SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
----------
The Gillette Company
(Name of Registrant as Specified in its Charter)
----------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
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statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
The Gillette Company Notice of 2003 Annual Meeting
of Shareholders and Proxy Statement
Notice of 2003 Annual Meeting of Shareholders
Time: 10:00 a.m.
Date: Thursday, May 15, 2003
Place: Hotel du Pont
11th and Market Streets
Wilmington, Delaware
Webcast: Our Annual Meeting also will be webcast on our web site at
www.gillette.com at 10:00 a.m. on May 15, 2003. Information
included on our web site, other than our Proxy Statement, is not
a part of the proxy soliciting material.
Items of 1. To elect four members of the Board of Directors for three-year
Business: terms.
2. To vote on two shareholder proposals, if the proposals are
presented at the Meeting.
Record Date: You can vote if you were a shareholder of record on March 17,
2003.
Annual Report: Our 2002 Annual Report, which is not a part of the proxy
soliciting material, is included with this Proxy Statement.
Proxy Voting: It is important that your shares be represented and voted at the
Meeting. You can vote your shares by completing and returning the
proxy card sent to you. Most shareholders also can vote their
shares on the Internet or by telephone. If Internet or telephone
voting is available to you, voting instructions are printed on
your proxy card. You can revoke a proxy at any time prior to its
exercise at the Meeting by following the instructions in the
accompanying Proxy Statement.
By order of the Board of Directors
William J. Mostyn III
Deputy General Counsel and Secretary
Boston, Massachusetts
April 4, 2003
2003 Proxy Statement
TABLE OF CONTENTS
Page
Proxy Statement 1
- Annual Meeting Admission 1
- Webcast of the Annual Meeting 1
- Shareholders Entitled to Vote 1
- Vote by Telephone 1
- Vote on the Internet 1
- Vote by Mail 1
- Revocation of Proxies 1
- Voting at the Annual Meeting 2
- Consolidation of Your Vote 2
- Householding Information 2
- List of Shareholders 2
- Voting Requirements 2
- Cost of Proxy Solicitation 3
- Shareholder Account Maintenance 3
- Section 16(a) Beneficial Ownership Reporting Compliance 3
Governance of the Company 3
- Gillette's Commitment to Corporate Governance Best Practices 3
- Role of the Board of Directors 4
- Board Independence 4
- Board Diversity 4
- Board Expertise and Values 4
- Nonemployee Director Compensation and Stock Ownership 4
- Board Evaluation and Education 5
- Board Meetings 5
- Chairman and CEO Positions 5
- Committees and Meetings 5
- Access to Management 7
- Independent Advisors 8
- Term Limits and Limits on Board Memberships 8
- Corporate Governance Principles, Committee Charters and Codes of Conduct 8
- Audit Committee Report 8
- Independent Auditor 9
- Communications to the Audit Committee 9
- Transactions with Directors and Management 9
- Securities Ownership of Directors and Officers 10
- Five-Percent Beneficial Ownership 11
Item 1 - Election of Directors 11
- Nominees for Directors For Terms To Expire in 2006 12
- Directors Whose Terms Expire in 2004 13
- Directors Whose Terms Expire in 2005 14
Item 2 - Shareholder Proposal 15
Page
Item 3 - Shareholder Proposal 16
Executive Compensation 18
- Summary Compensation Table 18
- Total Options Exercised in 2002 and Year-End Values 19
- Option Grants in 2002 19
- Retirement Plan Table 20
- Employment Contracts, Termination of Employment and
Change-in-Control Arrangements 20
Compensation Committee Report 22
- Compensation Philosophy 22
- Performance Against Objectives 22
- Salaries, Incentive Bonuses and Stock Option Awards 22
- Report of Compensation Consultant 23
- The Company Achieved Its Objectives in 2002 23
- Compensation of the Chief Executive Officer 24
- Section 162(m) of the Internal Revenue Code 24
Gillette Comparative Five-Year Investment Performance 25
Requirements, Including Deadlines, for Submission
of Proxy Proposals, Nomination of Directors and
Other Business of Shareholders 26
Directions to Hotel du Pont 27
Exhibit A - Audit Committee Charter A-1
Exhibit B - Nominating and Corporate Governance B-1
Committee Charter
Proxy Statement
We are providing these proxy materials in connection with the solicitation
by the Board of Directors of The Gillette Company, a Delaware corporation, of
proxies to be voted at our 2003 Annual Meeting of Shareholders and at any
adjournment or postponement.
You are invited to attend our Annual Meeting of Shareholders on May 15,
2003, beginning at 10:00 a.m. The Meeting will be held at the Hotel du Pont,
11th and Market Streets, Wilmington, Delaware. See page 27 of this Proxy
Statement for directions.
This Proxy Statement, form of proxy and voting instructions are being
mailed starting April 4, 2003.
ANNUAL MEETING ADMISSION
Shareholders will be admitted to the Annual Meeting beginning at 9:30 a.m.
Only shareholders are invited to attend the Annual Meeting. Proof of ownership
of Gillette common stock, as well as a form of personal identification, may be
requested in order to be admitted to the Meeting.
If you are a shareholder of record, your name can be verified against our
shareholder list. If your shares are held in the name of a bank, broker or other
holder of record, and you plan to attend the Meeting, you must present proof of
your ownership of Gillette stock, such as a bank or brokerage account statement,
to be admitted to the Meeting.
No cameras, recording equipment or electronic devices will be permitted in
the Meeting and large bags, briefcases or packages may be subject to inspection.
WEBCAST OF THE ANNUAL MEETING
Our Annual Meeting also will be webcast on May 15, 2003. You are invited to
visit www.gillette.com at 10:00 a.m. on May 15, 2003, to hear the webcast of the
Meeting.
SHAREHOLDERS ENTITLED TO VOTE
Record holders of Gillette common stock at the close of business on March
17, 2003, are entitled to receive this notice and to vote their shares at the
Annual Meeting. As of that date, there were 1,022,875,105 shares of common stock
outstanding. Each share of common stock is entitled to one vote on each matter
properly brought before the Meeting.
VOTE BY TELEPHONE
You can vote by calling 1-800-690-6903. Easy-to-follow voice prompts allow
you to vote your shares and confirm that your instructions have been properly
recorded.
VOTE ON THE INTERNET
You also can vote on the Internet. The web site for Internet voting is
www.proxyvote.com. As with telephone voting, you can confirm that your
instructions have been properly recorded.
VOTE BY MAIL
If you choose to vote by mail, simply indicate your response on your proxy
card, date and sign it, and return it in the postage-paid envelope provided. If
the envelope is missing, please mail your completed proxy card to The Gillette
Company, c/o ADP, 51 Mercedes Way, Edgewood, NY 11717.
REVOCATION OF PROXIES
You can revoke your proxy at any time before it is exercised by:
- written notice to the Secretary of the Company;
- timely delivery of a valid, later-dated proxy or a later-dated vote by
telephone or on the Internet; or
- voting by ballot at the Annual Meeting.
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VOTING AT THE ANNUAL MEETING
The method by which you vote will not limit your right to vote at the
Annual Meeting if you decide to attend in person. However, if you have already
voted your shares by mail, telephone or Internet, there is no need to vote again
at the Meeting unless you wish to change your vote. If your shares are held in
the name of a bank, broker or other holder of record, you must obtain a proxy,
executed in your favor, from the holder of record to be able to vote at the
Meeting.
All shares that have been properly voted and not revoked will be voted at
the Annual Meeting. If you sign and return your proxy card but do not give
voting instructions, the shares represented by that proxy will be voted for the
election of directors and against shareholder proposals 2 and 3.
CONSOLIDATION OF YOUR VOTE
You will receive only one proxy card for all the shares you hold in your
name, in the Employees' Savings Plan and in the Employee Stock Ownership Plan.
If you are a Gillette employee who currently has shares in the Employees'
Savings Plan, Gillette Canada Inc. Retirement Income Savings Plan, Employee
Stock Ownership Plan or Global Employee Stock Ownership Plan, you are entitled
to give voting instructions for the shares held in your account. Your proxy card
will serve as a voting instruction card for the plans' trustees.
If you do not vote your shares or specify your voting instructions on your
proxy card, the plans' trustees will vote your shares in the same proportion as
the shares for which voting instructions have been received from other
participants of each plan. To allow sufficient time for voting by the plans'
trustees, your voting instructions must be received by May 8, 2003.
HOUSEHOLDING INFORMATION
We have adopted a procedure approved by the Securities and Exchange
Commission (SEC) called "householding." Under this procedure, shareholders of
record who have the same address and last name and do not participate in
electronic delivery of proxy materials will receive only one copy of our Annual
Report and Proxy Statement, unless one or more of these shareholders notifies us
that they wish to continue receiving individual copies. We believe this
procedure provides greater convenience for our shareholders and saves money by
reducing the number of duplicate documents.
Shareholders who participate in householding will continue to receive
separate proxy cards. Householding will not affect dividend check mailings.
If you and other shareholders of record with whom you share an address
currently receive multiple copies of our Annual Report and Proxy Statement, or
if you hold stock in more than one account and wish to receive only a single
copy of the Annual Report and Proxy Statement, please contact ADP, Householding
Department, 51 Mercedes Way, Edgewood, NY 11717, or call toll-free (800)
542-1061.
If you participate in householding and wish to revoke your consent and
receive separate copies of future Annual Reports and Proxy Statements, please
contact ADP as described above.
LIST OF SHAREHOLDERS
The names of shareholders of record entitled to vote at the Annual Meeting
will be available at the Annual Meeting and, for 10 days prior to the Meeting,
at the office of the Secretary of the Company, Prudential Tower Building,
Boston, Massachusetts.
VOTING REQUIREMENTS
The presence of the holders of a majority of the outstanding shares of
common stock entitled to vote at the Annual Meeting, in person or represented by
proxy, is necessary to constitute a quorum. Abstentions and broker "non-votes"
are counted as present and entitled to vote for purposes of determining a
quorum. A broker "non-vote" occurs when a broker holding shares for a beneficial
owner does not vote on a particular proposal because the broker does not have
discretionary voting power for that particular item and has not received
instructions from the beneficial owner.
Election of directors. A plurality of the votes cast is required for the
election of directors. This means that the nominees with the most votes are
elected.
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Under New York Stock Exchange rules, if you are a beneficial owner and your
broker holds your shares in its name, the broker is permitted to vote your
shares on the election of directors even if the broker does not receive voting
instructions from you.
Shareholder Proposals. An affirmative majority of the votes represented at
the Meeting must be cast in favor of proposals 2 and 3 for approval. Brokers are
not permitted to vote your shares on these proposals without receiving voting
instructions from you. Broker non-votes and abstentions will not be counted as
votes cast and will have no effect on the outcome of proposals 2 and 3.
Voting on Other Matters. If other matters are properly presented at the
Annual Meeting for consideration, the persons named in the proxy will have the
discretion to vote on those matters for you. At the date this Proxy Statement
went to press, we did not know of any other matters to be presented at the
Annual Meeting.
COST OF PROXY SOLICITATION
We pay the cost of soliciting proxies. Proxies may be solicited on our
behalf by directors, officers or employees in person or by telephone, electronic
transmission and facsimile transmission. We have hired Georgeson Shareholder
Communications Inc., a proxy solicitation firm, to distribute and solicit
proxies. We will pay Georgeson a fee of $18,000, plus reasonable expenses, for
these services.
SHAREHOLDER ACCOUNT MAINTENANCE
Our Transfer Agent is The Bank of New York. All communications concerning
accounts of shareholders of record, including address changes, name changes,
inquiries as to requirements to transfer shares of common stock and similar
issues, can be handled by calling the Bank's toll-free number, 1-888-218-2841,
or by e-mail at shareowner-svcs@bankofny.com.
In addition, you can access your account through The Bank of New York's web
site. To access your account on the Internet, visit www.stockbny.com.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers to file reports of holdings and transactions in Gillette
shares with the Securities and Exchange Commission and the New York Stock
Exchange. Based on our records and other information, we believe that in 2002
our directors and executive officers met all applicable Securities and Exchange
Commission filing requirements, except as described below.
On one occasion, Carol R. Goldberg, a director who retired in May 2002,
filed a late report covering the exercise of a stock option.
Governance of the Company
GILLETTE'S COMMITMENT TO CORPORATE GOVERNANCE BEST PRACTICES
Our Board of Directors strongly believes that good corporate governance
practices lead to successful business performance. Over the past two years, we
have adopted many noteworthy changes to our corporate governance practices. Most
of these changes were put into place before the New York Stock Exchange and the
Securities and Exchange Commission published their proposed standards and rules.
We continually seek out best practices as a means to ensure a high level of
performance from the Board and the senior management team. Our commitment is to
be a leader in good, effective corporate governance.
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ROLE OF THE BOARD OF DIRECTORS
The business, property and affairs of the Company are managed by or under
the direction of our Board of Directors. Specific responsibilities of the Board
include:
- reviewing the annual budget and operational plan;
- reviewing the long-term Strategic Growth Plan and monitoring the progress of
the Company against the plan;
- developing succession plans for the Chief Executive Officer and other key
executive officers;
- establishing performance standards for the Chief Executive Officer and other
key executive officers;
- evaluating the performance and approving the compensation of the Chief
Executive Officer and other key officers in accordance with the Board's "pay
for performance" policy; and
- setting a high ethical standard for the entire Company.
BOARD INDEPENDENCE
Ten of the 12 members of our Board of Directors are independent. Our Audit,
Compensation, Finance and Nominating and Corporate Governance Committees are
composed entirely of independent directors. By independent, we mean that a
director has not for at least the past five years:
- been employed by the Company or any of its affiliates;
- been affiliated with our independent auditor;
- been part of an interlocking directorate;
- provided legal, consulting, investment banking, accounting or other
professional services to the Company and is not a director, general partner,
executive officer or significant equity holder of any such firm;
- been a director, executive officer, general partner or significant equity
holder of a customer or supplier of the Company for which annual payments
exceed 1% of such company's annual revenues;
- been an employee, officer or director of a nonprofit organization that has
received grants or endowments from the Company in annual amounts exceeding
$60,000, exclusive of contributions made under the Company's Matching Gifts
Program; or
- had an immediate family member who fails to meet one of the above criteria.
It is our intention that the Board will at all times be composed of a
substantial majority of independent directors.
BOARD DIVERSITY
Our Board is composed of 12 directors, of whom two are women, three are
from minority groups and three reside outside of the United States.
BOARD EXPERTISE AND VALUES
Our Board members are selected from candidates who meet the following
minimum criteria:
- are well regarded in the community, with a long-term reputation for the
highest ethical and moral standards;
- have good common sense and judgment;
- have a positive record of accomplishment in present and prior positions;
- if on other boards, have an excellent reputation for preparation, attendance,
participation, interest and initiative;
- have business and/or professional knowledge and experience relevant to Company
and shareholder goals and perspectives; and
- have the time, energy and willingness to become involved in the Company and
its future.
NONEMPLOYEE DIRECTOR COMPENSATION AND STOCK OWNERSHIP
Annual Board Retainer Fees. Nonemployee directors receive an annual
retainer fee of $75,000 per year. In addition, the chair of a Committee receives
an additional $5,000 per year. The chair of the Audit Committee receives the
chair fee of $5,000, plus an additional $10,000. To foster a long-term
commitment to the Company, the directors are required to defer half of their
annual retainer fee into stock units (phantom stock) and may choose to defer any
portion of their remaining retainer(s) into cash and/or stock units. Each stock
unit is equal in value to a share of Gillette's common stock. The value of the
deferred units increases or decreases with the market value of the stock.
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Stock units receive dividend equivalents in the form of additional stock units.
Fees deferred in cash are credited semiannually with interest at a rate
equivalent to the average yield on U.S. Treasury Bills on the first trading day
of each calendar year. The rate is adjusted annually. All deferred fees are
payable in cash at retirement, resignation or a change in control. They cannot
be withdrawn in advance. At the time of deferral, a director may elect to take
the deferred payment either in a lump sum or in annual installments over a
period of up to 10 years.
Stock Options. Each nonemployee director annually receives a nonincentive
stock option to purchase 5,000 shares of common stock on the second business day
after the Annual Meeting. These option awards are nondiscretionary. In 2002,
awards were granted on May 20 at an exercise price of $36.41 per share (the
average of the high and low trading prices of the common stock on that date).
The options become exercisable in one-third increments over the first three
anniversaries of the award. The option becomes immediately exercisable upon
death, retirement or a change in control. The options remain exercisable for 10
years while the director serves on the Board. If a nonemployee director leaves
the Board after reaching age 65 or serving five or more years, the option can be
exercised for the remaining life of the option. In the event of death, the
exercise period will be the lesser of three years or the remaining life of the
option.
Other Compensation. No other cash or equity compensation is paid to our
directors. The Pension Plan for directors was terminated in 1996. Directors are
eligible to participate in the Company's Matching Gifts Program.
During 2002, Mr. Jacobi received director fees totaling $4,768 for his
services as a director of Braun GmbH, a Gillette subsidiary.
Stock Ownership. Each director must own the equivalent of at least 1,000
shares of the Company's common stock. That requirement may be met with common
stock and/or the stock units described above, but not with stock options. More
specific information regarding the directors' stock ownership can be found in
the Stock Ownership Table on page 10.
BOARD EVALUATION AND EDUCATION
Each year, our Board of Directors evaluates its effectiveness and the
effectiveness of its Committees. Many of the changes that we make to our
governance practices result directly from these evaluations. Our Board views its
self-evaluation as a continual process designed to achieve high levels of Board
performance in a number of critical areas. Among the areas evaluated are the
Board's responsiveness to shareholders and the effectiveness of the Board in
setting high ethical standards.
Our continuing education program for directors is designed to supplement
our Board's expertise and to improve the Board's effectiveness.
BOARD MEETINGS
The Board of Directors met six times during 2002. The Chairman of the Board
sets the agenda for each meeting, but any director may ask for items to be
included. Each meeting includes an executive session of the independent
directors.
Annually, the Board elects the lead director who chairs the executive
sessions of independent directors. The lead director currently is Warren E.
Buffett.
Members of our Board are kept informed of the business outside of Board
meetings through informal discussions with the Chief Executive Officer and other
officers, by reviewing materials sent to them in advance of meetings and by
visiting our offices and plants. Advance materials sent to the Board include
prior minutes, agendas, financial reports, presentation materials, media and
analyst reports, as well as other information intended to enable the directors
to prepare in advance and use meeting time as productively as possible.
CHAIRMAN AND CEO POSITIONS
The Company's bylaws permit the positions of Chairman of the Board and
Chief Executive Officer to be held by separate persons or by one person. The
Board does not have a position on whether the roles should be performed by
different individuals and makes the determination on a case-by-case basis.
Currently, the Board has determined that it is better for Mr. Kilts to serve in
both positions.
COMMITTEES AND MEETINGS
During 2002, the Board of Directors had five standing committees: Audit,
Compensation, Executive, Finance, and Nominating and Corporate Governance.
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The table below provides membership information for each of the Board's
committees.
Nominating and
Corporate
Name Audit Compensation Executive* Finance Governance
---- ----- ------------ ---------- ------- --------------
Warren E. Buffett X** X
Wilbur H. Gantz X X**
Michael B. Gifford X** X
Ray J. Groves X X
Dennis F. Hightower X X
Herbert H. Jacobi X X**
Nancy J. Karch X X
James M. Kilts X
Jorge Paulo Lemann X X
Richard R. Pivirotto X** X
Marjorie M. Yang X X
2002 Meetings 7 5 3 6 3
*The Executive Committee was eliminated effective April 2003.
**Chair
While each Committee has its own Charter and designated responsibilities,
the Committees act on behalf of the entire Board. The Committees regularly
report on their activities to the entire Board, and all Board members receive
copies of each Committee's minutes and agendas. The entire Board deliberates on
any matter of material significance.
During 2002, all of our directors, with the exception of Marjorie Yang,
attended at least 75 percent or more of the regularly scheduled meetings of the
Board and Board Committees on which they served. The average attendance of
directors at all meetings during the year was 94 percent.
The Audit Committee: Under the terms of its Charter, the Audit Committee
meets at least four times a year and is responsible for the annual appointment
of the independent auditor and oversight of the financial reporting process.
Specifically, the Committee is responsible for:
- monitoring the Company's internal controls over the financial reporting
process;
- monitoring the audit of the Company's consolidated financial statements and
report thereon by the independent auditor;
- appointing or terminating the engagement of the independent auditor,
determining the compensation of the independent auditor, and evaluating the
quality and independence of the independent auditor;
- overseeing the assessment of the Company's risks and risk controls;
- overseeing the Company's internal audit function;
- pre-approving all services by the independent auditor; and
- discussing earnings releases, as well as financial information provided to
ratings agencies.
A copy of the revised Audit Committee Charter is attached as Exhibit A to
this Proxy Statement.
The Compensation Committee: Under the terms of its Charter, the
Compensation Committee meets at least four times annually and is responsible for
overseeing the areas of compensation and benefits. Specifically, the Committee
is responsible for:
- approving the compensation of the Company's Executive Officers, including
awards of stock options, bonuses and other incentives;
- recommending the compensation for Board members;
- reviewing the competitive position of, and approving changes to, the plans,
systems and practices of the Company relating to compensation and benefits;
- reviewing the financial performance and operations of the major benefit plans,
based on the recommendations of management;
- administering the Company's stock option plan, stock equivalent unit plan and
other executive incentive plans;
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- making nonmaterial changes to the stock option plan; and
- developing succession plans for the CEO and executive officers.
The Executive Committee: Under the terms of its Charter, the Executive
Committee was required to meet at least twice annually and was responsible for:
- developing the succession plan for the position of Chief Executive Officer;
- annually reviewing a report on compliance with the Company's policies;
- recommending Committee assignments;
- developing the Company's positions on significant, public policy issues; and
- exercising the power and authority of the Board of Directors between Board
meetings.
In March 2003, the Board voted to eliminate the Executive Committee,
effective April 2003. Executive Committee responsibilities were transferred as
follows: recommending Committee assignments was transferred to the Nominating
and Corporate Governance Committee; developing CEO succession planning was
transferred to the Compensation Committee; and overseeing compliance with the
Company's policies was transferred to the Audit Committee.
The Finance Committee: Under the terms of its Charter, the Finance
Committee meets at least twice annually and is responsible for the oversight of
the Company's financing operations. Specifically, the Committee is responsible
for:
- approving the Company's financial policies;
- approving the Company's risk management policies;
- reviewing stock repurchase programs;
- reviewing the Company's dividend policy;
- approving any borrowing of funds by the Company;
- approving certain capital investments and divestitures and reviewing larger
capital projects;
- conducting post-audits of major capital expenditures;
- reviewing the Company's financial condition; and
- reviewing the Company's tax strategy.
The Nominating and Corporate Governance Committee: Under the terms of its
Charter, the Nominating and Corporate Governance Committee meets at least twice
annually and is responsible for the nomination of directors and the Company's
corporate governance practices. Specifically, the Committee is responsible for:
- establishing the qualifications for membership on the Board;
- recommending director nominees to the Board;
- evaluating the performance of the Chief Executive Officer against
predetermined standards;
- evaluating the effectiveness of the Board and recommending to the Board ways
to improve the corporate governance of the Company;
- recommending to the Board ways to enhance services to, and improve
communications and relations with, the Company's shareholders; and
- reviewing and recommending to the Board proposed changes to the Company's
Certificate of Incorporation or bylaws.
The Nominating and Corporate Governance Committee considers director
nominations from shareholders. They should be submitted in writing to the
Chairman of the Committee in care of the Secretary of the Company, no later than
90 days prior to the anniversary date of the prior year's Annual Meeting (before
February 14, 2004, for the 2004 Annual Meeting).
ACCESS TO MANAGEMENT
Our directors have direct access to members of management. Key members of
management attend each Board meeting, and there is frequent interaction between
management and the Board.
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INDEPENDENT ADVISORS
The Board of Directors and its Committees have the authority to hire
consultants and advisors at their discretion at the expense of the Company. This
authority is particularly important in those cases where the Board or a
Committee believes an actual or perceived conflict of interest may exist.
TERM LIMITS AND LIMITS ON BOARD MEMBERSHIPS
Our Board of Directors does not believe that one formula fits all and, as a
consequence, is opposed to a rigid approach to Board terms and memberships on
other boards. Because it often takes two or more years for directors to become
thoroughly familiar with a particular business, setting arbitrary limits on
Board terms may cause the loss of a highly knowledgeable and effective director.
Also, since time constraints vary among individuals, our Board has a similar
concern about establishing limits on board memberships. Retired executives, for
instance, may have more time to spend on director duties than active CEOs. As an
alternative to a fixed rule, we require directors who change their principal
occupation or wish to join another board to subject their continuing membership
on our Board to review by the Nominating and Corporate Governance Committee.
A long-standing provision in our Bylaws prohibits directors who have
reached the age of 70 from standing for reelection. The one exception is when a
third party has a contractual right to nominate a director.
CORPORATE GOVERNANCE PRINCIPLES, COMMITTEE CHARTERS AND CODES OF CONDUCT
The Board of Directors has adopted Corporate Governance Principles and
Committee Charters and sponsors the Company's Financial Code of Ethics for the
Chief Executive Officer and financial managers. These documents and other items
relating to the governance of the Company can be found on the Company's web site
at: http://www.gillette.com/investors/governance.asp.
The following report is submitted by the Audit Committee.
AUDIT COMMITTEE REPORT
The Audit Committee is composed of four "independent" directors as defined
by the listing standards of the New York Stock Exchange and the rules and
regulations of the Securities and Exchange Commission. The Board of Directors
has determined that Ray J. Groves is an Audit Committee Financial Expert. The
Audit Committee's responsibilities are set forth in its written Charter approved
by the Board of Directors. The Charter is reviewed annually by the Committee. A
copy of the Audit Committee Charter is attached to this Proxy Statement as
Exhibit A.
Management is responsible for the Company's internal controls over the
financial reporting process. The independent auditor is responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and for
issuing a report on its audit. The Committee's responsibility is to oversee and
monitor these activities on behalf of the Board of Directors. In 2002, the
Company's independent auditor was KPMG LLP.
The Committee held meetings in person or by telephone with management and
the independent auditor seven times during the course of the year. Each
in-person meeting included an executive session with the independent auditor.
Management has represented to us that the Company's consolidated financial
statements for the year ended December 31, 2002, were prepared in accordance
with generally accepted accounting principles. Management has also advised us
that there were no significant deficiencies in the design and operation of the
Company's internal controls that could adversely affect the Company's ability to
record, process, summarize and report financial data. Management was required to
advise the Committee of any instances of fraud relating to employees who have a
significant role in the Company's internal controls.
In order to ensure the completeness of our discussions with the independent
auditor, we developed and utilized a formal checklist of questions around
management and accounting practices and policies to aid in our oversight
activities.
We reviewed the audited consolidated financial statements with both
management and the independent auditor and discussed with them the quality, not
just the acceptability, of the accounting principles that were followed and the
clarity of disclosures in, and the presentation of, the financial statements. We
also discussed with the independent auditor the matters required to be discussed
by Statement on Auditing Standards No. 61. These
8
matters include any significant adjustments recorded or proposed by the
independent auditor, management judgments and accounting estimates, significant
new accounting policies and disagreements with management, if any. We have also
reviewed with the independent auditor the Company's critical accounting policies
and practices, and alternative treatments of financial information.
We also received the written disclosures and the letter from the
independent auditor required by Independence Standards Board Standard No. 1 and
discussed with the independent auditor the firm's independence and objectivity.
We received the following information concerning the fees of the
independent auditor for the years ended December 31, 2002 and 2001, and have
determined that the provision of these services is compatible with maintaining
the independence of the independent auditor:
2002 2001
--------------------------------------------------------------------------------
(millions)
Audit Services(1) $ 4.64 $ 4.51
Audit-Related Fees(2) .51 1.58
Tax Services(3) 5.44 3.46
All Other Fees .24 .24
------ ------
Total $10.83 $ 9.79
====== ======
(1) Includes statutory audits, comfort letters, consents and review of filings
with the SEC.
(2) Includes employee benefit plan audits, due diligence related to mergers,
acquisitions and divestitures, audits related to acquisitions, and
consultation on financial accounting and reporting standards.
(3) Includes tax compliance and tax consultation and planning.
In addition to meetings with management and the independent auditor, we met
several times with the Company's internal auditor to review staffing, the
internal audit plan, reports on key audits and reports on the effectiveness of
internal financial controls. In 2002, the Company outsourced its internal audit
function to Deloitte & Touche LLP.
Based on the foregoing, we have recommended to the Board of Directors that
the audited financial statements be included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2002, which was filed with the
Securities and Exchange Commission.
By the Audit Committee:
Michael B. Gifford (Chairman)
Ray J. Groves
Nancy J. Karch
Jorge Paulo Lemann
INDEPENDENT AUDITOR
The Audit Committee has appointed KPMG LLP to be the Company's independent
auditor for 2003. A representative of KPMG LLP will attend the 2003 Annual
Meeting, where he will have the opportunity to make a statement and will answer
questions from shareholders.
COMMUNICATIONS TO THE AUDIT COMMITTEE
The Audit Committee has established a system to enable employees to
communicate directly with the members of the Committee about deficiencies in the
Company's internal controls and financial reporting practices. We have
established an Integrity Hotline accessible by telephone for this purpose.
TRANSACTIONS WITH DIRECTORS AND MANAGEMENT
Berkshire Hathaway Inc.
Gillette entered into an agreement with Berkshire Hathaway Inc. on July 20,
1989. Under the agreement, Berkshire Hathaway purchased $600 million of
Gillette's convertible preferred stock, which was converted to common stock in
1991. At the time of the agreement, management consulted with independent
advisors concerning the terms of the agreement and determined that the terms
were fair to Gillette. In light of Warren Buffett's decision
9
to step down from the Board after the Annual Meeting of Shareholders in May
2003, Gillette and Berkshire Hathaway amended the agreement as follows:
- The time period for Gillette to exercise its right of first offer in the event
Berkshire Hathaway wishes to sell its Gillette stock in a market transaction,
other than in response to a tender or exchange offer, has been reduced from 10
business days to three business days.
- If Gillette does not exercise its right of first offer, Berkshire Hathaway can
sell the offered stock at any price during the ensuing 90 days, provided that
Berkshire Hathaway is not aware that the ultimate beneficial owner of the
stock being sold is a person or group which, as a result of the sale (other
than in a tender or exchange offer), will own more than 3% of Gillette stock.
- There is an overall limit on sales by Berkshire Hathaway of no more than 3% of
Gillette's outstanding stock in any 90-day period, except in a tender or
exchange offer.
- Berkshire Hathaway does not have a right to appoint a director.
During the past fiscal year, Gillette paid $1,411,106 to Executive Jet,
Inc., a subsidiary of Berkshire Hathaway, for the cost of Gillette's use of an
aircraft.
During the past fiscal year, the Company and its subsidiaries had no
transactions in which any director or any executive officer, or any member of
the immediate family of any such director or executive officer, had a material
direct or indirect interest reportable under applicable rules of the Securities
and Exchange Commission. In the normal course of business, the Company had
transactions with other corporations where certain directors are or were
executive officers. None of the aforementioned matters was material in amount as
to the Company or those corporations.
SECURITIES OWNERSHIP OF DIRECTORS AND OFFICERS
The table below shows the number of shares of our common stock beneficially
owned as of March 17, 2003, by each of our current directors, each nominee for
director and each Named Executive Officer listed in the Summary Compensation
Table, as well as the number of shares beneficially owned by all of our
directors, nominees for director and executive officers as a group. All
individuals have sole voting and investment power over the shares, unless
otherwise noted. The table also includes information about stock options and
deferred stock and Supplemental Savings Plan units. Deferred stock units
represent units credited under the Deferred Compensation Plan for directors, and
Supplemental Savings Plan units represent a similar kind of stock equivalent
unit held under the Supplemental Savings Plan for employees. Neither type of
unit may vote; however, both are included in the table because they represent an
additional financial interest that is subject to the same market risk as
Gillette's common stock.
Supplemental
Shares Options Savings Plan
Beneficially Exercisable and Deferred
Name Owned(1) Within 60 Days Stock Units
-------------------------------------------------------------------------------
W. E. Buffett(2) 96,002,021 23,667 17,584
C. W. Cramb 42,761 513,544 8,992
E. F. DeGraan 92,000 1,028,331 32,617
R. K. Deromedi - - -
W. H. Gantz 15,284 32,332 8,912
M. B. Gifford 5,288 32,332 12,369
R. J. Groves 5,079 1,666 2,844
E. A. Haberli 607 50,000 750
D. F. Hightower 1,000 7,000 3,499
P. K. Hoffman(3) 57,882 296,832 6,014
H. H. Jacobi 38,975 28,332 16,932
N. J. Karch 1,500 - 2,678
J. M. Kilts 46,979 1,716,666 3,131
F. H. Langhammer - - -
J. P. Lemann 1,000,000 16,332 9,905
R. R. Pivirotto 8,420 41,000 20,996
M. M. Yang 54,000 12,332 9,759
Directors & Current Executive
Officers as a Group(4) 97,538,225 5,645,615 171,746
10
(1) Except as indicated in (2) and (4) below, the total number of shares
beneficially owned constitutes less than 1% of the outstanding shares. For
the executive officers, the figure includes common stock held under
Gillette's broad-based employee benefit plans. Participants may direct the
voting of the shares held under the plans and share voting and investment
power with the plans' trustees.
(2) 96,000,000 of the shares are owned by insurance subsidiaries of Berkshire
Hathaway Inc., a company which Mr. Buffett may be deemed to control. Mr.
Buffett shares voting and investment power over the shares, which represent
9.4% of the outstanding common stock.
(3) Mr. Hoffman disclaims beneficial ownership of 4,145 shares.
(4) One executive officer shares voting and investment power over 1,000 shares
and disclaims beneficial ownership with regard to 858 of those shares, and
three executive officers disclaim beneficial ownership with regard to 2,017
shares. The number of shares beneficially owned by all as a group represents
10.1% of the outstanding common stock.
FIVE-PERCENT BENEFICIAL OWNERSHIP
A beneficial owner of stock is a person who has voting power, meaning the
power to control voting decisions, or investment power, meaning the power to
cause the sale of the stock. This power may be direct, by contract or through
other arrangements.
The following table provides information regarding beneficial owners of
more than five percent of the outstanding shares of Gillette common stock.
Name and Address Number of Shares Percent of Class
--------------------------------------------------------------------------
Berkshire Hathaway Inc.(1) 96,000,000 9.4%
1440 Kiewit Plaza
Omaha, Nebraska 68131
FMR Corp.(2) 100,466,751 9.8%
82 Devonshire Street
Boston, MA 02109
(1) The shares are owned through six subsidiaries of Berkshire Hathaway Inc.
One of its subsidiaries, National Indemnity Company of 3024 Harney Street,
Omaha, Nebraska 68131, owns 60,000,000 shares, or 5.9% of the outstanding
common stock. Warren E. Buffett, a director of Gillette during 2002, and
trusts of which he is trustee, but in which he has no financial interest,
beneficially own 31.5% of the capital stock of Berkshire Hathaway Inc. His
wife, Susan T. Buffett, owns 2.4% of the capital stock of Berkshire
Hathaway Inc.
(2) Information with respect to the number of shares held by FMR Corp. is based
on a Schedule 13G filed on February 13, 2003, reporting share ownership as
of December 31, 2002.
Item 1 - Election of Directors
The Board of Directors is divided into three classes, with each class
consisting of four directors whose terms expire at successive Annual Meetings.
Four directors will be elected at the 2003 Annual Meeting to serve for a
three-year term expiring at our Annual Meeting in 2006.
The persons named in the enclosed proxy intend to vote the proxy for the
election of each of the four nominees, unless you indicate on the proxy card
that your vote should be withheld from any or all of the nominees.
Mr. Buffett and Mr. Pivirotto are retiring from the Board at the Annual
Meeting. The Board of Directors has proposed the following nominees for election
as directors, with terms expiring in 2006 at the Annual Meeting:
Roger K. Deromedi
Dennis F. Hightower
Herbert H. Jacobi
Nancy J. Karch
Each nominee elected as a director will continue in office until his or her
successor has been elected and qualified, or until his or her earlier death,
resignation or retirement.
The Board of Directors unanimously recommends a vote FOR the election of
these nominees as directors.
We expect each nominee for election as a director to be able to serve if
elected. If any nominee is not able to serve, proxies will be voted in favor of
the remainder of those nominated and may be voted for substitute nominees,
unless the Board chooses to reduce the number of directors serving on the Board.
The principal occupation of, and certain other information about, the
nominees and other directors whose terms of office continue after the Annual
Meeting are set forth on the following pages.
11
NOMINEES FOR DIRECTORS FOR TERMS TO EXPIRE IN 2006
[PHOTO] Roger K. Deromedi, Age 49
Co-Chief Executive Officer of Kraft Foods Inc. since 2001 and
President and Chief Executive Officer of Kraft Foods
International, Inc. since April 1999. He has been employed
continuously by Kraft Foods Inc. and its subsidiaries and
predecessor, General Foods Corporation, in various capacities
since 1977, including service as Executive Vice President and
General Manager of Kraft's Cheese Division and Executive Vice
President and General Manager of its Specialty Products Division.
Before assuming his current position, Mr. Deromedi served as
Group Vice President, Kraft Foods International, Inc., and
President, Asia Pacific, from 1998 until 1999, and President,
Western Europe, Kraft Foods International, Inc., from December
1995 until 1998. He is a director of Kraft Foods Inc.
[PHOTO] Dennis F. Hightower, Age 61 -- Director since 1999
Retired Chief Executive Officer of Europe Online Networks, S.A.
He served in that position from June 2000 to February 2001. He
was a Professor of Management at the Harvard University Graduate
School of Business Administration from July 1996 through June
2000 and a senior executive with The Walt Disney Company from
1987 to 1996. He was President of Walt Disney Television and
Telecommunications and earlier served as President of Disney
Consumer Products--Europe, Middle East and Africa. He also served
in executive positions with General Electric Company and McKinsey
& Company, among others. Mr. Hightower is a director of Domino's,
Inc.; Northwest Airlines, Inc.; PanAmSat Corporation;
Phillips-Van Heusen Corporation; and The TJX Companies, Inc. He
also serves as a trustee of Howard University, Washington, D.C.
and Casey Family Programs, Seattle, Washington.
[PHOTO] Herbert H. Jacobi, Age 68 -- Director since 1981
Chairman of the Supervisory Board of HSBC Trinkaus & Burkhardt
KGaA, a German bank, since 1998. He was Chairman of the Managing
Partners of Trinkaus & Burkhardt KGaA from 1981 to 1998. He was a
managing partner of Berliner Handels- und Frankfurter Bank from
1977 until 1981 and an Executive Vice President of Chase
Manhattan Bank from 1975 to 1977. Mr. Jacobi is a director of
Braun GmbH, a Gillette subsidiary; DIC Deutsche Investors'
Capital AG; MADAUS AG; and MPCT Solutions Corporation. He is
President of German-American Federation Steuben-Schurz e.V. and a
member of the Supervisory Board of WILO AG.
[PHOTO] Nancy J. Karch, Age 55 -- Director since 2002
Retired Senior Partner of McKinsey & Company, an independent
consulting firm. She served in that position from 1988 until her
retirement in 2000. She served in various executive capacities at
McKinsey since 1974. Ms. Karch is a member of the McKinsey
Advisory Council and serves as a director of Liz Claiborne, Inc.;
Toys "R" Us, Inc.; and The Corporate Executive Board. She is also
on the Board and the Executive Committee of the Westchester Land
Trust, a not-for-profit organization.
12
DIRECTORS WHOSE TERMS EXPIRE IN 2004
[PHOTO] Edward F. DeGraan, Age 59 -- Director since 2000
President and Chief Operating Officer of The Gillette Company. He
joined Gillette in 1968 and has served in a variety of
manufacturing, technical, marketing and general management
positions in nearly all of Gillette's core businesses. He served
as Executive Vice President, Duracell North Atlantic Group, from
1996 until his election as Executive Vice President, Global
Business Management, Gillette Grooming Products and Duracell, in
January 1999. He was Executive Vice President, Global Business
Management, from January 2000 - July 2000, when he became
President and Chief Operating Officer. Mr. DeGraan served as
Acting Chief Executive Officer from October 2000 - February 2001.
He serves as a trustee of the National Urban League.
[PHOTO] Wilbur H. Gantz, Age 65 -- Director since 1992
Chairman and Chief Executive Officer of Ovation Pharmaceuticals,
Inc., a private pharmaceutical company, since September 2002. He
formerly served as Chairman of the Board and Chief Executive
Officer of PathoGenesis Corporation, a biopharmaceutical company,
from 1992 to 2000. He served as President of Baxter
International, Inc., a manufacturer and marketer of health care
products, from 1987 to 1992. He joined Baxter International, Inc.
in 1966 and held various management positions prior to becoming
its Chief Operating Officer in 1983. Mr. Gantz is a director of
The Gambro Company, W.W. Grainger and Company, Harris Bankcorp
and Harris Trust and Savings Bank.
[PHOTO] James M. Kilts, Age 55 -- Director since 2001
Chairman of the Board and Chief Executive Officer of The Gillette
Company since January 2001 and February 2001, respectively. He
formerly was President and Chief Executive Officer of Nabisco
Group Holdings Corp. from December 1999 until it was acquired in
December 2000 by Philip Morris Companies. He was President and
Chief Executive Officer of Nabisco Holdings Corp. from January
1998 to December 1999. He was an Executive Vice President,
Worldwide Food, Philip Morris, from 1994 to 1997 and served as
President of Kraft USA from 1989 to 1994. Before that, he served
as President of Kraft Limited in Canada and as Senior Vice
President of Kraft International. Mr. Kilts began his career with
General Foods Corporation in 1970. He is a director of Delta Air
Lines, the May Department Stores Company and the Whirlpool
Corporation, and is Vice Chairman of the Board of Directors of
The Grocery Manufacturers of America. He also serves on the Board
of Trustees of Knox College, is Chairman of the Advisory Council
of the University of Chicago Graduate School of Business and is a
director of International Executive Service Corps.
[PHOTO] Jorge Paulo Lemann, Age 63 -- Director since 1998
General Partner of GP Investimentos, a buyout and restructuring
firm. He founded and was a Senior Partner of Banco de
Investimentos Garantia S.A., a Brazilian investment bank, from
1976 to 1998. He is a director and controlling stockholder of
AmBev American Beverage Co., Brazil's largest brewery. He is a
director of Lojas Americanas S.A., a Brazilian discount
department store chain, and Utor Investimentos e Participacoes
Ltda. Mr. Lemann is also a director of Fundacao Estudar, a
provider of scholarships to needy students, and Swiss Re. Mr.
Lemann is Chairman of the Latin American Advisory Committee of
the New York Stock Exchange and an International Advisory Board
Member of both Daimler-Chrysler and Credit Suisse Group.
13
DIRECTORS WHOSE TERMS EXPIRE IN 2005
[PHOTO] Michael B. Gifford, Age 67 -- Director since 1993
Retired Managing Director and Chief Executive Officer of The Rank
Organisation Plc., London, England, a leisure and entertainment
company. He served as Chairman of the Board of Danka Business
Systems Plc from March 2001 to January 2002 and as Danka's
interim Chief Executive Officer from October 2000 to February
2001. From 1983 to 1996, he was Managing Director and Chief
Executive of The Rank Organisation Plc. He was Finance Director
of Cadbury Schweppes Plc from 1978 to 1983 and Chief Executive of
Cadbury Schweppes Australia from 1975 to 1978. He is a director
of Danka Business Systems Plc.
[PHOTO] Ray J. Groves, Age 67 -- Director since 2002
President and Chief Executive Officer of Marsh Inc. since January
2003, and a director of its parent company, Marsh & McLennan
Companies, Inc. since 1994. He served as President and Chief
Operating Officer of Marsh Inc. from October 2001 to January
2003. He served as Chairman of Legg Mason Merchant Banking, Inc.
from 1995 to 2001. He retired in 1994 from Ernst & Young, where
he had held numerous positions for 37 years, including the last
17 years as Chairman and Chief Executive Officer. He is a
director of Boston Scientific Corporation and Electronic Data
Systems Corporation. He is a member of the Council on Foreign
Relations. He is also a managing director, treasurer and
secretary of the Metropolitan Opera Association and a director of
The Ohio State University Foundation.
[PHOTO] Fred H. Langhammer, Age 59
Chief Executive Officer of The Estee Lauder Companies Inc. since
2000 and President since 1995. He was Chief Operating Officer
from 1985 through 1999. Mr. Langhammer joined The Estee Lauder
Companies in 1975 as President of its operations in Japan and, in
1982, he was appointed Managing Director of the Company's
operations in Germany. He is a member of the Board of Directors
of Inditex S.A., an apparel manufacturer and retailer; The
Cosmetic, Toiletry and Fragrance Association; the German American
Chamber of Commerce, Inc.; and Chairman of the American Institute
for Contemporary German Studies at Johns Hopkins University. He
is also a Senior Fellow of the Foreign Policy Association and a
Director of the Japan Society.
[PHOTO] Marjorie M. Yang, Age 50 -- Director since 1998
Chairman and Chief Executive Officer of Esquel Group, a leading
textile and garment manufacturer headquartered in Hong Kong. She
has held various management positions within the Esquel Group
since joining the company in 1978. She is a director of BlueDot
Capital Pte. Ltd., Pacific Century Regional Development, Swire
Pacific Limited Hong Kong and Wuxi International Service Pte.
Ltd. She is also business advisor to the Chairman of SembCorp
Industries Ltd. of Singapore, Director of Associates of Harvard
Business School and a member of the Advisory Board of the
MIT/China International Management Education Project.
14
Item 2 - Shareholder Proposal
This proposal was submitted by Walden Asset Management, 40 Court Street,
Boston, MA 02108, the owner of 54,547 shares of Gillette's common stock.
Co-filing the resolution are Christian Brothers Investment Services, Inc., 90
Park Avenue, 29th floor, New York, NY 10016, and Calvert Asset Management
Company, Inc., 4550 Montgomery Avenue, Bethesda, MD 20814, the owners of 61,900
and 64,735 shares of Gillette's common stock, respectively.
Resolved, that the stockholders request that the Board of Directors take
the steps necessary to declassify the election of directors by insuring that in
the future Board elections directors are elected annually and not by classes as
is now provided. The declassification shall be phased in so that it does not
affect the unexpired terms of directors previously elected.
SUPPORTING STATEMENT
This resolution requests that the Board end the present staggered board
system and instead insure that all directors are elected annually. Presently our
company has 3 classes of directors, 1/3 elected each year and each director
serves a 3-year term.
However, we believe shareholders should have the opportunity to vote on the
performance of the entire Board each year.
Increasingly, institutional investors are calling for the end of this
system, believing it makes a Board less accountable to shareholders when
directors do not stand for annual election.
Significant institutional investors such as California's Public Employees
Retirement System, New York City pension funds, New York State pension funds and
many others support this position. As a result shareholder resolutions to end
this staggered system of voting have received increasingly large votes,
averaging over 60% in 2002. Numerous companies have demonstrated leadership by
changing this practice.
We do not believe this reform would destabilize our Company or affect the
continuity of director service, in any way. Our directors, like the directors of
the overwhelming majority of other public companies, are routinely elected with
strong overall shareholder approval.
We strongly believe that our company's financial performance is linked to
its corporate governance policies and procedures and the level of management
accountability they impose.
Therefore, as shareholders concerned about the level of our investment,
we're concerned about our Company's current system of electing only one-third of
the board of directors each year. We believe this staggering of director terms
prevents shareholders from annually registering their views on the performance
of the board collectively and each director individually.
A recent study found that firms with the strongest shareholder rights
significantly outperform companies with weaker shareholder rights. A 2001 study
of 1,500 firms conducted by researchers at Harvard University and the University
of Pennsylvania's Wharton School found a significant positive relationship
between greater shareholder rights, including annual election of directors as
measured by a governance index, and both firm valuation and performance from
1990 to 1999.
In addition, we believe the Board should be accountable for our company's
record on social and environmental issues at each shareowner's meeting which
also necessitates an annual election of directors.
Most alarming, a staggered board can help insulate directors and senior
management from the consequences of poor financial performance by denying
shareholders the opportunity to challenge an entire Board which is pursuing
failed policies, or not allowing for members of an Audit Committee to be held
annually accountable for their performance.
Please vote for this important governance reform.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL FOR THE
REASONS SET FORTH BELOW.
15
The Board of Directors, with the assistance of its professional advisors,
has given this proposal extensive consideration, particularly in light of the
vote on a similar proposal at last year's Annual Meeting. We have determined
that it is not the appropriate time to declassify the Gillette Board.
We believe that a classified board can be an important part of Gillette's
arsenal in resisting a takeover on terms that are not advantageous to all
shareholders. Absent a classified board, a potential acquirer could gain control
of Gillette by replacing a majority of the Board with its own slate of nominees
at a single annual meeting by a simple plurality of the votes cast, and without
paying any premium to Gillette's shareholders. We are particularly sensitive to
this in light of Gillette's experience with a hostile proxy contest to take
control of the Company. A classified board structure enhances the Board's
ability to negotiate the best results for shareholders in a takeover situation.
Our classified Board ensures that a majority of directors at any time will
have the prior experience and in-depth knowledge of Gillette to oversee its
complex, multinational business. We believe a director's contributions are best
measured over several years versus the shorter-run evaluation of annual
elections.
We believe that the benefits of the current classified board structure do
not come at the cost of directors' accountability to shareholders. We believe
that directors elected to three-year terms are as accountable to shareholders as
directors elected annually, and that our directors will uphold their fiduciary
duties to Gillette and its shareholders, regardless of the length of their term
of office.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL, WHICH IS
SET FORTH AS ITEM 2 ON THE ENCLOSED PROXY.
Item 3 - Shareholder Proposal
This proposal was submitted by the Carpenters Pension and Annuity Funds,
350 Fordham Road, Wilmington, MA 01887, the owner of 9,650 shares of Gillette's
common stock.
Resolved, that the shareholders of Gillette Company ("Company") hereby
request that the Company's Board of Directors establish a policy of expensing in
the Company's annual income statement the costs of all future stock options
issued by the Company.
Statement of Support: Current accounting rules give companies the choice of
reporting stock option expenses annually in the company income statement or as a
footnote in the annual report (See: Financial Accounting Standards Board
Statement 123). Most companies, including ours, report the cost of stock options
as a footnote in the annual report, rather than include the option costs in
determining operating income. We believe that expensing stock options would more
accurately reflect a company's operational earnings.
Stock options are an important component of our Company's executive
compensation program. Options have replaced salary and bonuses as the most
significant element of executive pay packages at numerous companies. The lack of
option expensing can promote excessive use of options in a company's
compensation plans, obscure and understate the cost of executive compensation
and promote the pursuit of corporate strategies designed to promote short-term
stock price rather than long-term corporate value.
A recent report by Standard & Poor's indicated that the expensing of stock
option grant costs would have lowered operational earnings at companies by as
much as 10%. "The failure to expense stock option grants has introduced a
significant distortion in reported earnings," stated Federal Reserve Board
Chairman Alan Greenspan. "Reporting stock options as expenses is a sensible and
positive step toward a clearer and more precise accounting of a company's
worth." Globe and Mail, "Expensing Options Is a Bandwagon Worth Joining," Aug.
16, 2002.
16
Warren Buffett wrote in a New York Times Op-Ed piece on July 24, 2002:
There is a crisis of confidence today about corporate earnings
reports and the credibility of chief executives. And it's justified.
For many years, I've had little confidence in the earnings
numbers reported by most corporations. I'm not talking about Enron and
WorldCom -- examples of outright crookedness. Rather I am referring to
the legal, but improper accounting methods used by chief executives to
inflate reported earnings . . .
Options are a huge cost for many corporations and a huge benefit
to executives. No wonder, then, that they have fought ferociously to
avoid making a charge against their earnings. Without blushing, almost
all C.E.O.'s have told their shareholders that options are cost-
free . . .
When a company gives something of value to its employees in
return for their services, it is clearly a compensation expense. And
if expenses don't belong in the earnings statement, where in the world
do they belong?
Many companies have responded to investors' concerns about their failure to
expense stock options. In recent months, more than 100 companies, including such
prominent ones as Coca Cola, Washington Post, and General Electric, have decided
to expense stock options in order to provide their shareholders more accurate
financial statements. We urge your support.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL FOR THE
REASONS SET FORTH BELOW.
The Board of Directors believes that this proposal is premature. We have
publicly announced our support for treating stock options as an expense, but
only after the Financial Accounting Standards Board (FASB) issues revised rules
requiring option expensing and providing for uniform accounting treatment for
the practice.
Although the issue of expensing stock options has attracted significant
interest from the accounting, legal, and investment communities, there are
currently multiple standards for valuing options, and no consensus has emerged
on the appropriate method for measuring the cost of stock options. We currently
report the cost of stock options on a pro forma basis in our financial statement
footnotes in accordance with SFAS 123.
At this time, we believe that we would be placed at a relative disadvantage
if we were to expense the cost of stock options when this accounting treatment
has not been standardized or widely adopted and is not being generally employed
by our competitors. We think that selecting the proper method for option
accounting is best left to the SEC and FASB, and that those organizations should
adopt standards applicable to all companies. We do not believe our shareholders
are best served by adopting an accounting practice that will depress our
earnings relative to those of our peer group companies utilizing a methodology
that may or may not become the industry standard.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL, WHICH IS
SET FORTH AS ITEM 3 ON THE ENCLOSED PROXY.
17
Executive Compensation
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
--------------------------------------------------------- ------------
# of Stock
Other Annual Options All Other
Name and Principal Position Year Salary Bonus Compensation(1) Awarded Compensation(2)
----------------------------------------------------------------------------------------------------------------------
James M. Kilts 2002 $1,047,500 $ 1,700,000 $276,333 700,000 $204,600
Chairman and CEO 2001 947,917 1,250,000 337,916 2,650,000 252,146
Edward F. DeGraan 2002 849,000 1,272,000(3) - 200,000 119,948
President and COO 2001 789,375 350,000 - 475,000 96,697
2000 642,083 715,000 - 180,000 54,922
Charles W. Cramb 2002 586,000 420,000 - 120,000 50,020
Senior Vice President 2001 550,000 200,000 - 185,000 49,955
2000 512,500 350,000 - 110,000 36,431
Peter K. Hoffman 2002 516,000 435,000 - 95,000 64,207
Vice President 2001 480,000 135,000 - 125,000 39,128
Ernst A. Haberli 2002 508,250 400,000 10,100 100,000 66,103
Vice President 2001 88,542(4) 169,000(4) - 150,000 3,750
(1) Other Annual Compensation paid to Mr. Kilts includes $130,759 for housing,
$116,189 for tax gross-up, $21,287 for personal use of the corporate jet,
$4,858 for home security systems and $3,240 for parking. For Mr. Haberli,
$10,055 represents taxes reimbursed by the Company relating to nondeductible
relocation expenses incurred and $45 represents tax gross-up for insurance
premiums.
(2) All Other Compensation includes the following payments or accruals:
Savings Match Contribution
Equivalents Company Executive Under Estate Estate
on Deferred Match to Life Insurance Preservation Planning
Bonus Savings Plan Premiums(i) Plan(ii) Service(iii)
------------- ------------ -------------- ------------ ---------
James M. Kilts $102,000 $ 62,850 $24,750 $ -- $15,000
Edward F. DeGraan -- 101,940 5,474 7,534 5,000
Charles W. Cramb -- 47,160 2,860 -- --
Peter K. Hoffman 26,100 30,960 2,147 -- 5,000
Ernst A. Haberli 24,000 33,135 2,114 54 6,800
(i) Value of premiums paid by Gillette during 2002 under the Executive Life
Insurance Program. The program provides Company-paid coverage during
employment equal to four times annual salary. During retirement, a death
benefit equal to the executive's final annual salary continues in effect.
Mr. Kilts has waived participation in Gillette's Executive Life Insurance
Program. Instead, Gillette pays premiums for Mr. Kilts and his wife on
existing term life insurance policies.
(ii) The named executives are eligible to participate in a Gillette-sponsored
Estate Preservation Plan. Gillette and the executive officers share
equally the cost of a $1,000,000 life insurance policy payable on the
death of the survivor of each executive and his or her spouse. Gillette
contributes its share of the premiums during the first five years of the
policy and recovers its contribution at the end of a 15-year period, or if
earlier, when the survivor of the executive and the executive's spouse
dies. The contribution made on behalf of Mr. DeGraan preceded the
effective date of the Sarbanes-Oxley Act of 2002. In response to the
uncertainty created by Section 402 of that Act, the Company intends to
limit contributions made on behalf of its executive officers to policy
maintenance costs and will make such contributions on a nonrecoverable
basis. The amount reported for Mr. Haberli represents such
contributions.
(iii) The named executives are eligible to receive an annual reimbursement for
estate tax planning services, not to exceed $5,000. In the case of Mr.
Kilts, the amount is $15,000 annually, and in the case of Mr. Haberli,
the amount is $7,500 annually.
(3) Includes a $500,000 bonus awarded by the Board on January 19, 2001, and
vesting on January 19, 2002, as an incentive for him to remain as
President and COO through January 19, 2002.
(4) Amounts include three months' salary and a signing bonus in connection
with his employment in October 2001.
18
TOTAL OPTIONS EXERCISED IN 2002 AND YEAR-END VALUES
This table gives information for options exercised by each of the Named
Executive Officers in 2002 and the value (stock price less exercise price) of
the remaining options held by those executive officers at year- end, using the
average ($30.21) of the high and low trading prices of our common stock on
December 31, 2002.
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options Held at 12/31/02 at 12/31/02
--------------------------- ---------------------------
# of Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------------------------------------------------------------------------------------------------------
Mr. Kilts -- $ -- 1,216,666 2,133,334 $ 422,499 $845,001
Mr. DeGraan 32,000 810,800 878,330 526,670 1,591,172 236,668
Mr. Cramb 8,000 191,454 500,114 280,002 523,013 156,000
Mr. Hoffman -- -- 285,166 198,334 601,030 117,000
Mr. Haberli -- -- 50,000 200,000 -- --
OPTION GRANTS IN 2002
This table shows all options to purchase our common stock granted to each
of our Named Executive Officers in 2002 and the award date present value for
each option using a Black-Scholes option pricing model.
Award Date
Individual Awards Value
----------------------------------------------------------------- -----------------
% of Total
Number of Options Awarded
Options to Employees Per Share Award Date
Name Awarded(1) in 2002 Exercise Price Expiration Date Present Value(2)
--------------------------------------------------------------------------------- -----------------
Mr. Kilts 700,000 4.9% $ 35.58 6/20/12 $7,847,000
Mr. DeGraan 200,000 1.4% 35.58 6/20/12 2,242,000
Mr. Cramb 120,000 .8% 35.58 6/20/12 1,345,200
Mr. Hoffman 95,000 .6% 35.58 6/20/12 1,064,950
Mr. Haberli 100,000 .7% 35.58 6/20/12 1,121,000
(1) Option awards in 2002 were made under the 1971 Stock Option Plan. The
material terms of these grants are:
- Awards consist of a combination of incentive (subject to limitations
imposed by U.S. tax law) and nonincentive stock options.
- Exercise price is the average of the high and low trading prices of the
common stock on the date of award.
- Options become exercisable in one-third increments at the first three
anniversaries of the award. Options become immediately exercisable upon
retirement, death or disability.
- Options remain exercisable for 10 years from the date of award during
employment. The postretirement exercise period for employees is the
remaining life of the option in the case of retirement and the lesser of
three years or the remaining term of the option in the event of death or
disability. In the event of a change in control, options not otherwise
exercisable at termination of employment become immediately exercisable,
and if the participant's employment is terminated (other than for cause)
within two years thereafter, the exercise period is the lesser of two
years or the remaining term of the option.
(2) The award date present value for each option was determined using a
Black-Scholes option pricing model. The principal assumptions used in the
model were:
Expiration Date 6/20/12
-----------------------------------------
Stock Price Volatility 33.1%
Dividend Yield 1.8%
Risk Free Rate of Return 4.2%
Expected Life in Years 5.5
The model generates a theoretical value based on the assumptions and is not
intended to predict future prices of the stock. There is no assurance that these
values or any other value will be achieved. The actual value will be dependent
upon:
- The performance of Gillette as reflected in the future price of the stock.
- Continued employment with Gillette.
19
RETIREMENT PLAN TABLE
Annual Pension*
-----------------------------------------------
Average Annual Compensation
Used as Basis for 15 Years 20 Years 25 Years or More
Computing Pension of Service of Service of Service
------------------------------------------------------------------------------
$ 800,000 $240,000 $ 320,000 $ 400,000
1,200,000 360,000 480,000 600,000
1,600,000 480,000 640,000 800,000
2,000,000 600,000 800,000 1,000,000
2,400,000 720,000 960,000 1,200,000
3,000,000 900,000 1,200,000 1,500,000
* Before Social Security offset.
The table above shows an estimate of the total annual pension benefits
payable in the form of a straight-life annuity for employees who retire at or
after age 65 under the Retirement Plan and Supplemental Retirement Plan.
After the Retirement Plan was adopted, changes in the law limited the
amount of benefits that could be paid under tax-qualified plans. As permitted by
law, we adopted the Supplemental Retirement Plan for the payment of amounts to
employees who may be affected by those limitations, so that, in general, total
benefits will continue to be calculated on the original basis.
In general, the benefit upon retirement at or after age 65 with 25 years or
more of service is equal to 50% of the employee's average annual compensation,
minus 75% of primary Social Security benefits. Average annual compensation is an
employee's salary and bonus, as defined in the Plan, for the highest-paid five
calendar years during the last 10 full calendar years of employment. A benefit
becomes payable at retirement for employees with at least 5 years of service.
As of December 31, 2002, the Named Executive Officers had the following
years of service under the Retirement Plans: Mr. Kilts, 2 years; Mr. DeGraan, 33
years; Mr. Cramb, 33 years; Mr. Hoffman, 31 years; and Mr. Haberli, 1 year.
In addition to his participation in the Company's Retirement Plans, Mr.
Kilts, under the terms of his employment contract, is entitled to receive a
pension from the Company, the principal terms of which are described on page 21.
Mr. Kilts' annual pension benefits, estimated below, would be offset by any
amounts payable to him under the Company's Retirement Plans.
36-Month 10 Years
Average Annual Compensation 3 Years 5 Years (Maximum)
----------------------------------------------------------------------
$1,500,000 $225,000 $375,000 $ 750,000
2,000,000 300,000 500,000 1,000,000
2,500,000 375,000 625,000 1,250,000
3,000,000 450,000 750,000 1,500,000
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
In connection with Mr. Kilts' appointment as Chairman of the Board of
Directors and Chief Executive Officer, he and Gillette signed a renewable
three-year employment agreement, effective January 19, 2001. The terms of the
agreement provided for Mr. Kilts to receive an annual base salary of no less
than $1 million and a bonus during the year 2001 of at least 100% of base
salary, prorated for the portion of the year he was employed. He was paid a
signing bonus of $250,000. For future years, he is eligible for an annual target
bonus opportunity of not less than 100%, nor more than 200%, of base pay, if the
performance goals for the relevant year are met.
20
At the time he was hired, the Board awarded Mr. Kilts options to purchase
two million shares of Gillette common stock at an exercise price of $34.16 per
share (the average of the high and low trading prices on the award date) on
substantially similar terms to those granted under the 1971 Stock Option Plan,
except that one-quarter of these options vested immediately, and the remainder
vest in one-third increments annually over a three-year period. Under the terms
of Mr. Kilts' employment agreement, Gillette awarded Mr. Kilts an option on
650,000 shares under the 1971 Stock Option Plan in June 2001 and is obligated to
make option awards of not less than 650,000 shares in 2002 and 2003. In June
2002, he was awarded an option on 700,000 shares.
Pursuant to the agreement, at the time of his employment, Mr. Kilts
purchased 29,274 shares of Gillette's common stock at a price of $34.16 per
share, or $1 million in total. He agreed to hold these shares for a period of
not less than three years, or his earlier termination of employment.
In addition, Mr. Kilts participates in employee welfare and benefit plans
and is provided housing, certain executive perquisites, transportation and home
security systems.
Mr. Kilts will be entitled to receive a pension, starting when his
employment ends (for reasons other than cause), of five percent of his final
average compensation (determined on the basis of a consecutive 36-month period)
for each year or partial year of employment, up to a maximum of 50 percent of
his final average compensation. This pension would be offset by any pension he
may otherwise become entitled to under the Company's Retirement Plans.
The employment agreement provides that if Mr. Kilts' employment is
terminated without cause, or if Mr. Kilts terminates his employment for good
reason, he will be entitled to receive a prorated annual incentive bonus for the
year of termination and a lump sum equal to the sum of two years' base salary
and two times the target bonus for the year of termination. Under these
circumstances, he will receive two years' credit for purposes of his pension
calculation and be entitled to vesting of any unvested options with an exercise
period equal to the lesser of five years or the original term of the options.
Options granted beginning in 2002 will remain exercisable for their original
term. He will also be subject to a two-year noncompetition agreement.
In the event of a change in control, change-in-control provisions
substantially similiar to those described below will apply to Mr. Kilts except
that, in the event his employment is terminated by Gillette without cause within
two years following a change in control, his options will remain exercisable
through the end of their 10-year terms.
Mr. DeGraan has a two-year renewable employment agreement providing that in
the event his employment is involuntarily terminated for reasons other than
cause, disability or death or if he leaves for good reason or elects to leave at
the end of the term, in return for certain postemployment protections for the
Company, such as noncompetition and nonsolicitation, he will receive severance
payments equal to two years' salary and target bonus and, during the covered
period, will continue coverage under welfare and benefit plans. This agreement
terminates automatically in the event of a change in control.
The other executive officers named in the Summary Compensation Table also
have renewable two-year employment agreements. These agreements provide that in
the event the executive's employment is terminated by Gillette for reasons other
than cause, disability or death or if the executive leaves for good reason in
return for certain protections such as postemployment noncompetition and
nonsolicitation, Gillette will pay the executive severance equal to two years'
base salary and target bonus and, during the covered period, will continue
coverage under welfare and benefit plans. These agreements terminate
automatically in the event of a change in control.
The executive officers named in the Summary Compensation Table have
change-in-control agreements. These agreements become operative only upon a
change in control of Gillette (as defined in the agreements). After a change in
control, each agreement becomes, in effect, a two-year employment agreement
providing salary, bonus and other employee benefits at levels not less than
those existing prior to the change in control. If the executive terminates
employment for "good reason," as defined in the agreement, within the two-year
period or voluntarily terminates employment during the 30-day period following
the first anniversary of the change in control, the executive is entitled to
receive a lump sum severance payment equal to three times the executive's base
salary and specified bonus. The executive also is entitled to receive other
payments and benefits, including increased pension benefits, continuation of
employee welfare benefits, reimbursement of any "parachute" excise tax imposed
on payments under the agreements and reimbursement of reasonable legal expenses
related to the agreement.
The following report is submitted by the Compensation Committee.
21
Compensation Committee Report
COMPENSATION PHILOSOPHY
The Board of Directors endorses and promotes a "pay for performance"
philosophy.
We believe that the achievement of the objectives contained in the
Company's Strategic Growth Plan will significantly increase the fundamental
value of the Company over time. For this reason, we have directly linked the
compensation of the Company's executives (a larger group than the Company's
Executive Officers) to the achievement of those strategic objectives. Further,
we have requested management to refrain from providing quarterly earnings
guidance to the financial analysts and others who follow the Company's stock so
that the efforts of management will be focused on improving business
fundamentals, rather than attaining short-term financial expectations. We
believe that the improvements in the Company's financial health and franchise
strength reflected by the Strategic Growth Plan will lead to enhanced
shareholder returns over time.
Our compensation program is based on the following principles:
- Individual contributions to growth in the Company's fundamental value must be
recognized.
- Highly qualified executives must be attracted and retained.
- Executive compensation must be linked to the achievement of the Company's
Strategic Growth Plan.
- A significant portion of an executive's compensation must be subject to market
risk.
PERFORMANCE AGAINST OBJECTIVES
A substantial percentage of an executive's compensation depends on the
level of the executive's achievement of individual objectives. These objectives
are assigned at the beginning of each year and are designed to enable the
Company to achieve the objectives of the Company's Strategic Growth Plan. They
include financial objectives and qualitative factors such as leadership,
management development and the quality of execution of business strategies that
drive the Company's growth. Each executive is also accountable for compliance
with the Company's policies and codes of conduct.
SALARIES, INCENTIVE BONUSES AND STOCK OPTION AWARDS
The principal elements of our executive compensation program are salaries,
bonuses and stock options. In addition, each executive may participate in
Gillette benefit plans such as the Executive Life Insurance Program and Estate
Preservation Plan, as well as broad-based plans that include the Employees'
Savings and Retirement Plans. Information about these plans and programs during
2002 is found in the Summary Compensation Table on page 18 and the Retirement
Plan Table on page 20.
We approve the salary of each Executive Officer, and all bonus and stock
option awards.
Base Salary
When determining the appropriate salary of an Executive Officer, we assign
a salary range under a system of job evaluation based on the level of
responsibility and the executive's qualifications and experience. Annual salary
increases are approved within merit and promotional guidelines established in
order to maintain the Company's competitive position in the marketplace.
Annual Bonuses
At the beginning of each year, we establish, under the Company's Incentive
Bonus Plan, a range of growth goals for the Company focusing on growth in
earnings per share, return on assets and net sales. The amount we allocate to
the Company's annual bonus pool relates directly to the degree to which the
annual growth goals are met by the Company.
We also assign individual bonus targets to each executive based on grade
level expressed as a percent of year-end salary. The executive's achievement
against each individual objective is converted into a numerical formula for
determining the appropriate bonus award. The amount of each executive's annual
bonus (which can be higher or lower than his/her target bonus) is a function of
the level of achievement of the Company and the executive's business unit and
individual objectives.
Under special provisions of the Plan approved by the shareholders at the
2001 Annual Meeting, bonus awards to the Executive Officers named in the Summary
Compensation Table are conditioned upon Gillette's
22
achievement of a minimum net income target that we establish each year. Since
this target was exceeded in 2002, bonuses may be paid to those executives up to
a prescribed maximum. These bonuses are tax deductible by the Company.
The Plan also provides that, in the event the Company's growth goals are
not met, the Committee may create a reserve bonus pool that can be used for
awarding bonuses to employees, other than the executives named in the Summary
Compensation Table, who have achieved their individually assigned objectives. If
such a pool is created, it will be substantially smaller than the bonus pool
established when the Company achieves its growth goals.
Stock Options
Stock options are awarded to employees who have demonstrated their ability
to contribute to the long-term success of the Company. Stock options encourage
these individuals to act as owners of the Company, directly aligning their
interests with the interests of the shareholders. We make stock option awards
under the 1971 Stock Option Plan on an annual basis, as employment inducements,
and at other times, with exercise prices equal to the average of the high and
low trading prices of Gillette stock on the date of the award. The number of
shares awarded to each executive is based on our assessment of the future
potential of the executive to contribute to the growth of the Company and the
relative value of stock options, as calculated by the Black-Scholes method,
awarded by companies with whom we compete for executive talent.
The Financial Accounting Standards Board (the "FASB") is currently
deliberating whether it should undertake a comprehensive reconsideration of
accounting for stock options in light of the recently proposed guidance issued
by the International Accounting Standards Board. The Company generally agrees
with the concept of recognizing compensation cost based on a fair value
approach, but does not intend to adopt such an approach unless there is
agreement on standardized rules that are applicable to all companies. The
Company believes a uniform rule is necessary to allow investors to make informed
comparisons between companies and urges the FASB to complete its rulemaking
process this year. The Company will continue to consider other equity-based
forms of executive compensation, including performance-based equity linked to
indices or other comparable performance criteria.
REPORT OF COMPENSATION CONSULTANT
Each year, we review a report prepared by an independent compensation
consultant retained by the Committee. That report assesses the appropriateness
and competitiveness of the Company's executive compensation program, as well as
the compensation paid to each of its executives. While our consultant's report,
including comparisons to the compensation practices of other companies or
industry segments, is not the determining factor in our review, our consultant's
views represent an important element in our evaluation of the Company's
executive compensation program. In 2002, we retained Hewitt Associates as our
consultant.
THE COMPANY ACHIEVED ITS OBJECTIVES IN 2002
The Company achieved and exceeded many of its objectives set for 2002.
Notable among those achievements were:
- Sales increased 5% versus 2001.
- Profit from operations increased 21% versus 2001.
- Earnings per share, assuming full dilution, increased 31% versus 2001.
- Accounts receivable were reduced by 18% versus 2001.
- Inventory was reduced by 8% versus 2001.
- Accounts payable increased by 45% versus 2001.
- Return on assets increased by 7 percentage points versus 2001.
- Free cash flow, defined as cash remaining from operations after capital
investments, increased significantly versus 2001.
- Eighty-four percent of sales came from brands that led their markets.
In addition, many other critical objectives were met. Franchise market and
share targets were reached. The financial management and planning functions were
improved. Implementation was begun on the Functional Excellence program, a
multiyear initiative, funded through operations, that is designed to improve
capabilities and reduce costs. The effectiveness of the Information Technology
function was improved. The Selling, General and Administrative Expenses target
was met. Substantial savings and functional improvements in manufacturing and
the supply
23
chain function were obtained. Finally, and most importantly, many of the
programs designed to transform the Company's culture to a performance-based
culture were successfully completed.
In our view, the executive compensation program contributed significantly
to the Company's achievement of its objectives in 2002.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Kilts' compensation in 2002, including base salary, target bonus and
number of stock options, was negotiated as part of his employment agreement at
the time he was hired. Prior to entering into this agreement, we engaged
consultants to develop a competitive employment offer for Mr. Kilts. They
advised us that the compensation and perquisites included in the employment
offer were consistent with industry practice. The details of his employment
agreement are described on page 20 of this Proxy Statement under the caption,
"Employment Contracts, Termination of Employment and Change-In-Control
Arrangements," and in the Summary Compensation Table on page 18. Mr. Kilts'
compensation is determined in accordance with his employment agreement and the
policies described in this report.
In 2001, the Board created the Nominating and Corporate Governance
Committee, composed of four independent directors. The charter for the Committee
includes the responsibility for annually evaluating the performance of the Chief
Executive Officer.
When reviewing the CEO's performance, the Nominating and Corporate
Governance Committee considers, among other things: personal qualities such as
leadership, statesmanship and responsiveness; general management skills such as
a global perspective on the business, operating plans and results, strategic
thinking and planning, knowledge of the business and preparedness; financial
expertise such as value creation, capital planning and communications with the
financial and investment communities; and skills involving the effective use of
human resources such as developing management talent and creating an effective
organization.
When determining the appropriate compensation for the CEO, we consider the
Nominating and Corporate Governance Committee's performance evaluation, the
level of achievement of the Company's growth targets and the report of the
independent consultant, including its review of the compensation paid to CEOs at
companies with whom we compete for executive talent.
SECTION 162(m) OF THE INTERNAL REVENUE CODE
This provision of Federal tax law limits the deductibility of compensation
paid to the Chief Executive Officer and the next four most highly paid executive
officers at the end of each year in which, for any of these covered executives,
compensation exceeds $1 million subject to certain exceptions. One of the
exceptions is performance-based compensation paid under a plan or arrangement
approved by shareholders. Gillette's shareholders have approved both our
Incentive Bonus and Stock Option Plans.
It is our policy generally to design executive compensation to be
deductible under Section 162(m). However, we exercise our discretion, consistent
with the interests of the shareholders, to award compensation that is not tax
deductible for the recruitment and retention of executives.
By the Compensation Committee:
Richard R. Pivirotto (Chairman)
Wilbur H. Gantz
Dennis F. Hightower
Herbert H. Jacobi
Marjorie M. Yang
24
Gillette Comparative Five-Year Investment Performance
The following graph compares the total return on $100 invested in Gillette
common stock for the five-year period from December 31, 1997, through December
31, 2002, with a similar investment in the Standard & Poor's 500 Stock Index and
with the market value weighted returns of a Peer Group Index consisting of eight
consumer products companies of similar size that sell products worldwide. The
cumulative return includes reinvestment of dividends.
[The following data was also represented as
a line chart in the printed material.]
1997 1998 1999 2000 2001 2002
-------------------------------------------------------------------
Gillette $100 $ 96 $ 84 $ 75 $ 71 $ 66
Peer Group $100 $123 $136 $127 $119 $119
S&P 500 $100 $128 $155 $141 $124 $ 97
Peer Group Companies:
Avon Products, Inc.
The Clorox Company
Colgate-Palmolive Company
Energizer Holdings
Kimberly-Clark Corporation
Philips Electronics, N.V
Procter & Gamble Company
Unilever, NV
25
Requirements, Including Deadlines, for Submission of Proxy Proposals,
Nomination of Directors and Other Business of Shareholders
Our bylaws, as permitted by the rules of the SEC, establish procedures that
a shareholder must follow to nominate persons for election as directors or to
introduce an item of business at an Annual Meeting of Shareholders. These
procedures provide that nominations for director nominees and/or an item of
business to be introduced at an Annual Meeting must be submitted in writing to
the Secretary of the Company at our principal executive offices at the
Prudential Tower Building, 48th Floor, Boston, MA 02199. The Company must
receive a shareholder's notice of intention to introduce a nomination or
proposed item of business at the 2004 Annual Meeting no later than February 14,
2004, but no earlier than January 15, 2004. If a shareholder notifies the
Company after February 14, 2004, of an intent to present a proposal at the 2004
Annual Meeting, the Company will have the right to exercise its discretionary
voting authority with respect to such proposal without including information
regarding such proposal in its proxy materials.
The nomination must contain the following information about the nominee(s):
- name, age, and business and residence addresses;
- principal occupation or employment;
- the number of shares of common stock held by the nominee(s);
- the information that would be required under SEC rules in a Proxy Statement
soliciting proxies for the election of such nominee(s) as a director; and
- a signed consent of the nominee(s) to serve as a director of the Company, if
elected.
Notice of a proposed item of business must include:
- a brief description of the substance of, and the reasons for conducting, such
business at the Annual Meeting;
- the shareholder's name and address;
- the number of shares of common stock held by the shareholder (with supporting
documentation where appropriate); and
- any material interest of the shareholder in such business.
The Board is not aware of any matters meeting the requirements of the
bylaws that are expected to come before the 2003 Annual Meeting other than those
referred to in this Proxy Statement. If any other matter should come before the
Annual Meeting, the persons named in the accompanying proxy intend to vote the
proxies in accordance with their best judgment.
The chairman of the meeting may refuse to allow the transaction of any
business not raised in compliance with the foregoing procedures.
26
Directions to Hotel du Pont
11th and Market Streets
Wilmington, Delaware
The Hotel du Pont is located in downtown Wilmington, two hours from New York and
Washington, D.C., and one hour from Baltimore. The hotel is just five blocks off
I-95, minutes from the train station, and 25 minutes from the Philadelphia
International Airport.
FROM PHILADELPHIA
1. Take I-95 South through Chester to Wilmington.
2. Follow I-95 South to Exit 7A marked "52 South, Delaware Avenue."
3. Follow 11th Street in the middle lane through six traffic lights. Hotel
du Pont is on the right. Valet parking is available at Hotel entrance.
For self-parking, turn left on Orange Street; Car Park is on left.
FROM BALTIMORE
1. Follow I-95 North to Wilmington, take Exit 7 marked "Route 52, Delaware
Avenue."
2. From right lane, take Exit 7 onto Adams Street.
3. At the third traffic light, turn right onto 11th Street.
4. Follow 11th Street in the middle lane through six traffic lights. Hotel
du Pont is on the right. Valet parking is available at Hotel entrance.
For self-parking, turn left on Orange Street; Car Park is on left.
FROM NEW JERSEY (NEW JERSEY TURNPIKE)
1. Take the New Jersey Turnpike South to Delaware Memorial Bridge.
2. After crossing the Delaware Memorial Bridge, follow signs to I-95 North.
3. From I-95 North, follow steps 1-4 above.
Directions from the Airport and Train Station
FROM THE PHILADELPHIA INTERNATIONAL AIRPORT
1. Take I-95 South into Delaware (approximately 15 miles).
2. Follow I-95 South to Exit 7A marked "52 South, Delaware Avenue." This is
11th Street. The Hotel du Pont is seven blocks ahead, on the right.
FROM THE WILMINGTON TRAIN STATION
1. From underneath the railroad tracks on French Street, cross over the
Martin Luther King Boulevard to the second light.
2. Make a left onto 2nd Street, and follow to Orange Street.
3. Make a right onto Orange Street.
4. Follow Orange Street to 11th Street, and make a right. The Hotel du Pont
is on the right at 11th and Market.
27
Exhibit A - Audit Committee Charter
A. PURPOSE
The Audit Committee is appointed by the Board of Directors to (a) assist in
its oversight of (i) the integrity of the Company's financial statements, (ii)
the Company's compliance with legal and regulatory requirements, (iii) the
independent auditor's qualifications and independence, and (iv) the performance
of the Company's internal audit function and its independent auditor and (b)
prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Company's Proxy Statement.
B. RESPONSIBILITIES AND DUTIES
General
1. Review and assess the adequacy of this Charter on an annual basis and submit
any proposed amendments to the Board of Directors for approval.
2. Review and discuss with management and the independent auditor:
(a) the selection, application and disclosure of critical accounting
policies and practices,
(b) the Company's system of internal controls and policies relating to risk
assessment and management,
(c) all alternative treatments of financial information within generally
accepted accounting principles that have been discussed with management,
ramifications of the use of such alternative disclosures and treatments,
and the treatment preferred by the independent auditor,
(d) the effects on the Company's financial statements of regulatory and
accounting initiatives,
(e) any material off-balance sheet transactions, arrangements, obligations
(including contingent obligations) and any other relationships of the
Company with unconsolidated entities that may have a current or future
material effect on the Company's financial statements,
(f) any pro forma information proposed to be included in the Company's
financial statements or any other public disclosure,
(g) the annual audited financial statements and quarterly financial
statements, and the Company's disclosures under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the
Form 10-K and Form 10-Q, and
(h) the presentation of the financial statements.
3. Recommend to the Board of Directors each year whether or not the audited
consolidated financial statements should be included in the Company's Annual
Report filed with the Securities and Exchange Commission on Form 10-K.
4. Discuss generally the types of information to be disclosed and the
presentation to be made in earnings releases and in financial information
and earnings guidance (if any) given to analysts and rating agencies.
5. Discuss policies with respect to risk assessment and risk management and the
Company's major financial risk exposures and the steps management has taken
to monitor and control such exposures.
6. Review with the Company's General Counsel: (a) any legal matter that could
have a significant impact on the Company's financial statements and (b) the
effectiveness of the Company's compliance program in detecting and
preventing violations of law and the Company's codes of conduct.
7. Establish procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls
or auditing matters and the confidential, anonymous submissions by employees
or contractors of concerns regarding questionable accounting or accounting
matters.
Independent Auditor
1. Retain, oversee and terminate the Company's independent auditor which shall
report directly to the Audit Committee, including approval of all engagement
fees and terms for the audit and audit-related services, such as comfort
letters or statutory audits, and consider the rotation of the independent
auditor.
2. Review annually a report by the independent auditor describing: (a) the
firm's internal quality-control procedures; (b) any material issues raised
by the most recent internal quality-control review, or peer review, of the
firm, or by any inquiry or investigation by governmental or professional
authorities, within the
A-1
preceding five years, respecting one or more independent audits carried out
by the firm, and any steps taken to deal with such issues; and (c) all
relationships between the independent auditor and the Company.
3. Taking into consideration the views of the internal auditor and management,
annually review and evaluate the qualifications, performance and
independence of the independent auditor and the senior members of the
independent auditor team (including the rotation of the lead auditor and
reviewing partners), including the disclosures of the independent auditor
required by Independence Standards Board Standard No.1, and report its
findings to the Board.
4. Review and approve the audit fees and any other compensation proposed to be
paid to the independent auditor.
5. Pre-approve the retention of the independent auditor for any auditing
service or any nonaudit service that is not prohibited under Section 10A (g)
of the Securities Exchange Act and the terms of engagement and fee for such
service. The Audit Committee may delegate the authority to grant such
pre-approvals to one or more designated members of the Audit Committee who
are independent directors of the Board of Directors, provided that the
decisions made by such member or members to pre-approve an activity shall be
presented to the full audit committee at its scheduled meetings.
6. Discuss with the independent auditor any disclosed relationships or services
that may affect the objectivity and independence of the independent auditor,
including the matters required to be discussed by Statement on Auditing
Standards No. 61.
7. Discuss with the independent auditor (a) accounting adjustments that were
identified or proposed by the independent auditor and were not implemented,
(b) communications between the audit team and the firm's national office
relating to auditing or accounting issues presented by the engagement, (c)
any "management letter" issued or proposed to be issued by the independent
auditor to the Company and any other material written communications between
the independent auditor and the management, and (d) any issues identified or
problems encountered by the independent auditor with management's response
to such adjustments, communications or letter, and resolve any disagreements
between management and the independent auditor regarding financial
reporting.
8. Review the annual audit plans of the independent auditor.
9. Set clear hiring policies for employees and former employees of the
independent auditor.
10. Obtain assurance from the independent auditor that section 10A (b) of the
Securities Exchange Act has not been implicated.
Internal Audit
1. Review the annual audit plans of the Internal Auditor, including any audit
plans of audit firms retained to provide internal audit services, to ensure
that there is an appropriate control process for reviewing and approving the
Company's internal transactions and accounting.
2. Review the responsibilities, organizational structure, budget and
qualifications of the internal audit function.
3. Review the reports of the Internal Auditor, including any reports of audit
firms retained to provide internal audit services, the plans for corrective
actions and the reports on the completion of the corrective actions.
Financial Reporting Processes
1. Review with management and the independent auditor any correspondence with
regulators or government agencies and any employee complaints or published
reports that raise material issues regarding the Company's financial
statements or accounting policies.
2. Review any significant difficulties reported by the independent auditor in
conducting the audit, including any restrictions on the scope of work or
access to required information.
3. Review any significant disagreement between management and the independent
auditor in connection with the preparation of the financial statements.
4. Review any significant changes in the Company's internal controls or in
other factors that could significantly affect these controls.
5. Review the reports of the CEO and CFO (in connection with their required
certifications) regarding any significant deficiencies or material
weaknesses in the design or operation of internal controls and any fraud
that involves management or other employees who have a significant role in
the Company's internal controls.
A-2
6. Review major issues regarding the adequacy of the Company's internal
controls and any special audit steps adopted in light of control
deficiencies.
7. Review the Company's Financial Code of Ethics.
Other
1. Perform any other activities consistent with this Charter, the Company's
bylaws and Certificate of Incorporation, as the Committee or the Board of
Directors deems necessary or appropriate.
2. Report regularly to the Board of Directors.
C. MEMBERSHIP AND ORGANIZATION
1. The Audit Committee shall consist of at least three members. Each member
shall meet the independence, experience and financial literacy requirements
in the listing standards of the New York Stock Exchange and the rules and
regulations of the Securities and Exchange Commission, and one member shall
qualify as an "Audit Committee Financial Expert" as that term is defined by
rules and regulations of the Securities and Exchange Commission.
2. The members of the Committee shall be elected by the Board of Directors at
its first meeting following the Annual Meeting of Shareholders and shall
serve until the first meeting of the Board of Directors following the Annual
Meeting of Shareholders and until their successors are elected or until
their earlier death, resignation or removal, with or without cause, in the
discretion of the Board. Unless a Chair is elected by the Board of
Directors, the members of the Committee shall elect a Chair by majority vote
of the full Committee membership.
3. The Committee may delegate its authority to a subcommittee or subcommittees.
4. The Committee shall promptly inform the Board of the actions taken or issues
discussed at its meetings. This will generally take place at the Board
meeting following a Committee meeting.
D. MEETINGS
1. The Committee shall meet four times annually, or more frequently if
circumstances dictate. Two members shall constitute a quorum. If a quorum is
present, a majority of the members present shall decide any question brought
before the Committee. Any member of the Committee may call a meeting of the
Committee upon due notice to each other member at least 48 hours prior to
the meeting. The Committee shall meet at least each quarter with the Chief
Financial Officer (and other members of management, as it deems
appropriate), the Internal Auditor and the independent auditor in separate
executive sessions.
E. ADVISORS
1. The Committee shall have the authority, at the expense of the Company, to
retain such accounting, legal and other advisors as it shall deem
appropriate without Board or management approval.
F. PERFORMANCE EVALUATIONS
1. The performance of the Committee shall be evaluated annually, which
evaluation may be included as part of the Board surveys.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent auditor. Nor is it
the duty of the Audit Committee to conduct investigations or to assure
compliance with laws and regulations and the Company's policies.
A-3
Exhibit B - Nominating and Corporate Governance
Committee Charter
1. PURPOSE
The purpose of the Nominating and Corporate Governance Committee is to
identify and recommend to the Board for selection as director nominees
individuals qualified to become Board members and to develop and recommend the
Company's Corporate Governance Principles.
2. RESPONSIBILITIES
The Nominating and Corporate Governance Committee's primary
responsibilities include:
- Developing criteria for the selection of new directors, in addition to those
provided in the Corporate Governance Principles.
- Identifying and recommending director nominees to the Board for election at
each Annual Meeting.
- Recommending appointments to the Board's Committees.
- Setting the Company's policies and criteria to evaluate the Chief Executive
Officer's performance and evaluating such performance against those policies
and criteria, which will include, among other things: personal qualities such
as leadership, statesmanship and responsiveness; general management qualities
such as a global perspective on the business, short-term results, strategic
thinking and planning, knowledge of the business and preparedness; financial
expertise such as value creation, capital planning and communications with the
financial and investment communities; and qualities relating to the use of
human resources such as developing management talent and creating an effective
organization.
- Evaluating the effectiveness of the Board and its Committees and recommending
ways to improve the performance of the Board and its Committees.
- Recommending ways to enhance services to, and improve communications and
relations with, the Company's shareholders.
- Developing a set of corporate governance principles applicable to the Company.
Such principles shall address the following subjects: director qualification
standards, director responsibilities, director access to management and
independent advisors, director compensation, director orientation and
continuing education, management succession, and annual performance evaluation
of the Board and its Committees.
- Recommending proposed changes to the Company's Certificate of Incorporation
and bylaws.
- Reviewing and reassessing this charter and submitting any suggested changes to
the Board for review.
3. MEMBERSHIP AND ORGANIZATION
- The Nominating and Corporate Governance Committee shall consist of at least
three members of the Board of Directors as the Board shall from time to time
determine. Each member shall be "independent" as that term is defined by the
rules of the New York Stock Exchange.
- The members of the Committee shall be elected by the Board of Directors at its
first meeting following the Annual Meeting of Shareholders and shall serve
until the first meeting of the Board of Directors following the Annual Meeting
of Shareholders and until their successors are elected or until their earlier
death, resignation or removal, with or without cause, in the discretion of the
Board. Unless a Chair is elected by the Board of Directors, the members of the
Committee shall elect a Chair by majority vote of the full Committee
membership.
- The Committee may delegate its authority to a subcommittee or subcommittees.
- The Committee shall promptly inform the Board of the actions taken or issues
discussed at its meetings. This will generally take place at the Board meeting
following a Committee meeting.
B-1
4. MEETINGS
The Committee shall meet three times annually, or more frequently if
circumstances dictate. Any member of the Committee may call a meeting of the
Committee upon due notice to each other member at least 48 hours prior to the
meeting. Two members shall constitute a quorum. If a quorum is present, a
majority of the members present shall decide any question brought before the
Committee.
5. ADVISORS
The Committee shall have the exclusive authority, at the expense of the
Company, to retain (including authority to approve fees and other retention
terms) any search firms to be used to identify director candidates, and such
independent consulting, legal and other advisors as it shall deem appropriate
without management approval.
6. PERFORMANCE REVIEW
The performance of the Committee shall be evaluated annually, which
evaluation may be included as a part of the Board surveys.
This Charter sets forth the responsibilities and powers of the Nominating
and Corporate Governance Committee as delegated by the Board of Directors. The
Committee relies to a significant extent on information and advice provided by
management and independent advisors. Whenever the Committee takes an action, it
exercises its independent judgment on an informed basis that the action is in
the best interests of the Company and its shareholders.
B-2
[LOGO] The Gillette Company
PRUDENTIAL TOWER BUILDING
BOSTON, MA 02199
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic
delivery of information up until 11:59 P.M. Eastern Time the day before the
cut-off date or meeting date. Have your proxy card in hand when you access the
web site. You will be prompted to enter your 12-digit Control Number located
below to obtain your records and to create an electronic voting instruction
form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59
P.M. Eastern Time the day before the cut-off date or meeting date. Have your
proxy card in hand when you call. You will be prompted to enter your 12-digit
Control Number located below, and then you can follow the simple instructions
the Vote Voice provides you.
VOTE BY MAIL
Indicate your response on your card, sign and date your proxy card, and return
it in the postage-paid envelope provided. If the envelope is missing, return it
to The Gillette Company, c/o ADP, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
GLLTTE KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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THE GILLETTE COMPANY
Vote on Directors
1. To elect four directors to serve for three-year terms expiring in 2006.
For Withhold For All To withhold authority to vote, mark "For All Except"
Nominees: 01) Roger K. Deromedi All All Except and write the nominee's number on the line below.
02) Dennis F. Hightower
03) Herbert H. Jacobi 0 0 0 ____________________________________________________
04) Nancy J. Karch
Vote On Proposals For Against Abstain
2. Shareholder Proposal - Declassify the Board of Directors 0 0 0
3. Shareholder Proposal - Expense Stock Option Awards 0 0 0
This proxy will be voted as specified by the shareholder, but if no choice is
specified, it will be voted FOR the Election of Directors and AGAINST
proposals 2 and 3.
Yes No
HOUSEHOLDING ELECTION - Please indicate if
you consent to receive certain future investor
communications in a single package per household 0 0
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Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
======================================================================================================================
[LOGO] The Gillette Company Prudential Tower Building
Boston, MA 02199
Notice of 2003 Annual Meeting of Shareholders
Time: 10:00 a.m.
Date: Thursday, May 15, 2003
Place: Hotel du Pont
11th and Market Streets
Wilmington, Delaware
Items of Business: 1. To elect four members of the Board of Directors for
three-year terms.
2. To vote on two shareholder proposals, if the proposals
are presented at the Meeting.
Record Date: You can vote if you were a shareholder of record on
March 17, 2003.
By order of the Board of Directors
William J. Mostyn III
Deputy General Counsel and Secretary
Boston, Massachusetts
April 4, 2003
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[LOGO] The Gillette Company Prudential Tower Building
Boston, MA 02199
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned (a) revokes all prior proxies and appoints and
P authorizes William J. Mostyn III and Richard K. Willard and each of them
with power of substitution, as the Proxy Committee, to vote the stock of
R the undersigned at the 2003 Annual Meeting of the shareholders of The
Gillette Company on May 15, 2003, and any adjournment thereof, as specified
O on the reverse side of this card on proposals 1, 2 and 3 and, in their
discretion, on all other matters incident to the conduct of the meeting
X and, if applicable, (b) directs, as indicated on the reverse, the voting of
the shares allocated to the benefit plan account(s) of the undersigned at
Y the 2003 Annual Meeting and at any adjournment thereof. Plan shares for
which no directions are received will be voted on each issue in proportion
to those shares allocated to participant accounts of the same plan for
which voting instructions on that issue have been received. Each trustee is
authorized to vote in its judgment or to empower the Proxy Committee to
vote in accordance with the Proxy Committee's judgment on other matters
incident to the conduct of the meeting and any adjournment thereof.
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SEE REVERSE SEE REVERSE
SIDE (Important - To be signed and dated on reverse side) SIDE
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