level.
Although sales of men's electric shavers were considerably lower, Braun
remained a leader in the worldwide market. This position was well-supported by
the Flex Integral family of pivoting head shavers, which registered unit volume
growth well above that of the year before.
The principal contributor to this advance was the top-of-the-line Flex
Integral ultra speed shaver. Excellent consumer acceptance of this premium
shaver enabled Braun to improve its sizable share positions in several major
markets. Consumers also responded positively to moderately priced Flex Integral
shavers in attractive colors with youthful appeal.
The Braun Silk-epil family of electric hair epilators for women was
strengthened by the launch in early 1998 of the Silk-epil SuperSoft brand.
Offering more comfortable hair removal, this premium epilator helped Braun
maintain its global market leadership.
The strong momentum of Braun's oral care appliance business accelerated in
1998, driven chiefly by the continued resounding success of Braun Oral-B plaque
removers.
The latest addition to this line, the Braun Oral-B 3D plaque remover, was
introduced at midyear in North America and Western Europe. Utilizing
breakthrough technology, the new plaque remover provides a unique
three-dimensional brushing action that combines two distinct motions -- rapid
pulsation to loosen plaque and rapid oscillation to sweep it away. Trade and
consumer response has been highly favorable, and dental professionals have
reacted with exceptional enthusiasm.
The substantial growth in Braun Oral-B plaque remover sales has generated
an increasingly important market in replacement brush heads. In 1998, refill
sales rose at a rate nearly twice that of plaque removers.
Reflecting these advances, Braun again enlarged the worldwide leadership
position in oral care appliances it has held for six consecutive years.
Among household appliances, which posted somewhat lower sales, Braun
retained its number one standing in the world handblender market. Braun hair
care appliance sales recorded a sharp decline.
Although sales of personal diagnostic appliances were well below those of
1997, Braun ThermoScan infrared ear thermometers remained the top seller
worldwide. At midyear, Braun entered a new category with the launch of VitalScan
blood pressure monitors in Europe.
Supported by technological innovation, outstanding design and superior
quality throughout its product categories, Braun has a solid foundation for
sustained growth in the years to come.
[PHOTOGRAPH OF BRAUN PRODUCTS]
The Braun Oral-B 3D plaque remover PAGE 13
1
<PAGE> 10
ORAL-B
<TABLE>
<CAPTION>
BUSINESS SEGMENT SALES
$ Millions
----------
<S> <C>
94 402
95 440
96 547
97 624
98 642
</TABLE>
Building on the record results of 1997, Oral-B again last year strengthened its
position as the clear leader of the global toothbrush market. Sales moved
slightly higher, while profits climbed sharply from those of the year before.
Oral-B has long been recognized for its broad range of superior oral care
products. Chief among these are Oral-B toothbrushes, the brand used by more
dentists and consumers than any other in the United States and many major
international markets.
Worldwide sales of Oral-B toothbrushes advanced modestly in 1998,
restrained by market contraction in the Asia-Pacific region, but supported by
the performance of both new and established products.
The most recent addition to Oral-B's array of powerful brands -- the new
CrossAction premium toothbrush -- was introduced in the United States at
year-end, following three years of development. Featuring uniquely engineered
CrissCross bristles angled in opposing directions for a more effective brush
stroke, this innovative toothbrush is clinically proven to offer a new standard
in plaque removal. Trade and consumer response has been excellent. Distribution
is under way throughout the United States and will expand to key markets abroad
later in 1999.
Among established products, the best-selling Oral-B Advantage line of
toothbrushes turned in another good performance, with worldwide sales well above
those of the prior year. Substantial gains by the Contura and Prudent toothbrush
brands, both sold overseas, also contributed to Oral-B's upward sales trend.
In the children's toothbrush market, Oral-B remained the leader in the
United States on the strength of a good sales increase. This was due largely to
Oral-B's continuing partnership with the top-rated Nickelodeon cable television
network. Through this partnership, Oral-B markets popular Nickelodeon and
Rugrats toothbrushes and toothpastes. Building on the success of this approach,
Oral-B has reached similar licensing agreements involving a variety of animated
children's characters in international markets.
Interdental products posted worldwide sales well above those of the
previous year, primarily reflecting significant growth in Oral-B dental floss,
especially in Western Europe and Latin America. This spring, Oral-B is
introducing SatinFloss, a shred-resistant dental floss whose oval shape and
satin-like finish help it slide comfortably through even the tightest spaces,
thus encouraging regular flossing.
Despite considerable gains in children's toothpaste, worldwide sales of
Oral-B specialty toothpastes were somewhat lower. Mouth rinse sales moved ahead
moderately, while sales of professional products showed good progress.
Superior new products developed in partnership with dental professionals, a
broader geographic presence and momentum from its 1998 performance offer Oral-B
excellent prospects for the future.
[PHOTOGRAPH OF ORAL-B PRODUCTS]
Oral-B CrossAction toothbrushes
PAGE 14
<PAGE> 11
ADVANTAGE
Squish
Grip
Oral-B CrossAction
[PHOTOGRAPH OF ORAL-B CROSSACTION TOOTHBRUSHES]
contura
indicator
GRiPPER
<PAGE> 12
DURACELL
DURACELL
ULTRA
DURACELL
ULTRA
[PHOTOGRAPH OF DURACELL ULTRA BATTERIES]
DURACELL
<PAGE> 13
DURACELL
<TABLE>
<CAPTION>
BUSINESS SEGMENT SALES
$ Millions
----------
<S> <C>
94 1865
95 2040
96 2251
97 2478
98 2576
</TABLE>
Buoyed by record results in 1998, Duracell further expanded its clear global
leadership position in the rapidly growing alkaline battery business. Sales of
Duracell products registered a moderate increase, and profits were markedly
above those of the prior year.
Duracell's highly successful business development in its second year as
part of The Gillette Company reflected the refocusing of technical efforts
toward alkaline battery improvements, enlargement of its presence
internationally and continued upgrading of consumers to new and
better-performing alkaline batteries.
A disposable energy source that powers a broad range of consumer products,
alkaline batteries are Duracell's principal line of business. Worldwide sales of
alkaline batteries moved well above those of the year before, due largely to the
excellent market performance of new Duracell Ultra high-tech batteries.
Introduced last spring in North America and Western Europe in AA and AAA
sizes only, Duracell Ultra was the first alkaline battery specifically designed
to deliver long life and enhanced performance in high technology consumer
devices. A fast-growing market, these devices include cellular phones, digital
and flash cameras and camcorders.
This spring, Duracell is launching an improved Duracell Ultra battery
technology that significantly increases battery life. At the same time, Duracell
is extending the Duracell Ultra battery range, both geographically, through
introduction to a large number of international markets, and by offering the
brand's improved technology in C, D and 9-volt battery sizes.
In all, the full line of Duracell Ultra alkaline batteries will provide up
to 50 percent longer life than ordinary batteries across the spectrum of
high-tech consumer devices.
Duracell's specialty battery business consists primarily of lithium
batteries, used chiefly in cameras, and zinc air batteries, which power hearing
aids. Led by good advances in the United States and Western Europe, worldwide
sales rose moderately. During 1999, Duracell will introduce under the Duracell
Ultra brand a line of superior photo lithium batteries in four popular sizes.
In addition to its technological achievements, Duracell has strengthened
its leadership position through strategic acquisitions in important battery
markets abroad. During 1998, Duracell made two such moves. With the acquisition
of the Geep battery business, Duracell greatly expanded its presence in India,
the world's fourth largest battery market. In South Korea, Duracell gained
market leadership after acquiring the top-selling Rocket battery brand.
Innovative new products resulting from a high level of research and
development spending, together with continued geographic expansion and selective
acquisitions, should enhance Duracell's bright prospects around the world.
[PHOTOGRAPH OF DURACELL AND DURACELL ULTRA BATTERIES]
Duracell Ultra high-tech alkaline batteries
PAGE 17
<PAGE> 14
The Gillette Company and Subsidiary Companies
MANAGEMENT'S DISCUSSION
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
NET SALES
Net sales in 1998 were $10.1 billion, matching those of 1997. Volume/new
products and prices contributed equally to a 3% sales increase, which was offset
by unfavorable exchange rates. Excluding unfavorable exchange and the
divestiture of Jafra Cosmetics International, sales growth was 5%. In 1997,
sales growth of 4% was due to a 7% gain from volume and new products, as well as
a 1% increase from pricing, while the effect of unfavorable exchange rates
depressed sales by 4%.
Sales in the United States grew 4% in 1998, following a 3% increase in
1997. Foreign sales declined 2%, after a 4% gain in 1997. Excluding exchange,
foreign sales grew 3%. Sales in Western Europe rose 8% from the 1997 level.
Sales in Latin America were 10% below those of 1997, due to the divestiture of
Jafra in April 1998 and trade destocking in Brazil, related to higher interest
rates. Sales in other international markets were 12% below those of 1997, due to
the economic deterioration in Russia and the Asian financial crisis. Sales of
operations outside the United States represented 62% of sales in 1998 and 63% of
sales in 1997.
An analysis of sales by business segment follows.
<TABLE>
<CAPTION>
% Increase/
(Millions of dollars) (Decrease)
-------------------------- -------------
1998 1997 1996 98/97 97/96
======= ======= ====== ===== =====
<S> <C> <C> <C> <C> <C>
Blades & Razors.............. $ 3,028 $ 2,881 $2,836 5 2
Toiletries................... 1,214 1,410 1,375 (14) 3
Stationery Products.......... 856 924 915 (7) 1
Braun Products............... 1,740 1,744 1,773 -- (2)
Oral-B Products.............. 642 624 547 3 14
Duracell Products............ 2,576 2,478 2,251 4 10
Other........................ -- 1 1 -- --
------- ------- ------ ----- -----
$10,056 $10,062 $9,698 -- 4
======= ======= ====== ===== =====
</TABLE>
Further information by business segment is set forth on pages 6 through 17.
Sales of blades and razors were above those of a year earlier. This
reflected gains in the United States and rapid growth in Western Europe, both
driven by the launch of the Mach3 shaving system. Results in other international
markets were lower, due to broad-based negative economic factors. Blade and
razor sales rose slightly in 1997, as considerably higher sales in developing
markets and marginally higher sales in the United States were partially offset
by sales in Western Europe that were well below those of the prior year, due to
foreign exchange.
In 1998, toiletries sales were substantially below those of the prior year,
due to the divestiture of Jafra and a significant decrease in sales of White
Rain hair care products. Sales rose modestly in 1997, reflecting the continued
expansion of the Gillette Series male grooming line, the success of Satin Care
female grooming products and the growth of clear deodorants/antiperspirants.
Sales of stationery products were well below those of 1997, due primarily
to the substantial negative impact of the Asian financial crisis. Sales in the
United States and Western Europe were virtually unchanged from those of the
prior year. In 1997, sales of stationery products were level, as decreases in
Western Europe, due to foreign exchange, offset gains in other international
markets and in the United States.
Braun product sales in 1998 showed little change from those of the prior
year, as higher sales in Western Europe and the United States countered
substantially lower sales in Asia. Sales in 1997 were marginally below those of
1996, due to adverse economic conditions and unfavorable exchange rates in Japan
and Western Europe.
Sales of Oral-B products were slightly higher than in 1997. Sales well
above those of the prior year in the United States were partially offset by
significantly lower sales in Asia. Sales grew substantially in 1997, reflecting
increased volume in the United States and the success of new products in other
major markets.
In 1998, sales of Duracell products were moderately higher, as the launch
of Duracell Ultra batteries and price increases contributed to notably higher
sales in the United States and to sales well above those of the prior year in
Western Europe. Sales rose considerably in 1997, particularly in the United
States, as well as in the AMEE and Asia-Pacific regions. Growth in the latter
two areas was aided by the full-year impact of acquisitions in South Africa and
South Korea in 1996. Excluding these acquisitions, sales in 1997 were higher
than in 1996.
- --------------------------------------------------------------------------------
GROSS PROFIT
Gross profit decreased $28 million in 1998 and increased $215 million in 1997.
As a percent of sales, gross profit was 61.7% in 1998, compared with 61.9% in
1997 and 62.0% in 1996. The slight decrease in 1998 and 1997 was due to a less
favorable product mix.
PAGE 18
<PAGE> 15
The Gillette Company and Subsidiary Companies
MANAGEMENT'S DISCUSSION
- --------------------------------------------------------------------------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses amounted to 38.6% of sales,
compared with 38.8% and 40.9% in 1997 and 1996, respectively. In absolute terms,
these expenses declined 1% in 1998 and 2% in 1997.
In 1998, $613 million was spent on advertising, including sampling, and
$1,165 million on sales promotion, for a total of $1,778 million, an increase of
5% over the 1997 spending level. Spending in 1998 included the major marketing
effort behind the launch of the Mach3 shaving system, as well as support for
other new products, such as Duracell Ultra batteries. This compares with 1997
amounts of $641 million, $1,060 million and $1,701 million, respectively. In
1996, these were $710 million, $978 million and $1,688 million, respectively.
The spending in 1998 represented 17.7% of sales, compared with 16.9% and 17.4%
in 1997 and 1996, respectively. Spending for research and development decreased
2% in 1998, compared with an increase of 4% in 1997. Other marketing and
administrative expenses declined 5% in 1998 and 4% in 1997.
- --------------------------------------------------------------------------------
PROFIT FROM OPERATIONS
After a reorganization and realignment charge of $535 million, profit from
operations in 1998 was $1.79 billion, compared with $2.32 billion in 1997 and
$1.64 billion in 1996, after merger-related costs. Profit from operations in
1998, excluding the charge, represented 23.1% of sales, compared with 23.1% in
1997 and 21.1% in 1996, before merger-related costs. The charge to operations
for reorganization and realignment in 1998 reduced net income by $347 million
and fully diluted net income per common share by $.30. Costs related to the
merger with Duracell International Inc. in 1996 reduced profit from operations
by $413 million, net income by $283 million and fully diluted net income per
common share by $.25.
Within the United States, profit from operations rose 6%, compared with an
increase of 5% in 1997. Outside the United States, it decreased 9%, compared
with a gain of 17% in 1997.
In the following table, the reorganization and realignment charge and the
merger-related costs are included in Corporate/Other.
An analysis by business segment follows.
<TABLE>
<CAPTION>
% Increase/
(Millions of dollars) (Decrease)
1998 1997 1996 98/97 97/96
====== ====== ====== ===== =====
<S> <C> <C> <C> <C> <C>
Blades & Razors.............. $1,153 $1,186 $1,098 (3) 8
Toiletries................... 54 124 91 (56) 36
Stationery Products.......... 108 156 122 (31) 28
Braun Products............... 291 304 300 (4) 1
Oral-B Products.............. 101 85 58 20 47
Duracell Products............ 597 526 450 13 17
------ ------ ------ ----- -----
2,304 2,381 2,119 (3) 12
------ ------ ------ ----- -----
Corporate/Other.............. (515) (57) (483)
------ ------ ------
$1,789 $2,324 $1,636
====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements for segment and geographic area
data.
Profits for the blade and razor segment were modestly lower in 1998, due to
start-up expenses for the Mach3 shaving system. Profits moved well ahead in
1997, due to sales growth, improved product mix and lower product costs.
In 1998, toiletries reported sharply lower profits, due to the divestiture
of Jafra and significantly lower sales of White Rain hair care products. Profits
in 1997 rose substantially, as a result of sales growth, improved product mix
and lower operating expenses.
Profits for the stationery products segment were much lower in 1998, due
primarily to sales declines in the Asia-Pacific region. Profits climbed sharply
in 1997, reflecting sales growth driven by new products, improved product mix
and lower product costs.
In 1998, Braun profits were somewhat below those of the prior year, due to
lower sales of higher margin products and the Asian financial crisis. In 1997,
Braun profits were about the same as in 1996.
Oral-B profits grew significantly in both 1998 and 1997. The 1998 increase
was due to improved product mix and cost containment. The progress in 1997
reflected the success of new products with higher margins, as well as lower
operating expenses.
The Duracell segment reported a strong profit advance in 1998, due to sales
gains and the higher margin of Duracell Ultra batteries. Excellent profit growth
was achieved in 1997, led by the developing international markets.
PAGE 19
<PAGE> 16
The Gillette Company and Subsidiary Companies
MANAGEMENT'S DISCUSSION
- --------------------------------------------------------------------------------
NONOPERATING CHARGES/INCOME
Net interest expense amounted to $86 million in 1998, $69 million in 1997 and
$67 million in 1996. Net interest expense was higher in 1998, due to increased
borrowings to fund the Company's share repurchase program, capital investments
and its pension plans in Germany. The increase in 1997 reflected higher average
borrowing levels, due to the full-year impact of 1996 acquisitions and
significant capital spending.
Net exchange losses of $23 million in 1998, which compared with 1997 and
1996 totals of $18 million and $32 million, respectively, were attributable
primarily to subsidiaries in highly inflationary countries. Translation
adjustments resulting from currency fluctuations in non-highly inflationary
countries are accumulated in a separate section of stockholders' equity, as
noted on page 29. In 1998, the negative adjustment was $36 million, compared
with negative adjustments of $268 million in 1997, reflecting significant
exchange rate movements, and $22 million in 1996.
- --------------------------------------------------------------------------------
TAXES AND NET INCOME
The effective tax rate was 35.3% in 1998, compared with rates of 35.8% in 1997
and 37.8% in 1996.
Net income for 1998 was $1,081 million, compared with $1,427 million in
1997 and $949 million in 1996. Fully diluted net income per common share in
1998 was $.95, compared with $1.24 and $.83 in 1997 and 1996, respectively.
Excluding the charge in 1998 for reorganization and realignment costs, 1998 net
income of $1,428 million matched that of 1997, and fully diluted net income per
common share of $1.25 rose 1% over the 1997 level. Excluding the charge for
merger-related costs in 1996, 1997 net income increased 16% over the $1,232
million in 1996, and fully diluted net income per common share rose 15% over the
$1.08 in 1996.
- --------------------------------------------------------------------------------
FINANCIAL CONDITION
The Company's financial condition continued to be strong in 1998. Net debt
increased $1.31 billion during 1998, reflecting significant spending under the
Company's share repurchase and capital investment programs.
Net debt (total debt net of associated swaps, less cash and cash
equivalents) at December 31, 1998, amounted to $3.18 billion, compared with
$1.87 billion and $2.08 billion at December 31, 1997 and 1996, respectively.
The market value of Gillette equity was over $52 billion at the end of
1998. The Company's book equity position amounted to $4.54 billion at the end of
1998, compared with $4.84 billion at the end of 1997 and $4.47 billion at the
end of 1996. The reduced book equity in 1998 was due to Gillette share
repurchase activity.
Net cash provided by operating activities in 1998 was $1.29 billion,
compared with $1.28 billion in 1997 and $1.01 billion in 1996. The current ratio
of the Company was 1.56 for 1998, compared with ratios of 1.78 for 1997 and 1.62
for 1996. The decrease in the 1998 current ratio was primarily attributable to
the Company's increased short-term debt at December 31, 1998.
Capital spending in 1998 amounted to a record $1.0 billion, compared with
$973 million in 1997 and $830 million in 1996. Spending in all three years
reflected significant investments in the blade and razor, Duracell and Braun
product segments.
In 1998, the Company made acquisitions in the battery segment for $100
million, while 1997 acquisition activity of $3 million was in oral care. In
1996, the Company made acquisitions, principally in the battery business, for
$361 million.
In 1998, the Jafra business was sold for $200 million.
Share repurchase funding in 1998, net of proceeds received from the sale of
put options on Company stock, amounted to $1.01 billion, compared with $26
million in 1997 and $11 million in 1996.
Enhancing its financial flexibility, the Company replaced its $1.0 billion
revolving credit agreement with a new $2.0 billion revolving credit facility,
expiring in October 1999. The Company also has a $1.1 billion revolving credit
agreement, which expires in December 2001. Both facilities are used by the
Company to provide back-up to its commercial paper program.
At year-end 1998, there was $1.66 billion outstanding under the Company's
commercial paper program, compared with $780 million at the end of 1997 and
$1.09 billion at the end of 1996.
During 1998, the Company issued $200 million, 5.75% Notes due August 2001
and $300 million, 5.00% Notes due December 2006. In early 1999, the Company
issued Euro 300 million, 3.25% Notes due February 2004. The net proceeds were
used to refinance existing short-term debt and for other general corporate
purposes.
During 1998, both Standard & Poor's and Moody's maintained the Company's
current credit ratings. Stan-
PAGE 20
<PAGE> 17
The Gillette Company and Subsidiary Companies
MANAGEMENT'S DISCUSSION
dard & Poor's rates the Company's long-term debt at AA, while Moody's rating is
Aa3. The commercial paper rating is A1+ by Standard & Poor's and P1 by Moody's.
Gillette will continue to have capital available for growth through both
internally generated funds and substantial credit resources. The Company has
substantial unused lines of credit and access to worldwide financial market
sources for funds.
- --------------------------------------------------------------------------------
MARKET RISK
The Company uses financial instruments such as derivatives to hedge its exposure
to market risk arising from changes in interest rates and foreign currency
exchange rates. Gillette has established clear policies, procedures and internal
accounting and administrative controls governing the use of financial
instruments to manage its exposure to such risks. The Company does not purchase,
sell or hold any derivative financial instruments for trading, profit or
speculative purposes.
Gillette uses product sourcing and pricing as a natural hedge to its
foreign currency revenues and costs, thus limiting the Company's profit exposure
to foreign currency fluctuations. In addition, when considered appropriate, the
Company purchases foreign currency options with periods consistent with the
related underlying exposures.
Gillette enters into currency forwards, swaps and interest rate swaps in
order to effectively mitigate financial risk. The swaps are entered into with
notional amounts, interest rates and time periods that match the underlying
debt.
The Company uses swaps and options to hedge equity-linked compensation
liability exposures with terms that match the underlying exposures. The Company
sells equity put options to supplement open market purchases of its common
stock.
Financial instrument positions are monitored using value-at-risk
techniques. 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, 1998 and 1997, a near-term
change in market rates would not materially affect the consolidated financial
position, results of operations or cash flows of the Company.
- --------------------------------------------------------------------------------
REORGANIZATION AND REALIGNMENT
On September 28, 1998, the Company announced a reorganization and realignment
program that resulted in a third-quarter charge to operations of $535 million
($347 million after taxes, or $.30 in net income per common share, fully
diluted).
The worldwide reorganization of operations will aid the Company in several
ways. It will strengthen the global business management focus on the six core
product categories, enhance the global focus on new product development and
manufacturing, achieve more effective leveraging of global resources, respond to
changing worldwide business conditions and improve the Company's ability to
rapidly expand product offerings to consumers through worldwide trade channels.
The program will result in a reduction of approximately 4,700 employees
across all business segments, geographies and employee groups. Pretax cash
outlays were $16 million in 1998 and are estimated at approximately $180 million
in 1999 and $160 million in 2000. Cash severance payments will extend beyond the
completion of program activities, due to the severance payment options available
to affected employees. In 1999, cash expenditures from the program are expected
to be greater than the cash benefits generated. Cash requirements will be funded
from operations. When fully implemented in 2000, the program will generate
pretax savings of approximately $200 million annually.
After a year-long review, the Company identified manufacturing
rationalization opportunities for 14 factories and 12 warehouses. During this
review, it was determined that some factories have underutilized capacity,
others are technologically obsolete and, due to the Company's recent redesign of
portions of the worldwide supply chain, others are no longer required.
The customer management function -- selling, merchandising and product
promotion -- will undergo a global rationalization that will consolidate these
activities into core product teams.
The Commercial Operations groups will be serviced by common administrative
support functions located in each geography. These shared service centers will
enable the closure of 30 office facilities.
The assets affected by this program include factories, warehouses and
office facilities, as well as manufacturing, distribution and office equipment.
The carrying amount of the assets held for disposal is $39 million. Asset
disposals began at the end of 1998
PAGE 21
<PAGE> 18
The Gillette Company and Subsidiary Companies
MANAGEMENT'S DISCUSSION
and will be substantially completed within 18 months. Nearly all of the
revenue-generating activities related to the assets held for disposal will
continue as a result of more effective utilization of other assets. Although all
assets held for disposal may be removed from use at any time, they will be
removed in stages to allow for an orderly implementation of all actions.
Buildings that are owned will be sold, and equipment will be disposed of through
sale or abandonment.
The fair value of the impaired assets was determined based on past
experience with the disposal of comparable assets and third-party appraisals.
The closure of two manufacturing facilities in late 1998 contributed to
fourth-quarter savings of $4 million. Employee reductions through December 31,
1998, totaled 620 employees. Progress to date has met expectations, and the pace
of realignment activities is accelerating. In 1999, approximately 40% of the
annual benefit should be achieved, with the majority of the estimated annual
savings realized in 2000, when the program is completed.
Additional details are provided in the Notes to Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
YEAR 2000
The Company is undertaking a comprehensive approach to address its potential
exposure to the Year 2000 issue -- covering all potentially affected areas
(applications, computers, facilities, manufacturing equipment, suppliers,
customers, etc.) at all locations. Efforts to address the Year 2000 issue began
in 1995 at major sites, and a formal Program Management Office was established
in 1997. This office has focused on setting program policy, tracking progress,
identifying best practices and leveraging common solutions.
The Year 2000 Program Management Office developed a structured, six-phase
program that is being consistently implemented at all locations worldwide. The
first phase is discovery. This phase includes identifying all potentially
affected items, including information technology and noninformation technology
items, assessing compliance and defining the potential business impact of each
noncompliant item.
The second phase is planning. A specific resolution strategy is designed
for each noncompliant item. Non-compliant items are prioritized by their
importance to the overall operations of the business. Once the items are
prioritized, the planning phase includes identifying the tasks and resources
necessary to remedy noncompliance, as well as determining when the work will be
finished.
The third phase is resolution, where the actual corrective work is done. In
addition to work within the Company, Year 2000 readiness of all significant
external business relationships is assessed in this phase.
The fourth phase is testing, validating that the corrective work activities
have been completed. The fifth phase is implementation, where the corrected
items are placed back in operation. The sixth and final phase is certification
that the corrective work has been successful.
At December 31, 1998, 90% of the affected items identified were at the
sixth phase, i.e., certified to be Year 2000 compliant, or their risks have been
minimized to an appropriate level. The Company expects to make substantial
progress on the remaining items by June 30, 1999. The remaining tasks have been
identified and are well understood. Resources have been assigned, and the work
is under way.
The Company also has an extensive quality assurance program in place,
designed to ensure that Year 2000 activities are accomplishing their objectives.
Several multiyear initiatives have been in progress to support the changing
business and, secondarily, to address the Year 2000 issue, such as
implementation of SAP, PeopleSoft and JDE software applications.
The Company continues to develop detailed contingency plans to deal with
unexpected issues, which may occur. These plans include the identification of
appropriate resources and response teams.
Despite this comprehensive approach, the Company cannot be completely sure
that issues will not arise, nor events occur, that could have material adverse
effects on the Company's results of operations or financial condition.
Nevertheless, Gillette does not expect a material failure. The Company's Year
2000 program is designed to minimize the likelihood of any failure occurring.
The most reasonably likely worst-case scenario is that a short-term disruption
will occur with a small number of customers or suppliers, requiring an
appropriate response. In addition, Gillette operations depend on infrastructures
within all countries in which the Company operates and, therefore, a failure of
any one of those infrastructures could materially adversely affect its
operations.
Spending for the program is budgeted, expensed as incurred and not expected
to be material.
PAGE 22
<PAGE> 19
The Gillette Company and Subsidiary Companies
MANAGEMENT'S DISCUSSION
- --------------------------------------------------------------------------------
EURO CONVERSION
The Company has a Euro project team responsible for ensuring the Company's
ability to operate effectively during the Euro transition phase and through
final Euro conversion. Total costs for the entire Euro conversion program are
not expected to be material.
Conversion to the Euro may affect competition between markets, due to price
transparency. Gillette is carefully monitoring its marketing and pricing
strategies throughout the more open European market. The Company also is
converting finance and information technology systems to make and receive
payments in Euros in early 1999 and to use the Euro as its base currency in
relevant markets from January 1, 2001, onward. Existing contracts are being
reviewed for any required modifications. Based on the analysis and actions taken
to date, the Company does not expect the Euro conversion to materially affect
the consolidated financial position, results of operations or cash flows of the
Company.
- --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
AND CAUTIONARY STATEMENT
This report contains "forward-looking statements" about the Company's prospects
and progress. Investors should be aware of factors that could have a negative
impact on prospects and the consistency of progress. These include political,
economic or other factors such as currency exchange rates, inflation rates,
recessionary or expansive trends, taxes and regulations and laws affecting the
worldwide business in each of the Company's markets; competitive product,
advertising, promotional and pricing activity; dependence on the rate of
development and degree of acceptance of new product introductions in the
marketplace; and the difficulty of forecasting sales at certain times in certain
markets. Any such "forward-looking statements" also are qualified by the
detailed statement under Item 7, Cautionary Statement, in the Company's most
recent Annual Report on Form 10-K, and under Item 5, Cautionary Statement, in
the Company's most recent Quarterly Report on Form 10-Q.
- --------------------------------------------------------------------------------
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
generally accepted accounting principles. 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 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 generally accepted
accounting principles.
KPMG Peat Marwick LLP, independent auditors, are engaged 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 39. Their examination was made in accordance with generally accepted
auditing standards 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
directors who are not employees of the Company. The Committee meets periodically
and privately with the independent auditors, with the internal auditors and with
the financial officers of the Company to review matters relating to 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 statement of policy as to the conduct of its
business, including proper accounting, financial reporting and management of the
relationship with the auditors. In addition, it is responsible for recommending
the appointment of the Company's independent auditors, subject to stockholder
approval.
PAGE 23
<PAGE> 20
The Gillette Company and Subsidiary Companies
CONSOLIDATED STATEMENT
OF INCOME
<TABLE>
<CAPTION>
(Millions of dollars, except per share amounts)
Years Ended December 31, 1998, 1997 and 1996 1998 1997 1996
=============================================================== ======= ======= ======
<S> <C> <C> <C>
NET SALES ..................................................... $10,056 $10,062 $9,698
Cost of Sales ................................................. 3,853 3,831 3,682
------- ------- ------
GROSS PROFIT .................................................. 6,203 6,231 6,016
Selling, General and Administrative Expenses .................. 3,879 3,907 3,967
Reorganization and Realignment Expenses ....................... 535 -- --
Merger-Related Costs .......................................... -- -- 413
------- ------- ------
PROFIT FROM OPERATIONS ........................................ 1,789 2,324 1,636
Nonoperating Charges (Income)
Interest income .............................................. (8) (9) (10)
Interest expense ............................................. 94 78 77
Other charges - net .......................................... 34 34 44
------- ------- ------
120 103 111
------- ------- ------
INCOME BEFORE INCOME TAXES .................................... 1,669 2,221 1,525
Income Taxes .................................................. 588 794 576
------- ------- ------
NET INCOME .................................................... $ 1,081 $ 1,427 $ 949
======= ======= ======
NET INCOME PER COMMON SHARE, BASIC ............................ $ .96 $ 1.27 $ .85
NET INCOME PER COMMON SHARE, ASSUMING FULL DILUTION ........... $ .95 $ 1.24 $ .83
Weighted average number of common shares outstanding (millions)
Basic ........................................................ 1,117 1,118 1,107
Assuming full dilution ....................................... 1,144 1,148 1,140
=============================================================== ======= ======= ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PAGE 24
<PAGE> 21
The Gillette Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Millions of dollars)
December 31, 1998 and 1997 1998 1997
============================================================================ ======= =======
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................................. $ 102 $ 105
Receivables, less allowances: 1998 - $79; 1997 - $74 ...................... 2,943 2,522
Inventories ............................................................... 1,595 1,500
Deferred income taxes ..................................................... 517 320
Other current assets ...................................................... 283 243
------- -------
TOTAL CURRENT ASSETS ..................................................... 5,440 4,690
------- -------
PROPERTY, PLANT AND EQUIPMENT, at cost less accumulated depreciation ....... 3,472 3,104
INTANGIBLE ASSETS, less accumulated amortization ........................... 2,448 2,423
OTHER ASSETS ............................................................... 542 647
------- -------
$11,902 $10,864
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Loans payable ............................................................. $ 981 $ 552
Current portion of long-term debt ......................................... 9 9
Accounts payable and accrued liabilities .................................. 2,170 1,794
Income taxes .............................................................. 318 286
------- -------
TOTAL CURRENT LIABILITIES ................................................ 3,478 2,641
------- -------
LONG-TERM DEBT ............................................................. 2,256 1,476
DEFERRED INCOME TAXES ...................................................... 411 359
OTHER LONG-TERM LIABILITIES ................................................ 898 1,101
MINORITY INTEREST .......................................................... 39 39
CONTINGENT REDEMPTION VALUE OF COMMON STOCK PUT OPTIONS .................... 277 407
STOCKHOLDERS' EQUITY
8.0% Cumulative Series C ESOP Convertible Preferred, without par value,
Issued: 1998 - 148,627 shares; 1997 - 154,156 shares ..................... 90 93
Unearned ESOP compensation ................................................ (10) (17)
Common stock, par value $1 per share
Authorized: 2,320,000,000 shares
Issued: 1998 - 1,357,913,938 shares; 1997 - 1,352,581,842 shares ......... 1,358 1,353
Additional paid-in capital ................................................ 621 309
Earnings reinvested in the business ....................................... 5,529 5,021
Accumulated other comprehensive income
Foreign currency translation ............................................. (826) (790)
Pension adjustment ....................................................... (47) (20)
Treasury stock, at cost:
1998 - 252,507,187 shares; 1997 - 231,643,130 shares ..................... (2,172) (1,108)
------- -------
TOTAL STOCKHOLDERS' EQUITY ............................................... 4,543 4,841
------- -------
$11,902 $10,864
======= =======
=================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PAGE 25
<PAGE> 22
The Gillette Company and Subsidiary Companies
CONSOLIDATED STATEMENT
OF CASH FLOWS
<TABLE>
<CAPTION>
(Millions of dollars)
Years Ended December 31, 1998, 1997 and 1996 1998 1997 1996
================================================================================== ====== ====== ======
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ...................................................................... $1,081 $1,427 $ 949
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for reorganization and realignment ................................... 535 -- --
Merger-related costs ........................................................... -- -- 413
Depreciation and amortization .................................................. 459 422 381
Other .......................................................................... (46) (23) --
Changes in assets and liabilities, net of effects from acquisition of businesses:
Accounts receivable ........................................................... (435) (340) (459)
Inventories ................................................................... (123) (157) (105)
Accounts payable and accrued liabilities ...................................... 72 29 67
Other working capital items ................................................... (121) 80 (227)
Other noncurrent assets and liabilities ....................................... (133) (158) (11)
------ ------ ------
Net cash provided by operating activities .................................... 1,289 1,280 1,008
------ ------ ------
INVESTING ACTIVITIES
Additions to property, plant and equipment ...................................... (1,000) (973) (830)
Disposals of property, plant and equipment ...................................... 88 59 41
Acquisition of businesses, less cash acquired ................................... (91) (3) (299)
Sale of business ................................................................ 200 -- --
Other ........................................................................... 5 12 (1)
------ ------ ------
Net cash used in investing activities ........................................ (798) (905) (1,089)
------ ------ ------
FINANCING ACTIVITIES
Purchase of treasury stock ...................................................... (1,066) (53) (11)
Proceeds from sale of put options ............................................... 56 27 --
Proceeds from exercise of stock option and purchase plans ....................... 126 210 150
Funding German pension plans..................................................... (252) -- --
Proceeds from long-term debt .................................................... 500 300 --
Decrease in long-term debt ...................................................... (12) (6) (165)
Increase (decrease) in loans payable ............................................ 708 (383) 578
Dividends paid .................................................................. (552) (466) (451)
------ ------ ------
Net cash provided by (used in) financing activities .......................... (492) (371) 101
------ ------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .......................................... (2) (7) (19)
NET CASH FROM HARMONIZATION PERIOD ............................................... -- 24 --
------ ------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................. (3) 21 1
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................................... 105 84 83
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR ......................................... $ 102 $ 105 $ 84
====== ====== ======
Supplemental disclosure of cash paid for:
Interest ....................................................................... $ 120 $ 101 $ 94
Income taxes ................................................................... $ 478 $ 451 $ 586
Noncash investing and financing activities:
Acquisition of businesses
Fair value of assets acquired ................................................. $ 100 $ 3 $ 361
Cash paid ..................................................................... 91 3 300
------ ------ ------
Liabilities assumed .......................................................... $ 9 $ -- $ 61
====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
PAGE 26
<PAGE> 23
The Gillette Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unearned Additional
Preferred ESOP Common Paid-in
(Millions of dollars) Shares Compensation Stock Capital
========================================= ========= ============ ====== ==========
<S> <C> <C> <C> <C>
Balance at December 31, 1995 ............ $ 97 $ (34) $1,334 $345
---- ----- ------ ----
Net income ............................. -- -- -- --
Cumulative translation adjustments -- -- -- --
Minimum liability adjustment .......... -- -- -- --
Other comprehensive income ........... -- -- -- --
Comprehensive income ................
Dividends declared ..................... -- -- -- --
Stock option and purchase plans
(8,725,960 shares) .................... -- -- 9 141
Conversion of Series C ESOP
preferred stock (222,132 shares) ...... (2) -- -- 1
Purchase of Gillette treasury stock
(420,800 shares) ...................... -- -- -- --
Earned ESOP compensation ............... -- 9 -- --
---- ----- ------ ----
Balance at December 31, 1996 ............ 95 (25) 1,343 487
---- ----- ------ ----
Net income ............................. -- -- -- --
Net results of year-end harmonization -- -- -- --
Cumulative translation adjustments -- -- -- --
Other comprehensive income ........... -- -- -- --
Comprehensive income ................
Dividends declared ..................... -- -- -- --
Stock option and purchase plans
(9,718,242 shares) .................... -- -- 10 201
Conversion of Series C ESOP
preferred stock (301,444 shares) ...... (2) -- -- 1
Purchase of Gillette treasury stock
(1,237,200 shares) .................... -- -- -- --
Proceeds from sale of put options ...... -- -- -- 27
Contingent liability of put options .... -- -- -- (407)
Earned ESOP compensation ............... -- 8 -- --
---- ----- ------ ----
Balance at December 31, 1997 ............ 93 (17) 1,353 309
---- ----- ------ ----
Net income ............................. -- -- -- --
Cumulative translation adjustments -- -- -- --
Minimum liability adjustment .......... -- -- -- --
Other comprehensive income ........... -- -- -- --
Comprehensive income ................
Dividends declared ..................... -- -- -- --
Stock option and purchase plans
(5,332,096 shares) .................... -- -- 5 125
Conversion of Series C ESOP
preferred stock (442,343 shares) ...... (3) -- -- 1
Purchase of Gillette treasury stock
(21,306,400 shares) ................... -- -- -- --
Proceeds from sale of put options ...... -- -- -- 56
Contingent liability of put options .... -- -- -- 130
Earned ESOP compensation ............... -- 7 -- --
---- ----- ------ ----
Balance at December 31, 1998 ............ $ 90 $ (10) $1,358 $621
==== ===== ====== ====
<CAPTION>
Other Total
Earnings Treasury Comprehensive Stockholders'
(Millions of dollars) Reinvested Stock Income Equity
========================================= ========== ======== ============= =============
<S> <C> <C> <C> <C>
Balance at December 31, 1995 ............ $3,704 $(1,046) $(521) $3,879
------ ------- ----- ------
Net income ............................. 949 -- -- 949
Cumulative translation adjustments -- -- (22) (22)
Minimum liability adjustment .......... -- -- 1 1
----- ------
Other comprehensive income ........... -- -- (21) (21)
----- ------
Comprehensive income ................ 928
------
Dividends declared ..................... (484) -- -- (484)
Stock option and purchase plans
(8,725,960 shares) .................... -- -- -- 150
Conversion of Series C ESOP
preferred stock (222,132 shares) ...... -- 1 -- --
Purchase of Gillette treasury stock
(420,800 shares) ...................... -- (11) -- (11)
Earned ESOP compensation ............... -- -- -- 9
------ ------- ----- ------
Balance at December 31, 1996 ............ 4,169 (1,056) (542) 4,471
------ ------- ----- ------
Net income ............................. 1,427 -- -- 1,427
Net results of year-end harmonization (89) -- -- (89)
Cumulative translation adjustments -- -- (268) (268)
----- ------
Other comprehensive income ........... -- -- (268) (268)
----- ------
Comprehensive income ................ 1,070
------
Dividends declared ..................... (486) -- -- (486)
Stock option and purchase plans
(9,718,242 shares) .................... -- -- -- 211
Conversion of Series C ESOP
preferred stock (301,444 shares) ...... -- 1 -- --
Purchase of Gillette treasury stock
(1,237,200 shares) .................... -- (53) -- (53)
Proceeds from sale of put options ...... -- -- -- 27
Contingent liability of put options .... -- -- -- (407)
Earned ESOP compensation ............... -- -- -- 8
------ ------- ----- ------
Balance at December 31, 1997 ............ 5,021 (1,108) (810) 4,841
------ ------- ----- ------
Net income ............................. 1,081 -- -- 1,081
Cumulative translation adjustments -- -- (36) (36)
Minimum liability adjustment .......... -- -- (27) (27)
----- ------
Other comprehensive income ........... -- -- (63) (63)
----- ------
Comprehensive income ................ 1,018
------
Dividends declared ..................... (573) -- -- (573)
Stock option and purchase plans
(5,332,096 shares) .................... -- -- -- 130
Conversion of Series C ESOP
preferred stock (442,343 shares) ...... -- 2 -- --
Purchase of Gillette treasury stock
(21,306,400 shares) ................... -- (1,066) -- (1,066)
Proceeds from sale of put options ...... -- -- -- 56
Contingent liability of put options .... -- -- -- 130
Earned ESOP compensation ............... -- -- -- 7
------ ------- ----- ------
Balance at December 31, 1998 ............ $5,529 $(2,172) $(873) $4,543
====== ======= ===== ======
</TABLE>
Dividends declared per common share in 1998, 1997 and 1996 were $.51, $.43 and
$.36, respectively, for Gillette, and in 1996, $.58 for Duracell.
================================================================================
See accompanying Notes to Consolidated Financial Statements.
PAGE 27
<PAGE> 24
The Gillette Company and Subsidiary Companies
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
NATURE OF OPERATIONS
The Gillette Company is a global consumer products firm, with manufacturing
operations conducted at 62 facilities in 25 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 female grooming products, such as
wet shaving products and hair epilation devices. The Company is the world's top
seller of writing instruments and correction products and is the world leader in
toothbrushes, oral care appliances and alkaline batteries.
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses. 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.
At the end of 1997, the year-ends of all operating groups were harmonized,
with a common calendar year-end of December 31. The results of the accounting
period necessary for harmonization -- in the aggregate a loss of $24 million --
are reflected as a charge in the stockholders' equity section of the balance
sheet. Also reflected in this section is a charge of $51 million, adjusting for
seasonality of advertising.
In the first quarter of 1997, Duracell entities outside North America
changed their year-end reporting periods to coincide with those of Gillette
operations, resulting in a charge of $14 million to stockholders' equity.
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash, time deposits and all highly liquid debt
instruments with an original maturity of three months or less.
- --------------------------------------------------------------------------------
INVENTORIES
Inventories are stated at the lower of cost or market. In general, cost is
currently adjusted standard cost, which approximates actual cost on a first-in,
first-out basis.
- --------------------------------------------------------------------------------
DEPRECIATION
Depreciation is computed primarily on a straight-line basis over the estimated
useful lives of assets.
- --------------------------------------------------------------------------------
ADVERTISING
Advertising costs are expensed in the year incurred.
- --------------------------------------------------------------------------------
INTANGIBLE ASSETS
Intangible assets, principally goodwill, are amortized on the straight-line
method, generally over a period of 40 years. The carrying amounts of intangible
assets are assessed for impairment when operating profit from the related
business indicates that the carrying amounts of the assets may not be
recoverable.
- --------------------------------------------------------------------------------
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.
Net income and shares used to compute net income per share, basic and
assuming full dilution, are reconciled below.
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
========================================== ====== ====== =====
<S> <C> <C> <C>
Net income as reported.................... $1,081 $1,427 $ 949
Less: Preferred stock dividends........... 4 4 5
------ ------ -----
Net income, basic......................... $1,077 $1,423 $ 944
------ ------ -----
Effect of dilutive securities:
Convertible preferred stock.............. 5 4 4
------ ------ -----
Net income, assuming full dilution $1,082 $1,427 $ 948
====== ====== =====
Common shares, basic...................... 1,117 1,118 1,107
Effect of dilutive securities:
Convertible preferred stock.............. 12 12 13
Stock options............................ 15 18 20
------ ------ -----
Common shares, assuming full
dilution................................. 1,144 1,148 1,140
====== ====== =====
</TABLE>
PAGE 28
<PAGE> 25
The Gillette Company and Subsidiary Companies
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INCOME TAXES
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 $3.7
billion at December 31, 1998.
- --------------------------------------------------------------------------------
RECLASSIFICATION OF PRIOR YEARS
Prior year financial statements have been reclassified to conform to the 1998
presentations.
- --------------------------------------------------------------------------------
EFFECT OF ACCOUNTING CHANGES
In 1998, the Financial Accounting Standards Board issued SFAS 132, "Employers'
Disclosure about Pensions and Other Postretirement Benefits," and SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 132 has
been adopted. SFAS 133 will be adopted no later than January 1, 2000. Its impact
on the consolidated financial statements is still being evaluated, but is not
expected to be material.
Also in 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," and SOP 98-5, "Reporting on the Costs of Start-Up
Activities." The Company adopted SOP 98-1 on January 1, 1998, with no material
effect on the consolidated financial statements. The Company will adopt SOP
98-5 in 1999. It will not materially affect the consolidated financial
statements.
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION
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 transactions
of a long-term investment nature and transactions designated as hedges of net
foreign investments.
An analysis of cumulative translation adjustments follows.
<TABLE>
<CAPTION>
(Millions of dollars) 1998 1997 1996
======================================= ===== ===== =====
<S> <C> <C> <C>
Balance at beginning of year........... $(790) $(522) $(500)
Translation adjustments, including
the effect of hedging................. (86) (222) 18
Related income tax effect.............. 50 (46) (40)
----- ----- -----
Balance at end of year................. $(826) $(790) $(522)
===== ===== =====
</TABLE>
Included in Other charges in the Consolidated Statement of Income are net
exchange losses of $23 million, $18 million and $32 million for 1998, 1997 and
1996, respectively.
- --------------------------------------------------------------------------------
INVENTORIES
<TABLE>
<CAPTION>
December 31, December 31,
(Millions of dollars) 1998 1997
==================================== ============ ============
<S> <C> <C>
Raw materials and supplies.......... $ 244 $ 279
Work in process..................... 232 186
Finished goods...................... 1,119 1,035
------ ------
$1,595 $1,500
====== ======
</TABLE>
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND
EQUIPMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------
<S> <C> <C>
Land..................................... $ 69 $ 80
Buildings................................ 745 734
Machinery and equipment.................. 4,891 4,377
------ ------
5,705 5,191
Less accumulated depreciation............ 2,233 2,087
------ ------
$3,472 $3,104
====== ======
</TABLE>
- --------------------------------------------------------------------------------
INTANGIBLE ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------
<S> <C> <C>
Goodwill ($44 million not
subject to amortization)................ $2,068 $2,023
Other intangible assets.................. 1,194 1,128
------ ------
3,262 3,151
Less accumulated amortization............ 814 728
------ ------
$2,448 $2,423
====== ======
</TABLE>
- --------------------------------------------------------------------------------
ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------
<S> <C> <C>
Accounts payable......................... $ 606 $ 542
Advertising and sales promotion.......... 391 360
Payroll and payroll taxes................ 175 221
Other taxes.............................. 85 25
Dividends payable on common stock 141 120
Reorganization/realignment expense 308 --
Merger-related costs..................... -- 101
Miscellaneous............................ 464 425
------ ------
$2,170 $1,794
====== ======
</TABLE>
PAGE 29
<PAGE> 26
The Gillette Company and Subsidiary Companies
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
December 31, December 31,
(Millions of dollars) 1998 1997
======================================== ============ ============
<S> <C> <C>
Pensions................................ $242 $ 450
Postretirement medical.................. 305 302
Incentive plans......................... 183 171
Reorganization/realignment expense...... 38 --
Miscellaneous........................... 130 178
---- ------
$898 $1,101
==== ======
</TABLE>
- --------------------------------------------------------------------------------
DEBT
Commercial paper included in Loans payable was $557 million at December 31,
1998, and nil at December 31, 1997. The Company's commercial paper program is
supported by its revolving credit facilities.
A summary of long-term debt follows.
<TABLE>
<CAPTION>
December 31, December 31,
(Millions of dollars) 1998 1997
========================================= ============== =============
<S> <C> <C>
Commercial paper......................... $1,100 $ 780
5.00% Notes due 2006..................... 300 --
5.75% Notes due 2005..................... 200 200
6.25% Notes due 2003..................... 150 150
5.75% Notes due 2001..................... 200 --
6.00% Notes due 2000..................... 300 300
8.03% Guaranteed ESOP notes
due through 2000........................ 13 22
Other, multicurrency borrowings.......... 2 33
------ ------
Total long-term debt..................... 2,265 1,485
Less current portion..................... 9 9
------ ------
Long-term portion........................ $2,256 $1,476
====== ======
</TABLE>
At December 31, 1998, the Company had swap agreements that converted $1.15
billion U.S. dollar-denominated long-term fixed rate debt notes into Deutschmark
and U.S. dollar principal and floating interest rate obligations, over the terms
of the respective issues, resulting in an aggregate principal amount of $1.13
billion, at a weighted average interest rate of 4.7%. As of December 31, 1997,
the Company's swap agreements converted $650 million in U.S. dollar-denominated
long-term fixed rate debt notes into Deutschmark and U.S. dollar principal and
floating interest rate obligations with an aggregate principal amount of $604
million, at a weighted average interest rate of 4.8%.
The Company also had forward exchange contracts at December 31, 1998,
maturing in 1999 and 2000, that established $818 million in multicurrency
principal, 2.7% interest obligations, with respect to $731 million of U.S.
dollar commercial paper debt included in Long-Term Debt and $32 million of
foreign currency debt included in Loans payable. At December 31, 1997, the
Company's forward exchange contracts established $373 million in multicurrency
principal, 4.2% interest obligations, with respect to $356 million of U.S.
dollar commercial paper debt included in Long-Term Debt and $33 million of
foreign currency debt included in Loans payable.
Exchange rate movements give rise to changes in the values of the foreign
currency-related agreements that offset changes in the values of the underlying
exposures. Amounts associated with these agreements were payables of $33 million
at December 31, 1998, and receivables of $62 million at December 31, 1997.
The weighted average interest rate on Loans payable, including associated
swaps, was 4.8% at December 31, 1998, and 4.2% at December 31, 1997. The
weighted average interest rate on total long-term debt, including associated
swaps and excluding the guaranteed ESOP notes, was 4.1% and 5.3% at December 31,
1998 and 1997, respectively.
The Company has a $2.0 billion revolving bank credit agreement that expires
in October 1999 and a $1.1 billion revolving bank credit agreement expiring in
December 2001, both of which may be used for general corporate purposes. Under
the agreements, the Company has the option to borrow at various interest rates,
including the prime rate, and is required to pay an average facility fee of
.039% per annum. At year-end 1998 and 1997, there were no borrowings under such
agreements.
Based on the Company's intention and ability to maintain its $1.1 billion
revolving credit agreement beyond 1999, $1.1 billion of commercial paper
borrowing was classified as long-term debt at December 31, 1998. As of December
31, 1997, $780 million of commercial paper borrowings and $20 million of Loans
payable were so classified.
Aggregate maturities of total long-term debt for the five years subsequent
to December 31, 1998, are $9 million in 1999, $305 million in 2000, $200 million
in 2001 and $150 million in 2003.
Unused lines of credit, including the revolving bank credit agreements,
amounted to $3.8 billion at December 31, 1998.
PAGE 30
<PAGE> 27
The Gillette Company and Subsidiary Companies
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS
The Company uses financial instruments, principally swaps, forward contracts and
options, to achieve its financing strategy and to hedge foreign currency,
commodity and equity-linked employee compensation exposures. These contracts
hedge transactions and balances for periods consistent with their committed
exposures and do not constitute investments independent of these exposures. The
Company does not hold or issue financial instruments for trading purposes, nor
is it a party to any leveraged contracts.
Realized and unrealized foreign exchange gains and losses on financial
instruments are recognized and offset foreign exchange gains and losses on the
underlying exposures. Any gain or loss from a financial instrument that ceases
to be an effective hedge is recognized in the income statement. The interest
differential paid or received on swap and forward agreements is recognized as an
adjustment to interest expense.
During 1998, the Company purchased foreign currency put options, with a
strike price of $159 million and a cost of $12 million, to protect 1998 U.S.
dollar results. The options expired $14 million in the money and all related
gains and expenses were included within 1998 profit from operations. At December
31, 1998, the Company had purchased a foreign currency put option to protect
1999 U.S. dollar results, with a strike price of $111 million and a cost of $4
million. At December 31, 1997, there were no foreign currency put options
outstanding.
The Company also has fixed the cost of certain employee benefit expenses
linked to its stock price by entering into equity swap and option contracts that
mature in 1999, 2002 and 2003. At December 31, 1998 and 1997, the notional
principal amounts of such contracts were $62 million and $53 million,
respectively, at a cost of $8 million each. The cost is amortized over the
duration of the contracts, and gains or losses are recognized as adjustments to
the carrying amount of the underlying liabilities.
In addition, the Company utilizes commodity swaps to fix the price on a
portion of certain raw materials used in the manufacturing process. As of
year-end 1998, $22 million of commodity swaps was outstanding, maturing through
December 1999. Such contracts at December 31, 1997, amounted to $31 million. The
maturity of the contracts highly correlates to the actual purchases of the
commodity, and contract values are reflected in the cost of the commodity as it
is actually purchased.
The above amounts exclude the swap and forward agreements described in the
Debt note, as well as the equity put options associated with the share
repurchase program, which are described separately in the Notes.
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. Any probable
bad debt loss has been provided for in the allowance for doubtful accounts.
The estimated fair values of the Company's financial instruments are
summarized below.
<TABLE>
<CAPTION>
Carrying Estimated
(Millions of dollars) Amount Fair Value
==================================== ========== ===========
<S> <C> <C>
DECEMBER 31, 1998
Long-term investments............... $ 177 $ 177
Total long-term debt................ (2,265) (2,277)
Foreign currency, interest rate
and commodity contracts............ 11 16
Equity contracts.................... 15 10
DECEMBER 31, 1997
Long-term investments............... $ 146 $ 148
Total long-term debt................ (1,485) (1,485)
Foreign currency, interest rate
and commodity contracts............ 70 65
Equity contracts.................... 28 28
</TABLE>
The carrying amounts for cash, short-term investments, receivables,
accounts payable and accrued liabilities, and loans payable approximate fair
value because of the short maturity of these instruments. The fair value of
long-term investments is estimated based on quoted market prices. The fair value
of long-term debt, including the current portion, is estimated based on current
rates offered to the Company for debt of the same remaining maturities. The fair
value of foreign currency, interest rate, equity and commodity contracts is
estimated based on dealer quotes. These values represent the estimated amounts
the Company would receive or pay to terminate agreements, taking into
consideration current market rates and the current credit-worthiness of the
counterparties.
PAGE 31
<PAGE> 28
The Gillette Company and Subsidiary Companies
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTINGENCIES
The Company is subject to legal proceedings and claims arising out of its
business that cover a wide range of matters, including antitrust and trade
regulation, contracts, 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 lawsuits and claims would not materially
affect the consolidated financial position, results of operations or liquidity
of the Company.
- --------------------------------------------------------------------------------
COMMITMENTS
Minimum rental commitments under noncancellable leases, primarily for office
and warehouse facilities, are $57 million in 1999, $46 million in 2000, $37
million in 2001, $31 million in 2002, $18 million in 2003 and $47 million for
years thereafter. Rental expense amounted to $103 million in 1998, $93 million
in 1997 and $93 million in 1996.
- --------------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT
Research and development costs, included in selling, general and administrative
expenses, amounted to $209 million in 1998, $212 million in 1997 and $204
million in 1996.
- --------------------------------------------------------------------------------
MERGER-RELATED COSTS
In December 1996, Gillette completed a merger with Duracell International Inc.
In connection with the merger, the Company recorded a charge to operating
expenses of $413 million for direct and other merger-related costs pertaining to
the merger transaction and the combination of the worldwide businesses. In 1998,
the Company utilized the remaining $130 million from the reserve. All programs
were completed, and all program objectives were accomplished.
- --------------------------------------------------------------------------------
BUSINESS COMBINATIONS
AND DIVESTITURES
In 1998, the Company sold its Jafra skin care and color cosmetics business for
$200 million. The transaction did not have a material impact on financial
results.
Also during 1998, the Company acquired two businesses in the Duracell
segment, in South Korea and India, for an aggregate purchase price of $100
million. These two acquisitions have been accounted for by the purchase method
of accounting. Their results of operations since acquisition, which have been
included in the Company's consolidated financial statements in 1998, have not
materially affected the consolidated financial position, results of operations
or liquidity of the Company.
In 1997, the Company acquired an oral care business for $3 million.
- --------------------------------------------------------------------------------
REORGANIZATION AND REALIGNMENT
On September 28, 1998, the Company announced a reorganization that would realign
its worldwide operations. The reorganization includes formation of a new
management structure and the consolidation of business management and commercial
operations and related administrative functions. This will result in the closure
of 14 factories, 12 warehouses and 30 office facilities.
The program began in the fourth quarter of 1998, and will be implemented in
stages over an 18-month period. It will result in the reduction of approximately
4,700 employees across all business functions, business segments, geographic
areas and employee groups. Two manufacturing facilities were closed in 1998,
accounting for most of the 620 employee reductions in 1998.
In connection with the reorganization and realignment, and in accordance
with EITF issue 94-3 and SFAS 121, the Company recorded in the third quarter of
1998 a charge to operating expenses of $535 million ($347 million after taxes,
or $.30 in net income per common share, fully diluted). Employee severance and
related benefits, shown below, includes salary continuation, fringe benefits,
outplacement fees and special termination benefits related to pensions.
Details of the reorganization and realignment charges follow.
<TABLE>
<CAPTION>
1998 Utilized
(Millions of dollars) Provision 1998 Balance
================================== ========= ======== =======
<S> <C> <C> <C>
Employee severance and
related benefits .............. $385 $ 51 $334
Asset impairments ................ 135 135 --
Distributor buyout costs ......... 15 3 12
---- ---- ----
Total............................. $535 $189 $346
==== ==== ====
</TABLE>
-------------------------------
The effect of suspending depreciation for impaired assets in the fourth
quarter was $3 million.
PAGE 32
<PAGE> 29
The Gillette Company and Subsidiary Companies
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INCOME TAXES
Deferred income taxes are recognized for the expected tax consequences of
temporary differences by applying enacted statutory tax rates, applicable to
future years, to differences between the financial reporting basis and tax basis
of assets and liabilities.
Income before income taxes and income tax expense are summarized below.
<TABLE>
<CAPTION>
(Millions of dollars) 1998 1997 1996
================================== ====== ====== ======
<S> <C> <C> <C>
Income before income taxes
United States ................... $1,026 $1,119 $ 880
Foreign ......................... 643 1,102 645
------ ------ ------
Total income before
income taxes .................... $1,669 $2,221 $1,525
====== ====== ======
Current tax expense
Federal ......................... $ 340 $ 247 $ 320
Foreign ......................... 330 311 307
State ........................... 58 59 67
Deferred tax expense
Federal ......................... (56) 77 (66)
Foreign ......................... (76) 87 (52)
State ........................... (8) 13 --
------ ------ ------
Total income tax expense ......... $ 588 $ 794 $ 576
======= ====== ======
</TABLE>
A reconciliation of the statutory Federal income tax rates to the Company's
effective tax rate follows.
<TABLE>
<CAPTION>
(Percent) 1998 1997 1996
======================================= ==== ==== ====
<S> <C> <C> <C>
Statutory Federal tax rate............. 35.0% 35.0% 35.0%
Goodwill amortization.................. .3 .3 .3
Rate differential on
foreign income........................ 1.6 .4 --
Effect of foreign currency
translation........................... .2 .1 .2
State taxes (net of
Federal tax benefits)................. 1.9 2.1 2.6
Other differences...................... (3.7) (2.1) (1.7)
---- ---- ----
Effective tax rate before
merger-related costs.................. 35.3% 35.8% 36.4%
Merger-related costs................... -- -- 1.4
---- ---- ----
Effective tax rate..................... 35.3% 35.8% 37.8%
==== ==== ====
</TABLE>
The components of deferred tax assets and deferred tax liabilities are
shown below.
<TABLE>
<CAPTION>
1998 1997
---------------------- ---------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
(Millions of dollars) Assets Liabilities Assets Liabilities
============================== ========== ============= ========== ============
<S> <C> <C> <C> <C>
CURRENT
Advertising and sales
promotion................... $ 23 $ -- $ 32 $ --
Benefit plans................ 81 -- 77 --
Merger-related costs and
certain realignment
programs.................... 161 -- 36 --
Miscellaneous reserves
and accruals................ 81 -- 91 --
Operating loss and credit
carryforwards............... 11 -- 7 --
Other........................ 160 -- 77 --
---- ---- ---- ----
Total current............... 517 $ -- 320 $ --
---- ==== ---- ====
Net current................. $517 $320
==== ====
NONCURRENT
Benefit plans................ $180 $ -- $163 $ --
Intangibles.................. -- 210 -- 230
Merger-related costs and
certain realignment
programs.................... 13 -- 12 --
Operating loss and credit
carryforwards............... 31 -- 33 --
Property, plant and
equipment................... -- 385 -- 246
Other........................ -- 11 -- 60
---- ---- ---- ----
Total noncurrent............ 224 606 208 536
---- ---- ---- ----
Valuation allowance.......... $(29) $(31)
==== ====
Net noncurrent............... $411 $359
==== ====
TOTAL
Net deferred tax assets/
liabilities................. $106 $ 39
==== ====
</TABLE>
PAGE 33
<PAGE> 30
The Gillette Company and Subsidiary Companies
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PENSION PLANS AND OTHER RETIREE BENEFITS
The Company has various retirement programs, including defined benefit, defined
contribution and other plans, that cover most employees worldwide. In 1998, the
Company began funding its pension plans in Germany by contributing $252 million
to a newly established pension trust. Other retiree benefits are health care and
life insurance benefits provided to eligible retired employees, principally in
the United States. The components of benefit expense follow.
<TABLE>
<CAPTION>
Pension Benefits Other Retiree Benefits
------------------------ ------------------------
(Millions of dollars) 1998 1997 1996 1998 1997 1996
============================================== ==== ====== ====== ==== ==== ====
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET BENEFIT EXPENSE
Service cost-benefits earned ................ $ 67 $ 64 $ 61 $ 6 $ 5 $ 2
Interest cost on benefit obligation ......... 123 115 109 17 17 19
Estimated return on assets .................. (157) (118) (103) (3) (2) (2)
Net amortization ............................ 6 6 12 (7) (8) (3)
---- ---- ---- --- --- ---
39 67 79 13 12 16
Defined contribution plans .................. 2 4 4 -- -- --
Foreign plans not on SFAS 87 ................ 10 8 7 -- -- --
---- ---- ---- --- --- ---
Total benefit expense ........................ $ 51 $ 79 $ 90 $13 $12 $16
==== ==== ==== === === ===
</TABLE>
The funded status of the Company's principal defined benefit and other
retiree benefit plans and the amounts recognized in the balance sheet at
December 31 follow.
<TABLE>
<CAPTION>
Pension Benefits Other Retiree Benefits
---------------- ----------------------
(Millions of dollars) 1998 1997 1998 1997
======================================================================== ====== ====== ===== ======
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Balance at beginning of year .......................................... $1,790 $1,689 $ 248 $ 266
Benefit payments ...................................................... (105) (83) (14) (13)
Service and interest costs ............................................ 191 179 23 22
Amendments ............................................................ 48 4 1 1
Actuarial (gains) losses .............................................. 88 52 (16) (28)
Currency translation adjustment ....................................... 10 (51) (2) --
------ ------ ----- ------
Balance at end of year ................................................ 2,022 1,790 240 248
CHANGE IN FAIR VALUE OF PLAN ASSETS:
Balance at beginning of year .......................................... 1,540 1,278 33 24
Actual return on plan assets .......................................... 204 272 6 6
Employer contribution ................................................. 299 57 (3) 3
Benefit payments ...................................................... (86) (69) -- --
Currency translation adjustment ....................................... -- 2 -- --
------ ------ ----- ------
Balance at end of year ................................................ 1,957 1,540 36 33
Plan assets less than benefit obligation ............................... (65) (250) (204) (215)
Unrecognized prior service cost and transition obligation .............. 57 36 (1) --
Unrecognized net loss (gain) ........................................... 54 17 (100) (87)
Minimum liability adjustment included in:
Intangible assets ..................................................... (17) (15) -- --
Stockholders' equity .................................................. (47) (20) -- --
------ ------ ----- ------
Net accrued benefit cost included in consolidated balance sheet ........ $ (18) $ (232) $(305) $ (302)
====== ====== ===== ======
</TABLE>
PAGE 34
<PAGE> 31
The Gillette Company and Subsidiary Companies
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The values at December 31 for pension plans with accumulated benefit
obligations in excess of plan assets follow.
<TABLE>
<CAPTION>
(Millions of dollars) 1998 1997
========================================= ==== ====
<S> <C> <C>
Projected benefit obligation............. $570 $506
Accumulated benefit obligation........... 506 429
Fair value of plan assets................ 304 30
</TABLE>
The weighted average assumptions used in determining related obligations of
pension benefit plans are shown below.
<TABLE>
<CAPTION>
(Percent) 1998 1997 1996
=============================================== ==== ==== ====
<S> <C> <C> <C>
Discount rate.................................. 6.3 7.1 7.1
Long-term rate of return on assets............. 8.6 9.3 9.4
Rate of compensation increase.................. 3.9 4.9 4.8
</TABLE>
The weighted average assumptions used in determining related obligations of
other retiree benefit plans are shown below.
<TABLE>
<CAPTION>
(Percent) 1998 1997 1996
=============================================== ==== ==== ====
<S> <C> <C> <C>
Discount rate.................................. 6.5 7.0 7.0
Long-term rate of return on assets............. 9.0 9.0 9.0
</TABLE>
The assumed health care cost trend rate for 1999 is 6.5%, decreasing to
4.5% by 2001. A one percentage point increase in the trend rate would have
increased the accumulated postretirement benefit obligation by 12%, and interest
and service cost by 13%. A one percentage point decrease in the trend rate would
have decreased the accumulated postretirement benefit obligation by 10%, and
interest and service cost by 11%.
The Employee Stock Ownership Plan (ESOP) was established to assist
Gillette employees in financing retiree medical costs. ESOP shares allocated to
eligible participants reduce the Company's obligations over the period of
allocation. Account balances are assumed to have an annual yield of 12%. A
retiree health benefits account within the Company's principal domestic pension
plan will also be used to pay these costs.
- --------------------------------------------------------------------------------
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.
Each share of Series C stock is entitled to vote as if it were converted to
common stock and is convertible into 80 common shares at $7.53594 per share. At
December 31, 1998, 148,627 Series C shares were outstanding, of which 132,282
shares were allocated to employees and the remaining 16,345 shares were held in
the ESOP trust for future allocations. The 148,627 Series C shares are
equivalent to 11,890,147 shares of common stock, about 1.1% of the Company's
outstanding voting stock.
The Series C stock is redeemable upon the occurrence of certain change in
control or other events, at the option of the Company or the holder, depending
on the event, at varying prices not less than the purchase price plus accrued
dividends.
The ESOP purchased the Series C shares with borrowed funds guaranteed by
the Company. Gillette contributions to the ESOP and the dividends paid on the
Series C shares are used to pay loan principal and interest semiannually over a
10-year period.
As the ESOP loan is repaid, a corresponding amount of Series C stock held
in the trust is released to participant accounts. Allocations are made 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.
The unpaid balance of this loan is reported as a liability of the Company.
An unearned ESOP compensation amount is reported as an offset to the Series C
shares in the equity section.
Plan costs and activity follow.
<TABLE>
<CAPTION>
(Millions of dollars) 1998 1997 1996
============================================ ==== ==== ====
<S> <C> <C> <C>
Compensation expense........................ $ 2 $ 3 $ 4
Cash contributions and dividends paid....... 10 11 13
Principal payments.......................... 9 9 10
Interest payments........................... 1 2 3
</TABLE>
- --------------------------------------------------------------------------------
STOCK COMPENSATION PLANS
At December 31, 1998, the Company had stock-based compensation plans described
below that include the pre-merger plans of Duracell.
Stock option plans authorize the granting of options on shares of the
Company's common stock to selected key employees, including those who also may
be officers, and to nonemployee directors, at not less than the fair market
value of the stock on the date of grant. Outstanding options have seven- to
10-year terms.
Options granted prior to April 17, 1997, are 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 after
PAGE 35
<PAGE> 32
The Gillette Company and Subsidiary Companies
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
April 16, 1997, one-third of the options become vested on each of the first
three anniversaries 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) and the granting of incentive stock options.
The Company applied 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, net
income would have been reduced by $100 million in 1998, $88 million in 1997 and
$47 million in 1996. The impact of this charge on net income per common share,
both basic and assuming full dilution, would have been $.09, $.08 and $.04 in
1998, 1997 and 1996, respectively.
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 used for grants in 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996*
========= ========= ==============
<S> <C> <C> <C>
Risk-free interest rates .. 5.7% 6.6% 6.5/6.7%
Expected option lives ..... 4.5 years 4.6 years 4.6/7.0 years
Expected volatilities ..... 19.2% 19.2% 22.0/29.0%
Expected dividend yields .. .9% .9% 1.2/2.1%
</TABLE>
* Gillette/Duracell
- --------------------------------------------------------------------------------
A summary of the status of the Company's stock option plans at December 31,
1998, 1997 and 1996 follows.
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- ------------------------- --------------------------
Weighted Average Weighted Average Weighted Average
(Thousands of shares) Shares Exercise Price Shares Exercise Price Shares Exercise Price
======================================= ======= ================ ====== ================ ======= ================
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year* ..... 38,828 $ 27.18 38,536 $18.71 41,500 $14.80
Granted ............................... 10,984 56.29 10,586 47.15 8,918 29.01
Exercised ............................. (5,635) 17.53 (10,094) 15.59 (9,966) 13.16
Cancelled ............................. (518) 48.59 (200) 37.49 (986) 20.49
------ ------ ------
Outstanding at year-end* .............. 43,659 35.49 38,828 27.18 39,466 18.29
====== ====== ======
Options exercisable at year-end ....... 26,321 28,334 31,410
====== ====== ======
Weighted average fair value of options
granted during the year .............. $14.12 $12.92 $ 8.39
</TABLE>
* Options outstanding at year-end 1996 include 9,710 pre-merger Duracell
options. Options outstanding at the beginning of 1997 reflect the
conversion of each Duracell option to .904 of a Gillette option.
The following table summarizes information about fixed stock options
outstanding at December 31, 1998.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- ---------------------------------
Number Weighted Average Number
Outstanding Remaining Years Weighted Average Exercisable Weighted Average
Range of Exercise Prices (Thousands) of Contractual Life Exercise Price (Thousands) Exercise Price
========================== ============= ===================== ================== ============= =================
<S> <C> <C> <C> <C> <C>
$ 3- 9.................... 1,455 2.0 $ 8 1,455 $ 8
11-14 ................... 3,334 4.1 12 3,334 12
16-21 ................... 10,997 5.2 19 10,997 19
21-26 ................... 378 3.0 24 378 24
27-30 ................... 6,571 7.5 29 6,571 29
35-48 ................... 10,049 8.5 47 3,586 47
50-60 ................... 10,875 9.5 56 --
------ ------
$ 3-60.................... 43,659 7.1 $35 26,321 $24
====== ======
</TABLE>
PAGE 36
<PAGE> 33
The Gillette Company and Subsidiary Companies
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Eligible Gillette employees participate in the Stock Equivalent Unit Plan,
which provides for awards of basic stock units to key employees, although awards
have not been made to executive officers since 1990. Each unit is treated as
equivalent to one share of the Company's common stock. However, the employee
only receives appreciation, if any, in the market value of the stock and
dividend equivalent units as dividends are paid. Appreciation on basic stock
units is limited to 100% of the original market value. Benefits accrue over
seven years, and vesting commences in the third year. Plan expense amounted to
$9 million in 1998, $21 million in 1997 and $23 million in 1996.
- --------------------------------------------------------------------------------
SHARE REPURCHASE PROGRAM
On September 18, 1997, the Company's Board of Directors authorized a share
repurchase program to purchase up to 50 million shares in the open market or in
privately negotiated transactions, depending on market conditions and other
factors. The Company repurchased 21 million shares in the open market for $1,066
million in 1998. Since the inception of the program, the Company has repurchased
22 million shares in the open market for $1,119 million.
During 1997 and 1998, the Company sold equity put options as an enhancement
to its ongoing share repurchase program and collected $83 million in premiums.
These options provide the Company with an additional source to supplement
open-market purchases of its common stock. The 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, 1998 and 1997, no shares of outstanding common stock
were subject to repurchase under the terms and conditions of these options.
- --------------------------------------------------------------------------------
PREFERRED STOCK PURCHASE RIGHTS
At December 31, 1998, the Company had 1,117,296,898 preferred stock purchase
rights outstanding as follows: one right for each share of common stock
outstanding and a total of 11,890,147 rights for the outstanding Series C
preferred stock. 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, 1998, there were authorized 5,000,000 shares of preferred
stock without par value, of which 148,627 Series C shares were issued and
outstanding and 400,000 Series A shares were reserved for issuance upon exercise
of the rights.
PAGE 37
<PAGE> 34
The Gillette Company and Subsidiary Companies
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
OPERATING SEGMENTS AND RELATED INFORMATION
The following table presents certain operating segment information.
<TABLE>
<CAPTION>
(Millions of dollars) Blades & Toiletries Stationery Braun Oral-B Duracell All
1998 Razors Products Products Products Products Other Total
=============================== ======== ========== ========== ======== ======== ======== ===== =======
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ................... $3,028 $1,214 $ 856 $1,740 $642 $2,576 $ -- $10,056
Profit from operations ........ 1,153 54 108 291 101 597 (515) 1,789
Identifiable assets ........... 3,378 771 1,330 1,679 680 3,288 776 11,902
Capital expenditures .......... 453 69 48 135 62 144 89 1,000
Depreciation .................. 167 27 24 73 18 51 13 373
------ ------ ------ ------ ---- ------ ---- -------
1997
- ----
Net sales ................... $2,881 $1,410 $ 924 $1,744 $624 $2,478 $ 1 $10,062
Profit from operations ........ 1,186 124 156 304 85 526 (57) 2,324
Identifiable assets ........... 3,006 1,004 1,299 1,544 622 3,138 251 10,864
Capital expenditures .......... 423 88 40 126 45 165 86 973
Depreciation .................. 111 37 23 77 17 58 7 330
------ ------ ------ ------ ---- ------ ---- -------
996
- ----
Net sales ................... $2,836 $1,375 $ 915 $1,773 $547 $2,251 $ 1 $ 9,698
Profit from operations ........ 1,098 91 122 300 58 450 (483) 1,636
Identifiable assets ........... 2,591 874 1,244 1,534 595 3,154 423 10,415
Capital expenditures .......... 353 65 43 120 38 201 10 830
Depreciation .................. 96 26 20 78 15 51 7 293
- ------------------------------- ====== ====== ====== ====== ==== ====== ==== =======
</TABLE>
Each operating segment is individually managed and has separate financial
results that are reviewed by the Company's chief operating decision-makers. Each
segment contains closely related products that are unique to the particular
segment.
The principal products included in each of the Company's operating segments
are described in the review of operations, which appears earlier.
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
and geographic areas.
All intercompany transactions have been eliminated, and intersegment
revenues are not significant.
The $535 million charge to profit from operations in 1998 for
reorganization and realignment is not assigned to the operating segments in the
accompanying table, since the elements of the charge are managed separately from
the segments.
Had the Company allocated the charge by segment, the amounts would have
been as follows: Blades & Razors, $117 million; Toiletries, $47 million;
Stationery Products, $95 million; Braun Products, $69 million; Oral-B Products,
$68 million; Duracell Products, $128 million; and All Other, $11 million.
Profit from operations in 1996 has been restated for SFAS 131. The $413
million charge for merger-related costs is now included in All Other. The charge
was previously reported by segment as follows: Blades & Razors, $36 million;
Toiletries, $4 million; Duracell Products, $308 million; and All Other, $65
million.
PAGE 38
<PAGE> 35
The Gillette Company and Subsidiary Companies
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The All Other column includes items not allocated to operating segments.
Profit from operations includes the $535 million charge for reorganization and
realignment in 1998, the $413 million charge for merger-related costs in 1996
and all unallocated income/expense items, including corporate headquarters
expenses. Identifiable assets includes deferred income tax assets, nonqualified
benefit trusts, construction-in-progress costs related to Corporate Information
Technology initiatives and other financial instruments managed by the Corporate
Treasury Department. Capital expenditures is primarily related to Corporate
Information Technology initiatives.
Net sales by geographic area follow.
<TABLE>
<CAPTION>
(Millions of dollars) 1998 1997 1996
========================== ======= ======= ======
<S> <C> <C> <C>
Foreign................... $ 6,241 $ 6,380 $6,117
United States............. 3,815 3,682 3,581
------- ------- ------
$10,056 $10,062 $9,698
======= ======= ======
</TABLE>
Long-lived assets at December 31 follow.
<TABLE>
<CAPTION>
==========================================================
<S> <C> <C> <C>
Germany.................. $ 575 $ 438 $ 426
Other Foreign............ 1,261 1,202 1,030
------ ------ ------
Total Foreign............ 1,836 1,640 1,456
United States............ 1,636 1,464 1,130
------ ------ ------
$3,472 $3,104 $2,586
====== ====== ======
</TABLE>
INDEPENDENT AUDITORS' REPORT
[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, 1998 and 1997, 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, 1998. 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 generally accepted auditing
standards. 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 at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
February 11, 1999
PAGE 39
<PAGE> 36
The Gillette Company and Subsidiary Companies
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
(Millions of dollars, except per share amounts) ----------------------------------------------------
1998* March 31 June 30 September 30 December 31 Total Year
========================================================== ======== ======= ============ =========== ===========
<S> <C> <C> <C> <C> <C>
Net sales................................................. $2,025 $2,325 $2,531 $ 3,175 $10,056
Gross profit.............................................. 1,242 1,443 1,557 1,961 6,203
Profit from operations.................................... 434 595 40 720 1,789
Income before income taxes................................ 414 575 9 671 1,669
Net income................................................ 268 372 6 435 1,081
Net income per common share, basic........................ .24 .33 -- .39 .96
Net income per common share, assuming full dilution....... .23 .33 -- .39 .95
Dividends declared per common share....................... -- .12 3/4 .12 3/4 .25 1/2 .51
Stock price range: (composite basis)
High..................................................... 61.09 62.66 62.56 49.38 62.66
Low...................................................... 48.59 54.75 35.31 37.06 35.31
1997 (Recast)**
========================================================== ======== ======= ============ =========== ===========
Net sales................................................. $1,999 $2,366 $2,701 $ 2,996 $10,062
Gross profit.............................................. 1,249 1,443 1,668 1,871 6,231
Profit from operations.................................... 388 549 702 685 2,324
Income before income taxes................................ 367 523 680 651 2,221
Net income................................................ 236 336 437 418 1,427
Net income per common share, basic........................ .21 .30 .39 .37 1.27
Net income per common share, assuming full dilution....... .21 .29 .38 .36 1.24
1997 (Previously Reported)
========================================================== ======== ======= ============ =========== ===========
Net sales................................................. $2,180 $2,285 $2,437 $ 3,160 $10,062
Gross profit.............................................. 1,355 1,426 1,507 1,943 6,231
Profit from operations.................................... 466 518 575 765 2,324
Income before income taxes................................ 442 496 550 733 2,221
Net income................................................ 283 319 354 471 1,427
Net income per common share, basic........................ .25 .29 .31 .42 1.27
Net income per common share, assuming full dilution....... .25 .28 .30 .41 1.24
Dividends declared per common share....................... -- .10 3/4 .10 3/4 .21 1/2 .43
Stock price range: (composite basis)
High..................................................... 43.06 49.81 53.19 51.16 53.19
Low...................................................... 36.00 36.13 38.94 41.94 36.00
=============================================================================================================================
</TABLE>
- ------------------------------------------------------------------------
* In the third quarter of 1998, a charge for reorganization and realignment
expenses reduced profit from operations and income before income taxes by
$535 million, net income by $347 million, basic net income per share by
$.31 and net income per share, assuming full dilution, by $.30.
** Quarterly financial information has been recast to reflect the
harmonization of operating groups on a common calendar year basis.
PAGE 40
<PAGE> 37
The Gillette Company and Subsidiary Companies
HISTORICAL FINANCIAL SUMMARY
- --------------------------------------------------------------------------------
HISTORICAL FINANCIAL SUMMARY
(In millions, except per share amounts, stock prices and employees)
<TABLE>
<CAPTION>
Net Income
Per Common Share
------------------- Average
Profit Income Assuming Common
Net from before Net Full Shares Year-end
Year Sales Operations Taxes Income Basic Dilution Outstanding Stock Price
============= ======= ========== ======== ====== ===== ======== =========== ============
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998(a) $10,056 $1,789 $1,669 $1,081 $ .96 $ .95 1,117 $47.81
1997 10,062 2,324 2,221 1,427 1.27 1.24 1,118 50.22
- ----- ------- ------ ------ ------ ----- ----- ----- ------
1996(b) 9,698 1,636 1,525 949 .85 .83 1,107 38.88
1995 8,834 1,799 1,700 1,069 .97 .95 1,100 26.06
1994 7,935 1,615 1,458 919 .83 .82 1,096 18.72
1993(c) 7,085 1,091 907 421 .38 .37 1,090 14.91
1992(d) 6,752 1,263 1,061 601 .55 1,082 14.22
1991(d) 6,188 1,144 844 432 .41 1,018 14.03
1990(d) 5,709 1,020 633 382 .36 906 7.84
===== ======= ====== ====== ====== ===== ===== ======
</TABLE>
<TABLE>
<CAPTION>
Dividends Declared
Net Depreciation Net Property, Per Common Share
Interest and Capital Plant and Total Long-term Stockholders' -------------------
Year Expense Amortization Expenditures Equipment Assets Debt Equity Gillette Duracell Employees
==== ========= ============ ============ ============= ======= ========== ============= ======== ======== =========
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $ 86 $459 $1,000 $3,472 $11,902 $2,256 $4,543 $.51 43,100
1997 69 422 973 3,104 10,864 1,476 4,841 .43 44,000
- ---- ---- ---- ------ ------ ------- ------ ------ ----- ------
1996 67 381 830 2,586 10,415 1,490 4,471 .36 $.58 44,100
1995 73 343 593 2,053 8,918 1,048 3,879 .30 .52 41,900
1994 68 303 498 1,750 7,766 1,073 3,257 .25 .44 40,700
1993 66 303 396 1,507 7,116 1,234 2,582 .21 .32 41,000
1992 114 298 370 1,396 6,400 1,124 2,538 .18 .08 38,800
1991 225 277 339 1,262 6,169 1,473 2,134 .155 -- 39,200
1990 319 259 285 1,183 5,921 2,456 607 .135 -- 38,300
==== ==== ==== ====== ====== ======= ====== ====== ===== ==== ======
</TABLE>
Per common share amounts, shares outstanding and stock prices have been restated
to reflect two-for-one stock splits in 1998, 1995 and 1991.
(a) In 1998, a charge for reorganization and realignment expenses reduced profit
from operations and income before income taxes by $535 million, net income by
$347 million, basic net income per common share by $.31 and net income per
common share, assuming full dilution, by $.30.
(b) In 1996, charges for merger-related costs reduced profit from operations and
income before income taxes by $413 million, net income by $283 million, basic
net income per common share by $.26 and net income per common share, assuming
full dilution, by $.25.
(c) In 1993, charges for realignment and restructuring expenses reduced profit
from operations and income before income taxes by $328 million, net income by
$212 million, basic net income per common share by $.19 and net income per
common share, assuming full dilution, by $.19. In addition, in 1993, the
cumulative effect of adopting mandated changes in the methods of accounting for
income taxes, postretirement benefits and postemployment benefits reduced net
income by $139 million and net income per common share, basic and assuming full
dilution, by $.13 and $.12, respectively.
(d) Charges for extraordinary items reduced net income by $75 million in 1992,
$109 million in 1991 and $6 million in 1990 and basic net income per common
share by $.07 in 1992, $.11 in 1991 and $.01 in 1990.
PAGE 41
<PAGE> 38
CORPORATE AND STOCKHOLDER INFORMATION
- -------------------------------------------------------------------------------
ANNUAL MEETING
The Annual Meeting of stockholders will take place on Thursday, April 15, 1999,
at the John F. Kennedy Library and Museum, Columbia Point, Boston,
Massachusetts. The meeting will convene at 10 a.m.
- -------------------------------------------------------------------------------
CORPORATE HEADQUARTERS
Prudential Tower Building
Boston, Massachusetts 02199
(617)421-7000
World Wide Web users can access Gillette information at http://www.gillette.com,
the Company's Internet site.
- -------------------------------------------------------------------------------
INCORPORATED
State of Delaware
- -------------------------------------------------------------------------------
COMMON STOCK
Major stock exchanges: New York, Boston, Chicago, Pacific, Frankfurt
New York Stock Exchange Symbol: G
At year-end, stockholders numbered 61,500, living in all 50 states and more than
30 countries abroad.
- -------------------------------------------------------------------------------
TRANSFER AGENT AND REGISTRAR
BankBoston, N.A.
c/o EquiServe L.P.
P.O. Box 8040
Boston, Massachusetts 02266-8040
(781) 575-2322
By fax: (781)828-8813
Toll-free: (888) 218-2841
Hearing impaired: (800) 952-9245 (TTY/TDD)
Via Internet: http://www.EQUISERVE.com
- -------------------------------------------------------------------------------
AUDITORS
KPMG
- -------------------------------------------------------------------------------
FORM 10-K
The Company's 1998 Annual Report on Form 10-K, filed with the Securities and
Exchange Commission, will be available in late March without charge from the
Office of the Secretary by written request, or by calling toll-free
(800)291-7615. The report also will be available at http://www.gillette.com, the
Company's Internet site.
- -------------------------------------------------------------------------------
INVESTLINK(SM) -- DIRECT STOCK PURCHASE PROGRAM
InvestLink(SM) is a direct stock purchase program designed to promote long-term
ownership among investors who are committed to investing a minimum amount and
building their Gillette share ownership over time. The program is sponsored and
administered by BankBoston, N.A., the Company's transfer agent. InvestLink(SM)
provides an economical, convenient way to purchase your first shares or to
purchase additional shares of Gillette common stock directly from the Company.
Program participants may also reinvest their cash dividends through
InvestLink(SM). You may request an enrollment application and a brochure from:
BankBoston, N.A.
"InvestLink" Program
P.O.Box 8040
Boston, Massachusetts 02266-8040
(781) 575-2322
Toll-free: (800) 643-6989
Hearing impaired: (800) 952-9245 (TTY/TDD)
- -------------------------------------------------------------------------------
QUARTERLY REPORTS
The Company mails quarterly reports only to registered holders of Gillette
common stock. If your shares are registered in the name of a broker or other
nominee, and you would like to receive the quarterly reports, the Company will
gladly mail them directly to you. You may add your name to our mailing list by
writing to the Office of the Secretary, or by calling toll-free (800) 291-7615.
Gillette quarterly reports also are available at http://www.gillette.com,
the Company's Internet site.
<PAGE> 1
EXHIBIT 22
THE GILLETTE COMPANY
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
ORGANIZED
UNDER
LAWS OF
NAME ---------
<S> <C>
Gillette Argentina S.A. .................................... Argentina
Gillette Australia Pty Ltd.................................. Australia
Duracell Batteries Limited.................................. United Kingdom
Duraname Corp. ............................................. Delaware
NV Duracell Batteries S.A................................... Belgium
Duracell GmbH............................................... Germany
Duracell SpA................................................ Italy
Gillette Beteiligungs -- GmbH............................... Germany
Its subsidiaries:
Gillette Deutschland GmbH & Co. ....................... Germany
Societe de Participations Financieres Gillette......... France
Its subsidiary:
Waterman S.A. .................................... France
Braun -- GmbH............................................... Germany
Its subsidiaries:
Braun Electric Austria Gesellschaft mbH........... Austria
Braun Espanola, S.A. ............................. Spain
Braun Finland Oy.................................. Finland
Braun France S.A. ................................ France
Braun Ireland Ltd. ............................... Ireland
Braun Italia S.r.l. .............................. Italy
Braun Japan K.K. ................................. Japan
Braun de Mexico y Cia. de C.V. ................... Mexico
Braun Nederland B.V. ............................. Netherlands
Braun (U.K.) Ltd. ................................ United Kingdom
Gillette do Brasil, Inc. ................................... Delaware
Its subsidiary:
Gillette do Brazil Ltda. ......................... Brazil
Gillette Canada Inc. ....................................... Canada
Its subsidiaries:
Oral-B Laboratories Pty. Limited....................... Australia
Oral-B Laboratories GmbH............................... Germany
Oral-B Laboratorios, S.A. de C.V. ..................... Mexico
Gillette de Colombia S.A. .................................. Colombia
Colton Gulf Coast, Inc. .................................... Delaware
Colton North Central, Inc. ................................. Delaware
Gillette Czech Inc. Delaware
Gillette Eastern Europe, Inc..............................
Gillette Espanola, S.A. .................................... Spain
Gillette Far East Trading Limited........................... Hong Kong
Gillette Foreign Sales Corporation Limited.................. Jamaica
Gillette France S.A. ....................................... France
Gilfin B.V. ................................................ Netherlands
Its subsidiary:
Parkfin Limited........................................ United Kingdom
Compania Giva, S.A. ........................................ Delaware
Indian Shaving Products Limited............................. India
Compania Interamericana Gillette, S.A. ..................... Panama
Gillette Egypt S.A.E. ...................................... Egypt
Gillette Pakistan Limited................................... Pakistan
Inversiones Gilco (Chile) Limitada.......................... Chile
Gillette Group Italy S.p.A.................................. Italy
Gillette (Japan) Inc. ...................................... Delaware
Grupo Gillette S.A. de C.V. ................................ Mexico
</TABLE>
14
<PAGE> 2
THE GILLETTE COMPANY
SUBSIDIARIES OF REGISTRANT -- (CONTINUED)
<TABLE>
<CAPTION>
ORGANIZED
UNDER
LAWS OF
NAME ---------
<S> <C>
Its subsidiary:
Gillette de Mexico S.A. de C.V. ....................... Mexico
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
Gillette (Shanghai) Limited................................. China
Shenmei Daily Use Products Limited Company.................. China
Gillette Trading Limited.................................... South Africa
Gillette Group South Africa (pty) Limited................... South Africa
Gillette South Asia Inc. and Saratoga Investment, Inc....... Delaware
Their subsidiaries:
Gillette India Private Limited......................... India
Luxor Writing Instruments Private Ltd.................. India
Gillette (Switzerland) AG................................... Switzerland
Gillette Industries Plc..................................... United Kingdom
Its subsidiaries:
Gillette U.K. Limited.................................. United Kingdom
Parker Pen Holdings.................................... United Kingdom
Gillette Poland S.A. ....................................... Poland
Gillette Home Diagnostics, Inc.............................. Delaware
Its subsidiary:
Thermoscan Inc......................................... Delaware
Gillette Oral Care, Inc..................................... Delaware
</TABLE>
All of the voting securities of each subsidiary listed above are owned by
its parent company or parent partners except that the percentage ownership in
Indian Shaving Products Limited, Shenmei Daily Use Products Limited Company,
Gillette (Shanghai) Limited, Gillette Pakistan Limited, Gillette Egypt S.A.E.
and Luxor Pen Company is 58%, 50%, 70%, 76.80%, 92% and 50%, 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.
15
<PAGE> 1
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. 33-9495 on
Form S-8, (2) No. 2-93230 on Form S-8, (3) 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, (4) No. 33-54974
on Form S-3, (5) No. 33-50303 on Form S-3, (6) No. 33- 52465 on Form S-8, (7)
No. 33-53257 on Form S-8, (8) No. 33-53258 on Form S-8, (9) No. 33-55051 on Form
S-3, (10) No. 33-59125 on Form S-8, (11) No. 33-63707 on Form S-8 (12) No.
333-16735 on Form S-4, (13) No. 333-19133 on Form S-8, (14), No. 333-25533 on
Form S-8 and (15) 333-44257 on Form S-3 of our report dated February 11, 1999,
relating to the consolidated balance sheet of The Gillette Company and
subsidiary companies as of December 31, 1998 and 1997, consolidated statements
of income, cash flows and stockholders' equity for each of the years in the
three-year period ended December 31, 1998 and the Valuation and Qualifying
Account Schedule, which reports appear or are incorporated by reference in the
December 31, 1998 Annual Report on Form 10-K of The Gillette Company.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 31, 1999
16
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned hereby constitute James P. Connolly and Charles W.
Cramb, 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 or 15(d) of the Securities Exchange Act of 1934,
filed for the Company with the Securities and Exchange Commission for the year
ended December 31, 1998, 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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
ALFRED M. ZEIEN Chairman of the Board March 18, 1999
- ----------------------------------------------------- of Directors, Chief Executive Officer
Alfred M. Zeien and Director
MICHAEL C. HAWLEY President, Chief Operating Officer March 18, 1999
- ----------------------------------------------------- and Director
Michael C. Hawley
CHARLES W. CRAMB Senior Vice President, Chief March 18, 1999
- ----------------------------------------------------- Financial Officer and
Charles W. Cramb Principal Accounting Officer
WARREN E. BUFFETT Director March 18, 1999
- -----------------------------------------------------
Warren E. Buffett
WILBUR H. GANTZ Director March 18, 1999
- -----------------------------------------------------
Wilbur H. Gantz
MICHAEL B. GIFFORD Director March 18, 1999
- -----------------------------------------------------
Michael B. Gifford
CAROL R. GOLDBERG Director March 18, 1999
- -----------------------------------------------------
Carol R. Goldberg
HERBERT H. JACOBI Director March 18, 1999
- -----------------------------------------------------
Herbert H. Jacobi
HENRY R. KRAVIS Director March 18, 1999
- -----------------------------------------------------
Henry R. Kravis
JORGE PAULO LEMANN Director March 18, 1999
- -----------------------------------------------------
Jorge Paulo Lemann
RICHARD R. PIVIROTTO Director March 18, 1999
- -----------------------------------------------------
Richard R. Pivirotto
ALEXANDER B. TROWBRIDGE Director March 18, 1999
- -----------------------------------------------------
Alexander B. Trowbridge
MARJORIE M. YANG Director March 18, 1999
- -----------------------------------------------------
Marjorie M. Yang
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE DATA REPORTED IN THIS EXHIBIT ARE BASED ON UNAUDITED STATEMENTS BUT INCLUDE
ALL ADJUSTMENTS WHICH THE COMPANY CONSIDERS NECESSARY FOR A FAIR PRESENTATION OF
RESULTS FOR THIS PERIOD.
</LEGEND>
<CIK> 0000041499
<NAME> THE GILLETTE COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 102,000
<SECURITIES> 0
<RECEIVABLES> 3,022,000
<ALLOWANCES> 79,000
<INVENTORY> 1,595,000
<CURRENT-ASSETS> 5,440,000
<PP&E> 5,705,000
<DEPRECIATION> 2,233,000
<TOTAL-ASSETS> 11,902,000
<CURRENT-LIABILITIES> 3,478,000
<BONDS> 2,256,000
0
90,000
<COMMON> 1,358,000
<OTHER-SE> 3,095,000
<TOTAL-LIABILITY-AND-EQUITY> 11,902,000
<SALES> 10,056,000
<TOTAL-REVENUES> 10,056,000
<CGS> 3,853,000
<TOTAL-COSTS> 3,853,000
<OTHER-EXPENSES> 4,414,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,000
<INCOME-PRETAX> 1,669,000
<INCOME-TAX> 588,000
<INCOME-CONTINUING> 1,081,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,081,000
<EPS-PRIMARY> .96
<EPS-DILUTED> .95
</TABLE>
