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Rule 424(b)2
Registration Statement No. 333-44309
PROSPECTUS SUPPLEMENT
(to Prospectus Dated January 21, 1998)
$400,000,000
[KELLOGG LOGO] KELLOGG COMPANY
5 3/4% EXTENDIBLE NOTES DUE 2001
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ISSUE PRICE: 101.425%
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The 5 3/4% Extendible Notes due 2001 (the "Notes") of Kellogg Company (the
"Company") will bear interest from and including February 4, 1998 to, but not
including, February 2, 2001 (the "Initial Maturity Date") initially at a rate
per annum equal to 5 3/4%. If the Notes are extended beyond the Initial Maturity
Date as provided herein, the interest rate on the Notes will be reset as
provided herein. Under the circumstances provided herein, the holder of the
Notes will have the option to extend the maturity of the Notes until February 2,
2005. See "Description of Notes."
The Notes will not be redeemable on or prior to the Initial Maturity Date.
The Notes will be redeemable, in whole or in part, at the option of the Company
at any time after the Initial Maturity Date at the redemption prices set forth
herein. See "Description of Notes -- Redemption."
The Notes will be represented by certificates registered in the name of the
nominee of The Depository Trust Company (the "Depository"). Beneficial interests
in such certificates will be shown on, and transfers thereof will be effected
only through, records maintained by the Depository's participants. Owners of
beneficial interests in the certificates representing the Notes will be entitled
to physical delivery of Notes in certificated form in the amount of their
respective beneficial interests only under the limited circumstances described
herein. See "Book-Entry, Delivery and Form."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Lehman Brothers Inc. is acting as agent of the Company in arranging for the
purchase of the Notes. It is expected that the Notes will be ready for delivery
in book-entry form only through the facilities of the Depository in New York,
New York, on or about February 4, 1998, against payment therefor in immediately
available funds.
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LEHMAN BROTHERS
The date of this Prospectus Supplement is January 30, 1998
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RECENT DEVELOPMENTS
On January 30, 1998, Kellogg Company (the "Company") announced its
financial results for the year ended December 31, 1997. The Company's net
earnings for the year ended December 31, 1997 were $546.0 million, up 3 percent
from $531.0 million for the year ended December 31, 1996. The Company's net
sales for the year ended December 31, 1997 were $6.83 billion, up 2 percent from
$6.68 billion for the year ended December 31, 1996. As of December 31, 1997, the
Company had total assets of $4.88 billion, long-term debt of $1.42 billion and
total shareholders' equity of $997.5 million.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Notes,
estimated to be approximately $405,350,000, will be used to refund outstanding
commercial paper. All such commercial paper matures within 90 days of the date
hereof and has an average yield to maturity of 5.74%.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes (which
represent a series of, and are referred to in the accompanying Prospectus as,
"Debt Securities") supplements and, to the extent, if any, inconsistent
therewith, replaces the description of the general terms and provisions of the
Debt Securities set forth in the accompanying Prospectus to which reference is
hereby made. The particular terms of the Notes offered by this Prospectus
Supplement are described herein. Certain capitalized terms used herein are
defined under "-- Definitions" or in the accompanying Prospectus.
The Notes will be issued under an Indenture, dated as of August 1, 1993,
between the Company and Harris Trust and Savings Bank, as trustee (the
"Trustee"), which is more fully described in the accompanying Prospectus. The
following summaries of certain provisions of the Indenture do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all of the provisions of the Indenture, including the definitions therein of
certain terms.
The Notes will be limited to $400,000,000 aggregate principal amount. The
Notes will be unsecured and unsubordinated and will rank pari passu with all
other unsecured and unsubordinated indebtedness of the Company.
HOLDER OF THE NOTES
On the issue date of the Notes, a trust (the "Trust") will acquire all of
the Notes. The Trust will sell certificates (the "Certificates") that represent
fractional undivided ownership interests in the Trust and will entitle the
holders thereof to certain distributions from the Trust in respect of the Notes
and any permitted investments that may be acquired by the Trust. The
Certificates are not being offered for sale hereby. The Trust will also sell a
call option (the "Call") to Lehman Brothers Inc. or one of its affiliates (the
"Callholder") representing the right to purchase from the Trust on the Initial
Maturity Date all, but not less than all, of the Notes upon payment of a
specified call price.
Under the terms of the Trust, Certificateholders will have no right to
direct the trustee of the Trust (the "Certificate Trustee") to exercise the
option to extend the maturity of the Notes (the "Extension Option") described
below; the Certificate Trustee as the beneficial owner of the Notes will be
directed solely by the Callholder upon the exercise of the Call. If the Call has
not been exercised in accordance with its terms by the Callholder, the
Certificate Trustee, acting on behalf of the Trust, will not exercise (and
Certificateholders will have no right to direct the Certificate Trustee to
exercise) the Extension Option.
Under the terms of the Call and the Trust Agreement, Certificateholders
will not be entitled to terminate the Trust or cause the sale or other
disposition of the Notes without the consent of the Callholder. In the event of
the occurrence of a payment default on the Notes or the insolvency or bankruptcy
of the Company, unless the Callholder agrees to exercise the Call, the
Certificate Trustee will direct Lehman Brothers Inc. to sell all of the Notes
and the proceeds therefrom will be distributed as provided in the agreement
governing the Trust.
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Upon any sale or other disposition of the Notes occurring after the initial sale
and other than upon exercise of the Extension Option, the Extension Option shall
expire.
MATURITY
If, on the Determination Date, the CMT Rate is greater than the Minimum
Reference Rate, the Notes will mature on the Initial Maturity Date at 100% of
their principal amount plus accrued and unpaid interest. If, on the
Determination Date, the CMT Rate is less than or equal to the Minimum Reference
Rate, the Certificate Trustee, acting on behalf of the Trust, may elect to
extend the term of the Notes to the Final Maturity Date and reset the rate at
which the Notes will bear interest as described below. If the CMT Rate is less
than or equal to the Minimum Reference Rate and the Certificate Trustee, acting
on behalf of the Trust, does not elect to extend the maturity of the Notes, the
Notes will mature on the Initial Maturity Date at a price equal to the greater
of (x) 100% of their principal amount plus accrued and unpaid interest and (y)
the price of a hypothetical four-year corporate debt security issued for
settlement on the Initial Maturity Date and maturing on the Final Maturity Date,
with a coupon paid semi-annually at the Minimum Reference Rate and a yield to
maturity equal to the CMT Rate.
For purposes of calculating the CMT Rate and certain other calculations
described herein, the Company has entered into a Calculation Agency Agreement
dated February 4, 1998 (the "Calculation Agency Agreement") with Lehman Brothers
Inc. (the "Calculation Agent," which expression shall include any successor as
Calculation Agent under the Calculation Agency Agreement). The Calculation Agent
shall calculate the CMT Rate as of the Determination Date and shall notify the
Company, the Certificate Trustee and the Trustee of the CMT Rate, the applicable
redemption price for the Notes and, if applicable, the fixed interest rate
applicable following the Initial Maturity Date (collectively, the
"Determinations"), on the date of such calculation. The Trustee shall in turn
notify the holder of the Notes of the Determinations as soon as practicable
after its receipt of the Determinations.
The calculation by the Calculation Agent of the Determinations shall, in
the absence of manifest error, be binding on the Company, the Trustee and the
holder of the Notes, and, absent negligence or bad faith no liability shall
attach to the Calculation Agent in connection with any such calculation. The
Calculation Agency Agreement contains provisions for the indemnification of the
Calculation Agent and for its relief from responsibility in connection with
certain matters. The Calculation Agent is entitled to enter into financial or
other transactions with the Company as freely as if it were not an agent under
the Calculation Agency Agreement. In acting under the Calculation Agency
Agreement, the Calculation Agent will act solely as agent for the Company and
will not assume any obligation to or relationship of agency or trust for or with
the holder of the Note. The Company reserves the right at any time to vary or
terminate the appointment of the Calculation Agent, provided that it will at all
times maintain a Calculation Agent.
Not later than the eighth Business Day prior to the Initial Maturity Date,
the Calculation Agent shall notify the Trustee, the Company and the Certificate
Trustee by facsimile (i) of the CMT Rate and (ii) if the CMT Rate is less than
or equal to the Minimum Reference Rate on the Determination Date, that the
Certificate Trustee, acting on behalf of the Trust, shall be entitled to
exercise the Extension Option. Not later than the eighth Business Day prior to
the Initial Maturity Date, the Company shall notify the Trustee, the Certificate
Trustee and the Callholder of the Spread. If the Company does not so notify, the
Notes will mature on the Initial Maturity Date at a price equal to the greater
of (x) 100% of their principal amount plus accrued and unpaid interest and (y)
the price of a hypothetical four-year corporate debt security issued for
settlement on the Initial Maturity Date and maturing on the Final Maturity Date,
with a coupon paid semi-annually at the Minimum Reference Rate and a yield to
maturity equal to the CMT Rate. In order to validly exercise the Extension
Option, the Certificate Trustee must notify the Company and the Trustee by
facsimile of such exercise not later than 5:00 P.M., New York City time, on the
sixth Business Day prior to the Initial Maturity Date. Except as provided in the
next succeeding sentence, any exercise of the Extension Option shall be
irrevocable. In the event that the Callholder fails to deposit the call price
with the Certificate Trustee by 5:00 p.m., New York City time, on the fourth
Business Day prior to the Initial Maturity Date, the Company shall purchase the
Notes on the Initial Maturity Date at a price equal to 100% of the principal
amount plus accrued and unpaid interest.
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As described above, Certificateholders will have no right to direct the
Certificate Trustee to exercise the Extension Option; the Certificate Trustee
will be directed solely by the Callholder upon the exercise of the Call. If the
Call has not been exercised in accordance with its terms by the Callholder, the
Certificate Trustee, acting on behalf of the Trust, will not exercise (and
Certificateholders will have no right to direct the Certificate Trustee to
exercise) the Extension Option. Upon any sale or other disposition of the Notes
occurring after the initial sale and other than upon exercise of the Extension
Option, the Extension Option shall expire.
INTEREST
The Notes will bear interest from and including February 4, 1998 to, but
not including, the Initial Maturity Date at 5 3/4%. If the CMT Rate is less than
or equal to the Minimum Reference Rate on the Determination Date and the Notes
are extended at the election of the holder thereof, the Notes will bear interest
from and including the Initial Maturity Date to, but not including, the Final
Maturity Date at a rate per annum equal to the sum of (i) the Minimum Reference
Rate and (ii) the Spread. Interest will be payable, in arrears, on February 2
and August 2 of each year and at maturity, commencing August 2, 1998 and will be
payable to the persons in whose names the notes were registered at the close of
business on the preceding January 17 and July 17, respectively. See "Book-Entry,
Delivery and Form."
REDEMPTION
The Notes will not be redeemable on or prior to the Initial Maturity Date.
The Notes will be redeemable, in whole or in part, at the option of the Company
at any time and from time to time after the Initial Maturity Date at a
redemption price equal to the greater of (i) 100% of the principal amount
thereof plus accrued and unpaid interest to the redemption date and (ii) the sum
of the present values of the remaining scheduled payments of interest on and
principal of the Notes, discounted to the redemption date on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at a rate equal to
the sum of (a) the yield to maturity on the U.S. Treasury securities of
comparable term and (b) 0.25%.
The Notes will not be subject to any sinking fund.
DEFINITIONS
"Business Day" means any day that is not a Saturday or Sunday and that in
New York City is not a day on which banking institutions are generally
authorized or required by law or executive order to be closed for business.
"CMT Rate" means, with respect to the Determination Date, the rate
displayed on the Designated CMT Telerate Page under the caption "...TSY Constant
Maturities and Money Mkts...Fed H.15 Daily" under the column for the Designated
CMT Maturity Index. If such rate is no longer displayed on the relevant page or
is not displayed by 3:00 P.M., New York City time, on such date, then the CMT
Rate for such Determination Date will be such treasury constant maturity rate
for the Designated CMT Maturity Index as published in the relevant H.15(519). If
such rate is no longer published or is not published by 3:00 P.M., New York City
time, on the related date, then the CMT Rate on such Determination Date will be
such treasury constant maturity rate for the Designated CMT Maturity Index (or
other United States Treasury rate for the Designated CMT Maturity Rate) for the
Determination Date as may then be published by either the Board of Governors of
the Federal Reserve System or the United States Department of the Treasury that
the Calculation Agent determines to be comparable to the rate formerly displayed
on the designated CMT Telerate Page and published in the relevant H.15(519). If
such information is not provided by 3:00 P.M., New York City time, on the
Business Day next following the Determination Date, then the Calculation Agent
shall determine and use the Treasury Yield for calculations.
"Designated CMT Maturity Index" means four years (calculated based on the
straight line interpolation of the three- and five-year CMT Rates).
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"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on page 7055 (or any other page as may replace such page on that service
for the purpose of displaying Treasury Constant maturities as reported in
H.15(519) for the purpose of displaying Treasury Constant Maturities as reported
in H.15(519)).
"Determination Date" means the ninth Business Day preceding the Initial
Maturity Date.
"Initial Maturity Date" means February 2, 2001.
"Final Maturity Date" means February 2, 2005.
"Minimum Reference Rate" means 5.633%.
"Spread" means the number of basis points (which shall be no less than
zero) determined by the Company in its sole discretion.
"Treasury Yield" means the rate equal to a straight-line interpolation of
the then current "on the run" three-and five-year U.S. Treasury securities, as
found on Telerate Page 500 for the day preceding the Determination Date at 5:00
p.m., New York City time. If such rate is no longer displayed on the relevant
page or is not displayed by 3:00 P.M. on the Determination Date, then the
Treasury Yield shall be equal to the auction average rate (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) as announced by the United States Department of the Treasury
for Treasury securities having a maturity of four years. In the event that the
results of the auction of Treasury securities having a maturity of four years
are not reported as provided by 3:00 P.M., New York City time, on such
Determination Date, or if no such auction is held in a particular week, then the
Treasury Yield will be a yield to maturity (expressed as a bond equivalent on
the basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) of the arithmetic mean of the secondary market bid rates, as of
approximately 3:30 P.M., New York City time, on such Determination Date, of
three leading primary United States government securities dealers selected by
the Company, for the issue of Treasury securities with a remaining maturity
closest to four years.
BOOK-ENTRY, DELIVERY AND FORM
The Notes will be issued in the form of one or more fully registered
certificates registered in the name of Cede & Co., the nominee of The Depository
Trust Company (the "Depository"). Except as provided below, owners of beneficial
interests in the certificates will not be entitled to have the Notes registered
in their names and will not receive or be entitled to receive physical delivery
of the Notes in definitive form. Unless and until definitive Notes are issued,
holders of the Notes will not be recognized as such by the Trustee. Hence, until
such time, holders of the Notes will only be able to exercise the rights of
holders indirectly through the Depository and its participating organizations.
Except as set forth below, the certificates representing the Notes may not be
transferred except as a whole by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository or another nominee of the
Depository or by the Depository or any nominee to a successor of the Depository
or a nominee of such successor.
The Depository has advised the Company that it is a limited-purpose trust
company organized under the State of New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Depository holds securities that its participants
deposit with it and facilitates the clearance and settlement of securities
transactions among its participants in such securities through electronic
computerized book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations, some of which
(and/or their representatives) own the Depository. Access to the Depository's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies
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that clear through or maintain a custodial relationship with a participant,
either directly or indirectly. Persons who are not participants may beneficially
own securities held by the Depository only through participants.
The Depository advises that, pursuant to the procedures established by it,
(i) upon the issuance of the Notes by the Company, the Depository will credit
the accounts of participants designated by Lehman Brothers Inc., as agent, or
the Company with the amount of the Notes purchased, and (ii) ownership of
beneficial interests in the certificates representing the Notes will be shown
on, and the transfer of that ownership will be effected only through, records
maintained by the Depository (with respect to participants' interests) and the
participants and the indirect participants (with respect to beneficial owners'
interests). The laws of some states require that certain persons take physical
delivery in definitive form of securities which they own. Consequently, the
ability to transfer beneficial interests in such certificates is limited to such
extent.
Neither the Company, the Trustee, any paying agent, nor the security
registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the certificates representing the Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Principal and interest payments on the Notes registered in the name of the
Depository's nominee will be made by the Trustee to the Depository's nominee as
the registered owner of the certificates relating to the Notes, respectively.
The Indenture provides that the Company and the Trustee will treat the persons
in whose names the Notes are registered (the Depository or its nominee) as the
owners of such Notes for the purpose of receiving payment of principal and
interest on the Notes and for all other purposes whatsoever. Therefore, neither
the Company, the Trustee nor any paying agent has any direct responsibility or
liability for the payment of principal or interest on the Notes to owners of
beneficial interests in the certificates relating to the Notes, respectively.
The Depository has advised the Company and the Trustee that its present practice
is, upon receipt of any payment of principal or interest, to credit the accounts
of the participants with such payment in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the
certificates relating to the Notes, respectively, as shown on the records of the
Depository. Payments by participants and indirect participants to owners of
beneficial interests in the certificates relating to the Notes, respectively,
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of the participants
or indirect participants.
If the Depository is at any time unwilling or unable to continue as a
depository and a successor depository is not appointed by the Company within 90
days, the Company will issue Notes in definitive form in exchange for the total
amount of the certificates representing such Notes. In addition, the Company may
at any time determine not to have Notes represented by certificates and, in such
event, will issue Notes in definitive form in exchange for the total amount of
the certificates representing such Notes. In addition, if any event shall have
happened and be continuing that constitutes or, after notice or lapse of time or
both, would constitute an Event of Default with respect to the Notes, the
holders of such Notes will be entitled to receive Notes, as the case may be, in
certificated form in exchange for the Book-Entry Note or Notes representing the
Notes. In any such instance, an owner of a beneficial interest in such
certificates will be entitled to physical delivery in definitive form of Notes
equal in amount to such beneficial interest and to have such Notes registered in
its name. Notes so issued in definitive form will be issued in denominations of
$1,000 and integral multiples thereof and will be issued in fully registered
form without coupons.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Set forth below is a summary of certain U.S. federal income tax
considerations relevant to the purchase, beneficial ownership and disposition of
a Note purchased at initial issuance and held as a capital asset, but does not
purport to be a comprehensive description of all of the tax considerations that
may be relevant to a decision to purchase a Note. This summary deals only with
owners of Notes that are (i) citizens or residents of the United States or any
State or political subdivision thereof, (ii) corporations, partnerships and
other business entities created or organized under the laws of the United
States, (iii) estates the income of which is subject to United States federal
income taxation regardless of its source, and (iv) trusts if a court within the
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United States is able to exercise primary supervision over its administration
and one or more United States persons have the authority to control all of its
substantive decisions (each, a "U.S. Holder"). This summary does not address
investors that may be subject to special rules, such as banks, tax-exempt
entities, insurance companies, dealers in securities or currencies, persons
whose functional currency is not the United States dollar, and persons that will
hold a Note as part of a "straddle" or "conversion transaction" for federal
income tax purposes or otherwise as part of an integrated transaction.
This summary is based on laws, regulations, rulings and decisions in effect
as of the date of this Pricing Supplement, all of which are subject to change,
with possible retroactive effect. No ruling from the Internal Revenue Service
(the "IRS") will be sought with respect to the Notes, and the IRS could take a
contrary view with respect to the matters described below. This summary
supplements the discussion contained in the Prospectus Supplement under the
heading "Certain United States Federal Income Tax Considerations," and
supersedes that discussion to the extent inconsistent therewith. PROSPECTIVE
PURCHASERS OF NOTES SHOULD CONSULT THEIR TAX ADVISORS AS TO THE FEDERAL, STATE,
LOCAL, AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF NOTES.
OVERVIEW
The Notes provide for unconditional redemption by the Company on the
Initial Maturity Date, subject to the ability of the Noteholder, under certain
circumstances, to extend the maturity of the Note to the Final Maturity Date. As
described below under the headings "-- Term of the Notes" and "-- Exercise of
the Extension Option," although for corporate law purposes the Notes are treated
as debt instruments that mature on the Final Maturity Date, for federal income
tax purposes the Notes should be treated as debt instruments with a term that
ends on the Initial Maturity Date (the "Initial Notes") that are exchangeable
for new debt instruments (the "Reset Notes") that are issued on the Initial
Maturity Date and mature on the Final Maturity Date. In addition, as discussed
below under the heading "-- Tax Treatment of the Initial Notes," because the
Initial Notes may be redeemed on the Initial Maturity Date at a contingent price
in excess of par, the Initial Notes should be treated as "contingent payment
debt instruments" ("CPDIs") for federal income tax purposes.
TERM OF THE NOTES
The Notes provide for an Initial Maturity Date on which the Company is
unconditionally required to redeem the Notes in full, and provides the
Noteholder with the option to extend the maturity of the Notes to the Final
Maturity Date. Under certain Treasury regulations, a "significant modification"
of a debt instrument is treated as an exchange (which may be taxable) of the
original (unmodified) debt instrument for the modified debt instrument. The
Noteholder's exercise of its ability to extend the maturity of the Notes to the
Final Maturity Date would be treated as a "modification" for this purpose. Such
a modification would be treated as a "significant modification" that gives rise
to a deemed exchange if the extension is deemed to cause a "material deferral of
scheduled payments." The Treasury regulations provide that the materiality of a
deferral depends on all of the facts and circumstances, including the length of
the deferral, the original term of the instrument, the amounts of the payments
that are deferred, and the time period between the modification and the actual
deferral of payments. A "safe harbor" in the regulations provides that a
deferral is not material if, in general, the deferred payments are
unconditionally payable within a period that begins on the original due date and
extends to the earlier of five years later or a period equal to 50% of the
original term of the instrument.
The Notes provide for repayment of principal after three years and, if they
are extended, the repayment of principal will be deferred for an additional four
years. Thus, the Notes will not qualify for the safe harbor described above.
Although not free from doubt, the deferral of principal for four years upon
exercise of the extension option should be treated as a "material deferral of
scheduled payments" within the meaning of the Treasury regulations and therefore
should cause the Initial Notes to be deemed for federal income tax purposes to
be exchanged for the Reset Notes on the Initial Maturity Date. If, nevertheless,
the extension of the Notes is not treated as a material deferral of scheduled
payments on the Initial Notes, the Initial Notes
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would still be deemed for federal income tax purposes to be exchanged for the
Reset Notes if the yield on the Reset Notes varies from the Initial Notes' yield
(or possibly their "comparable yield," determined as discussed below) by more
than the greater of (i) 25 basis points (1/4 of one percent) or (ii) 5% of the
yield of the Initial Notes.
Because the Notes either will be redeemed by their terms on the Initial
Maturity Date or should be treated as exchanged for federal income tax purposes
on such date (and therefore effectively redeemed), the Initial Notes should be
treated as having a term of three years. If the IRS were to successfully assert
that the maturity date of the Initial Notes is not the Initial Maturity Date but
instead is the Final Maturity Date, inclusions by U.S. Holders of original issue
discount on the Notes could differ from the amounts described below under the
heading "-- Accruals of Original Issue Discount on the Initial Notes."
Prospective investors should consult their tax advisors regarding the term of
the Notes for federal income tax purposes.
TAX TREATMENT OF THE INITIAL NOTES
Characterization of the Initial Notes as CPDIs. The definition of a CPDI
generally includes debt instruments that provide for contingent payments and
which are not expressly excluded from the CPDI rules. The Initial Notes provide
for the possibility of a payment on the Initial Maturity Date whose amount is
not fixed on the Original Issue Date; moreover, the Initial Notes do not bear
interest at a rate or rates that would cause them to be excluded from the CPDI
rules. Accordingly, the Notes should be treated as CPDIs for federal income tax
purposes. Under the Treasury regulations governing CPDIs, accruals of income,
gain, loss and deduction with respect to CPDIs are determined under the
"noncontingent bond" method, described below.
Accruals of Original Issue Discount on the Initial Notes. Under the
noncontingent bond method, U.S. Holders of the Notes will accrue original issue
discount ("OID") over the term of the Note based on the Note's "comparable
yield." In general, the comparable yield of a CPDI is equal to the yield at
which its issuer would issue a fixed rate debt instrument with terms and
conditions similar to those of the CPDI, including level of subordination, term,
timing of payments, and general market conditions. If a hedge of the CPDI is
available that, if integrated with the CPDI, would produce a synthetic debt
instrument with a determinable yield to maturity, the comparable yield generally
will be equal to the yield on the synthetic debt instrument. Alternatively, if
such a hedge is not available, but debt instruments of the issuer trade at a
price that reflects a spread above a benchmark rate, the comparable yield is the
sum of the value of the benchmark rate on the issue date and the spread. Under
the noncontingent bond method, the issuer's reasonable determination of a
comparable yield is generally respected and binding on holders of the CPDI.
As described above under the heading" -- Term of the Notes," for purposes
of determining the comparable yield of the Notes, the term of the Notes for
federal income tax purposes should be treated as the period between the Original
Issue Date and the Initial Maturity Date. Based on this term, the comparable
yield of the Notes (the "Comparable Yield") should be equal to 5.733% on a
bond-equivalent yield basis (compounded semi-annually, based on a 30/360
convention).
Accordingly, U.S. Holders will generally accrue OID in respect of the Notes
at a rate equal to the Comparable Yield. The amount of OID allocable to each
semi-annual accrual period will be the product of the "adjusted issue price" of
the Initial Notes at the beginning of each such semi-annual accrual period and
the Comparable Yield. The "adjusted issue price" of the Initial Notes at the
beginning of an accrual period will equal the issue price plus the amount of OID
previously includible in the gross income of U.S. Holder, less any payments made
on the Notes on or before the first day of the accrual period. The amount of OID
includible in the income of each U.S. Holder for each taxable year will
generally equal the sum of the "daily portions" of the total OID on the Notes
allocable to each day during the taxable year on which a U.S. Holder held the
Notes. Generally, the daily portion of the OID is determined by allocating to
each day in any accrual period a ratable portion of the OID allocable to such
accrual period.
Under the noncontingent bond method, the comparable yield of a CPDI is used
to construct an assumed payment schedule that produces the comparable yield. The
assumed payment schedule consists of all noncontingent payments due on the CPDI
and assumed amounts of all contingent payments due on the
S-8
<PAGE> 9
CPDIs. If continent payments are based on market information, the relative
amount of each assumed payment is based on the amount that a party would agree
to pay an unrelated party, as of the issue date of the CPDI, for the right to
each such contingent payment on the date the contingent payment is made. Under
this method, and assuming a term for the Initial Notes ending on the Initial
Maturity Date, the assumed payment schedule for the Notes is: a payment equal to
2.843% of the Principal Amount on August 2, 1998, a payment equal to 2.875% of
the Principal Amount on each of February 2 and August 2, 1999 and February 2 and
August 2, 2000 and a final payment (the "Assumed Final Payment") equal to
104.239% of the Principal Amount on February 2, 2001 (which is the Initial
Maturity Date). Under the noncontingent bond method, the assumed payment
schedule is not revised to account for changes in circumstances that occur while
the Notes are outstanding. The Comparable Yield and the assumed payment schedule
(including the assumed final payment) are used to determine accruals of OID for
tax purposes only and are not assurances by the Company with respect to the
actual yield or payments on the Notes and do not necessarily represent the
Company's expectations regarding the Note's yield or the amount of the Final
Maturity Payment.
If the actual amounts of contingent payments are different from the amounts
reflected on the assumed payment schedule, a U.S. Holder will be required to
make adjustments in its OID accruals when such amounts are paid. Adjustments
arising from contingent payments that are greater than the assumed amounts of
those payments are referred to as "positive adjustments"; adjustments arising
from contingent payments that are less than the assumed amounts are referred to
as "negative adjustments." Positive and negative adjustments are netted for each
taxable year with respect to each CPDI. Any net positive adjustment for a
taxable year will be treated as additional OID income of the U.S. Holder. Any
net negative adjustment will reduce any OID on the Initial Note for the taxable
year that would otherwise accrue. Any excess then will be treated as a
current-year ordinary loss to the U.S. Holder. Positive and negative adjustments
described in this paragraph have no effect on a U.S. Holder's basis or the
Initial Notes' adjusted issue price.
Sale, Exchange or Retirement of the Initial Notes. Upon a sale or exchange
of an Initial Note, a U.S. Holder will generally recognize gain or loss equal to
the difference between the amount realized on the sale or exchange (less any
accrued interest, which would be taxable as such) and the U.S. Holder's tax
basis in the Note. Such gain or loss will generally be treated as OID income or
ordinary loss. However, any loss in excess of the amount of the U.S. Holder's
total OID inclusions will be treated as a capital loss. If a U.S. Holder does
not exercise the extension option, and the actual amount of the payment on the
Initial Maturity Date is different than the Assumed Final Payment, the U.S.
Holder will generally recognize a positive adjustment or negative adjustment as
described above.
EXERCISE OF THE EXTENSION OPTION
If a U.S. Holder exercises the extension option and either the Initial
Notes or the Reset Notes are not treated as securities for federal income tax
purposes, then a U.S. Holder would recognize gain or loss equal to the
difference between (i) the "issue price" of the Reset Note, except to the extent
a portion of such Reset Note is allocable to accrued but unrecognized interest
on the Initial Note, which portion will be taxed as ordinary income, and (ii)
the U.S. Holder's adjusted tax basis in its Initial Note (determined as
discussed above under the heading "-- Accruals of Original Issue Discount on the
Initial Notes."). The character of such gain or loss (as capital gain or loss,
or as ordinary income) would also generally be determined as described above in
the same heading. In such a case, U.S. Holders will have an initial tax basis in
the Reset Note equal to its issue price.
If, on the other hand, a U.S. Holder exercises the extension option and
both the Initial Notes and the Reset Notes are treated as securities for federal
income tax purposes, then a U.S. Holder would not recognize any loss but would
recognize any gain (i) to the extent a portion of the Reset Note is allocable to
accrued but unrecognized interest in respect of the Initial Note, which portion
will be taxed as ordinary income, and (ii) to the extent that the issue price of
the Reset Note exceeds the U.S. Holder's adjusted tax basis in its Initial Note.
The character of such gain or loss (as capital gain or loss, or as ordinary
income) would generally be determined as described above under the heading "--
Accruals of Original Issue Discount on the Initial Notes." In such event, a U.S.
Holder will have a tax basis in the Reset Note equal to its tax basis in the
Initial Note plus any gain recognized.
S-9
<PAGE> 10
Whether a debt instrument qualifies as a security for federal income tax
purposes depends on an overall evaluation of the nature of the debt instrument
at the time it is issued (or deemed to be issued), with the term of the debt
instrument usually regarded as the most important factor. Under current law,
debt instruments with a five-year term or less generally do not qualify as
securities for federal income tax purposes, whereas debt instruments with a
ten-year term or more generally do qualify. As discussed above, although the
Notes are treated for corporate law purposes as a debt instrument that matures
on the Final Maturity Date, if the extension option is exercised, for federal
income tax purposes the Initial Notes will be treated as exchanged for the Reset
Notes. Accordingly, the Initial Notes should be treated as having an original
maturity of three years and the Reset Notes should be treated as issued with a
maturity of four years. Thus, it is unlikely that the Initial Notes or the Reset
Notes qualify as securities for federal income tax purposes.
The issue price of the Reset Notes will depend upon whether the Notes are
treated as "traded on an established market" within the sixty-day period ending
thirty days after the Initial Maturity Date. If the Notes are treated as traded
on an established market within such period, their issue price will generally be
equal to their trading price. If the Notes are not treated as traded on an
established market within such period, the issue price of the Reset Notes will
generally equal their principal amount so long as the Interest Rate on the Reset
Notes is at least equal to the "applicable federal rate" (a rate published
monthly by the IRS).
In general, the Notes will be treated as traded on an established market if
(i) the Notes are listed on certain qualifying interdealer quotation systems or
foreign securities exchanges, (ii) the Notes appear on a system of general
circulation that provides a reasonable basis to determine their fair market
value, or (iii) price quotations for the Notes are readily available from
dealers, brokers or traders. Lehman Brothers Inc., as agent has advised the
Company that it is unlikely that the Notes initially will be traded on an
established market, although the Notes could trade on an established market in
the sixty-day period ending thirty days after the Initial Maturity Date.
Prospective investors should consult with their tax advisors with respect to the
federal income tax consequences to them of electing to extend the maturity of
the Notes.
TAX TREATMENT OF THE RESET NOTES
Stated Interest. U.S. Holders of Reset Notes will include payments of
stated interest received on the Reset Notes in accordance with their method of
accounting, as ordinary interest income.
Original Issue Discount or Premium on Reset Notes. If the Notes are treated
as traded on an established market within the sixty-day period ending thirty
days after the Initial Maturity Date, and the issue price of a Reset Note is
determined to be less than its principal amount by more than a de minimis
amount, then such Reset Note will be treated as issued with original issue
discount, which the U.S. Holder would generally include an income as it accrues
on a constant yield basis over the term of the Reset Note. If the issue price of
a Reset Note is determined to be greater than its principal amount, then such
Reset Note will be treated a issued with "amortizable bond premium," which such
U.S. Holder may elect to deduct on a constant yield basis over the Reset Note's
term as an offset to interest income. If the Notes are not treated as traded on
an established market within the sixty-day period ending thirty days after the
Initial Maturity Date, the Reset Notes will not be treated as issued at a
premium, and will not be treated as issued at a discount (and therefore will be
treated as issued for their principal amount) so long as the Interest Rate on
the Reset Notes is at least equal to the "applicable federal rate" (a rate
published monthly by the IRS).
Sale, Exchange or Retirement of Reset Notes. In general, a U.S. Holder of a
Reset Note will have a tax basis in such Note equal to the issue price of such
Note, increased by any amount includible in income by such holder as OID and
reduced by any amortized bond premium and any payments other than payments of
stated interest on such Reset Note. Upon a sale, exchange or retirement of a
Reset Note, a U.S. Holder will generally recognize capital gain or loss equal to
the difference between the amount realized on the sale, exchange or retirement
(less any accrued interest which would be taxable as such) and the U.S. Holder's
tax basis in the Reset Note. Such gain or loss will be long-term capital gain or
loss if the U.S. Holder held the Reset Note for more than one year of the time
of disposition.
S-10
<PAGE> 11
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the Notes are outstanding, the Company is
required to provide the IRS with certain information, including the holder's
name, address and taxpayer identification number (either the holder's Social
Security number or its employer identification number, as the case may be), the
aggregate amount of principal and interest paid (including OID, if any) to that
holder during the calendar year and the amount of tax withheld, if any. This
obligation, however, does not apply with respect to certain U.S. Holders,
including corporations, tax-exempt organizations, qualified pension and profit
sharing trusts and individual retirement accounts.
In the event that a U.S. Holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or underreports its tax liability, the
Company, its agents or paying agents or a broker may be required to "backup"
withhold a tax equal to 31% of each payment of interest (including OID) and
principal (and premium, if any) on the Notes. This backup withholding is not an
additional tax and may be credited against the U.S. Holder's U.S. federal income
tax liability, provided that the required information is furnished.
PLAN OF DISTRIBUTION
The Notes will be placed by Lehman Brothers Inc., as agent (the "Agent")
with the Trust at a price equal to 101.425% of the principal amount of the
Notes.
The Notes are a new issue of securities with no established trading market.
Without the consent of the Callholder or until the occurrence of a payment
default on the Notes or the insolvency or bankruptcy of the Company, the Notes
may not be sold or otherwise disposed of by the Trust. The Company has been
advised by the Agent that, in the event of any sale or other disposition of the
Notes by the Trust or by the Callholder after exercise of the Call, the Agent
intends to make a market in the Notes, but it is not obligated to do so and may
discontinue such market-making at any time without notice. No assurance can be
given as to whether a trading market in the Notes will develop or as to the
liquidity of any trading market for the Notes. The Notes will not be listed on
any securities exchange.
The Agent and its affiliates may engage in transactions with, and perform
services for, the Company and its subsidiaries in the ordinary course of
business.
S-11
<PAGE> 12
PROSPECTUS
KELLOGG COMPANY
DEBT SECURITIES
-------------------------
Kellogg Company (the "Company" or "Kellogg") has registered with the
Securities and Exchange Commission (the "Commission") $400,000,000 principal
amount of its debt securities, consisting of notes and/or debentures denominated
in United States dollars or any other currency or currency unit, to be offered
from time to time in one or more series, on terms to be determined at or prior
to the time of sale (the "Debt Securities"). The Prospectus Supplement
accompanying this Prospectus sets forth, with respect to the particular series
of Debt Securities for which this Prospectus and the Prospectus Supplement are
being delivered, the specific title, the aggregate principal amount, the
authorized denominations, the currency of issue and payment, the initial public
offering price, the maturity, the interest rate or rates (which may be either
fixed or variable), if any, and/or method of determination thereof, the time of
payment of any interest, any redemption, extension or early repayment terms, any
provision for mandatory or voluntary sinking fund payments, the net proceeds to
the Company and other specific terms relating to such series of Debt Securities.
The Debt Securities may be issued in registered form or bearer form with
coupons attached, or both. In addition, all or a portion of the Debt Securities
of a series may be issued in temporary or permanent global form. Debt Securities
in bearer form are offered only to non-United States persons and to offices
located outside the United States of certain United States financial
institutions. See "Description of Debt Securities."
The Company may sell the Debt Securities to or through underwriters, and
also may sell the Debt Securities directly to other purchasers or through
agents. See "Plan of Distribution." In addition, the Debt Securities may be sold
to dealers who may later resell to investors at the applicable price to the
public set forth in the Prospectus Supplement relating to a particular series of
Debt Securities. If any agents of the Company, or any underwriters, are involved
in the sale of any Debt Securities, the names of such agents or underwriters and
any applicable commissions or discounts will be set forth in the accompanying
Prospectus Supplement.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
-------------------------
The date of this Prospectus is January 21, 1998.
<PAGE> 13
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS AND, WITH RESPECT TO PARTICULAR DEBT SECURITIES, THE PROSPECTUS
SUPPLEMENT RELATING THERETO, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE DEBT SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information concerning the Company may be inspected and
copied at the public reference facilities maintained by the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, New York, New York 10048 and at Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can also be obtained
upon written request addressed to the Commission, Public Reference Section,
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at
prescribed rates, or from the Commission's Internet website at
http://www.sec.gov. Reports, proxy statements and other information concerning
the Company may also be inspected at the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act, with respect to the Debt
Securities offered hereby. This Prospectus, which constitutes part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Statements made in this Prospectus as to the content of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the Registration
Statement, which may be inspected and copied in the manner and at the sources
described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission by the Company
are incorporated in this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (File No. 1-4171); and
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30 and September 30, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made hereby shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such documents. All information appearing in this Prospectus is qualified in
its entirety by the information and financial statements (including the notes
thereto) appearing in the documents incorporated by reference herein. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained in any subsequently
filed document which also is or is deemed to be incorporated by reference
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<PAGE> 14
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any or all of
the documents described above (other than exhibits to such documents unless such
exhibits are specifically incorporated by reference in such documents) which
have been or may be incorporated by reference in this Prospectus. Requests
should be addressed to Richard M. Clark, Senior Vice President, General Counsel
and Secretary, Kellogg Company, One Kellogg Square, Battle Creek, Michigan 49016
(Telephone: (616) 961-2181).
THE COMPANY
Kellogg Company and its subsidiaries are engaged in the manufacture and
marketing of ready-to-eat cereal and other convenience food products on a
worldwide basis. The principal products of the Company are ready-to-eat cereals
and other convenience food products which are manufactured in 19 countries and
distributed in nearly 160 countries. Ready-to-eat cereals are marketed under the
KELLOGG'S(R) name and are sold principally to the grocery trade through direct
sales forces for resale to consumers and through broker and distribution
arrangements in less developed market areas. In addition to ready-to-eat
cereals, the Company produces and distributes toaster pastries, frozen waffles,
crispy marshmallow squares, bagels, and cereal bars. The Company also markets
several other convenience food products in various locations throughout the
world.
Kellogg Company was incorporated in Delaware in 1922 as the successor to
Kellogg Toasted Corn Flake Company which had been incorporated in Michigan in
1906. As used herein and in the Prospectus Supplement, the term "Company" or
"Kellogg" refers to Kellogg Company and its consolidated subsidiaries, unless
otherwise indicated or unless the context otherwise requires. The Company's
principal business offices are located at One Kellogg Square, Battle Creek,
Michigan 49016; the telephone number is (616) 961-2000.
USE OF PROCEEDS
Unless otherwise specified in the Prospectus Supplement or Prospectus
Supplements, the net proceeds to be received by the Company from the sale of the
Securities will be used for general corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company and its subsidiaries, whether or not consolidated, for the
nine-month period ended September 30, 1997 and for each of the years in the
five-year period ended December 31, 1996. For the purposes of computing the
ratio of earnings to fixed charges, fixed charges consist of interest expense
plus interest capitalized and that portion (one third) of rental expenses
considered to be interest. Earnings are computed by adding fixed charges except
interest capitalized to earnings before income taxes. A statement setting forth
the computation of the ratio of earnings to fixed charges is filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------------
1997 1996 1995 1994 1993 1992
- ------------- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C>
9.4 11.4 10.8 18.3 19.5 23.5
</TABLE>
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued in one or more series under an
indenture, dated as of August 1, 1993 (the "Indenture"), between the Company and
Harris Trust and Savings Bank, as trustee (the "Trustee"). A copy of the
Indenture is incorporated by reference as an exhibit to the Registration
Statement of which this Prospectus is a part.
3
<PAGE> 15
The following summaries of certain provisions of the Indenture do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Indenture, including the definitions
therein of certain terms. Wherever particular sections, articles or defined
terms of the Indenture are referred to herein, such sections, articles or
defined terms shall be as specified in the Indenture. Certain defined terms in
the Indenture are capitalized herein.
GENERAL
The Indenture does not limit the amount of Debt Securities which can be
issued thereunder and provides that Debt Securities of any series may be issued
thereunder up to the aggregate principal amount which may be authorized from
time to time by the Company. The Indenture does not limit the amount of other
indebtedness or securities which may be issued by the Company. All Debt
Securities will be unsecured and will rank pari passu with all other unsecured
and unsubordinated indebtedness of the Company.
Reference is made to the Prospectus Supplement for the following and other
possible terms of each series of offered Debt Securities (the "Offered Debt
Securities") in respect of which this Prospectus is being delivered: (i) the
title of the Offered Debt Securities; (ii) any limit upon the aggregate
principal amount of the Offered Debt Securities; (iii) the percentage of their
principal amount at which the Offered Debt Securities will be offered; (iv) the
date or dates on which the principal of the Offered Debt Securities will be
payable; (v) the rate or rates (or manner of calculation thereof), if any, at
which the Offered Debt Securities will bear interest, the date or dates from
which any such interest will accrue and on which such interest will be payable,
and, with respect to Offered Debt Securities in registered form, the record date
for the interest payable on any interest payment date; (vi) the place or places
where the principal of and interest, if any, on the Offered Debt Securities will
be payable; (vii) if other than the principal amount thereof, the portion of the
principal amount of the Offered Debt Securities which will be payable upon the
maturity thereof (whether at the stated maturity date, upon acceleration or
otherwise); (viii) any mandatory or optional sinking fund provisions; (ix) any
redemption, repurchase and/or call provisions (whether at the option of the
Company, the holders thereof or any other designated person) applicable to the
Offered Debt Securities; (x) whether the Offered Debt Securities will be
issuable in registered or bearer form or both, any restrictions applicable to
the offer, sale or delivery of the Offered Debt Securities in bearer form and
whether and the terms upon which Offered Debt Securities in bearer form will be
exchangeable for Offered Debt Securities in registered form and vice versa; (xi)
whether and under what circumstances the Company will pay additional amounts on
the Offered Debt Securities held by a person who is not a U.S. person (as
defined in the Indenture) in respect of taxes or similar charges withheld or
deducted and, if so, whether the Company will have the option to redeem such
Offered Debt Securities rather than pay such additional amounts; (xii) any
provisions relating to the conversion of the Offered Debt Securities into Debt
Securities of a different series; (xiii) the currency or currency unit in which
the Offered Debt Securities are issued or payable (and, if such currency or
currency unit is other than U.S. dollars, certain other terms relating to such
Offered Debt Securities, including the authorized denominations); (xiv) whether
the Offered Debt Securities will be represented by a single global note
registered in the name of a depository's nominee and, if so, the method of
transferring beneficial interests in the global note; and (xv) any additional
provisions or other special terms not inconsistent with the provisions of the
Indenture, including any terms which may be required by or advisable under
United States laws or regulations or advisable in connection with the marketing
of the Offered Debt Securities. (Section 2.3) To the extent not described
herein, principal and interest, if any, will be payable, and the Offered Debt
Securities will be transferable, in the manner described in the Prospectus
Supplement relating to such series. "Principal" when used herein includes, when
appropriate, the premium, if any, on the Debt Securities.
One or more series of Debt Securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
which at the time of issuance is below market rates. Federal income tax
consequences and special considerations applicable thereto will be described in
the Prospectus Supplement or Prospectus Supplements relating to any such series
of Debt Securities.
Principal and interest will be payable, and the Debt Securities will be
transferable or exchangeable, at the office or offices or agency maintained by
the Company for such purposes, provided that payment of interest on any
registered Debt Securities may be made, if so provided for in such Debt
Securities, at the option of the
4
<PAGE> 16
Company by check mailed to the registered holders. Interest on registered Debt
Securities will be payable on any interest payment date to the persons in whose
name the Debt Securities are registered at the close of business on the record
date with respect to such interest payment date.
The Debt Securities may be issued in registered form or bearer form or both
as specified in the terms of the series. Additionally, the Debt Securities may
be represented by a single global note registered in the name of a depository's
nominee and, if so represented, beneficial interests in such global note will be
shown on, and transfers thereof will be effected only through, records
maintained by a designated depository and its participants.
To the extent set forth in the Prospectus Supplement or Prospectus
Supplements accompanying this Prospectus, interest on Debt Securities in bearer
form will be payable only against presentation and surrender of the coupons for
the interest installments evidenced thereby as they mature at a paying agency of
the Company located outside of the United States and its possessions. (Sections
3.1 and 3.2.) The Company will maintain such an agency for a period of two years
after the principal of such Debt Securities has become due and payable. During
any period thereafter for which it is necessary in order to conform to United
States tax laws or regulations, the Company will maintain a paying agent outside
of the United States and its possessions to which such Debt Securities and
coupons related thereto may be presented for payment and will provide the
necessary funds therefor to such paying agent upon reasonable notice. (Section
3.2.)
Debt Securities in bearer form and any coupons will be transferable by
delivery. (Section 2.8.)
If appropriate, material Federal income tax consequences applicable to a
series of Debt Securities will be described in the Prospectus Supplement
relating thereto.
The Debt Securities offered hereby will be issued in denominations of
$1,000 or any whole multiple of $1,000 or the equivalent thereof in foreign
denominated currency or currency units, unless otherwise specified in the
Prospectus Supplement. No service charge will be made for any transfer or
exchange of the Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (Section 2.8)
EXCHANGE OF SECURITIES
Registered Debt Securities may be exchanged for an equal aggregate
principal amount of registered Debt Securities of the same series and date of
maturity in such authorized denominations as may be requested upon surrender of
the registered Debt Securities at an agency of the Company maintained for such
purpose and upon fulfillment of all other requirements of such agent. (Section
2.8.)
To the extent permitted by the terms of a series of Debt Securities
authorized to be issued in registered form and bearer form, bearer Debt
Securities may be exchanged for an equal aggregate principal amount of
registered or bearer Debt Securities of the same series and date of maturity in
such authorized denominations as may be requested upon surrender of the bearer
Debt Securities with all unpaid coupons relating thereto at an agency of the
Company maintained for such purposes and upon fulfillment of all other
requirements of such agent. (Section 2.8.) The terms of a series of Debt
Securities will normally not permit registered Debt Securities to be exchanged
for bearer Debt Securities.
CERTAIN COVENANTS OF THE COMPANY
The Company will covenant that, so long as any of the Debt Securities
remain outstanding, the Company will not, nor will it permit any Restricted
Subsidiary (as defined below) to, issue, assume or guarantee any indebtedness
for money borrowed (herein referred to as "Debt") if such Debt is secured by a
mortgage (as defined in the Indenture) upon any Principal Property (as defined
below) or on any shares of stock or indebtedness of any Restricted Subsidiary
(whether such Principal Property, shares of stock or indebtedness are now owned
or hereafter acquired) without in any such case effectively providing that the
Debt Securities (together with, if the Company shall so determine, any other
indebtedness of or guaranteed by the Company or such Restricted Subsidiary
ranking equally with the Debt Securities and then existing or thereafter
created) shall be secured equally and ratably with such Debt so long as such
Debt shall be so secured, except that the
5
<PAGE> 17
foregoing restriction shall not apply to (i) mortgages on property, shares of
stock or indebtedness (herein referred to as "property") of any corporation
existing at the time such corporation becomes a Restricted Subsidiary; (ii)
mortgages on property existing at the time of acquisition thereof or mortgages
to secure all or part of the purchase price of such property or to secure Debt
incurred prior to, at the time of, or within 360 days after, the acquisition,
completion of construction or commencement of commercial operation of such
property for the purpose of financing the purchase price of such property or
construction or improvements thereon, provided that the mortgage shall not apply
to property theretofore owned by the Company or any Restricted Subsidiary other
than real property substantially unimproved for the use intended by the Company
or such Restricted Subsidiary; (iii) mortgages on property of a Restricted
Subsidiary securing Debt owing to the Company or another Restricted Subsidiary;
(iv) mortgages on property of a corporation existing at the time such
corporation is merged into or consolidated with the Company or a Restricted
Subsidiary or at the time of a sale, lease or other disposition of the
properties of a corporation or firm as an entirety or substantially as an
entirety to the Company or a Restricted Subsidiary, provided that any such
mortgages do not affect property theretofore owned by the Company or such
Restricted Subsidiary; (v) mortgages on property owned or leased by the Company
or a Restricted Subsidiary in favor of the United States of America, any State,
any other country, or any political subdivision thereof or in favor of the
holders of securities issued by any such entity, pursuant to any contract or
statute (including mortgages to secure Debt of the pollution control or
industrial revenue bond type) or to secure any indebtedness incurred for the
purpose of financing all or any part of the purchase price or the cost of
construction of the property subject to such mortgages; (vi) mortgages existing
at the date of the Indenture; (vii) certain landlords' liens; (viii) mortgages
to secure partial, progress, advance or other payments or any Debt incurred for
the purpose of financing all or part of the purchase price or cost of
construction, development or substantial repair, alteration or improvement of
the property subject to such mortgage if the commitment for such financing is
obtained within one year after completion of or the placing into operation of
such constructed, developed, repaired, altered or improved property; (ix)
mortgages arising in connection with contracts with or made at the request of
the United States of America, any State, or any department, agency or
instrumentality of any of the foregoing; (x) mechanics' and similar liens
arising in the ordinary course of business in respect of obligations not due or
being contested in good faith; (xi) mortgages arising from deposits with or the
giving of any form of security to any governmental authority required as a
condition to the transaction of business or exercise of any privilege, franchise
or license; (xii) mortgages for taxes, assessments or governmental charges or
levies which, if delinquent, are being contested in good faith; (xiii) mortgages
(including judgment liens) arising from legal proceedings being contested in
good faith; or (xiv) any extension, renewal or replacement (or successive
extensions, renewals, or replacements) in whole or in part of any mortgage
referred to in the foregoing clauses (i) to (xiii), inclusive.
Notwithstanding the above, the Company and one or more Restricted
Subsidiaries may, without securing the Debt Securities, issue, assume or
guarantee secured Debt which would otherwise be subject to the foregoing
restrictions, provided that after giving effect thereto the aggregate amount of
such Debt then outstanding (not including secured Debt permitted under the
foregoing exceptions) at such time does not exceed 10% of the Consolidated Net
Tangible Assets (as defined in the Indenture) of the Company as calculated on
the basis of its latest quarterly financial statements preceding the date of
such determination. (Section 3.6.)
The Company will covenant that it will not enter, nor will it permit any
Restricted Subsidiary to enter, into a sale and leaseback transaction of any
Principal Property (except for temporary leases for a term of not more than
three years and except for leases between the Company and a Restricted
Subsidiary or between Restricted Subsidiaries) unless (a) the Company or such
Restricted Subsidiary would be entitled to issue, assume or guarantee Debt
secured by the property involved at least equal in amount to the Attributable
Debt (as defined below) in respect of such transaction without equally and
ratably securing the Debt Securities (provided that such Attributable Debt shall
thereupon be deemed to be Debt subject to the provisions of the preceding
paragraph), or (b) an amount in cash equal to such Attributable Debt is applied
to the retirement (other than any mandatory retirement) of long-term
non-subordinated Debt of the Company or long-term Debt of a Restricted
Subsidiary. Attributable Debt is defined as the present value (discounted at an
appropriate rate) of the obligation of a lessee for rental payments during the
remaining term of any lease. (Section 3.7.)
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<PAGE> 18
If upon any consolidation or merger of the Company or any Restricted
Subsidiary with or into any other corporation, or upon any sale, conveyance or
lease of substantially all the properties of the Company or any Restricted
Subsidiary, any Principal Property or any shares of stock or indebtedness of any
Restricted Subsidiary which is owned immediately after such event by the Company
or a Restricted Subsidiary would thereupon become subject to any mortgage,
pledge, security interest or other lien or encumbrance, the Company, prior to or
concurrently with such event, will effectively provide that the Debt Securities
shall be secured (equally and ratably with, if the Company shall determine, any
other indebtedness of or guaranteed by the Company or a Restricted Subsidiary
ranking equally with the Debt Securities) by a direct lien on such Principal
Property, shares of stock or indebtedness, prior to all liens other than any
theretofore existing thereon, so long as such Principal Property, shares of
stock or indebtedness shall be subject to such mortgage, security interest,
pledge, lien or encumbrance. (Section 9.2.)
The term "Subsidiary" is defined to mean any corporation which is
consolidated in the Company's accounts and any corporation of which at least a
majority of the outstanding stock having voting power under ordinary
circumstances to elect a majority of the board of directors of said corporation
is at the time owned or controlled by the Company or by the Company and one or
more Subsidiaries or by one or more Subsidiaries. The term "Restricted
Subsidiary" is defined to mean any Subsidiary (i) substantially all the property
of which is located within the continental United States of America, (ii) which
owns a Principal Property and (iii) in which the Company's investment exceeds 1%
of the consolidated assets of the Company as shown on its latest quarterly
financial statements; provided, however, that the term "Restricted Subsidiary"
does not include any Subsidiary which is principally engaged in certain types of
leasing and financing activities. The term "Principal Property" is defined to
mean any manufacturing plant or facility which is located within the continental
United States of America and is owned by the Company or any Restricted
Subsidiary, unless the Board of Directors of the Company (or any duly authorized
committee thereof) by resolution declares that such plant or facility, together
with all other plants and facilities previously so declared, is not of material
importance to the total business conducted by the Company and its Restricted
Subsidiaries as an entirety. (Section 1.1.)
There are no covenants or other provisions which would offer protection to
securityholders in the event of a highly leveraged transaction, rating downgrade
or similar occurrence.
EVENTS OF DEFAULT
An Event of Default with respect to any series of Debt Securities will be
defined as being: default for 30 days in payment of interest on any Debt
Security of that series; default in payment of principal (or premium, if any) on
any Debt Security of that series as and when the same becomes due either upon
maturity, upon redemption (for any sinking fund payment or otherwise), by
declaration or otherwise; default by the Company in the performance of any of
the other covenants or agreements in the Indenture relating to Debt Securities
of that series which shall not have been remedied within a period of 90 days
after notice by the Trustee or holders of at least 25% in aggregate principal
amount of the Debt Securities of that series then outstanding; certain events of
bankruptcy, insolvency or reorganization of the Company or any other Event of
Default provided in the supplemental indenture or resolution of the board of
directors under which such series of Debt Securities is issued or in the form of
Security for such series. (Section 5.1.) Additional Events of Default may be
prescribed for the benefit of holders of certain series of Debt Securities
which, if prescribed, will be described in the Prospectus Supplement relating to
such Debt Securities. The Indenture provides that the Trustee shall, with
certain exceptions, notify the holders of Debt Securities of each series of
Events of Default known to it and affecting that series within 90 days after the
occurrence thereof. (Section 5.11.)
The Indenture provides that if an Event of Default with respect to any
series of Debt Securities shall have occurred and be continuing, either the
Trustee or the holders of at least 25% in aggregate principal amount of Debt
Securities of that series then outstanding may declare the principal amount (or,
if the Debt Securities of that series are Original Issue Discount Securities,
such portion of the principal amount as may be specified in the terms of that
series) of all the Debt Securities of that series to be due and payable
immediately, but upon certain conditions such declaration may be annulled and
past defaults (except, unless theretofore cured, a default in payment of
principal of or interest or premium on Debt Securities of that series) may be
waived by
7
<PAGE> 19
the holders of a majority in principal amount of the Debt Securities of that
series then outstanding. (Sections 5.1 and 5.10.)
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default with respect to any series of Debt
Securities shall occur and be continuing, the Trustee shall be under no
obligation to exercise any of the rights or powers in the Indenture at the
request or direction of any of the holders of that series, unless such holders
shall have offered to the Trustee reasonable security or indemnity. (Sections
6.1 and 6.2.) Subject to such provisions for security or indemnification and
certain limitations contained in the Indenture, the holders of a majority in
principal amount of the Debt Securities of each series affected by an Event of
Default and then outstanding shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee under
the Indenture or exercising any trust or power conferred on the Trustee with
respect to the Debt Securities of that series. (Section 5.9.) The Indenture
requires the annual filing by the Company with the Trustee of a certificate as
to compliance with certain covenants contained in the Indenture. (Section 4.3.)
No holder of any Debt Security of any series will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder, unless such holder shall have previously given the Trustee written
notice of an Event of Default with respect to Debt Securities of that series and
unless also the holders of at least 25% in aggregate principal amount of the
outstanding Debt Securities of that series shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the holders of a majority
in aggregate principal amount of the outstanding Debt Securities of that series
a direction inconsistent with such request and shall have failed to institute
such proceeding within 60 days. However, any right of a holder of any Debt
Security to receive payment of the principal of (and premium, if any) and any
interest on such debt Security on or after the due dates expressed in such Debt
Security and to institute suit for the enforcement of any such payment on or
after such dates shall not be impaired or affected without the consent of such
holder. (Sections 5.6 and 5.7.)
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture with respect to any series (except for certain specified
surviving obligations including, among other things, the Company's obligation to
pay the principal of and interest on the Debt Securities of such series) will be
discharged and cancelled upon the satisfaction of certain conditions, including
the payment of all the Debt Securities of such series or the deposit with the
Trustee of cash or appropriate government obligations or a combination thereof
sufficient for such payment or redemption in accordance with the Indenture and
the terms of the Debt Securities of such series. (Section 10.1)
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the Debt Securities of each series at the time outstanding,
to execute supplemental indentures adding any provisions to, or changing in any
manner or eliminating any of the provisions of, the Indenture or any
supplemental indenture with respect to the Debt Securities of such series or
modifying in any manner the rights of the holders of the Debt Securities of such
series; provided that no such supplemental indenture may, among other things,
(i) extend the final maturity of any Debt Security, or reduce the rate or extend
the time of payment of any interest thereon, or reduce the principal amount
thereof, premium thereon, or reduce any amount payable upon any redemption
thereof, without the consent of the holder of each Debt Security so affected, or
(ii) reduce the aforesaid percentage of Debt Securities of such series, the
consent of the holders of which is required for any such supplemental indenture,
without the consent of the holders of all Debt Securities of such series then
outstanding. (Section 8.2.)
CONCERNING THE TRUSTEE
The Company maintains customary banking relationships with Harris Trust and
Savings Bank, the Trustee under the Indenture.
8
<PAGE> 20
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to or through underwriters, and also
may sell Debt Securities directly to other purchasers or through agents.
The distribution of the Debt Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Debt Securities, underwriters may receive
compensation from the Company or from purchasers of Debt Securities for whom
they may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell Debt Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agents. Underwriters, dealers and agents that participate in the
distribution of Debt Securities may be deemed to be underwriters, and any
discounts or commissions received by them from the Company and any profit on the
resale of Debt Securities by them may be deemed to be underwriting discounts and
commissions, under the Securities Act of 1933, as amended (the "Act"). Any such
underwriter or agent will be identified, and any such compensation received from
the Company will be described, in the Prospectus Supplement.
Under agreements which may be entered into by the Company, underwriters and
agents who participate in the distribution of Debt Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Act.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters or other persons acting as the Company's agents to solicit offers
by certain parties to purchase Debt Securities from the Company pursuant to
contracts providing for payment and delivery on a future date. Parties with
which such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such parties must be approved by the
Company. The obligations of any purchaser under any such contract will be
subject to the condition that the purchase of the Debt Securities shall not at
the time of delivery be prohibited under the laws of the jurisdiction to which
such purchaser is subject. The underwriters and such other agents will not have
any responsibility in respect of the validity or performance of such contracts.
The Company has not determined whether or not it will list any of the
offered Debt Securities on a national securities exchange. Additionally, the
Company has not been advised by any underwriters that they intend to make a
market in offered Debt Securities. No assurances can be given as to the
liquidity of, or trading markets for, any offered Debt Securities.
LEGAL OPINIONS
Certain legal matters in connection with the Debt Securities offered hereby
will be passed upon for the Company by Richard M. Clark, Senior Vice President,
General Counsel and Secretary of the Company. Certain legal matters in
connection with the Debt Securities offered hereby will be passed upon for any
underwriters by Mayer, Brown & Platt, 190 South La Salle Street, Chicago,
Illinois, 60603.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
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<PAGE> 21
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE AGENT. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUPPLEMENT
Recent Developments................... S-2
Use of Proceeds....................... S-2
Description of Notes.................. S-2
Book-Entry, Delivery and Form......... S-5
Certain United States Federal Income
Tax Considerations.................. S-6
Plan of Distribution.................. S-11
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents By
Reference........................... 2
The Company........................... 3
Use of Proceeds....................... 3
Ratio of Earnings to Fixed Charges.... 3
Description of Debt Securities........ 3
Plan of Distribution.................. 9
Legal Opinions........................ 9
Experts............................... 9
</TABLE>
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======================================================
$400,000,000
KELLOGG COMPANY
5 3/4% EXTENDIBLE NOTES DUE 2001
---------------------------
PROSPECTUS SUPPLEMENT
January 30, 1998
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LEHMAN BROTHERS
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