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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER 1-4171
---------------------------
KELLOGG COMPANY
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 38-0710690
State of Incorporation I.R.S. Employer Identification No.
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ONE KELLOGG SQUARE
BATTLE CREEK, MICHIGAN 49016-3599
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER: (616) 961-2000
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class: Name of each exchange on which registered:
COMMON STOCK, $0.25 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
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Securities registered pursuant to Section 12(g) of the Act: NONE
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates of the
registrant (assuming only for purposes of this computation that directors and
executive officers may be affiliates) was $9,389,519,952 as determined by the
February 27, 1998 closing price of $42.625 for one share of common stock on the
New York Stock Exchange.
As of February 27, 1998, 410,813,655 shares of the common stock of the
registrant were issued and outstanding.
Portions of the registrant's Annual Report to Stockholders for the fiscal year
ended December 31, 1997, are incorporated by reference into Part II and Part IV
of this Report.
Portions of the registrant's definitive Proxy Statement, dated March 13, 1998,
for the Annual Meeting of Stockholders to be held April 24, 1998, are
incorporated by reference into Part III of this Report.
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PART I
ITEM 1. BUSINESS
The Company. Kellogg Company, incorporated in Delaware in 1922, and its
subsidiaries are engaged in the manufacture and marketing of ready-to-eat cereal
and other grain-based convenience food products on a worldwide basis. The
address of the principal business office of Kellogg Company is One Kellogg
Square, P.O. Box 3599, Battle Creek, Michigan 49016-3599. Unless otherwise
indicated by the context, the term "Company" as used in this report means
Kellogg Company, its divisions and subsidiaries.
Principal Products. 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 more than 160 countries. The Company's products are
generally 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.
Other Convenience Food Products. In the United States and Canada, in
addition to ready-to-eat cereals, the Company produces and distributes toaster
pastries, bagels, frozen waffles, crispy marshmallow squares, and cereal bars.
The Company also markets these and other convenience food products in various
locations throughout the world.
Raw Materials. Agricultural commodities are the principal raw materials
used in the Company's products. World supplies and prices of such commodities
are constantly monitored, as are government trade policies. The cost of raw
materials may fluctuate widely due to government policy and regulation, weather
conditions, or other unforeseen circumstances. Continuous efforts are made to
maintain and improve the qualities and supplies of raw materials for purposes of
the Company's short-term and long-term requirements.
The principal ingredients in the products produced by the Company in the
United States include corn grits, oats, rice, various fruits, sweeteners, wheat,
and wheat derivatives. Ingredients are purchased principally from sources in the
United States. In producing toaster pastries, bagels, frozen waffles, and cereal
bars, the Company may use flour, shortening, sweeteners, dairy products, eggs,
fruit, and other filling ingredients, which ingredients are obtained from
various sources. Although the Company enters into some long-term contracts, the
bulk of such raw materials are purchased on the open market. While the cost of
raw materials may increase over time, the Company believes that it will be able
to purchase an adequate supply of such raw materials as needed. The Company also
uses commodity futures and options to hedge some of its raw material costs.
Refer to Note 11 to the Consolidated Financial Statements contained in the
Company's Annual Report on pages 30 and 31.
Raw materials and packaging needed for internationally based operations are
available in adequate supply and are sometimes imported from countries other
than those where used in manufacture.
Cereal processing ovens at major domestic and international facilities are
regularly fueled by natural gas or propane obtained from local utilities or
other local suppliers. Short-term standby propane storage exists at several
plants for use in the event of interruption in natural gas supplies.
Additionally, oil may be used to fuel certain plant operations in the event of
natural gas shortages at various plants or when its use presents economic
advantages.
Trademarks and Technology. Generally, the Company's products are marketed
under trademarks owned by the Company. The Company's principal trademarks are
its housemark, brand names, slogans, and designs related to cereals and other
convenience food products manufactured and marketed by the Company. These
trademarks include Kellogg's(R), for cereals and other products of the Company
and the brand names of certain ready-to-eat cereals, including All-Bran(R),
Kellogg's Squares(TM), Apple Jacks(R), Apple Raisin Crisp(R), Apple Cinnamon
Rice Krispies(R), Bran Buds(R), Complete(R) Bran Flakes, Cocoa Krispies(R),
Common Sense(R), Cruncheroos(R), Kellogg's Corn Flakes(R), Cracklin' Oat
Bran(R), Kellogg's(R) Cinnamon Mini-Buns, Crispix(R), Double Dip Crunch(R),
Froot Loops(R), Kellogg's Frosted Bran(R), Kellogg's Frosted Flakes(R), Frosted
Krispies(R), Frosted Mini-Wheats(R), Fruitful Bran(R), Fruity Marshmallow
Krispies(R), Just Right(R), Kellogg's(R) Low Fat Granola, Nut & Honey Crunch(R),
Nut & Honey Crunch O's(TM), Muesli(R), Nutri-Grain(R), Corn Pops(R),
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Product 19(R), Kellogg's(R) Two Scoops(R) Raisin Bran, Rice Krispies(R), Rice
Krispies Treats(R), Smacks(R), Special K(R), Kellogg's Cocoa Frosted Flakes(TM),
Razzle Dazzle Rice Krispies(TM), and Kellogg's(R) Honey Crunch Corn Flakes(TM).
Additional Company trademarks are the names of certain combinations of
Kellogg's(R) ready-to-eat cereals, including Handi-Pak(R), Snack-Pak(R), Fun
Pak(R), Jumbo(R) and Variety(R) Pak. Other Company brand names include
Kellogg's(R) Corn Flake Crumbs; Croutettes(R) for herb season stuffing mix;
Kellogg's(R) Nutri-Grain(R) for cereal bars; Mendelssohn's Bakery(R) for toaster
danish; Pop-Tarts(R) for toaster pastries; Eggo(R), Special K(R) and
Nutri-Grain(R) for frozen waffles; Lender's(R) for Bagels; and Rice Krispies
Treats(TM) for crispy marshmallow squares.
Company trademarks also include depictions of certain animated characters
in conjunction with the Company's products, including Snap!(R)Crackle!(R)
Pop!(R)for Kellogg's(R) Frosted Krispies(R), Fruity Marshmallow Krispies(R) and
Rice Krispies(R); Tony the Tiger(R) for Kellogg's Frosted Flakes(R); Toucan
Sam(R)for Froot Loops(R); Dig 'Em!(R) for Smacks(R); Coco(TM) for Cocoa
Krispies(R); and Cornelius(R) and Corny(TM) for Kellogg's Corn Flakes(R).
The slogans "The Best To You Each Morning"(R), "The Original and Best(R),"
and "They're GR-R- GREAT!"(R), used in connection with the Company's
ready-to-eat cereals, are also important Company trademarks. The Company's use
of the advertising themes "Better Breakfast"(TM), "Get A Taste For The Healthy
Life"(TM), and "Cereal...Eat It For Life"(TM) represent part of its effort to
establish throughout the United States and the world the concept of a nutritious
breakfast.
The Company considers that, taken as a whole, the rights under its various
patents, which expire from time to time, are a valuable asset, but the Company
does not believe that its businesses are materially dependent upon any single
patent or group of related patents. The Company's activities under licenses or
other franchises or concessions are not material.
Seasonality. Demand for the Company's products is approximately level
throughout the year.
Working Capital. Although terms vary around the world, in the United States
the Company generally requires payment for goods sold eleven days subsequent to
the date of invoice, with a 2% discount allowed for payment within ten days.
Receipts from goods sold, supplemented as required by borrowings, provide for
the Company's payment of dividends, capital expansion, and for other operating
expenses and working capital needs.
Customers. The Company is not dependent on any single customer or a few
customers for a material part of its sales. Products of the Company are sold
through its own sales forces and through broker and distributor arrangements and
are generally resold to consumers in retail stores, restaurants, and other food
service establishments.
Backlog. For the most part, orders are filled within a few days of receipt
and are subject to cancellation at any time prior to shipment. The backlog of
any unfilled orders at any particular time is not material to the Company.
Competition. The Company has experienced intense competition for sales of
all of its principal products in its major markets, both domestically and
internationally. The Company's products compete with advertised and branded
products of a similar nature as well as unadvertised and private label products,
which are typically distributed at lower prices, and generally with other food
products with different characteristics. Principal methods and factors of
competition include new product introductions, product quality, composition and
nutritional value, price, advertising, and promotion.
Research and Development. Research to support and expand the use of the
Company's existing products and to develop new food products is carried on at
the W.K. Kellogg Institute for Food and Nutrition Research in Battle Creek,
Michigan, and at other locations around the world. The Company's expenditures
for research and development were approximately $106.1 million in 1997, $84.3
million in 1996, and $72.2 million in 1995.
Environmental Matters. The Company's facilities are subject to various
foreign, federal, state and local laws and regulations regarding the discharge
of material into the environment and the protection of the environment in other
ways. The Company is not a party to any material proceedings arising under these
regulations. The Company believes that compliance with existing environmental
laws and regulations will not
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materially affect the financial condition or the competitive position of the
Company. The Company is currently in substantial compliance with all material
environmental regulations affecting the Company and its properties.
Employees. At December 31, 1997, the Company had 14,339 employees.
Segment and Geographic Information. The Company operates in a single
industry, which is the manufacture and marketing of grain-based convenience food
products throughout the world. Net sales and operating profit for the years
ended December 31, 1997, 1996, and 1995, and identifiable segment assets and
corporate assets, consisting principally of cash and cash equivalents, at the
related year-ends are presented in Note 13 to the Consolidated Financial
Statements on page 31 of the Company's Annual Report.
ITEM 2. PROPERTIES
The Company's corporate headquarters and principal research and development
facilities are located in Battle Creek, Michigan.
The Company operates manufacturing plants and warehouses totaling more than
ten million (10,000,000) square feet of building area in the United States and
other countries. The Company's plants have been designed and constructed to meet
its specific production requirements, and the Company periodically invests money
for capital and technological improvements. At the time of its selection, each
location was considered to be favorable, based on the location of markets,
sources of raw materials, availability of suitable labor, transportation
facilities, location of other Company plants producing similar products, and
other factors. Manufacturing facilities of the Company in the United States
include four cereal plants and warehouses located in Battle Creek, Michigan;
Lancaster, Pennsylvania; Memphis, Tennessee; and Omaha, Nebraska. The Company's
other convenience foods plants are located in San Jose, California; New Haven,
Connecticut; West Haven, Connecticut; Atlanta, Georgia; Mattoon, Illinois;
Pikeville, Kentucky; Blue Anchor, New Jersey; West Seneca, New York; Muncy,
Pennsylvania; and Rossville, Tennessee.
Outside the United States, the Company has additional manufacturing
locations, some with warehousing facilities, in Argentina, Australia, Brazil,
Canada, China, Colombia, Ecuador, Germany, Great Britain, Guatemala, India,
Japan, Mexico, South Africa, South Korea, Spain, Thailand, and Venezuela.
The principal properties of the Company, including its major office
facilities, are held in fee and none is subject to any major encumbrance.
Distribution centers and offices of non-plant locations typically are leased.
The Company considers its facilities generally suitable, adequate, and of
sufficient capacity for its current operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings which, if
decided adversely, would be material to the Company on a consolidated basis, nor
are any of the Company's properties or subsidiaries subject to any such
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages as of February 27, 1998, and positions of the executive
officers of the Company are listed below together with their business
experience. Executive officers are elected annually by the Board of Directors at
the meeting immediately following the Annual Meeting of Stockholders.
Arnold G. Langbo
Chairman of the Board, President, and Chief Executive Officer.................60
Mr. Langbo has been employed by the Company since 1956. He was named
President and Chief Operating Officer in 1990 and became Chairman of the Board
and Chief Executive Officer in 1992.
William A. Camstra
Vice Chairman.................................................................65
Mr. Camstra has been employed by the Company since 1956. He was named
Executive Vice President of the Company in 1992, President, Kellogg Latin
America in 1994, and Vice Chairman in March 1997.
Donald G. Fritz
Executive Vice President, President, Kellogg Europe...........................50
Mr. Fritz joined Kellogg Canada Inc. in 1979. He was named Executive Vice
President of the Company in 1992, and President, Kellogg Europe in 1994.
Jean-Louis Gourbin
Executive Vice President, President, Kellogg Asia-Pacific.....................50
Mr. Gourbin joined Kellogg France in 1983. He was promoted to President and
CEO - Kellogg Canada Inc. in 1990. In 1995, he was named Managing
Director - Kellogg (Aust.) Pty. Ltd. Mr. Gourbin was appointed Executive Vice
President and President, Kellogg Asia-Pacific in 1996.
Carlos M. Gutierrez
Executive Vice President - Business Development...............................44
Mr. Gutierrez joined Kellogg de Mexico in 1975. In 1993, Mr. Gutierrez was
promoted to Executive Vice President, Kellogg USA Inc. and General Manager,
Kellogg USA Cereal Division. He was appointed Executive Vice President and
President, Kellogg Asia-Pacific in 1994, and Executive Vice President - Business
Development in 1996.
Alan F. Harris
Executive Vice President, President, Kellogg Latin America....................43
Mr. Harris joined Kellogg Company of Great Britain Limited in 1984. In
1993, he was appointed President, Kellogg Canada Inc. In 1994, he was promoted
to Executive Vice President - Marketing and Sales - Kellogg USA Inc. Mr. Harris
was promoted to Executive Vice President and President, Kellogg Latin America in
March 1997.
John R. Hinton
Executive Vice President - Administration and Chief Financial Officer.........52
Mr. Hinton joined the Company as Assistant to the Vice President - Finance
in 1979. He was appointed Executive Vice President - Financial Administration
and Treasurer for Kellogg USA Inc. in 1993. In 1995, Mr. Hinton was named Senior
Vice President - Administration and Chief Financial Officer. In December 1997,
Mr. Hinton was named Executive Vice President - Administration and Chief
Financial Officer.
Thomas A. Knowlton
Executive Vice President, President, Kellogg North America....................51
Mr. Knowlton joined Kellogg Canada Inc. in 1980. He was named Executive
Vice President of the Company in 1992 and President, Kellogg North America in
1994.
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Donald W. Thomason
Executive Vice President - Corporate Services and Technology..................54
Mr. Thomason has been employed by the Company since 1966. He was named
Executive Vice President - Corporate Services and Technology in 1990.
Donna J. Banks
Senior Vice President - Research and Development..............................41
Dr. Banks joined the Company in 1983. In 1991, she was promoted to Vice
President - Research and Development. Dr. Banks became Senior Vice
President - Research and Development in December 1997.
Richard M. Clark
Senior Vice President, General Counsel and Secretary..........................60
Mr. Clark joined the Company as Senior Vice President, General Counsel and
Secretary in 1989.
Robert L. Creviston
Senior Vice President - Human Resources.......................................56
Mr. Creviston joined the Company as Vice President - Employee Relations in
1982. He was named Senior Vice President - Human Resources in 1991.
Jay W. Shreiner
Senior Vice President and Chief Information Officer...........................48
Mr. Shreiner joined the Company as Assistant Treasurer in 1983. He was
named Vice President - Information Services in 1990 and Senior Vice President
and Chief Information Officer in 1995.
Joseph M. Stewart
Senior Vice President - Corporate Affairs.....................................55
Mr. Stewart has been employed by the Company since 1980. He was named
Senior Vice President - Corporate Affairs in 1988.
Michael J. Teale
Senior Vice President - Worldwide Operations and Technology...................53
Mr. Teale joined Kellogg Company of Great Britain Limited in 1966. He was
named Vice President - Cereal Manufacturing of the Company's U.S. Food Products
Division in 1990 and Senior Vice President - Worldwide Operations and Technology
in 1994.
Alan Taylor
Vice President - Corporate Controller.........................................46
Mr. Taylor has been employed by the Company since 1982. He served as
Director - Finance of Kellogg (Aust.) Pty. Ltd. from 1988 until 1993. He became
Controller of the Company in 1993, and was named a Vice President in 1994.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information called for by this Item is set forth on page 31 of the
Company's Annual Report in Note 12 to the Consolidated Financial Statements of
the Company which is incorporated by reference into Item 8 of this Report.
ITEM 6. SELECTED FINANCIAL DATA
The information called for by this Item is incorporated herein by reference
from the chart entitled "Selected Financial Data" on pages 16 and 17 of the
Company's Annual Report. Such information should be read in conjunction with the
Consolidated Financial Statements of the Company and Notes thereto included in
Item 8 of this Report.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information called for by this Item is incorporated herein by reference
from pages 18 through 22 of the Company's Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information called for by this Item is incorporated herein by reference
from page 33 of the Company's Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is incorporated herein by reference
from pages 23 through 32 of the Company's Annual Report. Supplementary quarterly
financial data, which is also incorporated herein by reference, is set forth in
Note 12 to the Consolidated Financial Statements on page 31 of the Company's
Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors -- Refer to the Company's Proxy Statement dated March 13, 1998,
for the Annual Meeting of Stockholders to be held on April 24, 1998, under the
caption "Election of Directors" on pages 4 through 6, which information is
incorporated herein by reference.
Executive Officers of the Registrant -- Refer to "Executive Officers of the
Registrant" under Item 4A at pages 5 through 6 of this Report.
For information concerning Section 16(a) of the Securities Exchange Act of
1934, refer to the Company's Proxy Statement dated March 13, 1998, for the
Annual Meeting of Stockholders to be held on April 24, 1998, under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" at page 11, which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Refer to the Company's Proxy Statement dated March 13, 1998, for the Annual
Meeting of Stockholders to be held on April 24, 1998, under the captions
"Executive Compensation" and "Kellogg Company Retirement Plans" at pages 7
through 10, and 10 through 11, respectively, which information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Refer to the Company's Proxy Statement dated March 13, 1998, for the Annual
Meeting of Stockholders to be held on April 24, 1998, under the caption
"Security Ownership" at pages 2 through 3, which information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to the Company's Proxy Statement dated March 13, 1998, for the Annual
Meeting of Stockholders to be held on April 24, 1998, under the caption "Stock
Option Loans and Executive Officer Indebtedness" at page 11, which information
is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS
ON FORM 8-K
The following Consolidated Financial Statements and related Notes,
together with the Report thereon of Price Waterhouse LLP dated January 30,
1998, appearing on pages 23 through 32 of the Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1997, are incorporated
herein by reference:
(A)1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Earnings for the years ended December 31, 1997,
1996, and 1995.
Consolidated Statement of Shareholders' Equity for the years ended December
31, 1997, 1996, and 1995.
Consolidated Balance Sheet at December 31, 1997 and 1996.
Consolidated Statement of Cash Flows for the years ended December 31, 1997,
1996, and 1995.
Notes to Consolidated Financial Statements.
(A)2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
The Financial Schedule and related Report of Independent Accountants filed
as part of this Report are as follows:
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Schedule II -- Valuation Reserve............................ 10
Report of Independent Accountants........................... 11
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This Consolidated Financial Statement Schedule should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1997.
All other financial statement schedules are omitted because they are not
applicable.
(A)3. EXHIBITS
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EXHIBIT NO. DESCRIPTION
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3.01 Amended Restated Certificate of Incorporation of Kellogg
Company, incorporated by reference to Exhibit 3.01 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, Commission file number 1-4171.
3.02 Bylaws of Kellogg Company, as amended, incorporated by
reference to Exhibit 3.02 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995,
Commission file number 1-4171.
4.01 Fiscal Agency Agreement dated as of January 29, 1997,
between the Company and Citibank, N.A., Fiscal Agent.
4.02 Form of Debt Security related to the Fiscal Agency Agreement
described in Exhibit 4.01 above.
4.03 Indenture dated as of August 5, 1997, between the Company
and Citibank, N.A., Trustee and Collateral Agent.
4.04 Form of Debt Security related to the Indenture described in
Exhibit 4.03 above.
10.01 Kellogg Company Excess Benefit Retirement Plan, incorporated
by reference to Exhibit 10.01 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1983,
Commission file number 1-4171.*
10.02 Kellogg Company Supplemental Retirement Plan, incorporated
by reference to Exhibit 10.05 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1990,
Commission file number 1-4171.*
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<TABLE>
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EXHIBIT NO. DESCRIPTION
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10.03 Kellogg Company Supplemental Savings and Investment Plan,
incorporated by reference to Exhibit 10.03 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, Commission file number 1-4171.*
10.04 Kellogg Company 1982 Stock Option Plan, as amended on
December 7, 1990, incorporated by reference to Exhibit 10.07
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990, Commission file number
1-4171.*
10.05 Kellogg Company International Retirement Plan.*
10.06 Kellogg Company Executive Survivor Income Plan, incorporated
by reference to Exhibit 10.06 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1985,
Commission file number 1-4171.*
10.07 Kellogg Company Key Executive Benefits Plan, incorporated by
reference to Exhibit 10.09 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991,
Commission file number 1-4171.*
10.08 Kellogg Company Key Employee Long Term Incentive Plan.*
10.09 Deferred Compensation Plan for Non-Employee Directors,
incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, Commission file number 1-4171.*
10.10 Kellogg Company Senior Executive Officer Performance Bonus
Plan, incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, Commission file number 1-4171.*
10.11 Stock Compensation Program for Non-Employee Directors of
Kellogg Company, as amended.*
10.12 Kellogg Company Bonus Replacement Stock Option Plan.*
10.13 Kellogg Company Executive Compensation Deferral Plan.*
13.01 Selected portions of page 16 and pages 17 through 33 of the
Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1997.
21.01 Domestic and Foreign Subsidiaries of the Company.
23.01 Consent of Price Waterhouse LLP.
23.02 Consent of Price Waterhouse LLP.
24.01 Powers of Attorney authorizing Richard M. Clark to execute
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, on behalf of the Board of
Directors, and each of them.
27.01 Financial Data Schedule.
99.01 Kellogg Company American Federation of Grain Millers Savings
and Investment Plan Annual Report on Form 11-K for the
fiscal year ended October 31, 1997.
99.02 Kellogg Company Salaried Savings and Investment Plan Annual
Report on Form 11-K for the fiscal year ended October 31,
1997.
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* A management contract or compensatory plan required to be filed with this
Report.
The Company agrees to furnish to the Securities and Exchange Commission,
upon its request, a copy of any instrument defining the rights of holders of
long-term debt of the Company and its Subsidiaries and any of its unconsolidated
Subsidiaries for which Financial Statements are required to be filed.
The Company will furnish any of its stockholders a copy of any of the above
Exhibits not included herein upon the written request of such stockholder and
the payment to the Company of the reasonable expenses incurred by the Company in
furnishing such copy or copies.
(B) REPORTS ON FORM 8-K
None.
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SCHEDULE II -- VALUATION RESERVE
(in millions)
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1997 1996 1995
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Balance at January 1........................................ $ 6.6 $ 6.4 $ 6.2
Addition charged to costs and expenses...................... 2.4 0.7 0.8
Doubtful accounts charged to reserves....................... (1.0) (0.4) (0.5)
Currency translation adjustments............................ (0.5) (0.1) (0.1)
----- ----- -----
Balance at December 31...................................... $ 7.5 $ 6.6 $ 6.4
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REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors
of Kellogg Company
Our audits of the consolidated financial statements referred to in our
report dated January 30, 1998, appearing in the 1997 Annual Report to
Stockholders of Kellogg Company (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Battle Creek, Michigan
January 30, 1998
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, this 31st day of March
1998.
KELLOGG COMPANY
By: /s/ ARNOLD G. LANGBO
------------------------------------
Arnold G. Langbo
Chairman of the Board
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<C> <S> <C>
/s/ ARNOLD G. LANGBO Chairman of the Board, Chief March 31, 1998
--------------------------------------------- Executive Officer; Director
Arnold G. Langbo (Principal Executive Officer)
/s/ JOHN R. HINTON Executive Vice March 31, 1998
--------------------------------------------- President-Administration and Chief
John R. Hinton Financial Officer (Principal
Financial Officer)
/s/ ALAN TAYLOR Vice President and Corporate March 31, 1998
--------------------------------------------- Controller (Principal Accounting
Alan Taylor Officer)
Director
---------------------------------------------
Benjamin S. Carson
Director
---------------------------------------------
Carleton S. Fiorina
Director
---------------------------------------------
Claudio X. Gonzalez
Director
---------------------------------------------
Gordon Gund
Director
---------------------------------------------
William E. LaMothe
Director
---------------------------------------------
Russell G. Mawby
Director
---------------------------------------------
Ann McLaughlin
Director
---------------------------------------------
J. Richard Munro
Director
---------------------------------------------
Harold A. Poling
Director
---------------------------------------------
William C. Richardson
Director
---------------------------------------------
Donald H. Rumsfeld
Director
---------------------------------------------
John L. Zabriskie
By: /s/ RICHARD M. CLARK March 31, 1998
---------------------------------------
Richard M. Clark
As Attorney-in-Fact
</TABLE>
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
ELECTRONIC(E)
PAPER(P)
INCORP. BY
EXHIBIT NO. DESCRIPTION REF.(IBRF)
- ----------- ----------- -------------
<C> <S> <C>
3.01 Amended Restated Certificate of Incorporation of Kellogg
Company, incorporated by reference to Exhibit 3.01 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, Commission file number 1-4171. IBRF
3.02 Bylaws of Kellogg Company, as amended, incorporated by
reference to Exhibit 3.02 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995,
Commission file number 1-4171. IBRF
4.01 Fiscal Agency Agreement dated as of January 29, 1997,
between the Company and Citibank, N.A., Fiscal Agent. E
4.02 Form of Debt Security related to the Fiscal Agency Agreement
described in Exhibit 4.01 above. E
4.03 Indenture dated as of August 5, 1997, between the Company
and Citibank, N.A., Trustee and Collateral Agent. E
4.04 Form of Debt Security related to the Indenture described in
Exhibit 4.03 above. E
10.01 Kellogg Company Excess Benefit Retirement Plan, incorporated
by reference to Exhibit 10.01 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1983,
Commission file number 1-4171.* IBRF
10.02 Kellogg Company Supplemental Retirement Plan, incorporated
by reference to Exhibit 10.05 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1990,
Commission file number 1-4171.* IBRF
10.03 Kellogg Company Supplemental Savings and Investment Plan,
incorporated by reference to Exhibit 10.03 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, Commission file number 1-4171.* IBRF
10.04 Kellogg Company 1982 Stock Option Plan, as amended on
December 7, 1990, incorporated by reference to Exhibit 10.07
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990, Commission file number
1-4171.* IBRF
10.05 Kellogg Company International Retirement Plan.* E
10.06 Kellogg Company Executive Survivor Income Plan, incorporated
by reference to Exhibit 10.06 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1985,
Commission file number 1-4171.* IBRF
10.07 Kellogg Company Key Executive Benefits Plan, incorporated by
reference to Exhibit 10.09 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991,
Commission file number 1-4171.* IBRF
10.08 Kellogg Company Key Employee Long Term Incentive Plan.* E
10.09 Deferred Compensation Plan for Non-Employee Directors,
incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, Commission file number 1-4171.* IBRF
10.10 Kellogg Company Senior Executive Officer Performance Bonus
Plan, incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, Commission file number 1-4171.* IBRF
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
ELECTRONIC(E)
PAPER(P)
INCORP. BY
EXHIBIT NO. DESCRIPTION REF.(IBRF)
- ----------- ----------- -------------
<C> <S> <C>
10.11 Stock Compensation Program for Non-Employee Directors of
Kellogg Company, as amended.* E
10.12 Kellogg Company Bonus Replacement Stock Option Plan.* E
10.13 Kellogg Company Executive Compensation Deferral Plan.* E
13.01 Selected portions of page 16 and pages 17 through 33 of the
Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1997. E
21.01 Domestic and Foreign Subsidiaries of the Company. E
23.01 Consent of Price Waterhouse LLP. E
23.02 Consent of Price Waterhouse LLP. E
24.01 Powers of Attorney authorizing Richard M. Clark to execute
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, on behalf of the Board of
Directors, and each of them. E
27.01 Financial Data Schedule. E
99.01 Kellogg Company American Federation of Grain Millers Savings
and Investment Plan Annual Report on Form 11-K for the
fiscal year ended October 31, 1997. E
99.02 Kellogg Company Salaried Savings and Investment Plan Annual
Report on Form 11-K for the fiscal year ended October 31,
1997. E
</TABLE>
- -------------------------
* A management contract or compensatory plan required to be filed with this
Report.
The Company will furnish any of its stockholders a copy of any of the above
Exhibits not included herein upon the written request of such stockholder and
the payment to the Company of the reasonable expenses incurred by the Company in
furnishing such copy or copies.
14
<PAGE> 1
EXHIBIT 4.01
================================================================================
U.S. $500,000,000
KELLOGG COMPANY
6 5/8% NOTES DUE JANUARY 29, 2004
-----------------------
FISCAL AGENCY AGREEMENT
BETWEEN
KELLOGG COMPANY,
CITIBANK, N.A.,
FISCAL AGENT AND PRINCIPAL PAYING AGENT
AND
CITIBANK (LUXEMBOURG) S.A.,
AND
CITIBANK, N.A., BRUSSELS BRANCH
PAYING AGENTS
DATED AS OF JANUARY 29, 1997
================================================================================
<PAGE> 2
THIS FISCAL AGENCY AGREEMENT (this "Agreement") is made as of January
29, 1997 between KELLOGG COMPANY, a Delaware corporation (the "Company"),
CITIBANK, N.A., a national banking association duly incorporated and existing
under the laws of the United States of America, acting through its principal
corporate trust office in London as fiscal agent and principal paying agent,
CITIBANK, N.A., Brussels Branch, a national banking association duly
incorporated and existing under the laws of the United States of America, acting
through its principal corporate trust office in Brussels as paying agent and
CITIBANK (LUXEMBOURG) S.A., a bank duly incorporated and existing under the laws
of the Grand Duchy of Luxembourg, as paying agent.
Section 1. Delivery of Notes; Appointments.
(a) Pursuant to an Underwriting Agreement, dated January 24, 1997,
between the Company and the Managers named therein, the Company has agreed,
subject to the conditions therein set forth, to issue U.S. $500,000,000 6-5/8%
Notes due January 29, 2004 (the "Notes") in denominations of U.S. $1,000, U.S.
$10,000 and U.S. $100,000. The Notes will initially be represented by a single
temporary global note (the "Temporary Global Note"), without interest coupons
(the "Coupons"), in substantially the form set forth in Exhibit A. Beneficial
interests in the Temporary Global Note will be exchangeable for definitive Notes
in bearer form, with Coupons attached, in substantially the form set forth in
Exhibit B on or after the Restricted Period Expiration Date (as hereinafter
defined) upon and to the extent that the certification requirements set forth in
Section 1(d)(ii) have been complied with. References herein to "Conditions" are
to the numbered terms and conditions of the Notes, which are set forth in
Exhibit C, and terms which are defined in the Conditions shall have the same
meanings where used herein. An index to the location of certain definitions in
this Agreement, the Conditions and the Notes is set forth in Section 18(b). The
expression the "Notes" shall, where the context so permits, include the
Temporary Global Note.
(b) Citibank, N.A. at its principal corporate trust office in London is
hereby appointed by the Company as fiscal agent upon the terms and subject to
the conditions set forth below. Citibank, N.A. at its principal corporate trust
office in London hereby accepts such appointment. Citibank, N.A. at its
principal corporate trust office in London, Citibank (Luxembourg) S.A. at its
principal corporate trust office in Luxembourg and Citibank, N.A., Brussels
Branch at its principal corporate trust office in Brussels are hereby appointed
paying agents upon the terms and subject to the conditions set forth below for
the payment of the principal of and interest on the Notes and to perform such
other duties relating thereto as are set forth herein or in the Notes. Citibank,
N.A. at its principal corporate trust office in London, Citibank (Luxembourg)
S.A. at its principal corporate trust office in Luxembourg and Citibank, N.A.,
Brussels Branch at its principal corporate trust office in Brussels hereby
accept such appointments.
Citibank, N.A. at its principal office in London and its successors as
appointed in accordance with Section 11 hereof are hereinafter called the
"Fiscal Agent." Citibank, N.A. at its principal office in London, Citibank
(Luxembourg) S.A., and Citibank, N.A., Brussels Branch at its principal
corporate trust office in Brussels and all other paying agents, if any,
appointed by the Company from time to time are hereinafter called the "Paying
Agents."
(c) (i) The Temporary Global Note shall be delivered by the Company
to the Fiscal Agent at least one Business Day prior to the Closing
Date (as hereinafter defined), and the Fiscal Agent shall deliver the
Temporary Global Note, duly authenticated by an authorized signatory
of the Fiscal Agent, on January 29, 1997, or on such other date as
the Managers and the Company may agree (the "Closing Date"), upon
instruction from the Company to the Common Depositary. The Company
will deliver, or cause to be delivered, to the Fiscal Agent at least
10 days prior to the Restricted Period Expiration Date (as hereinafter
defined), the definitive Notes in an aggregate principal amount of
U.S. $500,000,000, with Coupons attached, for delivery, authentication
and endorsement by the Fiscal Agent as provided in Section 1(d).
(ii) The Fiscal Agent may, at its discretion, appoint any
person to act as the agent of the Fiscal Agent in authenticating,
delivering and endorsing the Notes or taking any other action that is
required by this Agreement to be taken with respect thereto. Such
person may authenticate, deliver and endorse the Notes whenever the
Fiscal Agent may do so, unless limited by the terms of such
appointment. Each reference in
<PAGE> 3
this Agreement and the Notes to authentication, delivery or endorsement
by the Fiscal Agent shall include authentication, delivery or
endorsement by any such agent so appointed.
(d) (i) The Fiscal Agent shall (subject to subsection (ii) below)
on or after the Restricted Period Expiration Date (as hereinafter
defined) authenticate and deliver to the Common Depositary for the
account of owners of beneficial interests in the Temporary Global
Note which have provided the certification described in subsection
(ii) below, in exchange for the portion of the Temporary Global Note
beneficially owned by such owners, the definitive Notes in an
aggregate principal amount equal to the aggregate principal amount of
the Temporary Global Note beneficially owned by such owners. The
"Restricted Period Expiration Date" shall mean the date which is 40
days after the Closing Date.
(ii) Notwithstanding anything to the contrary in subsection
(i) above, the Fiscal Agent will only authenticate and deliver the
definitive Notes with respect to portions of the Temporary Global Note
as to which Euroclear or Cedel Bank has delivered to the Fiscal Agent a
certificate or certificates substantially in the form set forth in
Exhibit D, dated not earlier than the Restricted Period Expiration
Date. Solely for the purposes of United States Treas. Reg.
ss.1.163-5(c)(2)(i)(D), the Company hereby appoints the Fiscal Agent as
its agent to receive any certificates substantially in the form of
Exhibit D that are required to be delivered pursuant to this subsection
(ii) and to retain any such certificates for a period of four calendar
years following the year in which any such certificates are received,
and the Fiscal Agent hereby accepts such appointment. The delivery to
the Fiscal Agent by Euroclear or Cedel Bank of such a certificate may
be relied upon by the Company and the Fiscal Agent as conclusive
evidence that a related certificate or certificates substantially in
the form set forth in Exhibit E and dated not earlier than 15 days
prior to the date of the related certificate of Euroclear or Cedel Bank
has or have been delivered (as provided in United States Treas. Reg.
ss.1.163-5(c)(2)(i)(D)(3)) to Euroclear or Cedel Bank by one or more
beneficial owners of the Temporary Global Note.
(iii) Upon delivery by Euroclear or Cedel Bank to the Fiscal
Agent of certificates substantially in the form of Exhibit D as
contemplated in subsection (ii) above, the part of the Temporary Global
Note referred to in such certificates shall be exchanged for definitive
Notes and shall be endorsed on Schedule II to the Temporary Global Note
to reflect the reduction of its principal amount by an amount equal to
the aggregate principal amount of such definitive Note or Notes. Until
the entire principal amount of the Temporary Global Note has been so
exchanged in full, holders of beneficial interests in the Temporary
Global Note shall in all respects be entitled to the same benefits as
holders of the definitive Notes authenticated and delivered hereunder,
except that neither the holder nor the beneficial owners of the
Temporary Global Note shall be entitled to receive payments of
principal of, or interest or any additional amounts ("Additional
Amounts") payable pursuant to Section 8 of the Conditions (if any) on,
the Temporary Global Note except as provided in Section 1(e) and
Exhibit A.
(e) (i) In the event that any Payment Date shall occur at a time
when any portion of the principal amount of the Temporary Global Note
has not been exchanged for definitive Notes, payments of principal of,
and interest and Additional Amounts (if any), on that portion of the
principal amount of the Temporary Global Note which has not
been exchanged for definitive Notes shall be paid by the Company to
the Fiscal Agent on or before such Payment Date and shall be held by
the Fiscal Agent for payment to Euroclear or Cedel Bank upon such
exchange (whereupon Euroclear and Cedel Bank have undertaken to credit
such amount to the account of the owner(s) of the related portion(s)).
(ii) Interest payable after the delivery of a definitive Note
may be collected only upon presentation of the Coupons attached thereto
as they mature.
(f) Any exchange pursuant to Section 1(d) shall be made free of charge
to the holder and the beneficial owners of the Temporary Global Note and to the
holders of the definitive Notes issued in exchange for beneficial interests in
the Temporary Global Note as provided above.
2
<PAGE> 4
(g) Upon return of the entire principal amount of the Temporary Global
Note to the Fiscal Agent in exchange for the definitive Notes, the Fiscal Agent
shall cancel the Temporary Global Note by perforation and shall forthwith
destroy such Temporary Global Note on behalf of the Company.
(h) All Notes delivered to the Fiscal Agent, including the Temporary
Global Note, shall be signed on behalf of the Company by a duly authorized
officer of the Company, and any such signature may be manual or facsimile. The
signature of any person who shall hold any office at the date of signature may
be used notwithstanding that when any Note shall be delivered any such person
shall have ceased to hold such office. The Company covenants that each such
Note, when issued, will constitute the legal, valid and binding obligation of
the Company, enforceable in accordance with its terms.
(i) The Company may, without the consent of the holders of the Notes
and coupons, issue from time to time additional Notes under this Agreement which
will be treated as a single series with the Notes offered hereby.
Section 2. Payments.
(a) The Company shall, by 10:00 a.m. New York time at least two
Business Days prior to each date on which any payment (whether of principal,
interest or otherwise) in respect of the Notes or the Coupons becomes due (a
"Payment Date"), cause the bank through which such payment is to be made to
confirm, by tested telex or authenticated Swift message MT100, to the Fiscal
Agent, that irrevocable payment instructions to effect the relevant payment have
been given by 10:00 a.m. New York time, and shall, by 10:00 a.m. New York time
on each Payment Date, transfer to the Fiscal Agent such amount as may be
required for the purposes of such payment.
(b) Subject to payment being duly made by the Company as provided
above, the Paying Agents shall pay or cause to be paid on behalf of the Company
on and after each Payment Date the amounts due in respect of the Notes or the
Coupons, as the case may be, in accordance with the Conditions and the terms of
this Agreement. So long as the Company has made payments as provided in Section
2(a) on or before each Payment Date, the Company shall not be liable for any
delay in payments by the Fiscal Agent or any Paying Agent hereunder. Unless and
until the full amount of any payment has been made to the Fiscal Agent, none of
the Paying Agents shall be bound to make payments in respect of the Notes or the
Coupons as aforesaid.
(c) (i) The Fiscal Agent shall forthwith notify by telex or cable
each of the other Paying Agents and the Company in the event that it
has not received the confirmation referred to in Section 2(a) or on
any Payment Date received the full amount so payable on such date.
(ii) In the absence of such notification from the Fiscal Agent
in accordance with Section 2(c)(i) to the effect that the Fiscal Agent
(a) has not received the confirmation referred to in Section 2(a) or
(b) has not received payment, such Paying Agent shall assume that the
Fiscal Agent has received the confirmation referred to in Section 2(a)
and the full amount due on such Payment Date in respect of the Notes or
the Coupons, as the case may be, and shall be entitled:
(A) to pay maturing Notes and Coupons in
accordance with the Conditions and this Agreement; and
(B) to claim from the Fiscal Agent any amounts so
paid by it.
(d) The Fiscal Agent shall on demand promptly reimburse the other
Paying Agents for payments in respect of the Notes and the Coupons if properly
made by them in accordance with the Conditions and this Agreement.
(e) If the Fiscal Agent has not received by any Payment Date the full
amount payable on such date but receives such full amount later it shall:
3
<PAGE> 5
(i) forthwith so notify the other Paying Agents and the
Company; and
(ii) as soon as practicable give notice to the holders of the
Notes in accordance with the Conditions that it has received such full
amount.
(f) All sums payable to the Fiscal Agent hereunder shall be paid in
United States dollars, subject to applicable laws and regulations, in
immediately available funds to such account as the Fiscal Agent may from time to
time notify to the Company.
(g) Notwithstanding any other provision hereof, no payment with respect
to the principal of, or interest or Additional Amounts (if any) on, any Notes
may be made at any office of the Fiscal Agent or any Paying Agent in the United
States of America (including the States and the District of Columbia) or its
possessions (including Puerto Rico, the U.S. Virgin Islands, Guam, American
Samoa, Wake Island and the Northern Mariana Islands) (the "United States"), nor
will any payment be made by transfer to an account in, or by mail to an address
in, the United States. Except as provided in Section 1(e), payments of principal
and interest will be made against surrender of the Notes or Coupons, as the case
may be, at the specified offices of any of the Paying Agents outside the United
States, subject in each case to any applicable laws and regulations. Such
payments will be made by United States dollar check, or at the option of the
holder, by transfer to a United States dollar account maintained by such holder
payee with a bank outside the United States.
(h) Subject to Sections 3 and 10 hereof, the Fiscal Agent shall be
entitled to deal with monies paid to it hereunder in the same manner as other
monies paid to it as a banker by its customers except that (i) it shall not be
entitled to exercise any lien, right of set-off or similar claim in respect
thereof and (ii) it shall not be liable to any person for interest on any sums
held by it under this Agreement.
(i) If on presentation of a Note or Coupon the amount payable in
respect thereof is not paid in full (otherwise than as a result of deduction of
tax as permitted by the Conditions), the Paying Agent to which the Note or
Coupon is presented shall ensure that such Note or Coupon is enfaced with a
memorandum of the amount paid and the date of payment.
(j) If the Company or any Paying Agent is compelled by United States
law to make any withholding or deduction from any payment due in respect of any
Note, it will make available to the Fiscal Agent for inspection, upon its
written request, all records, accounts, certificates and other documents
relating to such payment in order that the Fiscal Agent may confirm to the
holder of such Note that such payment has been duly made.
Section 3. Repayment.
All monies paid by the Company to a Paying Agent for payment of the
principal of, or interest or Additional Amounts (if any) on, any Note and
remaining unclaimed for two years after such payment has been made shall be
repaid to the Company, and to the extent permitted by law, the holder of such
Note thereafter may look only to the Company for payment as a general unsecured
creditor thereof. Subject to applicable laws and regulations, any payment that
will be made by the Company under this paragraph with respect to Notes will be
made outside the United States.
Section 4. Redemption.
If the Company intends to redeem all of the Notes pursuant to Section
6(b) of the Conditions, it shall give the Fiscal Agent not less than 30 nor more
than 60 days' prior notice of such redemption, stating the date on which such
Notes are to be redeemed.
Section 5. Cancellation, Destruction and Records.
4
<PAGE> 6
(a) All Notes which are redeemed (together with such unmatured Coupons
as are attached thereto or are surrendered therewith at the time of such
redemption) and all Coupons which are paid or have become void shall be
cancelled forthwith by perforation by the Paying Agent by or through which they
are redeemed, paid or received. Such Paying Agent shall give all relevant
details to the Fiscal Agent and forthwith cancel the Notes and Coupons (if such
Paying Agent is other than the Fiscal Agent).
(b) The Fiscal Agent shall forthwith destroy all cancelled Notes and
Coupons on behalf of the Company upon receipt thereof (whether directly or from
any other Paying Agent).
(c) The Fiscal Agent shall as soon as practicable and in any event
within three months after the date of any such redemption or payment furnish to
the Company a certificate stating (i) the aggregate principal amount of Notes
which have been redeemed and cancelled and the aggregate amount paid in respect
of Coupons which have been paid and cancelled, (ii) the serial numbers of such
Notes, (iii) the total numbers by maturity date of such Coupons and (iv) that
all such cancelled Notes and Coupons have been destroyed.
(d) The Fiscal Agent shall keep a full and complete record of all Notes
and Coupons and of their validation, redemption, purchase, cancellation or
payment (as the case may be) and of all replacement Notes and Coupons issued in
substitution for lost, stolen, mutilated, defaced or apparently destroyed Notes
or Coupons and shall make such record available at all reasonable times to the
Company.
Section 6. Issue of Replacement Notes and Coupons.
(a) The Company shall cause a sufficient quantity of additional forms
of Notes and Coupons to be made available, upon request, to the Fiscal Agent for
the purpose of issuing replacement Notes and Coupons in accordance with the
terms of this Agreement.
(b) The Fiscal Agent (in such capacity, the "Replacement Agent") shall,
subject to and in accordance with the Conditions and the following provisions of
this Section 6, issue any replacement Notes or Coupons in place of Notes or
Coupons which have been lost, stolen, mutilated, defaced or apparently
destroyed.
(c) In the case of a mutilated or defaced Note, the Replacement Agent
shall ensure that (unless otherwise covered by such indemnity and other document
as the Company may require) any replacement Note will only have attached to it
Coupons corresponding to those attached to the mutilated or defaced Note which
is presented for replacement.
(d) The Replacement Agent shall not issue any replacement Note or
Coupon unless and until the applicant therefor shall have:
(i) paid such costs as may be incurred in connection
therewith;
(ii) (in the case of a lost, stolen, defaced, mutilated or
destroyed Note or Coupon) furnished the Replacement Agent with such
evidence (including evidence as to the serial number of the Note or
Coupon in question) and indemnity in respect thereof as the Company and
the Replacement Agent may require; and
(iii) surrendered to the Replacement Agent any mutilated or
defaced Note or Coupon to be replaced.
(e) The Fiscal Agent shall cancel and destroy any mutilated or defaced
Notes or Coupons replaced pursuant to this Section 6 and shall furnish the
Company with a certificate stating the serial numbers of Notes and Coupons so
cancelled and destroyed.
5
<PAGE> 7
(f) The Replacement Agent shall, on issuing any replacement Note or
Coupon, forthwith inform the other Paying Agents and the Company of the serial
number of such replacement Note or Coupon issued, the date of issue and the
serial number of the Note or Coupon in place of which such replacement Note or
Coupon has been issued.
(g) Whenever any Note or Coupon alleged to have been lost, stolen or
destroyed in replacement for which a new Note or Coupon has been issued shall be
presented to any of the Paying Agents for payment, the Paying Agent to which
such Note or Coupon is presented shall immediately send notice thereof to the
Fiscal Agent (if other than such Paying Agent), which shall so inform the
Company and after consultation between them take appropriate action.
(h) Notwithstanding anything to the contrary stated herein, no
replacement Note or Coupon shall be delivered within the United States.
Section 7. Notices to Holders of the Notes.
The Fiscal Agent shall publish such notices as are required to be given
by the Fiscal Agent in Section 11(e) (relating to changes in Paying Agents), and
Section 6 of the Conditions (relating to redemptions of Notes).
At the request and expense of the Company the Fiscal Agent shall
arrange for the publication of all other notices to holders of the Notes in
accordance with the Conditions.
Section 8. Documents and Forms.
The Company shall provide to the Fiscal Agent for distribution among
the Paying Agents:
(i) specimen Notes;
(ii) sufficient copies of all documents required by the
Conditions to be available for issue or inspection; and
(iii) in the event of a meeting of holders of the Notes being
called, such forms and other documents as the Fiscal Agent may
reasonably require for the purpose of such meeting.
Section 9. Indemnity.
(a) The Company shall indemnify the Fiscal Agent and each of the Paying
Agents against any loss, liability, cost, claim, action, demand or expense which
it may incur or which may be made against it as a result of or in connection
with its appointment or the exercise of its powers and performance of its duties
hereunder (including, without limiting the generality of the foregoing, any
action based upon a claim that the Fiscal Agent, any of the Paying Agents or the
Company has contravened the securities laws of any jurisdiction), except such as
may result from the breach by it of the terms of this Agreement or the Notes or
from its own gross negligence or willful misconduct or that of its officers,
employees or agents.
(b) The Fiscal Agent and each of the Paying Agents shall severally and
not jointly indemnify the Company against any loss, liability, cost, claim,
action, demand or expense which the Company may incur or which may be made
against it as a result of the breach by the Fiscal Agent or such Paying Agent of
the terms of this Agreement or the Notes or its gross negligence or willful
misconduct or that of its officers, employees or agents.
(c) The indemnification obligations set forth herein shall survive the
termination or expiration of this Agreement.
6
<PAGE> 8
Section 10. General.
(a) In acting under this Agreement, the Fiscal Agent and the Paying
Agents are acting solely as agents of the Company and do not assume any
obligation to or relationship of agency or trust for or with any of the holders
for the time being of the Notes or Coupons except that all funds held by the
Paying Agents for payment to the holders of the Notes shall be held in a
segregated account, to be applied as set forth herein. The Fiscal Agent and the
Paying Agents shall only be obligated to perform the duties set forth in this
Agreement and shall not be obligated to perform any implied duties.
(b) The Fiscal Agent may consult on any legal matter any legal adviser
selected by it, which may be an employee of or legal adviser to the Company, and
the Fiscal Agent and each of the Paying Agents shall be protected and shall
incur no liability for action taken, or suffered to be taken, with respect to
such matter in good faith and in accordance with the opinion of such legal
adviser. The reasonable expenses incurred by the Fiscal Agent for the fees of
such legal advisers shall be for the account of the Company and shall be subject
to reimbursement pursuant to the letter referred to in Section 12.
(c) Without limiting the protections of Section 10(g) hereof, the
Fiscal Agent and each of the Paying Agents shall be protected and shall incur no
liability for or in respect of any action taken or thing suffered by it in
reliance upon any Note or Coupon, notice, direction, consent, certificate,
affidavit, statement, cablegram or other paper or document reasonably believed
by it to be genuine and to have been passed or signed by the proper parties.
(d) The Fiscal Agent and each of the Paying Agents, their affiliates
and their respective officers, directors and employees may become the owner of,
or acquire any interest in, any Note or Coupon, with the same rights that they
would have if the Fiscal Agent or such Paying Agent were not the Fiscal Agent or
a Paying Agent hereunder, and may engage or be interested in any financial or
other transaction with the Company, and may act on, or as depositary, trustee or
agent for, any committee or body of holders of Notes or Coupons or other
obligations of, or lenders to, the Company as freely as if the Fiscal Agent or
such Paying Agent were not the Fiscal Agent or a Paying Agent hereunder.
(e) The Fiscal Agent and each of the Paying Agents will forthwith
deliver to the Company a copy of any notice or other document delivered to it by
any Noteholder or Couponholder in its capacity as the Fiscal Agent or a Paying
Agent hereunder.
(f) Except as required by Section 10(e), neither the Fiscal Agent nor
any of the Paying Agents shall have any duty or responsibility in case of any
default by the Company in the performance of its obligations under the
Conditions (including, without limiting the generality of the foregoing, any
duty or responsibility to accelerate all or any of the Notes or to initiate or
to attempt to initiate any proceedings at law or otherwise or to make any demand
for the payment thereof upon the Company).
(g) The Fiscal Agent, the Paying Agents and the Company shall (except
as ordered by a court of competent jurisdiction or as required by law)
notwithstanding any notice to the contrary be entitled to treat the bearer of
any Note or Coupon as the absolute owner thereof and shall not be liable for so
doing.
Section 11. Changes in Fiscal Agent and Paying Agents.
(a) The Company may at any time:
(i) appoint additional Paying Agents; and
(ii) subject to Section 11(c), terminate the appointment of
(A) the Fiscal Agent or
7
<PAGE> 9
(B) with the prior written consent of the Fiscal
Agent, any Paying Agent,
in each case by giving the party concerned and, in the case of any Paying Agent,
the Fiscal Agent, no less than 60 days' written notice to that effect, which
notice shall not expire less than 30 days before or after any Payment Date.
(b) Subject to Section 11(c), the Fiscal Agent or any Paying Agent may
resign its appointment hereunder at any time by giving to the Company, and in
the case of any Paying Agent to the Fiscal Agent, not less than 60 days' prior
written notice to that effect, which notice shall expire not less than 30 days
before or after any Payment Date.
(c) Notwithstanding Sections 11(a) and 11(b):
(i) no resignation by or termination of the appointment of the
Fiscal Agent shall take effect until another bank or financial
institution has been appointed on the terms of this Agreement to act as
Fiscal Agent in its place; and
(ii) no resignation by or termination of the appointment of
any Paying Agent shall take effect if as a result of such resignation
or termination there would cease to be (so long as the Notes are listed
on the Luxembourg Stock Exchange and the Luxembourg Stock Exchange so
requires) a Paying Agent in Luxembourg;
provided that, in the event the appointment of the Fiscal Agent or the Paying
Agent in Luxembourg has been terminated by the Company pursuant to Section 11(a)
or the Fiscal Agent or the Paying Agent in Luxembourg has resigned its
appointment pursuant to Section 11(b), and the Company has failed to appoint a
new Fiscal Agent or Paying Agent, as applicable, prior to the date which is 10
days before the scheduled date of termination or resignation, the Fiscal Agent
may select another bank or financial institution to act as Fiscal Agent in its
place or appoint a Paying Agent in Luxembourg, as applicable.
(d) Any Paying Agent may change the address of its office within a
particular city, in which event it shall give to the Company and the Fiscal
Agent not less than 30 days' prior written notice to that effect, giving the
address of the new office and the date upon which such change is to take effect.
(e) The Fiscal Agent shall give to the holders of the Notes in
accordance with the Conditions not less than 30 days' notice of any such
proposed appointment, termination, resignation or change of which it is aware.
(f) Any successor Fiscal Agent or Paying Agent appointed hereunder
shall execute, acknowledge and deliver to its predecessor and to the Company an
instrument accepting such appointment hereunder, and thereupon such successor
Fiscal Agent or Paying Agent, without any further act, deed or conveyance shall
become vested with all the authority, rights, powers, trusts, immunities, duties
and obligations of such predecessor with like effect as if originally named as
Fiscal Agent or Paying Agent hereunder, and such predecessor, upon payment of
its charges and disbursements then unpaid, shall thereupon become obligated to
transfer, deliver and pay over, and such successor Fiscal Agent or Paying Agent
shall be entitled to receive, all monies, securities and other property on
deposit with or held by such predecessor, as Fiscal Agent or Paying Agent
hereunder.
(g) Any retiring Fiscal Agent or Paying Agent shall, following its
resignation or removal, continue to enjoy the indemnities set forth herein with
respect to the performance or non-performance of its obligations hereunder while
serving as Fiscal Agent or Paying Agent, as the case may be.
Section 12. Commissions, Fees and Expenses.
The Fiscal Agent will receive as compensation for its services under
this Agreement the fees and expenses referred to in a letter dated the date
hereof from the Fiscal Agent to the Company and the Company shall be
8
<PAGE> 10
responsible for all taxes, stamp duty and reasonable out-of-pocket expenses
(including legal, advertising, telex and postage expenses) incurred by the
Fiscal Agent in performing its duties hereunder. The compensation of the Paying
Agents shall be as agreed between the Fiscal Agent and the Paying Agents.
Section 13. Notices and Communications.
(a) All communications hereunder shall be in writing and shall be
delivered at or sent by facsimile or telexed to the applicable party at its
address set forth on the signature pages of this Agreement or at such other
address as such party shall have notified to the other parties in a
communication complying with this Section 13(a). Any communication so sent by
facsimile or telex shall be deemed to have been delivered at the time of
dispatch with confirmation of receipt or confirmed answerback.
(b) All communications relating to this Agreement between the Company
and any of the Paying Agents or between the Paying Agents themselves shall be
made through the Fiscal Agent.
(c) All notices received by the Fiscal Agent on behalf of the Company
under this Agreement and the Notes shall be delivered to the Company by the
Fiscal Agent on the dates on which the Fiscal Agent receives such notices.
Section 14. Meetings of Holders, Modification and Waiver.
(a) Modifications and amendments to this Agreement or to the
Conditions, insofar as such modifications or amendments affect the rights,
powers, duties or obligations of the holders of the Notes, may be made, and
future compliance with or past default by the Company under any of the
provisions hereof or thereof may be waived by the holders of the Notes, with the
consent of the holders of at least a majority in aggregate principal amount of
the Notes at the time outstanding, or of such lesser percentage as may act at a
meeting of the holders of the Notes held in accordance with the provisions set
forth herein, to be held at such time and at such place as the Company shall
determine; provided that no such modification, amendment or waiver may, without
the consent of the holder of each Note affected thereby, (i) waive a default in
the payment of the principal of or interest on any such Note, or change the
stated maturity of the principal of or any instalment of interest on any such
Note; (ii) reduce the principal amount of or the rate of interest on any such
Note or change the obligation of the Company to pay Additional Amounts with
respect to such Note; (iii) change the currency of payment of principal of or
interest on any such Note; (iv) impair the right to institute suit for the
enforcement of any such payment on or with respect to any such Note; (v) reduce
the percentage of aggregate principal amount of Notes outstanding necessary to
modify or amend this Agreement or the Conditions or reduce the percentage of
votes required for the adoption of any action at a meeting of holders of Notes;
or (vi) modify the obligation of the Company to maintain an office or agency
outside the United States for the purposes specified herein. Notice of any
meeting of holders of Notes, setting forth the time and place of such meeting
and in general terms the action proposed to be taken at such meeting, shall be
given in accordance with Section 11 of the Conditions at least twice, the first
publication to be not less than 20 nor more than 180 days prior to the date
fixed for the meeting. To be entitled to vote at any meeting of holders of
Notes, a person shall be (x) a holder of one or more Notes (including the
beneficial owners of interests in the Temporary Global Note) or (y) a person
appointed by an instrument in writing as proxy by the holder of one or more
Notes. The only persons who shall be entitled to be present or to speak at any
meeting of holders of Notes shall be the persons entitled to vote at such
meeting and their counsel and any representatives of the Company and its
counsel.
(b) The persons entitled to vote a majority in principal amount of
Notes at the time outstanding shall constitute a quorum at a meeting of the
holders of Notes convened for the purpose referred to above except as
hereinafter provided. No business shall be transacted in the absence of a
quorum, unless a quorum is present when the meeting is called to order. In the
absence of a quorum, the meeting shall be adjourned for a period of not less
than 10 days as determined by the chairman of the meeting. In the absence of a
quorum at any such adjourned meeting, such adjourned meeting shall be further
adjourned for a period of not less than 10 days as determined by the chairman of
the meeting. Notice of the reconvening of any adjourned meeting shall be given
as provided above
9
<PAGE> 11
except that such notice need be given only once but must be given not less than
five days prior to the date on which the meeting is scheduled to be reconvened.
Subject to the foregoing, at the reconvening of any such meeting further
adjourned for the lack of a quorum, the persons entitled to vote 25% in
principal amount of Notes at the time outstanding shall constitute a quorum for
the taking of any action set forth in the notice of the original meeting. Notice
of the reconvening of an adjourned meeting shall state expressly the percentage
of the aggregate principal amount of the outstanding Notes which shall
constitute a quorum.
(c) At a meeting or an adjourned meeting duly convened and at which a
quorum is present as aforesaid, any resolution to amend, or to waive compliance
with, any of the covenants or conditions referred to above shall be effectively
passed and/or decided by the persons entitled to vote the lesser of (i) a
majority in principal amount of the Notes then outstanding and (ii) 75% in
principal amount of the Notes represented and voting at the meeting. Any holder
of Notes who has executed an instrument in writing appointing a person as proxy
shall be deemed to be present for the purposes of determining a quorum and be
deemed to have voted if such person duly appointed as proxy is present and has
voted; provided that such holder of Notes shall be considered as present for the
purposes of determining a quorum or voting only with respect to the matters
covered by such instrument in writing. Any resolution passed or decision taken
at any meeting of holders of Notes duly held in accordance with this Section
shall be binding on all the holders of Notes whether or not present or
represented at the meeting.
(d) The holding of Notes shall be proved by the production of such
Notes or by a certificate, satisfactory to the Company, executed by any bank,
banker, trust company or recognized securities dealer, wherever situated,
satisfactory to the Company. Each such certificate shall be dated and shall
state that on the date thereof a Note bearing a specified serial number was
deposited with or exhibited to such bank, banker, trust company, or recognized
securities dealer by the person named in such certificate. Any such certificate
may be issued in respect of one or more Notes specified therein. The holding by
the person named in any such certificate of any Note specified therein shall be
presumed to continue for a period of one year from the date of such certificate
unless at the time of any determination of such holding (i) another certificate
bearing a later date issued in respect to the same Note shall be produced, (ii)
the Note specified in such certificate shall be produced by some other person or
(iii) the Notes specified in such certificate shall have ceased to be
outstanding. The appointment of any proxy shall be proved by having the
signature of the person executing the proxy guaranteed by any bank, banker,
trust company or London or New York Stock Exchange member firm satisfactory to
the Company.
(e) The Company shall appoint a temporary chairman of the meeting. A
permanent chairman and a permanent secretary of the meeting shall be elected by
vote of the holders of a majority in principal amount of the Notes represented
at the meeting. At any such meeting each holder of Notes or proxy shall be
entitled to one vote for each U.S. $1,000 principal amount of Notes held or
represented by him; provided that no vote shall be cast or counted at any
meeting in respect of any Note challenged as not outstanding and ruled by the
chairman of the meeting to be not outstanding. The chairman of the meeting shall
have no right to vote except as a holder of Notes or proxy. Any meeting of
holders of Notes duly called at which a quorum is present may be adjourned from
time to time, and the meeting be held as so adjourned without further notice.
(f) The vote upon any resolution submitted to any meeting of holders of
Notes shall be by written ballot on which shall be subscribed the signatures of
the holders of Notes or proxies and on which shall be inscribed the serial
number or numbers of the Notes held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of holders of Notes shall be prepared by the
secretary of the meeting and there shall be attached to said record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more persons having knowledge of the facts setting forth a
copy of the notice of the meeting and showing that said notice was published as
provided above. The record shall be signed and verified by the permanent
chairman and secretary of the meeting and one of the duplicates shall be
delivered to the Company and the other duplicate to the Fiscal Agent to be
preserved by the Fiscal Agent, the latter to
10
<PAGE> 12
have attached thereto the ballots voted at the meeting. Any record so signed and
verified shall be conclusive evidence of the matters therein stated.
(g) Notwithstanding anything to the contrary contained in Section 14(a)
above, this Agreement and the Notes (including the Conditions) may be amended by
the Company and the Fiscal Agent without the consent of any Noteholders or
Couponholders, for the purpose of (i) adding to the covenants of the Company for
the benefit of the holders of Notes or Coupons, (ii) surrendering any right or
power conferred upon the Company, (iii) permitting payment of principal and
interest on Notes or Coupons in the United States to the extent then permitted
under applicable regulations of the United States Treasury Department and
provided no adverse tax consequences would result to the Noteholders or
Couponholders, as the case may be, (iv) evidencing the succession of a
corporation or other person to the Company and the assumption by such successor
of the covenants and obligations of the Company in this Agreement and the Notes
(including the Conditions) or (v) correcting or supplementing any provision
contained herein or therein.
Section 15. Permitted Consolidations of the Company.
(a) If at any time there shall be a merger, consolidation or sale of
assets to which any of the covenants contained in Section 4 of the Conditions
are applicable, then in any such event the successor or assuming corporation
referred to therein will promptly deliver to the Fiscal Agent:
(i) A certificate signed by an executive officer of such
successor or assuming corporation stating that as of the time
immediately after the effective date of any such transaction the
covenants of the Company contained in Section 4 of the Conditions have
been complied with; and
(ii) A written opinion of legal counsel (who may be an
employee of or counsel to the successor or assuming corporation)
stating that in such counsel's opinion such covenants have been
complied with and that any instrument or instruments executed in the
performance of such covenants comply with the requirements thereof.
In case of any such merger, consolidation, sale or conveyance, such
successor or assuming corporation shall succeed to and be substituted for the
Company, with the same effect as if it had been named herein and in the
Conditions as the Company; the Company shall thereupon be relieved of any
further obligation or liability hereunder or upon the Notes and the Company as
the predecessor corporation may thereupon or at any time thereafter be
dissolved, wound up or liquidated. Any such successor or assuming corporation
thereupon may cause to be signed and may issue either in its own name or in the
name of the Company any or all of the Notes issuable hereunder which theretofore
shall not have been executed on behalf of the Company and delivered to the
Fiscal Agent; and upon the order of such successor or assuming corporation,
instead of the Company, and subject to all the terms, conditions and limitations
in this Agreement prescribed, the Fiscal Agent shall authenticate and shall
deliver any Notes which previously shall have been signed and delivered by the
officers of the Company to the Fiscal Agent for authentication, and any Notes
which such successor or assuming corporation thereafter shall cause to be signed
and delivered to the Fiscal Agent for that purpose. All the Notes so issued
shall in all respects have the same legal rank and benefit under this Agreement
as the Notes theretofore or thereafter issued in accordance with the terms of
this Agreement as though all of such Notes had been issued at the date of the
execution hereof.
In case of any merger, consolidation, sale or conveyance, such changes
in phraseology and form (but not in substance) may be made in the Notes
thereafter to be issued as may be deemed appropriate by the successor or
assuming corporation.
(b) The Fiscal Agent, subject to the provisions of Sections 10(b) and
10(c), may rely on the documents delivered pursuant to this Agreement by any
successor or assuming corporation pursuant to this Section 15 as conclusive
evidence that any such merger, consolidation, sale or conveyance complies with
the provisions of this Section and the Notes.
11
<PAGE> 13
Section 16. Governing Law and Jurisdiction
(a) This Agreement and the Notes shall be construed in accordance with
and governed by the laws of the State of New York.
(b) The Company hereby irrevocably submits to the non-exclusive
jurisdiction of any New York State or United States Federal court sitting in The
City and County of New York over any suit, action or proceeding arising out of
or related to this Agreement or any Notes. The Company irrevocably waives, to
the fullest extent permitted by law, any objection which it may have to the
laying of the venue of any such suit, action or proceeding brought in such a
court and any claim that any such suit, action or proceeding brought in such a
court has been brought in an inconvenient forum. The Company agrees that final
judgment in any such suit, action or proceeding brought in such a court shall be
conclusive and binding upon the Company and may be enforced in any court to the
jurisdiction of which the Company is subject by a suit upon such judgment;
provided that service of process is effected upon the Company in the manner
specified in the following paragraph or as otherwise permitted by law.
(c) As long as any of the Notes remain outstanding, the Company will at
all times have an authorized agent in The City of New York, upon whom process
may be served in any legal action or proceeding arising out of or relating to
this Agreement or any Notes. Service of process upon such agent and written
notice of such service mailed or delivered to the Company shall to the extent
permitted by law be deemed in every respect effective service of process upon
the Company in any such legal action or proceeding. The Company has appointed CT
Corporation System as its agent for such purpose, and covenants and agrees that
service of process in any legal action or proceeding may be made upon it at the
office of such agent at 1633 Broadway, New York, New York 10019 (or at such
other address or, at the office of such other authorized agent as the Company
may designate by written notice to the Fiscal Agent), with a copy to the Company
at the address for notices set forth in Section 13 hereof; provided that failure
to deliver any such copy to the Company shall not affect the validity or
effectiveness of any such service of process.
Section 17. Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall constitute an original, but all of which shall constitute one and
the same instrument.
Section 18. Interpretation; Index to Certain Definitions.
(a) Unless the context requires otherwise, each reference in this
Agreement to a Section, Exhibit or Schedule shall be deemed to be a reference to
such Section, Exhibit or Schedule of or to this Agreement, and the word "herein"
and words of like import shall refer to this Agreement as a whole.
(b) Definitions of the following terms for purposes of this Agreement
and the Notes are found where indicated for each below:
Additional Amounts - Section 1(d) and Condition 6
Agreement - preamble
Business Day - Condition 5
Cedel Bank - Exhibit A and Condition 1
Closing Date - Section 1(c)
Common Depositary - Exhibit A
Company - preamble, Exhibits A and B
Conditions - Section 1(a) and Exhibit A
Couponholder - preamble to the Conditions
Coupons - Section 1(a) and Condition 1
12
<PAGE> 14
Euroclear - Exhibit A and Condition 1
Event of Default - Condition 9
Fiscal Agency Agreement - Exhibits A and B
Fiscal Agent - Section 1(b) and preamble to the Conditions
Interest Payment Date - Condition 5
Issue Date - Condition 5
Noteholder - preamble to the Conditions
Notes - Section 1(a) and Exhibits A and B
Paying Agents - Section 1(b)
Payment Date - Section 2(a)
Rate of Interest - Condition 5
Replacement Agent - Section 6
Restricted Period Expiration Date - Section 1(d) and Exhibit A
Temporary Global Note - Section 1(a) and Condition 1
United States - Section 2(g), Exhibit E and Condition 6
13
<PAGE> 15
IN WITNESS WHEREOF this Fiscal Agency Agreement has been entered into
on the day and year first above written.
<TABLE>
<S> <C>
Address: KELLOGG COMPANY
One Kellogg Square
Battle Creek, Michigan 49016-3599 By:____________________________________________________
Attention: General Counsel Senior Vice President - Administration
Telephone: 616-961-2000 and Chief Financial Officer
Fax: 616-961-3276
Telex: 224454
Address: CITIBANK, N.A.,
as Fiscal Agent and Principal Paying Agent
336 Strand
London WC2R 1HB, England
Attention: Bond Agency By:____________________________________________________
Telephone: 011-44-171-500-1013 Authorized Signatory
Fax: 011-44-171-500-0890
Telex: 896581 GCN LON J S
Address: CITIBANK, N.A., BRUSSELS BRANCH,
as Paying Agent
Boulevard General Jacques, 263g
B-1050 Brussels
Attention: ___________________ By:____________________________________________________
Telephone: 00-322-626-5111 Authorized Signatory
Facsimile: 00-322-626-5572
Telex: __________________
Address: CITIBANK (LUXEMBOURG) S.A.,
as Paying Agent
P.O. Box 1373
58 Boulevard Grande-Duchesse Charlotte
L-1330 Luxembourg
Attention: ___________________ By:____________________________________________________
Telephone: 00-352-44-22-4060 Authorized Signatory
Facsimile: 00-352-44-22-4070
Telex: 2588 CITIC LU
</TABLE>
14
<PAGE> 16
EXHIBIT A
[FORM OF TEMPORARY GLOBAL NOTE]
KELLOGG COMPANY
U.S. $500,000,000 6 5/8% NOTES DUE JANUARY 29, 2004
This Note is a Temporary Global Note without interest coupons ("Coupons")
in respect of a duly authorized issue by Kellogg Company (the "Company," which
term shall include any successor corporation) of notes, designated as specified
in the title hereof (the "Notes"), in the aggregate principal amount of FIVE
HUNDRED MILLION UNITED STATES DOLLARS. The Notes are issued with the benefit of
a Fiscal Agency Agreement, dated as of January 29, 1997 (the "Fiscal Agency
Agreement"), between the Company and Citibank, N.A., as Fiscal Agent, and the
Paying Agents named therein. This Temporary Global Note is issued subject to the
Fiscal Agency Agreement and the Terms and Conditions (the "Conditions") attached
hereto.
The Company, for value received, hereby promises to pay to the bearer upon
presentation and surrender hereof at the office of the Fiscal Agent specified in
the Fiscal Agency Agreement on January 29, 2004, or on such earlier date as such
sum may become repayable in accordance with the Conditions, the principal sum of
FIVE HUNDRED MILLION UNITED STATES DOLLARS (U.S. $500,000,000), or such lesser
amount as shall be the outstanding principal amount hereof after deduction of
the aggregate principal amount of definitive Notes issued in exchange for a
portion or portions hereof, and will pay interest on the said principal sum in
accordance with Section 5 of the Conditions from January 29, 1997 in arrear on
each Interest Payment Date, together with such additional amounts (if any) as
may be payable under Section 8 of the Conditions, subject to and in accordance
with the Conditions.
This Temporary Global Note will be deposited with Citibank, N.A., as
common depositary (the "Common Depositary") on behalf of Morgan Guaranty Trust
Company of New York (Brussels Office), as operator of the Euroclear System
("Euroclear"), and Cedel Bank, S.A. ("Cedel Bank") for credit to the respective
accounts of Euroclear and Cedel Bank (or to such other accounts as Euroclear or
Cedel Bank may have directed). The principal amount of this Temporary Global
Note shall be reduced on exchange for definitive Notes by endorsement by the
Fiscal Agent as specified below.
On and after the Restricted Period Expiration Date (as defined below)
Cedel Bank or Euroclear may present to the Fiscal Agent one or more certificates
signed by Cedel Bank or Euroclear, as the case may be, dated not earlier than
the Restricted Period Expiration Date, substantially in the form of Exhibit D to
the Fiscal Agency Agreement with respect to all or a portion of the principal
amount of this Temporary Global Note, whereupon the Fiscal Agent will endorse on
Schedule II hereto as a subtraction the amount of the portion of this Temporary
Global Note in respect of which such certificates have been received in
exchange, outside the United States, for definitive Notes.
Each of Cedel Bank and Euroclear has agreed with the Company that upon the
request of an account holder of a portion of this Temporary Global Note for the
exchange of some or all of such portion of this Temporary Global Note for a
corresponding aggregate amount of definitive Notes, accompanied by a certificate
or certificates substantially in the form of Exhibit E to the Fiscal Agency
Agreement and dated not earlier than 15 days prior to the date of the
certificate of Euroclear or Cedel Bank to which such certificate relates, it
will deliver to the Fiscal Agent the certificate substantially in the form of
Exhibit D to the Fiscal Agency Agreement in respect of such portion of this
Temporary Global Note (but only to the extent that the certificate of such
account holder has not been modified by subsequent communications).
Each of Cedel Bank and Euroclear has further agreed with the Company that upon
request of an account holder of a portion of this Temporary Global Note for the
exchange of some or all of such portion, it will request from the Fiscal
Exhibit A, Page 1
<PAGE> 17
Agent (as provided above) and cause to be delivered, in full or partial exchange
for this Temporary Global Note, definitive Notes in the aggregate principal
amount requested to be exchanged.
Upon any exchange of a part of this Temporary Global Note for definitive
Notes, the portion of the principal amount hereof so exchanged shall be endorsed
by the Fiscal Agent on Schedule II hereto. The principal amount hereof shall be
reduced for all purposes by the amount so exchanged and endorsed.
For the purposes hereof, "Restricted Period Expiration Date" shall mean
the date which is 40 days after the Closing Date.
Until the entire principal amount of this Temporary Global Note has been
exchanged for definitive Notes, holders of beneficial interests in this
Temporary Global Note shall in all respects be entitled to the same benefits and
subject to the same terms and conditions as, a holder of definitive Notes for
which such interests could be exchanged, except that the holder hereof shall not
be entitled to receive payments of principal of, or interest or Additional
Amounts (if any) on, this Temporary Global Note, except as provided in the
Fiscal Agency Agreement and in this Temporary Global Note.
All terms used in this Temporary Global Note which are defined in the
Fiscal Agency Agreement, the Conditions or the definitive Notes shall, unless
otherwise defined herein, have the meanings assigned to them therein.
Unless the certificate of authentication hereon has been executed by the
Fiscal Agent in accordance with the Fiscal Agency Agreement, this Temporary
Global Note shall not be valid or obligatory for any purpose.
This Temporary Global Note is governed by and shall be construed in
accordance with the laws of the State of New York, United States of America.
Exhibit A, Page 2
<PAGE> 18
IN WITNESS WHEREOF the Company has caused this Temporary Global Note to be
signed on its behalf by its duly authorized officer.
<TABLE>
<S> <C>
Dated: January 29, 1997 KELLOGG COMPANY
[SEAL]
ATTEST: By:____________________________________________________
Name: John R. Hinton
Title: Senior Vice President - Administration
and Chief Financial Officer
By:______________________________________
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is the Temporary Global Note described in
the within-mentioned Fiscal Agency Agreement
CITIBANK, N.A.,
as Fiscal Agent
By:_____________________________________
Authorized Officer
</TABLE>
Exhibit A, Page 3
<PAGE> 19
SCHEDULE I
THE COMPANY
KELLOGG COMPANY
One Kellogg Square
Battle Creek, Michigan 49016-3599
U.S.A.
FISCAL AGENT AND PRINCIPAL PAYING AGENT
CITIBANK, N.A.
336 Strand
London WC2R 1HB
PAYING AGENTS
CITIBANK (LUXEMBOURG) S.A.
P.O. Box 1373
58 Boulevard Grande-Duchesse Charlotte
L-1330 Luxembourg
CITIBANK, N.A.
BRUSSELS BRANCH
Boulevard General Jacques, 23g
B-1050 Brussels
Exhibit A, Page 4
<PAGE> 20
SCHEDULE II
EXCHANGES FOR DEFINITIVE NOTES
The following exchanges of a part of this Temporary Global Note for
Definitive Notes have been made:
<TABLE>
<CAPTION>
Remaining principal
Principal amount amount Notation made
exchanged for following on behalf of
Date Made Definitive Notes such exchange the Fiscal Agent
<S> <C> <C> <C>
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</TABLE>
Exhibit A, Page 5
<PAGE> 21
EXHIBIT B
[FORM OF DEFINITIVE NOTE]
THIS OBLIGATION HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN CONTRAVENTION OF THAT
ACT. ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) and 1287(a) OF THE UNITED STATES INTERNAL REVENUE
CODE.
No. ISIN No. XS0072952434
[U.S. $1,000][U.S. $10,000][U.S. $100,000]
KELLOGG COMPANY
U.S. $500,000,000 6 5/8% NOTES DUE JANUARY 29, 2004
Kellogg Company, a Delaware corporation (the "Company," which term shall
include any successor corporation), for value received hereby promises to pay to
the bearer upon surrender hereof the principal sum of [ONE THOUSAND] [TEN
THOUSAND] [ONE HUNDRED THOUSAND] UNITED STATES DOLLARS [U.S. $1,000] [U.S.
$10,000] [U.S. $100,000] on January 29, 2004 and to pay interest thereon, from
the date hereof, in arrears on January 29 in each year ("Interest Payment
Date"), commencing January 29, 1998 at the rate of 6 5/8% per annum until the
principal hereof is paid or made available for payment but only upon presentment
and surrender of interest coupons attached hereto as they severally mature.
This Note is issued with the benefit of a Fiscal Agency Agreement, dated
as of January 29, 1997 (the "Fiscal Agency Agreement"), between the Company and
Citibank, N.A., as Fiscal Agent, and the Paying Agents named therein. This Note
is issued subject to the Fiscal Agency Agreement and the Terms and Conditions
(the "Conditions") attached hereto. All terms used in this Note which are
defined in the Fiscal Agency Agreement or the Conditions shall, unless otherwise
defined herein, have the meanings assigned to them therein.
Neither this Note nor any Coupon attached hereto shall become valid or
obligatory for any purpose until the certificate of authentication hereon shall
have been duly signed by the Fiscal Agent or an agent thereof acting under the
Fiscal Agency Agreement.
This Note is governed by and shall be construed in accordance with the
laws of the State of New York, United States of America.
Exhibit B, Page 1
<PAGE> 22
IN WITNESS WHEREOF, the Company has caused this Note and the Coupons
appertaining hereto to be signed in facsimile on its behalf.
Dated: KELLOGG COMPANY
[SEAL]
ATTEST: By:____________________________
Name:
Title:
By:_____________________________________
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the definitive Notes
referred to in the within-mentioned Fiscal
Agency Agreement.
CITIBANK, N.A.,
as Fiscal Agent
By:_____________________________________
Authorized Officer
Exhibit B, Page 2
<PAGE> 23
SCHEDULE I
THE COMPANY
KELLOGG COMPANY
One Kellogg Square
Battle Creek, Michigan 49016-3599
U.S.A.
FISCAL AGENT AND PRINCIPAL PAYING AGENT
CITIBANK, N.A.
336 Strand
London WC2R 1HB
PAYING AGENTS
CITIBANK (LUXEMBOURG) S.A.
P.O. Box 1373
58 Boulevard Grande-Duchesse Charlotte
L-1330 Luxembourg
CITIBANK, N.A.
BRUSSELS BRANCH
Boulevard General Jacques, 263g
B-1050 Brussels
Exhibit B, Page 3
<PAGE> 24
[FORM OF FACE OF COUPON]
THIS OBLIGATION HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN CONTRAVENTION OF THAT
ACT. ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO THE
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE UNITED STATES INTERNAL REVENUE
CODE.
[U.S. $66.25][U.S. $662.50][U.S. $6,625.00]
Due January 29, ___
KELLOGG COMPANY
U.S. $500,000,000 6 5/8% NOTES DUE JANUARY 29, 2004
Unless the Note to which this Coupon appertains has been called for
previous redemption and payment thereof duly provided for, Kellogg Company, a
Delaware corporation (the "Company," which term shall include any successor
corporation), on the date set forth hereon, will pay to bearer (subject to the
Terms and Conditions (the "Conditions") of the Notes, which shall be binding
upon the holder of this Coupon whether or not it is for the time being attached
to the Note), upon surrender hereof at the offices of the Paying Agents set
forth on the reverse hereof (and/or any other Paying Agents and/or specified
offices as may from time to time be duly appointed and notified to the holders
of the Notes) the sum of __________________ UNITED STATES DOLLARS (U.S.
$_______).
Under the Conditions, the Note may, in certain circumstances, become due
and payable before the maturity date of this Coupon. In any such event, this
Coupon shall become void and no payment shall be made in respect thereof.
Kellogg Company
By:______________________________________
Name:
Title:
[REVERSE OF COUPON]
PAYING AGENTS
<TABLE>
<S> <C> <C>
CITIBANK, N.A. CITIBANK (LUXEMBOURG) S.A. CITIBANK, N.A.
336 Strand P.O. Box 1373 BRUSSELS BRANCH
London WC2R 1HB 58 Boulevard Grande-Duchesse Charlotte Boulevard General
L-1330 Luxembourg Jacques, 263g
B-1050 Brussels
</TABLE>
Exhibit B, Page 4
<PAGE> 25
EXHIBIT C
TERMS AND CONDITIONS OF THE NOTES
The U.S. $500,000,000 6 5/8% Notes due January 29, 2004 (the "Notes") have
been issued under a Fiscal Agency Agreement, dated as of January 29, 1997 (the
"Fiscal Agency Agreement"), between Kellogg Company (the "Company"), Citibank,
N.A., as fiscal agent (the "Fiscal Agent," which expression shall include any
successor as fiscal agent under the terms of the Fiscal Agency Agreement), and
the paying agents named therein (such paying agents, the Fiscal Agent, in its
capacity as principal paying agent, and any successor or additional paying
agents appointed pursuant to the Fiscal Agency Agreement are referred to
collectively herein as the "Paying Agents"). Certain statements herein are a
summary of, and are subject to the detailed provisions of, the Fiscal Agency
Agreement. The Fiscal Agency Agreement contains provisions which are expressed
to be for the benefit of the holders of the Notes (the "Noteholders") and of the
coupons attached thereto (the "Couponholders") and such provisions shall be
deemed to be incorporated in these Conditions. Copies of the Fiscal Agency
Agreement are available for inspection at the offices of the Fiscal Agent and
the Paying Agents specified on Schedule I hereto (or, in the case of any
successor Fiscal Agent or Paying Agent, identified in the notification to
Noteholders of the appointment of such successor in accordance with Section 11
of the Conditions). The Noteholders and the Couponholders will be deemed to have
notice of and be bound by all the provisions contained in the Fiscal Agency
Agreement.
Section 1. Delivery, Form and Denomination.
The Notes will initially be represented by a single temporary global note
(the "Temporary Global Note"), without interest coupons (the "Coupons"), which
will be deposited with Citibank, N.A, as common depositary (the "Common
Depositary") for Morgan Guaranty Trust Company of New York, Brussels Office, as
the operator of the Euroclear System ("Euroclear"), and Cedel Bank, S.A. ("Cedel
Bank"). The beneficial interests in the Temporary Global Note will be
exchangeable for definitive Notes, with Coupons, upon and to the extent that the
certification requirements set forth in the Fiscal Agency Agreement have been
complied with. Certain details as to procedures and prerequisites for owners of
beneficial interests in the Temporary Global Note to exchange such interests for
definitive Notes are set forth in the Temporary Global Note and the Fiscal
Agency Agreement. Any definitive Notes issued in exchange for such interests
will be in bearer form only in denominations of U.S. $1,000, U.S. $10,000 and
U.S. $100,000 with Coupons attached thereto, and title to such definitive Notes
and Coupons will pass upon delivery.
Each definitive Note and Coupon will carry substantially the following
legend:
"This obligation has not been registered under the United States
Securities Act of 1933, as amended, and may not be offered or sold in
contravention of that Act. Any United States person who holds this obligation
will be subject to limitations under the United States income tax laws,
including the limitations provided in Sections 165(j) and 1287(a) of the United
States Internal Revenue Code."
Section 2. Status.
The Notes constitute direct, unconditional and unsecured obligations of
the Company and will at all times rank equally among themselves and equally
(subject to such obligations as are mandatorily preferred by law) with all other
present and future unsecured and unsubordinated obligations of the Company.
Neither the Fiscal Agency Agreement nor the Notes limit other indebtedness or
securities which may be incurred or issued by the Company. The Fiscal Agency
Agreement and the Notes contain only the financial or similar restrictions on
the Company set forth below in these Conditions. The Company may, without the
consent of the holders of the Notes and Coupons, issue from time to time
additional Notes under the Fiscal Agency Agreement which will be treated as a
single series with the Notes.
Section 3. Limitations upon Liens.
Exhibit C, Page 1
<PAGE> 26
(a) The Company will not, nor will it permit any Restricted
Subsidiary (as defined below) to issue, assume or guarantee any indebtedness for
money borrowed (hereinafter in this Section 3 called "Debt"), secured by a
mortgage, security interest, pledge, lien or other encumbrance (mortgages,
security interests, pledges, liens and other encumbrances being hereinafter in
this Section 3 called "mortgage" or "mortgages") upon any Principal Property (as
defined below) of the Company or any Restricted Subsidiary or upon any shares of
stock or indebtedness of any Restricted Subsidiary (whether such Principal
Property, shares of stock or indebtedness are owned at the date of the Fiscal
Agency Agreement or thereafter acquired) without in any such case effectively
providing concurrently with the issuance, assumption or guaranty of any such
debt that the Notes (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 Notes and then existing or thereafter created) shall be
secured equally and ratably with (or, at the option of the Company, prior to)
such Debt so long as such Debt shall be so secured; provided, however, that the
foregoing restrictions shall not apply to Debt secured by:
(i) mortgages on property, shares of stock or indebtedness
(hereinafter in this Section 3 called "property") of any corporation
existing at the time such corporation becomes a Restricted Subsidiary;
(ii) mortgages on property existing at the time of acquisition
of the affected property by the Company or a Restricted Subsidiary, or
mortgages to secure the payment of all or any part of the purchase
price of such property upon the acquisition of such property by the
Company or a Restricted Subsidiary or to secure any Debt incurred by
the Company or a Restricted Subsidiary prior to, at the time of, or
within 360 days after the later of the acquisition, the completion of
construction (including any improvements on an existing property) or
the commencement of commercial operation of such property, which Debt
is incurred for the purpose of financing all or any part of the
purchase price thereof or construction or improvements thereon;
provided, however, that in the case of any such acquisition,
construction or improvement, the mortgage shall not apply to any
property theretofore owned by the Company or a Restricted Subsidiary,
other than, in the case of any such construction or improvement, any
real property on which the property so constructed, or the improvement,
is located which in the opinion of the Board of Directors (or duly
authorized committee thereof) was prior to such construction or
improvement, 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 to 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, however, that any such mortgages do not attach to
or 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 or any
State thereof, or any department, agency or instrumentality or
political subdivision of the United States of America or any State
thereof, or in favor of any other country or any political subdivision
thereof, or in favor of holders of securities issued by any such
entity, pursuant to any contract or statute (including, without
limitation, 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 Fiscal Agency
Agreement;
(vii) landlords' liens on fixtures located on premises leased
by the Company or a Restricted Subsidiary in the ordinary course of
business;
Exhibit C, Page 2
<PAGE> 27
(viii) mortgages on property of the Company or a Restricted
Subsidiary to secure partial, progress, advance or other payments or
any Debt incurred for the purpose of financing all or any part of the
purchase price or the cost of construction, development, or substantial
repair, alteration or improvement of the property subject to such
mortgages if the commitment for the financing is obtained not later
than one year after the later of the completion of or the placing into
operation (exclusive of test and start-up periods) of such constructed,
developed, repaired, altered or improved property;
(ix) mortgages arising in connection with contracts and
subcontracts with or made at the request of the United States of
America, or any state thereof, or any department, agency or
instrumentality of the United States of America or any state thereof;
(x) mechanics', materialmen's, carriers' or other like liens
arising in the ordinary course of business (including construction of
facilities) in respect of obligations which are not due or which are
being contested in good faith;
(xi) any mortgage arising by reason of deposits with, or the
giving of any form of security to, any governmental agency or any body
created or approved by law or governmental regulations, which is
required by law or governmental regulation as a condition to the
transaction of any business, or the exercise of any privilege,
franchise or license;
(xii) mortgages for taxes, assessments or governmental charges
or levies not yet delinquent, or mortgages for taxes, assessments or
governmental charges or levies already delinquent but the validity of
which is being contested in good faith;
(xiii) mortgages (including judgment liens) arising in
connection with legal proceedings so long as such proceedings are being
contested in good faith and, in the case of judgment liens, execution
thereon is stayed; 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;
provided, however, that the principal amount of Debt secured thereby
shall not exceed the principal amount of Debt so secured at the time of
such extension, renewal or replacement mortgage, and that such
extension, renewal or replacement mortgage shall be limited to all or a
part of the property which secured the mortgage so extended, renewed or
replaced (plus improvements on such property).
(b) Notwithstanding the foregoing provisions of this Section 3, the
Company and any one or more Restricted Subsidiaries may issue, assume or
guarantee Debt secured by mortgages which would otherwise be subject to the
foregoing restrictions in an aggregate amount which, together with all other
Debt of the Company and its Restricted Subsidiaries which (if originally issued,
assumed or guaranteed at such time) would otherwise be subject to the foregoing
restrictions (not including Debt permitted to be secured under clauses (i)
through (xiv) above), does not at the time exceed 10% of Consolidated Net
Tangible Assets (as defined below), as shown on the latest quarterly
consolidated financial statements of the Company preceding the date of
determination.
(c) The Company will not, nor will it permit any Restricted Subsidiary
to, enter into any arrangement with any person providing for the leasing by the
Company or any Restricted Subsidiary of any Principal Property of the Company or
any Restricted Subsidiary (whether such Principal Property is owned at the date
of the Fiscal Agency Agreement or thereafter acquired) (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), which
Principal Property has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such person (herein referred to as a "Sale and
Lease-Back Transaction"), unless (a) the Company or such Restricted Subsidiary
would be entitled, pursuant to the provisions of Sections 3(a) or (b), to issue,
assume or guarantee Debt secured by a mortgage upon such Principal Property at
least equal in amount to the Attributable Debt in respect of such arrangement
without
Exhibit C, Page 3
<PAGE> 28
equally and ratably securing the Notes; provided, however, that from and after
the date on which such arrangement becomes effective, the Attributable Debt in
respect of such arrangement shall be deemed for all purposes under Section 3 to
be Debt subject to the provisions of Section 3; or (b) the Company shall apply
an amount in cash equal to the Attributable Debt in respect of such arrangement
to the retirement (other than any mandatory retirement or by way of payment at
maturity), within 120 days of the effective date of any such arrangement, of
Debt of the Company or any Restricted Subsidiary (other than Debt owned by the
Company or any Restricted Subsidiary and other than Debt of the Company which is
subordinated to the Notes) which by its terms matures at or is extendible or
renewable at the option of the obligor to a date more than twelve months after
the date of the creation of such Debt.
(d) For purposes of this Section 3,
"Attributable Debt" means the present value (discounted at the actual
percentage rate inherent in a Sale and Lease-Back Transaction (as defined
below), as determined in good faith by the Company, compounded semi-annually) of
the obligation of a lessee for rental payments during the remaining term of any
lease (including any period for which such lease has been extended). Such rental
payments shall not include amounts payable by the lessee for maintenance and
repairs, insurance, taxes, assessments and similar charges and for contingent
rents (such as those based on sales). In case of any lease which is terminable
by the lessee upon the payment of a penalty, such rental payments shall also
include such penalty, but no rent shall be considered as required to be paid
under such lease subsequent to the first date upon which it may be so
terminated. Any determination of any actual percentage rate inherent in any such
Sale and Lease-Back Transaction made in good faith by the Company shall be
binding and conclusive.
"Consolidated Net Tangible Assets" means, as of any particular time,
the total amount of assets (less applicable reserves) after deducting therefrom
(a) all current liabilities (excluding any thereof which are by their terms
extendible or renewable at the option of the obligor thereon to a time more than
12 months after the time as of which the amount thereof is being computed and
excluding current maturities of long-term indebtedness), and (b) all goodwill,
trade names, trademarks, patents, unamortized debt discount and expense and
other like intangible assets, all as shown in the latest quarterly consolidated
balance sheet of the Company contained in the Company's then most recent annual
report to stockholders or quarterly report filed with the United States
Securities and Exchange Commission, as the case may be, except that assets shall
include an amount equal to the Attributable Debt in respect of any Sale and
Lease-Back Transaction not capitalized on such balance sheet.
"Principal Property" means 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, except any such plant or facility which
the Board of Directors (or a duly authorized committee thereof) of the Company
by resolution declares from time to time is not of material importance to the
total business conducted by the Company and its Restricted Subsidiaries as an
entirety and which, when taken together with all other plants and facilities as
to which such a declaration has been made, are so declared from time to time by
the Board of Directors (or duly authorized committee thereof) of the Company to
be not of material importance to the total business conducted by the Company and
its Restricted Subsidiaries as an entirety.
"Restricted Subsidiary" means any Subsidiary (a) substantially all of
the property of which is located within the continental United States, (b) which
owns a Principal Property, and (c) in which the Company's investment, direct or
indirect and whether in the form of equity, debt or advances, as shown on the
consolidating balance sheet used in the preparation of the latest quarterly
consolidated financial statements of the Company preceding the date of
determination, is in excess of 1% of the total consolidated assets of the
Company as shown on such quarterly consolidated financial statements; provided,
however, that the term "Restricted Subsidiary" shall not include any Subsidiary
which is principally engaged in leasing or in financing installment receivables
or which is principally engaged in financing the Company's operation outside the
continental United States of America.
"Subsidiary" means any corporation which is consolidated in the
Company's accounts and any corporation of which at least a majority of the
outstanding stock having by the terms thereof ordinary voting power to elect a
Exhibit C, Page 4
<PAGE> 29
majority of the board of directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned or controlled by the Company, or by
one or more Subsidiaries, or by the Company and one or more Subsidiaries.
Section 4. Company May Consolidate, etc., Only on Certain Terms.
(a) The Company will not merge into or consolidate with, or sell or
convey all or substantially all of its assets to, any other corporation, unless
either (A) the Company shall be the surviving corporation in the case of a
merger or (B) (I) the surviving, resulting or transferee corporation shall
expressly assume the due and punctual payment (including Additional Amounts, if
any) of all the Notes according to their tenor, and the due and punctual
performance of all of the covenants and obligations of the Company under the
Notes, the Coupons and Fiscal Agency Agreement in respect of the Notes, by
supplemental agreement reasonably satisfactory to the Fiscal Agent, (II) such
successor corporation shall agree to indemnify and hold harmless the holder of
each Note or Coupon against (y) any tax, assessment or governmental charge
imposed on such holder by a jurisdiction other than the United States of America
or any political subdivision or taxing authority thereof or therein with respect
to, and withheld on the making of, any payment of principal of or interest on
such Note (including Additional Amounts, if any, in respect thereof) and which
would have been so imposed and withheld had such merger, consolidation, sale or
conveyance not been made and (z) any tax, assessment or governmental charge
imposed on or relating to such merger, consolidation, sale or conveyance, (III)
immediately after such merger, consolidation, sale or conveyance, the Notes will
not be subject to United States Federal estate tax as a result thereof, if held
by a person who at the time of death is not a citizen or resident of the United
States of America unless such successor corporation shall have agreed, by
supplemental agreement, to indemnify the persons liable therefor for the amount
of United States Federal estate tax attributable to and paid in respect of any
Notes includable in the gross estate of a person who at the time of death is not
a citizen or resident of the United States of America and (IV) the Fiscal Agent
shall have received the documentation required in the context by the Fiscal
Agency Agreement. In calculating the amount of tax attributable to any Notes for
purposes of sub-clause (III) above in accordance with the provisions of the
United States Internal Revenue Code of 1986, the gross estate of the decedent
shall be deemed to include only Notes issued under the Fiscal Agency Agreement.
(b) Upon any merger, consolidation, sale or conveyance as provided in
Section 4(a), the successor corporation shall succeed to and be substituted for,
and may exercise every right and power of and be subject to all the obligations
of, the Company under the Notes, the Coupons and the Fiscal Agency Agreement in
respect of the Notes, with the same effect as if such successor corporation had
been named as the Company therein and herein and the Company shall be released
from its liability as obligor under the Notes, the Coupons and the Fiscal Agency
Agreement in respect of the Notes.
Section 5. Interest.
(a) Period of Accrual of Interest. The Notes will bear interest from
January 29, 1997 (the "Issue Date"). Interest on each Note will cease to accrue
from the due date for the principal thereof unless (i) the maturity of Notes has
been accelerated pursuant to Section 9 of the Conditions and/or (ii) upon due
presentation of the Note, the payment of principal is improperly withheld or
refused. In either such event, the affected Notes will continue to bear interest
at the rate of 6-5/8% per annum, after as well as before judgment, until such
Notes shall be paid in full or until the seventh day following the date on which
notice is given to the affected Noteholders to the effect that funds for the
payment of principal in respect of all outstanding Notes have been received by
the Fiscal Agent and are available for collection (provided that sufficient
funds have actually been received and are available for such purpose), whichever
is the earlier.
(b) Interest Payment Dates and Interest Periods. Interest on the Notes
is payable in arrears on January 29 of each year (commencing with January 29,
1998) or, if any such day is not a Business Day (as defined below), the
immediately following day which is a Business Day. Every day on which interest
on the Notes is payable is herein called an "Interest Payment Date." If any
Interest Payment Date would otherwise be a day which is not a
Exhibit C, Page 5
<PAGE> 30
Business Day, the Interest Payment Date shall be postponed to the next day which
is a Business Day and no additional interest shall be payable on account of such
delayed payment. As used in this Condition, "Business Day" means a day (other
than a Saturday or Sunday) on which banks are open for business in New York City
and the relevant place of payment.
(c) Coupons. Interest due on each Interest Payment Date will be paid
against presentation and surrender of the appropriate Coupons attached to the
Notes on issue as they severally mature, in accordance with Section 7 of the
Conditions.
(d) Rate of Interest. The rate at which interest shall accrue from time
to time in respect of the Notes will be 6-5/8% per annum. In the event that
interest is required to be calculated for a period of less than one year, it
will be calculated on the basis of a 360-day year consisting of 12 months of 30
days each and in the case of an incomplete month the actual number of days
elapsed.
Section 6. Redemption.
(a) Final Redemption. Except as provided below, the Notes may not be
redeemed prior to maturity. Unless previously redeemed or repurchased and
cancelled, the Notes will be payable at par on January 29, 2004 or such earlier
date on which the same shall be due and payable in accordance with the terms and
conditions of the Notes; provided that if the maturity date of the Notes is not
a Business Day, the Notes will be payable at their principal amount on the next
succeeding Business Day (and no interest shall accrue for the period from
January 29, 2004 to such payment date).
(b) Redemption for Taxation Reasons. The Company may, at its option,
redeem the Notes, as a whole but not in part, upon not more than 60 nor less
than 30 days' notice at 100% of their principal amount, together with interest
accrued to the date fixed for redemption, if (i) at any time the Company becomes
or would become obligated to pay to the holder of any Note or Coupon Additional
Amounts under Section 8 of the Conditions or (ii) on or after January 24, 1997
any action or further action shall have been taken by any taxing authority, or
any action shall have been brought in a court of competent jurisdiction, of the
United States of America or any political subdivision or taxing authority
thereof or therein, whether or not such action was taken or brought with respect
to the Company or any affiliate thereof, or any change, amendment, application,
interpretation or execution shall have been officially proposed which, in any
such case in the written opinion of independent counsel reasonably acceptable to
the Company, will result in the Company becoming obligated to pay Additional
Amounts and such obligation cannot be avoided by the Company taking reasonable
measures available to it, then the Company may, at its option, redeem the Notes,
as a whole but not in part, upon not more than 60 nor less than 30 days' notice
of 100% of their principal amount, together with interest accrued thereon to the
date fixed for redemption; provided that no such notice of redemption shall be
given earlier than 90 days prior to the earliest date on which the Company would
be obligated to pay such additional amounts were a payment in respect of the
Notes then due. Prior to the giving of notice of redemption of the Notes
pursuant to this paragraph, the Company will deliver to the Fiscal Agent (i) a
certificate setting forth a statement of facts showing that the conditions
precedent to the right to effect such redemption have occurred and (ii) a copy
of such opinion of independent counsel.
Except as set forth in the immediately succeeding paragraph, the
Company shall redeem the Notes, as a whole but not in part, upon not more than
60 nor less than 30 days' notice, at 100% of their principal amount, together
with interest accrued to the date fixed for redemption, after determining, based
on a written opinion of independent counsel reasonably acceptable to the
Company, that any certification, identification or information reporting
requirements of United States law or regulation with regard to the nationality,
residence or identity (as distinguished from status as a United States Alien (as
defined below)) of a beneficial owner who is a United States Alien of a Note or
a Coupon thereto would be applicable to a payment of principal of or interest on
a Note or a Coupon appertaining thereto made outside the United States of
America (including the States and the District of Columbia), its territories,
its possessions and other areas subject to its jurisdiction (the "United
States") by the Company or a Paying Agent as agent for the Company and not as
agent for the beneficial owner (other than a
Exhibit C, Page 6
<PAGE> 31
requirement (i) that would not be applicable to a payment made directly to the
beneficial owner, (ii) that would not be applicable to a payment made to a
custodian, nominee or other agent of the beneficial owner or (iii) that could be
satisfied by a holder who is not the beneficial owner thereof or any custodian,
nominee or other agent certifying that the beneficial owner is a United States
Alien; provided, however, in each case referred to in clause (ii) and (iii)
above, that payment by a custodian, nominee or agent (who is not under present
law subject to information reporting requirements) to the beneficial owner is
not otherwise subject to any requirement referred to in this sentence). The
Company shall notify the Fiscal Agent of such determination as soon as
practicable, stating in the notice the effective date of such certification,
identification or information reporting requirements and the dates within which
the redemption by the Company shall occur, and the Fiscal Agent shall give
prompt notice thereof in accordance with Section 11 of the Conditions. Such
redemption of the Notes must take place on a date specified by the Company, such
date to be not later than one year after the publication of the initial notice
of the Company's determination of such certification, identification or
information reporting requirements. The Company shall not so redeem the Notes,
however, if the Company, based on a written opinion of independent counsel
reasonably acceptable to the Company, shall determine, not less than 30 days
prior to the date fixed for redemption or purchase, as the case may be, that no
payment in respect of the Notes would be subject to any requirement described
above, in which case the Company shall notify the Fiscal Agent, which shall give
prompt notice of that determination in accordance with Section 11 of the
Conditions, and any earlier redemption notice under this paragraph shall be
revoked and of no further effect.
Notwithstanding the immediately preceding paragraph, if and so long as
the certification, identification or information reporting requirements referred
to therein would be fully satisfied with respect to the Notes by payment of
United States withholding, backup withholding or a similar tax, the Company may
elect, prior to the giving of notice of redemption, to have the provisions of
this paragraph apply in lieu of the provisions of the immediately preceding
paragraph. In that event, the Company will pay such Additional Amounts as are
necessary in order that, following the effect the date of such requirements,
every net payment made outside the United States by the Company or a Paying
Agent of the principal of and interest on a Note or a Coupon appertaining
thereto to a holder who is a United States Alien (but without any requirement
that the nationality, residence or identity (as distinguished from status as a
United States Alien) of the beneficial owner be disclosed to the Company, any
Paying Agent or any United States governmental authority), after deduction for
United States withholding, backup withholding or similar tax (other than a
withholding, backup withholding or similar tax which would not be applicable in
the circumstances referred to in the fourth parenthetical clause of the first
sentence of such immediately preceding paragraph) but before deduction or
withholding on account of tax, assessment or other governmental charge described
in (a), (b), (c), (d), (e), (f), (g) or (h) of Section 8 of the Conditions, will
not be less than the amount provided in the Note or the Coupon to be then due
and payable. If the Company elects to pay such Additional Amounts and as long as
it is obligated to pay such Additional Amounts, the Company may subsequently
redeem the Notes, at any time, as a whole but not in part, upon not more than 60
nor less than 30 days' notice, at 100% of their principal amount, plus accrued
interest to the date fixed for redemption (without reduction for applicable
withholding taxes).
Notice of its election or obligation to redeem Notes pursuant to this
clause (b) shall be given to holders of Notes by the Company by publication at
least twice in the manner required by Section 11 of the Conditions, the first
such publication and such mailing to be not more than 60 days nor less than 30
days prior to the date fixed for redemption.
(c) Requirements as to Notices of Redemption by Company. Neither the
failure to give notice nor any defect in any notice given to any particular
holder of a Note shall affect the sufficiency of any notice with respect to
other Notes. Notices to redeem Notes shall specify the date fixed for
redemption, the redemption price, the place or places of payment, that payment
will be made upon presentation and surrender of the Notes to be redeemed,
together with all appurtenant Coupons, if any, maturing subsequent to the date
fixed for redemption, that interest accrued to the date fixed for redemption
(unless the redemption date is an Interest Payment Date) will be paid as
specified in said notice, and that on and after said date interest on the Notes
so to be redeemed will cease to accrue. Such notice shall also state that the
conditions precedent to such redemption have occurred and state the amount of
Notes to be redeemed or purchased.
Exhibit C, Page 7
<PAGE> 32
(d) Cancellation. All Notes redeemed pursuant to this Section 6 of the
Conditions will be forthwith cancelled (together with all unmatured Coupons
appertaining thereto) and may not be reissued or resold.
Section 7. Payments.
Payments of principal and interest will be, made against surrender of
the Notes or Coupons, as the case may be, at the offices of any of the Paying
Agents specified in the preamble to these Conditions, subject in each case to
any applicable laws or regulations. Such payments will be made, at the option of
the holder, by a United States dollar check, or by a transfer to a United States
dollar account maintained by the payee with a bank outside the United States. No
payment on any Note or Coupon will be made at any office of the Fiscal Agent or
any other Paying Agents maintained by the Company in the United States nor will
any payment be made by transfer to an account in, or by mail to an address in,
the United States.
The Company has initially appointed the Paying Agents specified on
Schedule I hereto. The Company agrees that, so long as any of the Notes are
outstanding, it will maintain a paying agent outside the United States, and so
long as the Notes are listed on the Luxembourg Stock Exchange and the Luxembourg
Stock Exchange shall so require, it will maintain a paying agent in Luxembourg,
for payments with respect to definitive Notes and the Coupons appertaining
thereto and where the definitive Notes may be presented or surrendered for
exchange and where notices and demands to or upon the Company in respect of the
Notes, the Coupons and the Fiscal Agency Agreement may be served. The Company
may with the approval of the Fiscal Agent change any of Paying Agents or their
specified offices. Notice of any change in the Paying Agents or in their
specified offices will be given to the Noteholders in accordance with the
provisions of Section 11 of the Conditions.
Except as ordered by a court of competent jurisdiction or as required
by law, the Paying Agents, the Fiscal Agent and the Company shall be entitled,
notwithstanding any notice to the contrary, to treat the bearer of any Note or
Coupon as the absolute owner thereof (whether or not such Note or Coupon shall
be overdue and notwithstanding any notation of ownership or other writing
thereon) for the purpose of receiving payment when due in full or in part and
for all other purposes and shall not be required to obtain any proof thereof or
as to the identity of the bearer.
In the case of the redemption of any Note prior to maturity, the Note
shall be presented for payment together with all unmatured Coupons appertaining
to that Note; failing presentation of all such Coupons, the payment of principal
will only be made against the Noteholder giving such indemnity and providing
such other documents in respect of the missing unmatured Coupons as the Company
may require. In the case of any such redemption, the unmatured Coupons (if any)
appertaining thereto shall become void and no payment shall be due in respect
thereof.
If the due date for redemption of any Note is not an Interest Payment
Date, the interest accrued from the preceding Interest Payment Date (or from the
Issue Date, as the case may be) shall be payable only against surrender of the
relevant Note.
All monies paid by the Company to the Fiscal Agent for payment of the
principal of or interest on any Note and remaining unclaimed for two years after
such payment has been made shall be repaid to the Company, and to the extent
permitted by law, the holder of such Note thereafter may look only to the
Company for payment as a general unsecured creditor thereof. Subject to
applicable laws and regulations, any payment that will be made by the Company
under this paragraph with respect to Notes will be made outside the United
States.
Section 8. Payment of Additional Amounts.
The Company will pay as additional interest on the Notes or Coupons to
the holder of any Note or Coupon who is a United States Alien (as defined below)
such Additional Amounts as may be necessary in order that every net payment by
the Company or any Paying Agent of the principal of or interest on such Note or
Coupons (including upon redemption), after deduction or withholding for or on
account of any present or future tax, assessment or other governmental charge
imposed upon or as a result of such payment by the United States or any
political subdivision or
Exhibit C, Page 8
<PAGE> 33
taxing authority thereof or therein, will not be less than the amount provided
for in such Note or in such Coupon to be then due and payable before any such
tax, assessment or other governmental charge; provided, however, that the
foregoing obligation to pay Additional Amounts shall not apply to:
(a) any tax, assessment or other governmental charge which
would not have been so imposed but for (i) the existence of any present
or former connection between such holder (or between a fiduciary,
settlor, beneficiary, member or shareholder of, or a person having a
power over, such holder, if such holder is an estate, a trust, a
partnership or a corporation) and the United States, including, without
limitation, such holder (or such fiduciary, settlor, beneficiary,
member, shareholder or person having such a power) being or having been
a citizen or resident or treated as a resident thereof or being or
having been engaged in a trade or business therein or being or having
been present therein or having or having had a permanent establishment
therein, (ii) the failure of such holder to comply with any requirement
under United States income tax laws or regulations to establish
entitlement to exemption from such tax, assessment or other
governmental charge, (iii) such holder's present or former status as a
personal holding company or a foreign personal holding company with
respect to the United States, as a controlled foreign corporation with
respect to the United States, as a passive foreign investment company
with respect to the United States, as a foreign tax exempt organization
with respect to the United States or as a corporation which accumulates
earnings to avoid United States Federal income tax, or (iv) payment
being made in the United States;
(b) any tax, assessment or other governmental charge imposed
by reason of the holder (i) owning or having owned, directly or
indirectly, actually or constructively, 10% or more of the total
combined voting power of all classes of stock of the Company, (ii)
being a bank receiving interest described in Section 881(c)(3)(A) of
the United States Internal Revenue Code of 1986, as amended, or (iii)
being a controlled foreign corporation with respect to the United
States that is related to the Company by stock ownership;
(c) any tax, assessment or other governmental charge which
would not have been so imposed but for the presentation by the holder
of such Note or Coupon for payment on a date more than 10 days after
the date on which such payment became due and payable or the date on
which payment thereof is duly provided for and notice is given to
holders, whichever occurs later;
(d) any estate, inheritance, gift, sales, transfer, personal
property, wealth, interest equalization or any similar tax, assessment
or governmental charge;
(e) any tax, assessment, or other governmental charge which is
payable otherwise than by withholding from payment of principal of or
interest on such Note or Coupon;
(f) any tax, assessment or other governmental charge which is
payable by a holder that is not the beneficial owner of such Note or
Coupon, or a portion of either, or that is a foreign partnership, but
only to the extent that a beneficial owner or member of the partnership
would not have been entitled to the payment of an Additional Amount had
the beneficial owner or member received directly its beneficial or
distributive share of the payment;
(g) any tax, assessment or other governmental charge required
to be withheld by any Paying Agent from any payment of principal of or
interest on any Note or Coupon, if such payment can be made without
such withholding by any other Paying Agent; or
(h) any combination of items (a), (b), (c), (d), (e), (f) and
(g).
For purposes of the foregoing, the holding of or the receipt of any
payment with respect to a Note shall not constitute a connection between the
holder (or between a fiduciary, settlor, beneficiary, member or shareholder of,
or
Exhibit C, Page 9
<PAGE> 34
a person having a power over, such holder if such holder is an estate, a trust,
a partnership or a corporation) and the United States.
The term "United States Alien," as used herein, means any corporation,
partnership, individual or fiduciary that, as to the United States, is (i) a
foreign corporation, (ii) a nonresident alien individual, (iii) a nonresident
alien fiduciary of a foreign estate or trust, (iv) a foreign partnership one or
more of the members of which is, as to the United States, a foreign corporation,
a nonresident alien individual or a nonresident alien fiduciary of a foreign
estate or trust.
Section 9. Events of Default.
The happening of one or more of the following events shall
constitute an Event of Default:
(a) default in any payment of the principal of any Note as and
when the same shall become due and payable (whether at maturity, upon
redemption, or otherwise); or
(b) default in any payment of any installment of interest or
any required payment of any Additional Amount pursuant to Section 8
hereof on any of the Notes as and when the same shall become due and
payable and continuance of such default for a period of 30 days; or
(c) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on its part in the
Notes or in the Fiscal Agency Agreement in respect of the Notes for a
period of 90 days after the date on which written notice of such
failure requiring the Company to remedy the same shall have been given
to the Company by the holders of at least 25% in aggregate principal
amount of the Notes at the time outstanding; or
(d) the Company shall make an assignment for the benefit of
creditors, or shall file a petition in bankruptcy; or the Company shall
be adjudicated insolvent or bankrupt, or shall petition or shall apply
to any court having jurisdiction in the premises for the appointment of
a receiver, trustee, liquidator or sequestrator of, or for, the Company
or any substantial portion of the property of the Company; or the
Company shall commence any proceeding relating to the Company or any
substantial portion of the property of the Company under any
insolvency, reorganization, arrangement, or readjustment of debt,
dissolution, winding-up, adjustment, composition or liquidation law or
statute of any jurisdiction, whether in effect at the date of the
Fiscal Agency Agreement or thereafter created (hereinafter in this
subsection (d) called "Proceeding"); or if there shall be commenced
against the Company any Proceeding and an order approving the petition
shall be entered, or such Proceeding shall remain undischarged for a
period of 60 days; or receiver, trustee, liquidator or sequestrator of,
or for, the Company or any substantial portion of the property of the
Company shall be appointed and shall not be discharged within a period
of 60 days; or the Company by any act shall indicate consent to or
approval of or acquiescence in any Proceeding or the appointment of a
receiver, trustee, liquidator or sequestrator of, or for, the Company
or any substantial portion of the property of the Company; provided
that a resolution or order for winding-up the Company with a view to
its merger or consolidation with another company or the sale or
conveyance of all or substantially all of its assets to such other
company as provided in Section 6 shall not make the rights and remedies
herein enforceable under this clause (d) if such last-mentioned company
shall, as a part of such merger, consolidation, sale or conveyance, and
within 60 days from the passing of the resolution or the date of the
order, comply with the conditions to that end stated in Section 4.
If an Event of Default described in clauses (a), (b) or (d) shall occur
and be continuing, any holder of a Note may declare the principal of such Note
and the interest accrued thereon to be due and payable immediately by written
notice to the Company and the Fiscal Agent at its principal corporate trust
office in New York City, and unless such default shall have been cured by the
Company prior to receipt of such written notice, the principal of such Note and
the interest thereon shall become and be immediately due and payable. In an
Event of Default described in clauses
Exhibit C, Page 10
<PAGE> 35
(a), (b), (c) or (d) shall occur and be continuing, the holders of not less than
25% in principal amount of the Notes may declare the principal of the Notes and
the interest accrued thereon to be due and payable immediately by written notice
to the Company and the Fiscal Agent at its principal corporate trust office in
London, and unless all such defaults shall have been cured by the Company prior
to receipt of such written notice, the principal of the Notes and the interest
accrued thereon shall become and be immediately due and payable. Any Event of
Default may be waived by the holders of a majority in aggregate principal amount
of the Notes except a default in payment declared by a particular holder
pursuant to clause (a) or (b).
Section 10. Replacement of Notes and Coupons.
If any Note (including the Coupons appertaining to any Notes) is
mutilated, defaced, apparently destroyed, lost or stolen, the Company in its
discretion may execute and, upon the written request of the Company, the Fiscal
Agent will replace such Note (in such capacity, the "Replacement Agent") by
issuing a new Note upon the surrender of such mutilated or defaced Note or
delivery of satisfactory evidence of the destruction, loss or theft thereof to
the Replacement Agent. In the case of any such Note, indemnity and other
documents satisfactory to the Fiscal Agent and the Company may be required of
the holders of such Note before a replacement Note will be issued. All expenses
associated with obtaining such indemnity and in issuing the new Note shall be
borne by the holder of the mutilated, defaced, apparently destroyed, lost or
stolen Note. No such replacement Note or Coupon shall be delivered in the United
States.
Section 11. Notices.
All notices to the holders of interests in the Notes will be given by
publication at least once in a newspaper in the English language of general
circulation in London (which is expected to be the Financial Times) and, so long
as the Notes are listed on the Luxembourg Stock Exchange and the Luxembourg
Stock Exchange so requires, in a newspaper of general circulation in Luxembourg
(which is expected to be the Luxemburger Wort) or, if publication in London or
Luxembourg is not practicable, publication may be made in another principal city
in Europe in a newspaper of general circulation. Such notices will be deemed to
have been given on the date of such publication, or if published on different
dates, on the first date on which publication is made in any publication in
which it is required. Couponholders will be deemed for all purposes to have
notice of the contents of any notices given to the Noteholders in accordance
with this paragraph.
Until such time as any definitive Notes are issued, there may, so long
as the Temporary Global Note is held in its entirety on behalf of Euroclear and
Cedel Bank, be substituted for such publication in London, the delivery of the
relevant notice to Euroclear and Cedel Bank for communication by them to the
persons shown in their records as having interest in the Temporary Global Note
credited to them and any such notices will be deemed to have been given on the
seventh day after delivery to Euroclear and Cedel Bank; provided, that the
foregoing shall not relieve the Company of its obligation to publish any notices
in a newspaper of general circulation in Luxembourg so long as the Notes are
listed on the Luxembourg Stock Exchange and the Luxembourg Stock Exchange so
requires such publication.
Section 12. Meetings of the Noteholders, Modification and Waiver.
(a) Modifications and amendments to the Fiscal Agency Agreement with
respect to the Notes or to these Conditions, insofar as such modifications or
amendments affect the rights, powers, duties or obligations of the holders of
Notes, may be made, and future compliance with or past default by the Company
under any of the provisions hereof or thereof may be waived, by the holders of
the Notes, with the consent of the holders of at least a majority in aggregate
principal amount of the Notes at the time outstanding, or of such lesser
percentage as may act at a meeting of holders of Notes held in accordance with
the provisions set forth herein, to be held at such time and at such place as
the Company shall determine; provided that no such modification, amendment or
waiver may, without the consent of the holder of each such Note affected
thereby, (i) waive a default in the payment of the principal of or interest on
any such Note, or change the stated maturity of the principal of or any
instalment of interest on any such Note; (ii)
Exhibit C, Page 11
<PAGE> 36
reduce the principal amount of or the rate of interest on any such Note or
change the obligation of the Company to pay any Additional Amounts pursuant to
Section 8 hereof; (iii) change the currency of payment of principal of or
interest on any such Note; (iv) impair the right to institute suit for the
enforcement of any such payment on or with respect to any such Note; (v) reduce
the percentage of aggregate principal amount of Notes outstanding necessary to
modify or amend the Fiscal Agency Agreement or these Conditions or reduce the
percentage of votes required for the adoption of any action at a meeting of the
holders of Note; or (vi) modify the obligation of the Company to maintain an
office or agency outside the United States for the purposes specified in the
Fiscal Agency Agreement. Any modifications, amendments or waivers to the Fiscal
Agency Agreement or to these Conditions will be conclusive and binding on all
holders of the Notes, whether or not they have given such consent or were
present at such meeting, and on all holders of coupons, whether or not notation
of such modifications, amendments or waivers is made upon the Notes or Coupons,
and on all future holders of Notes and Coupons. Any instrument given by or on
behalf of any holder of a Note in connection with any consent to any such
modification, amendment or waiver will be irrevocable once given and will be
conclusive and binding on all subsequent holders of such Note.
(b) Notice of any meeting of holders of Notes, setting forth the time
and place of such meeting and in general terms the action proposed to be taken
at such meeting, shall be given in accordance with Section 11 of these
Conditions at least twice, the first publication to be not less than 20 nor more
than 180 days prior to the date fixed for the meeting. To be entitled to vote at
any meeting of holders of Notes, a person shall be (i) a holder of one or more
Notes, including a beneficial owner of an interest in the Temporary Global Note
with respect to the Notes, or (ii) a person appointed by an instrument in
writing as proxy by the holder of one or more Notes. The only persons who shall
be entitled to be present or to speak at any meeting of holders of Notes shall
be the persons entitled to vote at such meeting and their counsel and any
representatives of the Company and its counsel.
(c) The persons entitled to vote a majority in principal amount of
Notes at the time outstanding shall constitute a quorum at a meeting convened
for the purpose referred to above except as hereinafter provided. No business
shall be transacted in the absence of a quorum, unless a quorum is present when
the meeting is called to order. In the absence of a quorum, the meeting shall be
adjourned for a period of not less than 10 days as determined by the chairman of
the meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting shall be further adjourned for a period of not less than 10
days as determined by the chairman of the meeting. Notice of the reconvening of
any adjourned meeting shall be given as provided above except that such notice
need be given only once but must be given not less than five days prior to the
date on which the meeting is scheduled to be reconvened. Subject to the
foregoing, at the reconvening of any meeting further adjourned for lack of a
quorum, the persons entitled to vote 25% in principal amount of the Notes at the
time outstanding shall constitute a quorum for the taking of any action set
forth in the notice of the original meeting. Notice of the reconvening of an
adjourned meeting shall state expressly the percentage of the aggregate
principal amount of the outstanding Notes which shall constitute a quorum.
(d) At a meeting or an adjourned meeting duly convened and at which a
quorum is present as aforesaid, any resolution to amend, or to waive compliance
with, any of the covenants or conditions referred to above shall be effectively
passed and decided if passed and/or decided by the persons entitled to vote the
lesser of (i) a majority in principal amount of the Notes then outstanding and
(ii) 75% in principal amount of the Notes represented and voting at the meeting.
Any holder of Notes who has executed an instrument in writing appointing a
person as proxy shall be deemed to be present for the purposes of determining a
quorum and be deemed to have voted if such person duly appointed as proxy is
present and has voted; provided that such holder of Notes shall be considered as
present for the purposes of determining a quorum or voting only with respect to
the matters covered by such instrument in writing. Any resolution passed or
decision taken at any meeting of holders of Notes duly held in accordance with
this Section shall be binding on all the holders of Notes whether or not present
or represented at the meeting.
(e) The holding of Notes shall be proved by the production of such
Notes or by a certificate, satisfactory to the Company, executed by any bank,
banker, trust company or recognized securities dealer, wherever situated,
satisfactory to the Company. Each such certificate shall be dated and shall
state that on the date thereof a Note bearing a specified serial number was
deposited with or exhibited to such bank, banker, trust company or recognized
Exhibit C, Page 12
<PAGE> 37
securities dealer by the person named in such certificate. Any such certificate
may be issued in respect of one or more Notes specified therein. The holding by
the person named in any such certificate of any Note specified therein shall be
presumed to continue for a period of one year from the date of such certificate
unless at the time of any determination of such holding (i) another certificate
bearing a later date issued in respect of the same Note shall be produced, (ii)
the Note specified in such certificate shall be produced by some other person or
(iii) the Note specified in such certificate shall have ceased to be
outstanding. The appointment of any proxy shall be proved by having the
signature of the person executing the proxy guaranteed by any bank, banker,
trust company or London or New York Stock Exchange member firm satisfactory to
the Company.
(f) The Company shall appoint a temporary chairman of the meeting. A
permanent chairman and a permanent secretary of the meeting shall be elected by
vote of the holders of a majority in principal amount of the Notes represented
at the meeting. At any meeting, each holder of Notes or proxy shall be entitled
to one vote for each U.S. $1,000 principal amount of Notes held or represented
by him; provided that no vote shall be cast or counted at any meeting in respect
of any Note challenged as not outstanding and ruled by the chairman of the
meeting to be not outstanding. The chairman of the meeting shall have no right
to vote except as a holder of Notes or proxy. Any meeting of holders of Notes
duly called at which a quorum is present may be adjourned from time to time, and
the meeting may be held as so adjourned without further notice.
(g) The vote upon any resolution submitted to any meeting of holder of
Notes shall be by written ballot on which shall be subscribed the signatures of
the holders of Notes or proxies and on which shall be inscribed the serial
number or numbers of the Notes held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make a
file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of holders of Notes shall be prepared by the
secretary of the meeting and there shall be attached to said record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more persons having knowledge of the fact setting forth a
copy of the notice of the meeting and showing that said notice was published as
provided above. The record shall be signed and verified by the permanent
chairman and secretary of the meeting and one of the duplicates shall be
delivered to the Company and the other duplicate to the Fiscal Agent to be
preserved by the Fiscal Agent, the latter to have attached thereto the ballots
voted at the meeting. Any record so signed and verified shall be conclusive
evidence of the matters therein stated.
(h) Notwithstanding anything to the contrary contained in Section 12(a)
above, the Notes (including the Conditions) and the Fiscal Agency Agreement may
be amended by the Company and the Fiscal Agent without the consent of any
Noteholders or Couponholders, for the purpose of (i) adding to the covenants of
the Company for the benefit of the holders of Notes or Coupons, (ii)
surrendering any right or power conferred upon the Company, (iii) permitting
payment of principal and interest on Notes or Coupons in the United States to
the extent then permitted under applicable regulations of the United States
Treasury Department and provided no adverse tax consequences would result to the
Noteholders or Couponholders, as the case may be, (iv) evidencing the succession
of a corporation or other person to the Company and the assumption by such
successor of the covenants and obligations of the Company in the Notes
(including the Conditions) and the Fiscal Agency Agreement or (v) correcting or
supplementing any provision contained herein or therein.
Section 13. No Waiver; Remedies Cumulative.
No failure to exercise, and no delay in exercising, on the part of the
holder of any Note, any right with respect thereto shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
future exercise thereof or the exercise of any other right. Rights pursuant to
the terms of the Notes shall be in addition to all other rights provided by law.
No notice or demand given in any case shall constitute a waiver of rights to
take other action in the same, similar or other instances without such notice or
demand.
Exhibit C, Page 13
<PAGE> 38
Section 14. Governing Law.
(a) This Note shall be governed by and construed in accordance with the
laws of the State of New York, United States of America.
(b) The Company hereby irrevocably submits to the non-exclusive
jurisdiction of the New York State or United States Federal court sitting in the
City and County of New York over any suit, action or proceeding arising out of
or relating to the Fiscal Agency Agreement or any Note. The Company irrevocably
waives, to the fullest extent permitted by law, any objection which it may have
to the laying of the venue of any such suit, action or proceeding brought in
such a court and any claim that any such suit, action or proceeding brought in
such a court has been brought in an inconvenient forum. The Company agrees that
final judgment in any such suit, action or proceeding brought in such a court
shall be conclusive and binding upon the Company and may be enforced in any
court the jurisdiction of which the Company is subject to by a suit upon such
judgment; provided that service of process is effected upon the Company in the
manner specified in the following paragraph or as otherwise permitted by law.
(c) As long as any of the Notes remain outstanding, the Company will at
all times have an authorized agent in The City of New York, upon whom process
may be served in any legal action or proceeding arising out of or relating to
the Fiscal Agency Agreement or any Note. Service of process upon such agent and
written notice of such service mailed or delivered to the Company shall to the
extent permitted by law be deemed in every respect effective service of process
upon the Company in any such legal action or proceeding. The Company has
appointed CT Corporation System as its agent for such purpose, and covenants and
agrees that service of process in any legal action or proceeding may be made
upon it at the office of such agent at 1633 Broadway, New York, New York 10019
(or at such other address or, at the office of such other authorized agent, as
the Company may designate by written notice to the Fiscal Agent), with a copy to
the Company at the address for notices set forth on the signature page of the
Fiscal Agency Agreement; provided that failure to deliver any such copy to the
Company shall not affect the validity or effectiveness of any such service of
process.
Section 15. Warranties of the Company.
Subject to authentication of the Note to which these Conditions are
attached by the Fiscal Agent, the Company hereby represents and warrants that
all acts, conditions and things required to be done and performed and to have
happened prior to the creation and issuance of such Note and the Coupons (if
any) appertaining thereto and to constitute the same legal, valid and binding
obligations of the Company enforceable in accordance with their respective
terms, have been done and performed and have happened in accordance with all
applicable laws.
Exhibit C, Page 14
<PAGE> 39
EXHIBIT D
[FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR OR CEDEL BANK]
CERTIFICATE
KELLOGG COMPANY
U.S. $500,000,000 6 5/8% Notes Due January 29, 2004
This is to certify that, based solely on certifications we have
received in writing, by tested telex or by electronic transmission from member
organizations appearing in our records as persons being entitled to a portion of
the principal amount set forth below (our "Member Organizations") substantially
to the effect set forth in the Fiscal Agency Agreement, as of the date hereof,
U.S. $______ principal amount of the above-captioned Notes (i) is owned by
persons that are not citizens or residents of the United States, domestic
partnerships, domestic corporations, any estate or (for taxable years beginning
before January 1, 1997) trust the income of which is subject to United States
Federal income taxation regardless of its source or, for taxable years beginning
after 1996 (and for certain other electing trusts), a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States trustees have the
authority to control all substantial trust decisions ("United States persons"),
(ii) is owned by United States persons that are (a) foreign branches of United
States financial institutions (as defined in United States Treasury Regulations
Section 1.165-12(c)(1)(v) ("financial institutions") purchasing for their own
account or for resale, or (b) United States persons who acquired the Notes
through foreign branches of United States financial institutions and who hold
the Notes through such United States financial institutions on the date hereof
(and in either case (a) or (b), each such United States financial institution or
person has agreed, on its own behalf or through its agent, that we may advise
the issuer or the issuer's agent that it will comply with the requirements of
Section 165(j)(3)(A), (B) or (C) of the United States Internal Revenue Code of
1986, as amended, and the regulations thereunder) or (iii) is owned by United
States or foreign financial institutions for purposes of resale during the
restricted period (as defined in United States Treasury Regulations Section
1.163- 5(c)(2)(i)(D)(7)), which United States or foreign financial institutions
described in clause (iii) above (whether or not also described in clause (i) or
(ii)) have certified that they have not acquired the Notes for purposes of
resale directly or indirectly to a United States person or to a person within
the United States or its possessions.
We further certify (i) that we are not making available herewith for
exchange any portion of the Temporary Global Note excepted in such
certifications and (ii) that as of the date hereof we have not received any
notification from any of our Member Organizations to the effect that the
statements made by such Member Organizations with respect to any portion of the
part submitted herewith for exchange are no longer true and cannot be relied
upon as the date hereof.
We understand that this certification is required in connection with
certain tax laws of the United States. If administrative or legal proceedings
are commenced or threatened in connection with which this certification is or
would be relevant, we irrevocably authorize you to produce this certification or
a copy thereof to any interested party in such proceedings.
Dated:_________________, ____ 1/ Yours faithfully,
By______________________________
[MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
BRUSSELS OFFICE, as Operator of the Euroclear
Clearance System] [Cedel Bank S.A.]
_____________________
1/ To be dated no earlier than the Restricted Period Expiration Date.
Exhibit D, Page 1
<PAGE> 40
EXHIBIT E
[FORM OF CERTIFICATE TO BE GIVEN BY BENEFICIAL OWNERS]
CERTIFICATE
KELLOGG COMPANY
U.S. $500,000,000 6 5/8% Notes Due January 29, 2004
This is to certify that as of the date hereof, and except as set forth
below, the above-captioned notes held by you for our account (i) are owned by
persons that are not citizens or residents of the United States, domestic
partnerships, domestic corporations, any estate or (for taxable years beginning
before January 1, 1997) trust the income of which is subject to United States
Federal income taxation regardless of its source or, for taxable years beginning
after 1996 (and for certain other electing trusts), a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States trustees have the
authority to control all substantial trust decisions ("United States persons"),
(ii) are owned by United States person(s) that are (a) foreign branches of a
United States financial institution (as defined in United States Treasury
Regulations Section 1.165-12(c)(1)(v)) ("financial institutions") purchasing for
their own account or for resale, or (b) United States person(s) who acquired the
Notes through foreign branches of United States financial institutions and who
hold the Notes through such United States financial institutions on the date
hereof (and in either case (a) or (b), each such United States financial
institution or person hereby agrees, on its own behalf or through its agent,
that you may advise the Issuer or the Issuer's agent that it will comply with
the requirements of Section 165(j)(3)(A), (B) or (C) of the United States
Internal Revenue Code of 1986, as amended, and the regulations thereunder), or
(iii) are owned by United States or foreign financial institution(s) for
purposes of resale during the restricted period (as defined in United States
Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and in addition if the
owner of the Notes is a United States or foreign financial institution described
in clause (iii) above (whether or not also described in clause (i) or (ii)) this
is to further certify that such financial institution has not acquired the Notes
for purposes of resale directly or indirectly to a United States person or to a
person within the United States or its possessions.
As used herein, "United States" means the United States of America
(including the States and the District of Columbia); and its "possessions"
include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island,
and the Northern Mariana Islands.
We undertake to advise you immediately by telex if the above statement
as to beneficial ownership is not correct at any time within the first fifteen
days following the date of this Certificate as to any of the Notes then
appearing in your books as being held for our account.
[This certificate excepts and does not relate to U.S. $________
principal amount of the Notes appearing in your books as being held for our
account but which we have sold or as to which we are not yet able to certify. We
understand that no payments may be made with respect to such excepted portion
and no exchange and delivery of definitive Notes for such excepted portion may
take place until we are able so to certify.]
Exhibit E, Page 1
<PAGE> 41
We understand that this certification is required in connection with
certain tax laws in the United States. If administrative or legal proceedings
are commenced or threatened in connection with which this certification is or
would be relevant, we irrevocably authorize you to produce this certification or
a copy thereof to any interested party in such proceedings.
Dated: ____________________, ____ 1/ __________________________________
Account Holder
______________________
1/ Certification must be dated on or after the 15th day before the date of
the Euroclear or Cedel certificate to which this certification relates.
Exhibit E, Page 2
<PAGE> 1
EXHIBIT 4.02
TERMS AND CONDITIONS OF THE NOTES
The U.S. $500,000,000 6 5/8% Notes due January 29, 2004 (the "Notes") have
been issued under a Fiscal Agency Agreement, dated as of January 29, 1997 (the
"Fiscal Agency Agreement"), between Kellogg Company (the "Company"), Citibank,
N.A., as fiscal agent (the "Fiscal Agent," which expression shall include any
successor as fiscal agent under the terms of the Fiscal Agency Agreement), and
the paying agents named therein (such paying agents, the Fiscal Agent, in its
capacity as principal paying agent, and any successor or additional paying
agents appointed pursuant to the Fiscal Agency Agreement are referred to
collectively herein as the "Paying Agents"). Certain statements herein are a
summary of, and are subject to the detailed provisions of, the Fiscal Agency
Agreement. The Fiscal Agency Agreement contains provisions which are expressed
to be for the benefit of the holders of the Notes (the "Noteholders") and of the
coupons attached thereto (the "Couponholders") and such provisions shall be
deemed to be incorporated in these Conditions. Copies of the Fiscal Agency
Agreement are available for inspection at the offices of the Fiscal Agent and
the Paying Agents specified on Schedule I hereto (or, in the case of any
successor Fiscal Agent or Paying Agent, identified in the notification to
Noteholders of the appointment of such successor in accordance with Section 11
of the Conditions). The Noteholders and the Couponholders will be deemed to have
notice of and be bound by all the provisions contained in the Fiscal Agency
Agreement.
Section 1. Delivery, Form and Denomination.
The Notes will initially be represented by a single temporary global note
(the "Temporary Global Note"), without interest coupons (the "Coupons"), which
will be deposited with Citibank, N.A, as common depositary (the "Common
Depositary") for Morgan Guaranty Trust Company of New York, Brussels Office, as
the operator of the Euroclear System ("Euroclear"), and Cedel Bank, S.A. ("Cedel
Bank"). The beneficial interests in the Temporary Global Note will be
exchangeable for definitive Notes, with Coupons, upon and to the extent that the
certification requirements set forth in the Fiscal Agency Agreement have been
complied with. Certain details as to procedures and prerequisites for owners of
beneficial interests in the Temporary Global Note to exchange such interests for
definitive Notes are set forth in the Temporary Global Note and the Fiscal
Agency Agreement. Any definitive Notes issued in exchange for such interests
will be in bearer form only in denominations of U.S. $1,000, U.S. $10,000 and
U.S. $100,000 with Coupons attached thereto, and title to such definitive Notes
and Coupons will pass upon delivery.
Each definitive Note and Coupon will carry substantially the following
legend:
"This obligation has not been registered under the United States
Securities Act of 1933, as amended, and may not be offered or sold in
contravention of that Act. Any United States person who holds this obligation
will be subject to limitations under the United States income tax laws,
including the limitations provided in Sections 165(j) and 1287(a) of the United
States Internal Revenue Code."
Section 2. Status.
The Notes constitute direct, unconditional and unsecured obligations of
the Company and will at all times rank equally among themselves and equally
(subject to such obligations as are mandatorily preferred by law) with all other
present and future unsecured and unsubordinated obligations of the Company.
Neither the Fiscal Agency Agreement nor the Notes limit other indebtedness or
securities which may be incurred or issued by the Company. The Fiscal Agency
Agreement and the Notes contain only the financial or similar restrictions on
the Company set forth below in these Conditions. The Company may, without the
consent of the holders of the Notes and Coupons, issue from time to time
additional Notes under the Fiscal Agency Agreement which will be treated as a
single series with the Notes.
Section 3. Limitations upon Liens.
Exhibit C, Page 1
<PAGE> 2
(a) The Company will not, nor will it permit any Restricted
Subsidiary (as defined below) to issue, assume or guarantee any indebtedness for
money borrowed (hereinafter in this Section 3 called "Debt"), secured by a
mortgage, security interest, pledge, lien or other encumbrance (mortgages,
security interests, pledges, liens and other encumbrances being hereinafter in
this Section 3 called "mortgage" or "mortgages") upon any Principal Property (as
defined below) of the Company or any Restricted Subsidiary or upon any shares of
stock or indebtedness of any Restricted Subsidiary (whether such Principal
Property, shares of stock or indebtedness are owned at the date of the Fiscal
Agency Agreement or thereafter acquired) without in any such case effectively
providing concurrently with the issuance, assumption or guaranty of any such
debt that the Notes (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 Notes and then existing or thereafter created) shall be
secured equally and ratably with (or, at the option of the Company, prior to)
such Debt so long as such Debt shall be so secured; provided, however, that the
foregoing restrictions shall not apply to Debt secured by:
(i) mortgages on property, shares of stock or indebtedness
(hereinafter in this Section 3 called "property") of any corporation
existing at the time such corporation becomes a Restricted Subsidiary;
(ii) mortgages on property existing at the time of acquisition
of the affected property by the Company or a Restricted Subsidiary, or
mortgages to secure the payment of all or any part of the purchase
price of such property upon the acquisition of such property by the
Company or a Restricted Subsidiary or to secure any Debt incurred by
the Company or a Restricted Subsidiary prior to, at the time of, or
within 360 days after the later of the acquisition, the completion of
construction (including any improvements on an existing property) or
the commencement of commercial operation of such property, which Debt
is incurred for the purpose of financing all or any part of the
purchase price thereof or construction or improvements thereon;
provided, however, that in the case of any such acquisition,
construction or improvement, the mortgage shall not apply to any
property theretofore owned by the Company or a Restricted Subsidiary,
other than, in the case of any such construction or improvement, any
real property on which the property so constructed, or the improvement,
is located which in the opinion of the Board of Directors (or duly
authorized committee thereof) was prior to such construction or
improvement, 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 to 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, however, that any such mortgages do not attach to
or 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 or any
State thereof, or any department, agency or instrumentality or
political subdivision of the United States of America or any State
thereof, or in favor of any other country or any political subdivision
thereof, or in favor of holders of securities issued by any such
entity, pursuant to any contract or statute (including, without
limitation, 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 Fiscal Agency
Agreement;
(vii) landlords' liens on fixtures located on premises leased
by the Company or a Restricted Subsidiary in the ordinary course of
business;
Exhibit C, Page 2
<PAGE> 3
(viii) mortgages on property of the Company or a Restricted
Subsidiary to secure partial, progress, advance or other payments or
any Debt incurred for the purpose of financing all or any part of the
purchase price or the cost of construction, development, or substantial
repair, alteration or improvement of the property subject to such
mortgages if the commitment for the financing is obtained not later
than one year after the later of the completion of or the placing into
operation (exclusive of test and start-up periods) of such constructed,
developed, repaired, altered or improved property;
(ix) mortgages arising in connection with contracts and
subcontracts with or made at the request of the United States of
America, or any state thereof, or any department, agency or
instrumentality of the United States of America or any state thereof;
(x) mechanics', materialmen's, carriers' or other like liens
arising in the ordinary course of business (including construction of
facilities) in respect of obligations which are not due or which are
being contested in good faith;
(xi) any mortgage arising by reason of deposits with, or the
giving of any form of security to, any governmental agency or any body
created or approved by law or governmental regulations, which is
required by law or governmental regulation as a condition to the
transaction of any business, or the exercise of any privilege,
franchise or license;
(xii) mortgages for taxes, assessments or governmental charges
or levies not yet delinquent, or mortgages for taxes, assessments or
governmental charges or levies already delinquent but the validity of
which is being contested in good faith;
(xiii) mortgages (including judgment liens) arising in
connection with legal proceedings so long as such proceedings are being
contested in good faith and, in the case of judgment liens, execution
thereon is stayed; 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;
provided, however, that the principal amount of Debt secured thereby
shall not exceed the principal amount of Debt so secured at the time of
such extension, renewal or replacement mortgage, and that such
extension, renewal or replacement mortgage shall be limited to all or a
part of the property which secured the mortgage so extended, renewed or
replaced (plus improvements on such property).
(b) Notwithstanding the foregoing provisions of this Section 3, the
Company and any one or more Restricted Subsidiaries may issue, assume or
guarantee Debt secured by mortgages which would otherwise be subject to the
foregoing restrictions in an aggregate amount which, together with all other
Debt of the Company and its Restricted Subsidiaries which (if originally issued,
assumed or guaranteed at such time) would otherwise be subject to the foregoing
restrictions (not including Debt permitted to be secured under clauses (i)
through (xiv) above), does not at the time exceed 10% of Consolidated Net
Tangible Assets (as defined below), as shown on the latest quarterly
consolidated financial statements of the Company preceding the date of
determination.
(c) The Company will not, nor will it permit any Restricted Subsidiary
to, enter into any arrangement with any person providing for the leasing by the
Company or any Restricted Subsidiary of any Principal Property of the Company or
any Restricted Subsidiary (whether such Principal Property is owned at the date
of the Fiscal Agency Agreement or thereafter acquired) (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), which
Principal Property has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such person (herein referred to as a "Sale and
Lease-Back Transaction"), unless (a) the Company or such Restricted Subsidiary
would be entitled, pursuant to the provisions of Sections 3(a) or (b), to issue,
assume or guarantee Debt secured by a mortgage upon such Principal Property at
least equal in amount to the Attributable Debt in respect of such arrangement
without
Exhibit C, Page 3
<PAGE> 4
equally and ratably securing the Notes; provided, however, that from and after
the date on which such arrangement becomes effective, the Attributable Debt in
respect of such arrangement shall be deemed for all purposes under Section 3 to
be Debt subject to the provisions of Section 3; or (b) the Company shall apply
an amount in cash equal to the Attributable Debt in respect of such arrangement
to the retirement (other than any mandatory retirement or by way of payment at
maturity), within 120 days of the effective date of any such arrangement, of
Debt of the Company or any Restricted Subsidiary (other than Debt owned by the
Company or any Restricted Subsidiary and other than Debt of the Company which is
subordinated to the Notes) which by its terms matures at or is extendible or
renewable at the option of the obligor to a date more than twelve months after
the date of the creation of such Debt.
(d) For purposes of this Section 3,
"Attributable Debt" means the present value (discounted at the actual
percentage rate inherent in a Sale and Lease-Back Transaction (as defined
below), as determined in good faith by the Company, compounded semi-annually) of
the obligation of a lessee for rental payments during the remaining term of any
lease (including any period for which such lease has been extended). Such rental
payments shall not include amounts payable by the lessee for maintenance and
repairs, insurance, taxes, assessments and similar charges and for contingent
rents (such as those based on sales). In case of any lease which is terminable
by the lessee upon the payment of a penalty, such rental payments shall also
include such penalty, but no rent shall be considered as required to be paid
under such lease subsequent to the first date upon which it may be so
terminated. Any determination of any actual percentage rate inherent in any such
Sale and Lease-Back Transaction made in good faith by the Company shall be
binding and conclusive.
"Consolidated Net Tangible Assets" means, as of any particular time,
the total amount of assets (less applicable reserves) after deducting therefrom
(a) all current liabilities (excluding any thereof which are by their terms
extendible or renewable at the option of the obligor thereon to a time more than
12 months after the time as of which the amount thereof is being computed and
excluding current maturities of long-term indebtedness), and (b) all goodwill,
trade names, trademarks, patents, unamortized debt discount and expense and
other like intangible assets, all as shown in the latest quarterly consolidated
balance sheet of the Company contained in the Company's then most recent annual
report to stockholders or quarterly report filed with the United States
Securities and Exchange Commission, as the case may be, except that assets shall
include an amount equal to the Attributable Debt in respect of any Sale and
Lease-Back Transaction not capitalized on such balance sheet.
"Principal Property" means 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, except any such plant or facility which
the Board of Directors (or a duly authorized committee thereof) of the Company
by resolution declares from time to time is not of material importance to the
total business conducted by the Company and its Restricted Subsidiaries as an
entirety and which, when taken together with all other plants and facilities as
to which such a declaration has been made, are so declared from time to time by
the Board of Directors (or duly authorized committee thereof) of the Company to
be not of material importance to the total business conducted by the Company and
its Restricted Subsidiaries as an entirety.
"Restricted Subsidiary" means any Subsidiary (a) substantially all of
the property of which is located within the continental United States, (b) which
owns a Principal Property, and (c) in which the Company's investment, direct or
indirect and whether in the form of equity, debt or advances, as shown on the
consolidating balance sheet used in the preparation of the latest quarterly
consolidated financial statements of the Company preceding the date of
determination, is in excess of 1% of the total consolidated assets of the
Company as shown on such quarterly consolidated financial statements; provided,
however, that the term "Restricted Subsidiary" shall not include any Subsidiary
which is principally engaged in leasing or in financing installment receivables
or which is principally engaged in financing the Company's operation outside the
continental United States of America.
"Subsidiary" means any corporation which is consolidated in the
Company's accounts and any corporation of which at least a majority of the
outstanding stock having by the terms thereof ordinary voting power to elect a
Exhibit C, Page 4
<PAGE> 5
majority of the board of directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned or controlled by the Company, or by
one or more Subsidiaries, or by the Company and one or more Subsidiaries.
Section 4. Company May Consolidate, etc., Only on Certain Terms.
(a) The Company will not merge into or consolidate with, or sell or
convey all or substantially all of its assets to, any other corporation, unless
either (A) the Company shall be the surviving corporation in the case of a
merger or (B) (I) the surviving, resulting or transferee corporation shall
expressly assume the due and punctual payment (including Additional Amounts, if
any) of all the Notes according to their tenor, and the due and punctual
performance of all of the covenants and obligations of the Company under the
Notes, the Coupons and Fiscal Agency Agreement in respect of the Notes, by
supplemental agreement reasonably satisfactory to the Fiscal Agent, (II) such
successor corporation shall agree to indemnify and hold harmless the holder of
each Note or Coupon against (y) any tax, assessment or governmental charge
imposed on such holder by a jurisdiction other than the United States of America
or any political subdivision or taxing authority thereof or therein with respect
to, and withheld on the making of, any payment of principal of or interest on
such Note (including Additional Amounts, if any, in respect thereof) and which
would have been so imposed and withheld had such merger, consolidation, sale or
conveyance not been made and (z) any tax, assessment or governmental charge
imposed on or relating to such merger, consolidation, sale or conveyance, (III)
immediately after such merger, consolidation, sale or conveyance, the Notes will
not be subject to United States Federal estate tax as a result thereof, if held
by a person who at the time of death is not a citizen or resident of the United
States of America unless such successor corporation shall have agreed, by
supplemental agreement, to indemnify the persons liable therefor for the amount
of United States Federal estate tax attributable to and paid in respect of any
Notes includable in the gross estate of a person who at the time of death is not
a citizen or resident of the United States of America and (IV) the Fiscal Agent
shall have received the documentation required in the context by the Fiscal
Agency Agreement. In calculating the amount of tax attributable to any Notes for
purposes of sub-clause (III) above in accordance with the provisions of the
United States Internal Revenue Code of 1986, the gross estate of the decedent
shall be deemed to include only Notes issued under the Fiscal Agency Agreement.
(b) Upon any merger, consolidation, sale or conveyance as provided in
Section 4(a), the successor corporation shall succeed to and be substituted for,
and may exercise every right and power of and be subject to all the obligations
of, the Company under the Notes, the Coupons and the Fiscal Agency Agreement in
respect of the Notes, with the same effect as if such successor corporation had
been named as the Company therein and herein and the Company shall be released
from its liability as obligor under the Notes, the Coupons and the Fiscal Agency
Agreement in respect of the Notes.
Section 5. Interest.
(a) Period of Accrual of Interest. The Notes will bear interest from
January 29, 1997 (the "Issue Date"). Interest on each Note will cease to accrue
from the due date for the principal thereof unless (i) the maturity of Notes has
been accelerated pursuant to Section 9 of the Conditions and/or (ii) upon due
presentation of the Note, the payment of principal is improperly withheld or
refused. In either such event, the affected Notes will continue to bear interest
at the rate of 6-5/8% per annum, after as well as before judgment, until such
Notes shall be paid in full or until the seventh day following the date on which
notice is given to the affected Noteholders to the effect that funds for the
payment of principal in respect of all outstanding Notes have been received by
the Fiscal Agent and are available for collection (provided that sufficient
funds have actually been received and are available for such purpose), whichever
is the earlier.
(b) Interest Payment Dates and Interest Periods. Interest on the Notes
is payable in arrears on January 29 of each year (commencing with January 29,
1998) or, if any such day is not a Business Day (as defined below), the
immediately following day which is a Business Day. Every day on which interest
on the Notes is payable is herein called an "Interest Payment Date." If any
Interest Payment Date would otherwise be a day which is not a
Exhibit C, Page 5
<PAGE> 6
Business Day, the Interest Payment Date shall be postponed to the next day which
is a Business Day and no additional interest shall be payable on account of such
delayed payment. As used in this Condition, "Business Day" means a day (other
than a Saturday or Sunday) on which banks are open for business in New York City
and the relevant place of payment.
(c) Coupons. Interest due on each Interest Payment Date will be paid
against presentation and surrender of the appropriate Coupons attached to the
Notes on issue as they severally mature, in accordance with Section 7 of the
Conditions.
(d) Rate of Interest. The rate at which interest shall accrue from time
to time in respect of the Notes will be 6-5/8% per annum. In the event that
interest is required to be calculated for a period of less than one year, it
will be calculated on the basis of a 360-day year consisting of 12 months of 30
days each and in the case of an incomplete month the actual number of days
elapsed.
Section 6. Redemption.
(a) Final Redemption. Except as provided below, the Notes may not be
redeemed prior to maturity. Unless previously redeemed or repurchased and
cancelled, the Notes will be payable at par on January 29, 2004 or such earlier
date on which the same shall be due and payable in accordance with the terms and
conditions of the Notes; provided that if the maturity date of the Notes is not
a Business Day, the Notes will be payable at their principal amount on the next
succeeding Business Day (and no interest shall accrue for the period from
January 29, 2004 to such payment date).
(b) Redemption for Taxation Reasons. The Company may, at its option,
redeem the Notes, as a whole but not in part, upon not more than 60 nor less
than 30 days' notice at 100% of their principal amount, together with interest
accrued to the date fixed for redemption, if (i) at any time the Company becomes
or would become obligated to pay to the holder of any Note or Coupon Additional
Amounts under Section 8 of the Conditions or (ii) on or after January 24, 1997
any action or further action shall have been taken by any taxing authority, or
any action shall have been brought in a court of competent jurisdiction, of the
United States of America or any political subdivision or taxing authority
thereof or therein, whether or not such action was taken or brought with respect
to the Company or any affiliate thereof, or any change, amendment, application,
interpretation or execution shall have been officially proposed which, in any
such case in the written opinion of independent counsel reasonably acceptable to
the Company, will result in the Company becoming obligated to pay Additional
Amounts and such obligation cannot be avoided by the Company taking reasonable
measures available to it, then the Company may, at its option, redeem the Notes,
as a whole but not in part, upon not more than 60 nor less than 30 days' notice
of 100% of their principal amount, together with interest accrued thereon to the
date fixed for redemption; provided that no such notice of redemption shall be
given earlier than 90 days prior to the earliest date on which the Company would
be obligated to pay such additional amounts were a payment in respect of the
Notes then due. Prior to the giving of notice of redemption of the Notes
pursuant to this paragraph, the Company will deliver to the Fiscal Agent (i) a
certificate setting forth a statement of facts showing that the conditions
precedent to the right to effect such redemption have occurred and (ii) a copy
of such opinion of independent counsel.
Except as set forth in the immediately succeeding paragraph, the
Company shall redeem the Notes, as a whole but not in part, upon not more than
60 nor less than 30 days' notice, at 100% of their principal amount, together
with interest accrued to the date fixed for redemption, after determining, based
on a written opinion of independent counsel reasonably acceptable to the
Company, that any certification, identification or information reporting
requirements of United States law or regulation with regard to the nationality,
residence or identity (as distinguished from status as a United States Alien (as
defined below)) of a beneficial owner who is a United States Alien of a Note or
a Coupon thereto would be applicable to a payment of principal of or interest on
a Note or a Coupon appertaining thereto made outside the United States of
America (including the States and the District of Columbia), its territories,
its possessions and other areas subject to its jurisdiction (the "United
States") by the Company or a Paying Agent as agent for the Company and not as
agent for the beneficial owner (other than a
Exhibit C, Page 6
<PAGE> 7
requirement (i) that would not be applicable to a payment made directly to the
beneficial owner, (ii) that would not be applicable to a payment made to a
custodian, nominee or other agent of the beneficial owner or (iii) that could be
satisfied by a holder who is not the beneficial owner thereof or any custodian,
nominee or other agent certifying that the beneficial owner is a United States
Alien; provided, however, in each case referred to in clause (ii) and (iii)
above, that payment by a custodian, nominee or agent (who is not under present
law subject to information reporting requirements) to the beneficial owner is
not otherwise subject to any requirement referred to in this sentence). The
Company shall notify the Fiscal Agent of such determination as soon as
practicable, stating in the notice the effective date of such certification,
identification or information reporting requirements and the dates within which
the redemption by the Company shall occur, and the Fiscal Agent shall give
prompt notice thereof in accordance with Section 11 of the Conditions. Such
redemption of the Notes must take place on a date specified by the Company, such
date to be not later than one year after the publication of the initial notice
of the Company's determination of such certification, identification or
information reporting requirements. The Company shall not so redeem the Notes,
however, if the Company, based on a written opinion of independent counsel
reasonably acceptable to the Company, shall determine, not less than 30 days
prior to the date fixed for redemption or purchase, as the case may be, that no
payment in respect of the Notes would be subject to any requirement described
above, in which case the Company shall notify the Fiscal Agent, which shall give
prompt notice of that determination in accordance with Section 11 of the
Conditions, and any earlier redemption notice under this paragraph shall be
revoked and of no further effect.
Notwithstanding the immediately preceding paragraph, if and so long as
the certification, identification or information reporting requirements referred
to therein would be fully satisfied with respect to the Notes by payment of
United States withholding, backup withholding or a similar tax, the Company may
elect, prior to the giving of notice of redemption, to have the provisions of
this paragraph apply in lieu of the provisions of the immediately preceding
paragraph. In that event, the Company will pay such Additional Amounts as are
necessary in order that, following the effect the date of such requirements,
every net payment made outside the United States by the Company or a Paying
Agent of the principal of and interest on a Note or a Coupon appertaining
thereto to a holder who is a United States Alien (but without any requirement
that the nationality, residence or identity (as distinguished from status as a
United States Alien) of the beneficial owner be disclosed to the Company, any
Paying Agent or any United States governmental authority), after deduction for
United States withholding, backup withholding or similar tax (other than a
withholding, backup withholding or similar tax which would not be applicable in
the circumstances referred to in the fourth parenthetical clause of the first
sentence of such immediately preceding paragraph) but before deduction or
withholding on account of tax, assessment or other governmental charge described
in (a), (b), (c), (d), (e), (f), (g) or (h) of Section 8 of the Conditions, will
not be less than the amount provided in the Note or the Coupon to be then due
and payable. If the Company elects to pay such Additional Amounts and as long as
it is obligated to pay such Additional Amounts, the Company may subsequently
redeem the Notes, at any time, as a whole but not in part, upon not more than 60
nor less than 30 days' notice, at 100% of their principal amount, plus accrued
interest to the date fixed for redemption (without reduction for applicable
withholding taxes).
Notice of its election or obligation to redeem Notes pursuant to this
clause (b) shall be given to holders of Notes by the Company by publication at
least twice in the manner required by Section 11 of the Conditions, the first
such publication and such mailing to be not more than 60 days nor less than 30
days prior to the date fixed for redemption.
(c) Requirements as to Notices of Redemption by Company. Neither the
failure to give notice nor any defect in any notice given to any particular
holder of a Note shall affect the sufficiency of any notice with respect to
other Notes. Notices to redeem Notes shall specify the date fixed for
redemption, the redemption price, the place or places of payment, that payment
will be made upon presentation and surrender of the Notes to be redeemed,
together with all appurtenant Coupons, if any, maturing subsequent to the date
fixed for redemption, that interest accrued to the date fixed for redemption
(unless the redemption date is an Interest Payment Date) will be paid as
specified in said notice, and that on and after said date interest on the Notes
so to be redeemed will cease to accrue. Such notice shall also state that the
conditions precedent to such redemption have occurred and state the amount of
Notes to be redeemed or purchased.
Exhibit C, Page 7
<PAGE> 8
(d) Cancellation. All Notes redeemed pursuant to this Section 6 of the
Conditions will be forthwith cancelled (together with all unmatured Coupons
appertaining thereto) and may not be reissued or resold.
Section 7. Payments.
Payments of principal and interest will be, made against surrender of
the Notes or Coupons, as the case may be, at the offices of any of the Paying
Agents specified in the preamble to these Conditions, subject in each case to
any applicable laws or regulations. Such payments will be made, at the option of
the holder, by a United States dollar check, or by a transfer to a United States
dollar account maintained by the payee with a bank outside the United States. No
payment on any Note or Coupon will be made at any office of the Fiscal Agent or
any other Paying Agents maintained by the Company in the United States nor will
any payment be made by transfer to an account in, or by mail to an address in,
the United States.
The Company has initially appointed the Paying Agents specified on
Schedule I hereto. The Company agrees that, so long as any of the Notes are
outstanding, it will maintain a paying agent outside the United States, and so
long as the Notes are listed on the Luxembourg Stock Exchange and the Luxembourg
Stock Exchange shall so require, it will maintain a paying agent in Luxembourg,
for payments with respect to definitive Notes and the Coupons appertaining
thereto and where the definitive Notes may be presented or surrendered for
exchange and where notices and demands to or upon the Company in respect of the
Notes, the Coupons and the Fiscal Agency Agreement may be served. The Company
may with the approval of the Fiscal Agent change any of Paying Agents or their
specified offices. Notice of any change in the Paying Agents or in their
specified offices will be given to the Noteholders in accordance with the
provisions of Section 11 of the Conditions.
Except as ordered by a court of competent jurisdiction or as required
by law, the Paying Agents, the Fiscal Agent and the Company shall be entitled,
notwithstanding any notice to the contrary, to treat the bearer of any Note or
Coupon as the absolute owner thereof (whether or not such Note or Coupon shall
be overdue and notwithstanding any notation of ownership or other writing
thereon) for the purpose of receiving payment when due in full or in part and
for all other purposes and shall not be required to obtain any proof thereof or
as to the identity of the bearer.
In the case of the redemption of any Note prior to maturity, the Note
shall be presented for payment together with all unmatured Coupons appertaining
to that Note; failing presentation of all such Coupons, the payment of principal
will only be made against the Noteholder giving such indemnity and providing
such other documents in respect of the missing unmatured Coupons as the Company
may require. In the case of any such redemption, the unmatured Coupons (if any)
appertaining thereto shall become void and no payment shall be due in respect
thereof.
If the due date for redemption of any Note is not an Interest Payment
Date, the interest accrued from the preceding Interest Payment Date (or from the
Issue Date, as the case may be) shall be payable only against surrender of the
relevant Note.
All monies paid by the Company to the Fiscal Agent for payment of the
principal of or interest on any Note and remaining unclaimed for two years after
such payment has been made shall be repaid to the Company, and to the extent
permitted by law, the holder of such Note thereafter may look only to the
Company for payment as a general unsecured creditor thereof. Subject to
applicable laws and regulations, any payment that will be made by the Company
under this paragraph with respect to Notes will be made outside the United
States.
Section 8. Payment of Additional Amounts.
The Company will pay as additional interest on the Notes or Coupons to
the holder of any Note or Coupon who is a United States Alien (as defined below)
such Additional Amounts as may be necessary in order that every net payment by
the Company or any Paying Agent of the principal of or interest on such Note or
Coupons (including upon redemption), after deduction or withholding for or on
account of any present or future tax, assessment or other governmental charge
imposed upon or as a result of such payment by the United States or any
political subdivision or
Exhibit C, Page 8
<PAGE> 9
taxing authority thereof or therein, will not be less than the amount provided
for in such Note or in such Coupon to be then due and payable before any such
tax, assessment or other governmental charge; provided, however, that the
foregoing obligation to pay Additional Amounts shall not apply to:
(a) any tax, assessment or other governmental charge which
would not have been so imposed but for (i) the existence of any present
or former connection between such holder (or between a fiduciary,
settlor, beneficiary, member or shareholder of, or a person having a
power over, such holder, if such holder is an estate, a trust, a
partnership or a corporation) and the United States, including, without
limitation, such holder (or such fiduciary, settlor, beneficiary,
member, shareholder or person having such a power) being or having been
a citizen or resident or treated as a resident thereof or being or
having been engaged in a trade or business therein or being or having
been present therein or having or having had a permanent establishment
therein, (ii) the failure of such holder to comply with any requirement
under United States income tax laws or regulations to establish
entitlement to exemption from such tax, assessment or other
governmental charge, (iii) such holder's present or former status as a
personal holding company or a foreign personal holding company with
respect to the United States, as a controlled foreign corporation with
respect to the United States, as a passive foreign investment company
with respect to the United States, as a foreign tax exempt organization
with respect to the United States or as a corporation which accumulates
earnings to avoid United States Federal income tax, or (iv) payment
being made in the United States;
(b) any tax, assessment or other governmental charge imposed
by reason of the holder (i) owning or having owned, directly or
indirectly, actually or constructively, 10% or more of the total
combined voting power of all classes of stock of the Company, (ii)
being a bank receiving interest described in Section 881(c)(3)(A) of
the United States Internal Revenue Code of 1986, as amended, or (iii)
being a controlled foreign corporation with respect to the United
States that is related to the Company by stock ownership;
(c) any tax, assessment or other governmental charge which
would not have been so imposed but for the presentation by the holder
of such Note or Coupon for payment on a date more than 10 days after
the date on which such payment became due and payable or the date on
which payment thereof is duly provided for and notice is given to
holders, whichever occurs later;
(d) any estate, inheritance, gift, sales, transfer, personal
property, wealth, interest equalization or any similar tax, assessment
or governmental charge;
(e) any tax, assessment, or other governmental charge which is
payable otherwise than by withholding from payment of principal of or
interest on such Note or Coupon;
(f) any tax, assessment or other governmental charge which is
payable by a holder that is not the beneficial owner of such Note or
Coupon, or a portion of either, or that is a foreign partnership, but
only to the extent that a beneficial owner or member of the partnership
would not have been entitled to the payment of an Additional Amount had
the beneficial owner or member received directly its beneficial or
distributive share of the payment;
(g) any tax, assessment or other governmental charge required
to be withheld by any Paying Agent from any payment of principal of or
interest on any Note or Coupon, if such payment can be made without
such withholding by any other Paying Agent; or
(h) any combination of items (a), (b), (c), (d), (e), (f) and
(g).
For purposes of the foregoing, the holding of or the receipt of any
payment with respect to a Note shall not constitute a connection between the
holder (or between a fiduciary, settlor, beneficiary, member or shareholder of,
or
Exhibit C, Page 9
<PAGE> 10
a person having a power over, such holder if such holder is an estate, a trust,
a partnership or a corporation) and the United States.
The term "United States Alien," as used herein, means any corporation,
partnership, individual or fiduciary that, as to the United States, is (i) a
foreign corporation, (ii) a nonresident alien individual, (iii) a nonresident
alien fiduciary of a foreign estate or trust, (iv) a foreign partnership one or
more of the members of which is, as to the United States, a foreign corporation,
a nonresident alien individual or a nonresident alien fiduciary of a foreign
estate or trust.
Section 9. Events of Default.
The happening of one or more of the following events shall
constitute an Event of Default:
(a) default in any payment of the principal of any Note as and
when the same shall become due and payable (whether at maturity, upon
redemption, or otherwise); or
(b) default in any payment of any installment of interest or
any required payment of any Additional Amount pursuant to Section 8
hereof on any of the Notes as and when the same shall become due and
payable and continuance of such default for a period of 30 days; or
(c) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on its part in the
Notes or in the Fiscal Agency Agreement in respect of the Notes for a
period of 90 days after the date on which written notice of such
failure requiring the Company to remedy the same shall have been given
to the Company by the holders of at least 25% in aggregate principal
amount of the Notes at the time outstanding; or
(d) the Company shall make an assignment for the benefit of
creditors, or shall file a petition in bankruptcy; or the Company shall
be adjudicated insolvent or bankrupt, or shall petition or shall apply
to any court having jurisdiction in the premises for the appointment of
a receiver, trustee, liquidator or sequestrator of, or for, the Company
or any substantial portion of the property of the Company; or the
Company shall commence any proceeding relating to the Company or any
substantial portion of the property of the Company under any
insolvency, reorganization, arrangement, or readjustment of debt,
dissolution, winding-up, adjustment, composition or liquidation law or
statute of any jurisdiction, whether in effect at the date of the
Fiscal Agency Agreement or thereafter created (hereinafter in this
subsection (d) called "Proceeding"); or if there shall be commenced
against the Company any Proceeding and an order approving the petition
shall be entered, or such Proceeding shall remain undischarged for a
period of 60 days; or receiver, trustee, liquidator or sequestrator of,
or for, the Company or any substantial portion of the property of the
Company shall be appointed and shall not be discharged within a period
of 60 days; or the Company by any act shall indicate consent to or
approval of or acquiescence in any Proceeding or the appointment of a
receiver, trustee, liquidator or sequestrator of, or for, the Company
or any substantial portion of the property of the Company; provided
that a resolution or order for winding-up the Company with a view to
its merger or consolidation with another company or the sale or
conveyance of all or substantially all of its assets to such other
company as provided in Section 6 shall not make the rights and remedies
herein enforceable under this clause (d) if such last-mentioned company
shall, as a part of such merger, consolidation, sale or conveyance, and
within 60 days from the passing of the resolution or the date of the
order, comply with the conditions to that end stated in Section 4.
If an Event of Default described in clauses (a), (b) or (d) shall occur
and be continuing, any holder of a Note may declare the principal of such Note
and the interest accrued thereon to be due and payable immediately by written
notice to the Company and the Fiscal Agent at its principal corporate trust
office in New York City, and unless such default shall have been cured by the
Company prior to receipt of such written notice, the principal of such Note and
the interest thereon shall become and be immediately due and payable. In an
Event of Default described in clauses
Exhibit C, Page 10
<PAGE> 11
(a), (b), (c) or (d) shall occur and be continuing, the holders of not less than
25% in principal amount of the Notes may declare the principal of the Notes and
the interest accrued thereon to be due and payable immediately by written notice
to the Company and the Fiscal Agent at its principal corporate trust office in
London, and unless all such defaults shall have been cured by the Company prior
to receipt of such written notice, the principal of the Notes and the interest
accrued thereon shall become and be immediately due and payable. Any Event of
Default may be waived by the holders of a majority in aggregate principal amount
of the Notes except a default in payment declared by a particular holder
pursuant to clause (a) or (b).
Section 10. Replacement of Notes and Coupons.
If any Note (including the Coupons appertaining to any Notes) is
mutilated, defaced, apparently destroyed, lost or stolen, the Company in its
discretion may execute and, upon the written request of the Company, the Fiscal
Agent will replace such Note (in such capacity, the "Replacement Agent") by
issuing a new Note upon the surrender of such mutilated or defaced Note or
delivery of satisfactory evidence of the destruction, loss or theft thereof to
the Replacement Agent. In the case of any such Note, indemnity and other
documents satisfactory to the Fiscal Agent and the Company may be required of
the holders of such Note before a replacement Note will be issued. All expenses
associated with obtaining such indemnity and in issuing the new Note shall be
borne by the holder of the mutilated, defaced, apparently destroyed, lost or
stolen Note. No such replacement Note or Coupon shall be delivered in the United
States.
Section 11. Notices.
All notices to the holders of interests in the Notes will be given by
publication at least once in a newspaper in the English language of general
circulation in London (which is expected to be the Financial Times) and, so long
as the Notes are listed on the Luxembourg Stock Exchange and the Luxembourg
Stock Exchange so requires, in a newspaper of general circulation in Luxembourg
(which is expected to be the Luxemburger Wort) or, if publication in London or
Luxembourg is not practicable, publication may be made in another principal city
in Europe in a newspaper of general circulation. Such notices will be deemed to
have been given on the date of such publication, or if published on different
dates, on the first date on which publication is made in any publication in
which it is required. Couponholders will be deemed for all purposes to have
notice of the contents of any notices given to the Noteholders in accordance
with this paragraph.
Until such time as any definitive Notes are issued, there may, so long
as the Temporary Global Note is held in its entirety on behalf of Euroclear and
Cedel Bank, be substituted for such publication in London, the delivery of the
relevant notice to Euroclear and Cedel Bank for communication by them to the
persons shown in their records as having interest in the Temporary Global Note
credited to them and any such notices will be deemed to have been given on the
seventh day after delivery to Euroclear and Cedel Bank; provided, that the
foregoing shall not relieve the Company of its obligation to publish any notices
in a newspaper of general circulation in Luxembourg so long as the Notes are
listed on the Luxembourg Stock Exchange and the Luxembourg Stock Exchange so
requires such publication.
Section 12. Meetings of the Noteholders, Modification and Waiver.
(a) Modifications and amendments to the Fiscal Agency Agreement with
respect to the Notes or to these Conditions, insofar as such modifications or
amendments affect the rights, powers, duties or obligations of the holders of
Notes, may be made, and future compliance with or past default by the Company
under any of the provisions hereof or thereof may be waived, by the holders of
the Notes, with the consent of the holders of at least a majority in aggregate
principal amount of the Notes at the time outstanding, or of such lesser
percentage as may act at a meeting of holders of Notes held in accordance with
the provisions set forth herein, to be held at such time and at such place as
the Company shall determine; provided that no such modification, amendment or
waiver may, without the consent of the holder of each such Note affected
thereby, (i) waive a default in the payment of the principal of or interest on
any such Note, or change the stated maturity of the principal of or any
instalment of interest on any such Note; (ii)
Exhibit C, Page 11
<PAGE> 12
reduce the principal amount of or the rate of interest on any such Note or
change the obligation of the Company to pay any Additional Amounts pursuant to
Section 8 hereof; (iii) change the currency of payment of principal of or
interest on any such Note; (iv) impair the right to institute suit for the
enforcement of any such payment on or with respect to any such Note; (v) reduce
the percentage of aggregate principal amount of Notes outstanding necessary to
modify or amend the Fiscal Agency Agreement or these Conditions or reduce the
percentage of votes required for the adoption of any action at a meeting of the
holders of Note; or (vi) modify the obligation of the Company to maintain an
office or agency outside the United States for the purposes specified in the
Fiscal Agency Agreement. Any modifications, amendments or waivers to the Fiscal
Agency Agreement or to these Conditions will be conclusive and binding on all
holders of the Notes, whether or not they have given such consent or were
present at such meeting, and on all holders of coupons, whether or not notation
of such modifications, amendments or waivers is made upon the Notes or Coupons,
and on all future holders of Notes and Coupons. Any instrument given by or on
behalf of any holder of a Note in connection with any consent to any such
modification, amendment or waiver will be irrevocable once given and will be
conclusive and binding on all subsequent holders of such Note.
(b) Notice of any meeting of holders of Notes, setting forth the time
and place of such meeting and in general terms the action proposed to be taken
at such meeting, shall be given in accordance with Section 11 of these
Conditions at least twice, the first publication to be not less than 20 nor more
than 180 days prior to the date fixed for the meeting. To be entitled to vote at
any meeting of holders of Notes, a person shall be (i) a holder of one or more
Notes, including a beneficial owner of an interest in the Temporary Global Note
with respect to the Notes, or (ii) a person appointed by an instrument in
writing as proxy by the holder of one or more Notes. The only persons who shall
be entitled to be present or to speak at any meeting of holders of Notes shall
be the persons entitled to vote at such meeting and their counsel and any
representatives of the Company and its counsel.
(c) The persons entitled to vote a majority in principal amount of
Notes at the time outstanding shall constitute a quorum at a meeting convened
for the purpose referred to above except as hereinafter provided. No business
shall be transacted in the absence of a quorum, unless a quorum is present when
the meeting is called to order. In the absence of a quorum, the meeting shall be
adjourned for a period of not less than 10 days as determined by the chairman of
the meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting shall be further adjourned for a period of not less than 10
days as determined by the chairman of the meeting. Notice of the reconvening of
any adjourned meeting shall be given as provided above except that such notice
need be given only once but must be given not less than five days prior to the
date on which the meeting is scheduled to be reconvened. Subject to the
foregoing, at the reconvening of any meeting further adjourned for lack of a
quorum, the persons entitled to vote 25% in principal amount of the Notes at the
time outstanding shall constitute a quorum for the taking of any action set
forth in the notice of the original meeting. Notice of the reconvening of an
adjourned meeting shall state expressly the percentage of the aggregate
principal amount of the outstanding Notes which shall constitute a quorum.
(d) At a meeting or an adjourned meeting duly convened and at which a
quorum is present as aforesaid, any resolution to amend, or to waive compliance
with, any of the covenants or conditions referred to above shall be effectively
passed and decided if passed and/or decided by the persons entitled to vote the
lesser of (i) a majority in principal amount of the Notes then outstanding and
(ii) 75% in principal amount of the Notes represented and voting at the meeting.
Any holder of Notes who has executed an instrument in writing appointing a
person as proxy shall be deemed to be present for the purposes of determining a
quorum and be deemed to have voted if such person duly appointed as proxy is
present and has voted; provided that such holder of Notes shall be considered as
present for the purposes of determining a quorum or voting only with respect to
the matters covered by such instrument in writing. Any resolution passed or
decision taken at any meeting of holders of Notes duly held in accordance with
this Section shall be binding on all the holders of Notes whether or not present
or represented at the meeting.
(e) The holding of Notes shall be proved by the production of such
Notes or by a certificate, satisfactory to the Company, executed by any bank,
banker, trust company or recognized securities dealer, wherever situated,
satisfactory to the Company. Each such certificate shall be dated and shall
state that on the date thereof a Note bearing a specified serial number was
deposited with or exhibited to such bank, banker, trust company or recognized
Exhibit C, Page 12
<PAGE> 13
securities dealer by the person named in such certificate. Any such certificate
may be issued in respect of one or more Notes specified therein. The holding by
the person named in any such certificate of any Note specified therein shall be
presumed to continue for a period of one year from the date of such certificate
unless at the time of any determination of such holding (i) another certificate
bearing a later date issued in respect of the same Note shall be produced, (ii)
the Note specified in such certificate shall be produced by some other person or
(iii) the Note specified in such certificate shall have ceased to be
outstanding. The appointment of any proxy shall be proved by having the
signature of the person executing the proxy guaranteed by any bank, banker,
trust company or London or New York Stock Exchange member firm satisfactory to
the Company.
(f) The Company shall appoint a temporary chairman of the meeting. A
permanent chairman and a permanent secretary of the meeting shall be elected by
vote of the holders of a majority in principal amount of the Notes represented
at the meeting. At any meeting, each holder of Notes or proxy shall be entitled
to one vote for each U.S. $1,000 principal amount of Notes held or represented
by him; provided that no vote shall be cast or counted at any meeting in respect
of any Note challenged as not outstanding and ruled by the chairman of the
meeting to be not outstanding. The chairman of the meeting shall have no right
to vote except as a holder of Notes or proxy. Any meeting of holders of Notes
duly called at which a quorum is present may be adjourned from time to time, and
the meeting may be held as so adjourned without further notice.
(g) The vote upon any resolution submitted to any meeting of holder of
Notes shall be by written ballot on which shall be subscribed the signatures of
the holders of Notes or proxies and on which shall be inscribed the serial
number or numbers of the Notes held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make a
file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of holders of Notes shall be prepared by the
secretary of the meeting and there shall be attached to said record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more persons having knowledge of the fact setting forth a
copy of the notice of the meeting and showing that said notice was published as
provided above. The record shall be signed and verified by the permanent
chairman and secretary of the meeting and one of the duplicates shall be
delivered to the Company and the other duplicate to the Fiscal Agent to be
preserved by the Fiscal Agent, the latter to have attached thereto the ballots
voted at the meeting. Any record so signed and verified shall be conclusive
evidence of the matters therein stated.
(h) Notwithstanding anything to the contrary contained in Section 12(a)
above, the Notes (including the Conditions) and the Fiscal Agency Agreement may
be amended by the Company and the Fiscal Agent without the consent of any
Noteholders or Couponholders, for the purpose of (i) adding to the covenants of
the Company for the benefit of the holders of Notes or Coupons, (ii)
surrendering any right or power conferred upon the Company, (iii) permitting
payment of principal and interest on Notes or Coupons in the United States to
the extent then permitted under applicable regulations of the United States
Treasury Department and provided no adverse tax consequences would result to the
Noteholders or Couponholders, as the case may be, (iv) evidencing the succession
of a corporation or other person to the Company and the assumption by such
successor of the covenants and obligations of the Company in the Notes
(including the Conditions) and the Fiscal Agency Agreement or (v) correcting or
supplementing any provision contained herein or therein.
Section 13. No Waiver; Remedies Cumulative.
No failure to exercise, and no delay in exercising, on the part of the
holder of any Note, any right with respect thereto shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
future exercise thereof or the exercise of any other right. Rights pursuant to
the terms of the Notes shall be in addition to all other rights provided by law.
No notice or demand given in any case shall constitute a waiver of rights to
take other action in the same, similar or other instances without such notice or
demand.
Exhibit C, Page 13
<PAGE> 14
Section 14. Governing Law.
(a) This Note shall be governed by and construed in accordance with the
laws of the State of New York, United States of America.
(b) The Company hereby irrevocably submits to the non-exclusive
jurisdiction of the New York State or United States Federal court sitting in the
City and County of New York over any suit, action or proceeding arising out of
or relating to the Fiscal Agency Agreement or any Note. The Company irrevocably
waives, to the fullest extent permitted by law, any objection which it may have
to the laying of the venue of any such suit, action or proceeding brought in
such a court and any claim that any such suit, action or proceeding brought in
such a court has been brought in an inconvenient forum. The Company agrees that
final judgment in any such suit, action or proceeding brought in such a court
shall be conclusive and binding upon the Company and may be enforced in any
court the jurisdiction of which the Company is subject to by a suit upon such
judgment; provided that service of process is effected upon the Company in the
manner specified in the following paragraph or as otherwise permitted by law.
(c) As long as any of the Notes remain outstanding, the Company will at
all times have an authorized agent in The City of New York, upon whom process
may be served in any legal action or proceeding arising out of or relating to
the Fiscal Agency Agreement or any Note. Service of process upon such agent and
written notice of such service mailed or delivered to the Company shall to the
extent permitted by law be deemed in every respect effective service of process
upon the Company in any such legal action or proceeding. The Company has
appointed CT Corporation System as its agent for such purpose, and covenants and
agrees that service of process in any legal action or proceeding may be made
upon it at the office of such agent at 1633 Broadway, New York, New York 10019
(or at such other address or, at the office of such other authorized agent, as
the Company may designate by written notice to the Fiscal Agent), with a copy to
the Company at the address for notices set forth on the signature page of the
Fiscal Agency Agreement; provided that failure to deliver any such copy to the
Company shall not affect the validity or effectiveness of any such service of
process.
Section 15. Warranties of the Company.
Subject to authentication of the Note to which these Conditions are
attached by the Fiscal Agent, the Company hereby represents and warrants that
all acts, conditions and things required to be done and performed and to have
happened prior to the creation and issuance of such Note and the Coupons (if
any) appertaining thereto and to constitute the same legal, valid and binding
obligations of the Company enforceable in accordance with their respective
terms, have been done and performed and have happened in accordance with all
applicable laws.
Exhibit C, Page 14
<PAGE> 1
EXHIBIT 4.03
================================================================================
KELLOGG COMPANY, as Issuer,
CITIBANK, N.A., as Trustee
AND
CITIBANK, N.A., as Collateral Agent
___________
INDENTURE
Dated as of August 5, 1997
___________
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
PARTIES..................................................................................................1
RECITALS.................................................................................................1
Authorization of Indenture....................................................................1
Compliance with Legal Requirements............................................................1
Purpose of and Consideration for Indenture....................................................1
ARTICLE ONE
DEFINITIONS
SECTION 1.1 Certain Terms Defined..........................................................................1
Additional Amounts.............................................................................1
Additional Collateral Agent....................................................................1
Attributable Debt..............................................................................1
Board of Directors.............................................................................2
Business Day...................................................................................2
Capital Stock..................................................................................2
Cedel .......................................................................................2
Closing Date...................................................................................2
Collateral Agent...............................................................................2
Common Depositary..............................................................................2
Company .......................................................................................2
Consolidated Net Tangible Assets...............................................................2
Corporate Trust Office.........................................................................2
Coupon .......................................................................................2
Debt .......................................................................................2
Euroclear......................................................................................2
Event of Default...............................................................................2
Holder," "Holder of Notes," "Noteholder........................................................3
Indenture......................................................................................3
Kellogg (Deutschland)..........................................................................3
mortgage" and "mortgages.......................................................................3
Note" or "Notes................................................................................3
Officers' Certificate..........................................................................3
Opinion of Counsel.............................................................................3
Outstanding....................................................................................3
Paying Agent...................................................................................3
Payment Date...................................................................................3
Person .......................................................................................3
Place of Payment...............................................................................4
Pledged Securities.............................................................................4
principal......................................................................................4
Principal Property.............................................................................4
property.......................................................................................4
Replacement Agent..............................................................................4
Responsible Officer............................................................................4
Restricted Period Expiration Date..............................................................4
Restricted Subsidiary..........................................................................4
Sale and LeaseBack Transaction.................................................................4
Series" or "Series of Notes....................................................................4
</TABLE>
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<TABLE>
<S> <C> <C>
Subsidiary.....................................................................................5
Temporary Global Note..........................................................................5
Trustee .......................................................................................5
Trust Estate...................................................................................5
vice president.................................................................................5
ARTICLE TWO
NOTES
SECTION 2.1 Series Issuable; Denominations.................................................................5
SECTION 2.2 Execution, Authentication and Delivery of Notes................................................5
SECTION 2.3 Payments.......................................................................................7
SECTION 2.4 Collateral Agent and Paying Agents; Appointments...............................................9
SECTION 2.5 Cancellation, Destruction and Records.........................................................10
SECTION 2.6 Issue of Replacement Notes and Coupons........................................................10
SECTION 2.7 ISIN Numbers..................................................................................11
ARTICLE THREE
COVENANTS OF THE ISSUER
SECTION 3.1 Payment of Principal and Interest.............................................................12
SECTION 3.2 Offices for Payment...........................................................................12
SECTION 3.3 Appointment to Fill a Vacancy in Office of Trustee............................................12
SECTION 3.4 Written Statement to Trustee..................................................................12
SECTION 3.5 Limitations upon Liens........................................................................12
SECTION 3.6 Limitation on Liens on Pledged Securities.....................................................14
SECTION 3.7 Limitations upon Sale and LeaseBack Transactions..............................................14
SECTION 3.8 Limitations upon Certain Activities by Kellogg (Deutschland)..................................15
ARTICLE FOUR
SECURITY
SECTION 4.1 Pledge of Pledged Securities..................................................................15
SECTION 4.2 Dividends and Distributions; Voting...........................................................15
SECTION 4.3 Distributions Belonging to Trust Estate.......................................................16
SECTION 4.4 Collateral Agent May Take Action..............................................................16
SECTION 4.5 Remedies......................................................................................17
SECTION 4.6 Application of Money Collected................................................................17
SECTION 4.7 Release of Trust Estate.......................................................................18
ARTICLE FIVE
REMEDIES OF THE TRUSTEE AND NOTEHOLDERS
ON EVENT OF DEFAULT
SECTION 5.1 Event of Default Defined......................................................................18
SECTION 5.2 Acceleration of Maturity......................................................................19
SECTION 5.3 Waiver of Default.............................................................................19
SECTION 5.4 Collection of Indebtedness by Trustee; Trustee May Prove Debt.................................19
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 5.5 Application of Proceeds.......................................................................21
SECTION 5.6 Suits for Enforcement.........................................................................22
SECTION 5.7 Restoration of Rights on Abandonment of Proceedings...........................................22
SECTION 5.8 Limitations on Suits by Noteholders...........................................................22
SECTION 5.9 Unconditional Right of Noteholders to Institute Certain Suits.................................23
SECTION 5.10 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default.......................23
SECTION 5.11 Control by Noteholders........................................................................23
SECTION 5.12 Waiver of Past Defaults.......................................................................23
ARTICLE SIX
THE TRUSTEE AND THE COLLATERAL AGENT
SECTION 6.1 Duties and Responsibilities of the Trustee; During Default; Prior to Default..................24
SECTION 6.2 Certain Rights of the Trustee.................................................................25
SECTION 6.3 Rights, Duties and Responsibilities of the Collateral Agent; Additional Collateral Agents.....26
SECTION 6.4 Not Responsible for Recitals, Disposition of Notes or Application of Proceeds Thereof.........27
SECTION 6.5 Trustee and Agents May Hold Notes; Collections, etc...........................................27
SECTION 6.6 Moneys Held by Trustee........................................................................27
SECTION 6.7 Compensation and Indemnification of Trustee and Its Prior Claim...............................27
SECTION 6.8 Right of Trustee and Collateral Agent to Rely on Officers' Certificate, etc...................28
SECTION 6.9 Disqualification of Trustee or Collateral Agent; Conflicting Interests........................28
SECTION 6.10 Resignation and Removal; Appointment of Successor Trustee.....................................30
SECTION 6.11 Acceptance of Appointment by Successor Trustee or Collateral Agent............................31
SECTION 6.12 Merger, Conversion, Consolidation or Succession to Business of Trustee
or Collateral Agent.........................................................................31
SECTION 6.13 Preferential Collection of Claims Against the Company.........................................32
ARTICLE SEVEN
MEETINGS OF NOTEHOLDERS
SECTION 7.1 Meetings of Holders...........................................................................35
SECTION 7.2 No Delay of Rights by Meeting.................................................................36
SECTION 7.3 Evidence of Action Taken by Noteholders.......................................................36
SECTION 7.4 Notes Owned by Company Deemed Not Outstanding.................................................37
ARTICLE EIGHT
SUPPLEMENTAL INDENTURES
SECTION 8.1 Supplemental Indentures Without Consent of Noteholders........................................37
SECTION 8.2 Supplemental Indentures With Consent of Noteholders...........................................38
SECTION 8.3 Effect of Supplemental Indenture..............................................................39
SECTION 8.4 Documents to Be Given to Trustee and Collateral Agent.........................................39
</TABLE>
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ARTICLE NINE
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
<TABLE>
<S> <C> <C>
SECTION 9.1 Company May Consolidate, etc., on Certain Terms...............................................39
SECTION 9.2 Notes to be Secured in Certain Events.........................................................39
SECTION 9.3 Successor Corporation Substituted.............................................................40
SECTION 9.4 Opinion of Counsel............................................................................40
ARTICLE TEN
MISCELLANEOUS PROVISIONS
SECTION 10.1 Incorporators, Stockholders, Officers and Directors of Company Exempt from
Individual Liability........................................................................40
SECTION 10.2 Provisions of Indenture for the Sole Benefit of Parties and Noteholders.......................40
SECTION 10.3 Successors and Assigns of Company Bound by Indenture..........................................41
SECTION 10.4 Notices and Communications....................................................................41
SECTION 10.5 Officers' Certificates and Opinions of Counsel; Statements to Be Contained Therein............42
SECTION 10.6 Governing Law.................................................................................43
SECTION 10.7 Counterparts..................................................................................43
SECTION 10.8 Effect of Headings............................................................................43
</TABLE>
TESTIMONIUM
SIGNATURES
EXHIBIT A Form of Temporary Global 6-1/8% Note
EXHIBIT B Form of Definitive 6-1/8% Note
EXHIBIT C Terms and Conditions of 6-1/8% Notes
EXHIBIT D Form of Certificate to be Given by Euroclear or Cedel
EXHIBIT E Form of Certificate to be Given by Beneficial Owners
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THIS INDENTURE is made as of August 5, 1997 between KELLOGG COMPANY, a
Delaware corporation (the "Company"), CITIBANK, N.A., a national banking
association duly incorporated and existing under the laws of the United States
of America, acting through its principal corporate trust office in New York, as
trustee (the "Trustee"), CITIBANK, N.A., a national banking association duly
incorporated and existing under the laws of the United States of America acting
through its principal corporate trust office in New York, as collateral agent
(the "Collateral Agent"), and the paying agents appointed herein.
W I T N E S S E T H:
WHEREAS, the Company has duly authorized the issue of $500,000,000
aggregate principal amount of its 6-1/8% Notes due August 6, 2001 (the "Notes")
and to provide, among other things, for the authentication, delivery and
administration thereof, the Company has duly authorized the execution and
delivery of this Indenture; and
WHEREAS, all things necessary to make this Indenture a valid indenture
and agreement according to its terms have been done;
NOW, THEREFORE:
In consideration of the premises and the purchases of the Notes by the
holders thereof, the Company, the Trustee, the Collateral Agent and the Paying
Agents mutually covenant and agree for the equal and proportionate benefit of
the respective holders from time to time of the Notes as follows:
ARTICLE ONE
DEFINITIONS
SECTION 1.1 Certain Terms Defined. The following terms (except as
otherwise expressly provided or unless the context otherwise clearly requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section. All accounting
terms used herein and not expressly defined shall have the meanings assigned to
such terms in accordance with generally accepted accounting principles, and the
term "generally accepted accounting principles" means such accounting principles
as are generally accepted in the United States at the time of any computation.
The words "herein", "hereof" and "hereunder" and other words of similar import
refer to this Indenture as a whole, as supplemented and amended from time to
time, and not to any particular Article, Section or other subdivision (except as
otherwise expressly provided). The terms defined in this Article have the
meanings assigned to them in this Article and include the plural as well as the
singular.
"Additional Amounts" means any additional amounts payable with respect
to the Notes as provided in the form thereof.
"Additional Collateral Agent" shall have the meaning set forth in
Section 6.3.
"Attributable Debt" means the present value (discounted at the actual
percentage rate inherent in a Sale and Lease-Back Transaction, as determined in
good faith by the Company, compounded semi-annually) of the obligation of a
lessee for rental payments during the remaining term of any lease (including any
period for which such lease has been extended). Such rental payments shall not
include amounts payable by the lessee for maintenance and repairs, insurance,
taxes, assessments and similar charges and for contingent rents (such as those
based on sales). In case of any lease which is terminable by the lessee upon the
payment of a penalty, such rental payments shall also include such penalty, but
no rent shall be considered as required to be paid under such lease subsequent
to the first date upon which it may be so terminated. Any determination of any
actual percentage rate inherent in any such Sale and Lease-Back Transaction made
in good faith by the Company shall be binding and conclusive.
<PAGE> 7
"Board of Directors" means either the Board of Directors of the Company
or any committee of such Board duly authorized to act hereunder.
"Business Day" means a day (other than a Saturday or Sunday) on which
banks are open for business in New York City and the relevant Place of Payment.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock.
"Cedel" means Cedel, societe anonyme.
"Closing Date" means August 5, 1997, or such other date as the
underwriters participating in the sale of such Series of Notes and the Company
may agree.
"Collateral Agent" means the person named as the "Collateral Agent" in
the first paragraph of this instrument unless an Additional Collateral Agent
shall have been named pursuant to the applicable provisions of this Indenture,
and thereafter, "Collateral Agent" shall mean the Collateral Agent and
Additional Collateral Agent; provided that if a successor Collateral Agent has
been named pursuant to the applicable provisions of this Indenture, then
thereafter "Collateral Agent" shall mean the successor Collateral Agent.
"Common Depositary" means Citibank, N.A., London Office, as common
depositary on behalf of Euroclear and Cedel.
"Company" means (except as otherwise provided in Article Six) Kellogg
Company, a Delaware corporation, and, subject to Article Nine, its successors
and assigns.
"Consolidated Net Tangible Assets" means, as of any particular time,
the total amount of assets (less applicable reserves) after deducting therefrom
(a) all current liabilities (excluding any thereof which are by their terms
extendible or renewable at the option of the obligor thereon to a time more than
12 months after the time as of which the amount thereof is being computed and
excluding current maturities of long-term indebtedness), and (b) all goodwill,
trade names, trademarks, patents, unamortized debt discount and expense and
other like intangible assets, all as shown in the latest quarterly consolidated
balance sheet of the Company contained in the Company's then most recent annual
report to stockholders or quarterly report filed with the United States
Securities and Exchange Commission, as the case may be, except that assets shall
include an amount equal to the Attributable Debt in respect of any Sale and
Lease-Back Transaction not capitalized on such balance sheet.
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered.
"Coupon" means any interest coupon appertaining to any Note.
"Debt" shall have the meaning set forth in Section 3.5.
"Euroclear" means Morgan Guaranty Trust Company of New York (Brussels
Office), as operator of the Euroclear System.
"Event of Default" means any event or condition specified as such in
Section 5.1.
"Holder," "Holder of Notes," "Noteholder" or other similar terms mean
the bearer of one or more Notes and, when used with respect to any Coupon, means
the bearer thereof.
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"Indenture" means this instrument as originally executed and delivered
or, if amended or supplemented as herein provided, as so amended or supplemented
or both, and shall include the forms and terms of particular Series of Notes
established as contemplated hereunder.
"Kellogg (Deutschland)" means Kellogg (Deutschland) GmbH, a corporation
organized under the laws of the Federal Republic of Germany.
"mortgage" and "mortgages" shall have the meanings set forth in
Section 3.5.
"Note" or "Notes" has the meaning stated in the first recital of this
Indenture, and, where the context so permits, includes the Temporary Global
Note.
"Officers' Certificate" means a certificate signed by the chairman of
the Board of Directors or the president or any vice president and by the
treasurer or the secretary or any assistant secretary of the Company and
delivered to the Trustee. Each such certificate shall include the statements
provided for in Section 10.5.
"Opinion of Counsel" means an opinion in writing signed by legal
counsel who may be an employee of or counsel to the Company and who shall be
satisfactory to the Trustee. Each such opinion shall include the statements
provided for in Section 10.5, if and to the extent required hereby.
"Outstanding" when used with reference to Notes, shall, subject to the
provisions of Section 7.4, mean, as of any particular time, all Notes
authenticated and delivered by the Trustee under this Indenture, except
(a) Notes theretofore cancelled by the Trustee or delivered
to the Trustee for cancellation;
(b) Notes, or portions thereof, for the payment or redemption
of which moneys in the necessary amount and in the specified currency
or currency unit shall have been deposited in trust with the Trustee or
with any paying agent (other than the Company) or shall have been set
aside, segregated and held in trust by the Company for the holders of
such Notes (if the Company shall act as its own paying agent), provided
that if such Notes, or portions thereof, are to be redeemed prior to
the maturity thereof, notice of such redemption shall have been given
as herein provided, or provision satisfactory to the Trustee shall have
been made for giving such notice; and
(c) Notes in substitution for which other Notes shall have
been authenticated and delivered, or which shall have been paid,
pursuant to the terms of Section 2.9 (except with respect to any such
Notes as to which proof satisfactory to the Trustee and the Company is
presented that such Notes is held by a person in whose hands such Notes
is a legal, valid and binding obligation of the Company).
"Paying Agent" means any Person (which may include the Company)
authorized by the Company to pay the principal of or interest, if any, on any
Note on behalf of the Company.
"Payment Date" shall have the meaning set forth in Section 2.3(b).
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment", when used with respect to the Notes of any Series,
means the place or places where the principal of and interest, if any, on the
Notes of that Series are payable.
"Pledged Securities" means the Capital Stock owned by the Company of
Kellogg (Deutschland), which are pledged for the benefit of the holders of the
Notes pursuant to this Indenture, together with any securities received by the
Collateral Agent in respect of such shares of Capital Stock pursuant to the
provisions hereof.
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"principal" whenever used with reference to the Notes or any Note or
any portion thereof, shall be deemed to include "and premium, if any".
"Principal Property" means 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, except any such plant or facility which
the Board of Directors by resolution declares is not of material importance to
the total business conducted by the Company and its Restricted Subsidiaries as
an entirety and which, when taken together with all other plants and facilities
as to which such a declaration has been made, are so declared by the Board of
Directors to be not of material importance to the total business conducted by
the Company and its Restricted Subsidiaries as an entirety.
Prior Secured Notes" shall have the meaning set forth in Section 3.6.
"property" shall have the meaning set forth in Section 3.5.
"Replacement Agent" shall have the meaning set forth in Section 2.6(a).
"Responsible Officer" when used with respect to the Trustee shall mean
any officer within the Corporate Trust and Agency Group (or any successor group)
of the Trustee including any vice president, assistant vice president, assistant
secretary, or any other officer or assistant officer of the Trustee customarily
performing functions similar to those performed by the persons who at the time
shall be such officers, respectively, or to whom any corporate trust matter is
referred at the Corporate Trust Office because of his or her knowledge of and
familiarity with the particular subject.
"Restricted Period Expiration Date" means the date which is 40 days
after the Closing Date.
"Restricted Subsidiary" means 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, direct or indirect and whether in the form of equity, debt or
advances, as shown on the consolidating balance sheet used in the preparation of
the latest quarterly consolidated financial statements of the Company preceding
the date of determination, is in excess of 1% of the total consolidated assets
of the Company as shown on such quarterly consolidated financial statements;
provided, however, that the term "Restricted Subsidiary" shall not include any
Subsidiary which is principally engaged in leasing or in financing installment
receivables or which is principally in financing the Company's operations
outside the continental United States of America.
"Sale and Lease-Back Transaction" means any arrangement with any person
providing for the leasing by the Company or any Restricted Subsidiary of any
Principal Property of the Company or any Restricted Subsidiary (whether such
Principal Property is owned at the date of this Indenture or thereafter
acquired) (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), which Principal Property has been or is to be sold or
transferred by the Company or such Restricted Subsidiary to such person.
"Series" or "Series of Notes" means the Notes.
"Subsidiary" means any corporation which is consolidated in the
Company's accounts and any corporation of which at least a majority of the
outstanding stock having by the terms thereof ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned or controlled by the Company, or by
one or more Subsidiaries, or by the Company and one or more Subsidiaries.
"Temporary Global Note" means the single, temporary global note
representing the Notes.
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"Trustee" means the Person identified as "Trustee" in the first
paragraph hereof and, subject to the provisions of Article Six, any successor
trustee.
"Trust Estate" means the Pledged Securities and related distributions
and proceeds pledged to the Collateral Agent pursuant to Article Four hereof.
"vice president" when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title of "vice president".
ARTICLE TWO
NOTES
SECTION 2.1 Series Issuable; Denominations. (a) The Notes
issuable pursuant to this Indenture are limited to one series: the $500,000,000
aggregate principal amount of 6-1/8% Notes due August 6, 2001.
(b) The Notes will be issuable in denominations of $1,000, $10,000 and
$100,000.
The Notes will be secured by the Pledged Securities to the extent
provided in Article Four.
The Notes shall be subject to redemption as provided in the respective
forms thereof.
SECTION 2.2 Execution, Authentication and Delivery of Notes.
(a) The provisions set forth under this subsection (a) shall apply to
the execution, authentication and delivery of the Notes:
(i) The Notes will initially be represented by the Temporary
Global Note without interest Coupons in substantially the form set
forth in Exhibit A.
(ii) Beneficial interests in the Temporary Global Note will be
exchangeable for definitive Notes in bearer form, with Coupons
attached, in substantially the form set forth in Exhibit B, on or after
the Restricted Period Expiration Date upon and to the extent that the
certification requirements set forth in Section 2.2(c)(ii) have been
complied with.
(iii) The Temporary Global Note shall be delivered by the
Company to the Trustee at least one Business Day prior to the Closing
Date, and the Trustee shall deliver the Temporary Global Note, duly
authenticated by an authorized signatory of the Trustee upon
instruction from the Company to the Common Depositary. The Company will
deliver, or cause to be delivered, to the Trustee at least 10
days prior to the Restricted Period Expiration Date, the definitive
Notes for delivery, authentication and endorsement by the Trustee as
provided in Section 2.2(c), below.
(b) The Trustee may, at its discretion, appoint any person to act as
the agent of the Trustee in authenticating, delivering and endorsing the Notes
or taking any other action that is required by this Indenture to be taken with
respect thereto. Such person may authenticate, deliver and endorse the Notes
whenever the Trustee may do so, unless limited by the terms of such appointment.
Each reference in this Indenture and the Notes to authentication, delivery,
endorsement or the taking of any other action by the Trustee shall include
authentication, delivery, endorsement or the taking of any other action by any
such agent so appointed.
(c) (i) The Trustee shall (subject to subsection (ii) below) on or
after the Restricted Period Expiration Date authenticate and deliver to
the Common Depositary for the account of owners of beneficial
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interests in the Temporary Global Note which have provided the
certification described in subsection (ii) below, in exchange for the
portion of the Temporary Global Note beneficially owned by such
owners, the definitive Notes in an aggregate principal amount equal to
the aggregate principal amount of the Temporary Global Note
beneficially owned by such owners.
(ii) Notwithstanding anything to the contrary in subsection
(i) above, the Trustee will only authenticate and deliver the
definitive Notes with respect to portions of the Temporary Global Note
as to which Euroclear or Cedel has delivered to the Trustee a
certificate or certificates substantially in the form set forth in
Exhibit D, dated not earlier than the Restricted Period Expiration
Date. Solely for the purposes of United States Treas. Reg.
ss.1.163-5(c)(2)(i)(D), the Company hereby appoints the Trustee as its
agent to receive any certificates substantially in the form of Exhibit
D that are required to be delivered pursuant to this subsection (ii)
and to retain any such certificates for a period of four calendar years
following the year in which any such certificates are received, and the
Trustee hereby accepts such appointment. The delivery to the Trustee by
Euroclear or Cedel of such a certificate may be relied upon by the
Company and the Trustee as conclusive evidence that a related
certificate or certificates substantially in the form set forth in
Exhibit E and dated not earlier than 15 days prior to the date of the
related certificate of Euroclear or Cedel has or have been delivered
(as provided in United States Treas. Reg. Section 1.163-5(c)(2)(i)(D)
(3)) to Euroclear or Cedel by one or more beneficial owners of the
Temporary Global Note.
(iii) Upon delivery by Euroclear or Cedel to the Trustee of
certificates substantially in the form of Exhibit D as contemplated in
subsection (ii) above, the part of the Temporary Global Note referred
to in such certificates shall be exchanged for definitive Notes and
shall be endorsed on Schedule II to the Temporary Global Note to
reflect the reduction of its principal amount by an amount equal to the
aggregate principal amount of such definitive Note or Notes. Until the
entire principal amount of the Temporary Global Note has been so
exchanged in full, holders of beneficial interests in the Temporary
Global Note shall in all respects be entitled to the same benefits as
holders of the definitive Notes authenticated and delivered hereunder,
except that neither the holders nor the beneficial owners of the
Temporary Global Note shall be entitled to receive payments of
principal of, or interest or any Additional Amounts, if any, on, the
Temporary Global Note except as provided in Section 2.2(e) and Exhibit
A.
(d) In the event that any Payment Date with respect to the Notes shall
occur at a time when any portion of the principal amount of the Temporary Global
Note has not been exchanged for definitive Notes, payments of principal of, and
interest and Additional Amounts (if any), on that portion of the principal
amount of the Temporary Global Note which has not been exchanged for definitive
Notes shall be paid by the Company to the Trustee on or before such Payment Date
and shall be held by the Trustee for payment to Euroclear or Cedel upon such
exchange (whereupon Euroclear and Cedel have undertaken to credit such amount to
the account of the owner(s) of the related portion(s)).
(e) Interest payable after the delivery of a definitive Note may be
collected only upon presentation of the Coupons attached thereto as they mature.
(f) Any exchange pursuant to Section 2.2(c) shall be made free of
charge to the holder and the beneficial owners of the Temporary Global Note and
to the holders of the definitive Notes issued in exchange for beneficial
interests in the Temporary Global Note as provided above.
(g) Upon return of the entire principal amount of the Temporary Global
Note to the Trustee in exchange for the definitive Notes, the Trustee shall
cancel the Temporary Global Note by perforation and shall forthwith destroy such
Temporary Global Note on behalf of the Company.
(h) All Notes delivered to the Trustee, including the Temporary Global
Note, shall be signed on behalf of the Company by a duly authorized officer of
the Company, and any such signature may be manual or facsimile.
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The signature of any person who shall hold any office at the date of signature
may be used notwithstanding that when any Note shall be delivered any such
person shall have ceased to hold such office. The Company covenants that each
such Note, when issued, will constitute the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms.
SECTION 2.3 Payments.
(a) Payments of principal and interest will be made against surrender
of the Notes or Coupons on and after the payment dates in respect thereof, as
the case may be, at the offices of any of the Paying Agents, subject in each
case to any applicable laws or regulations. Except as ordered by a court of
competent jurisdiction or as required by law, the Paying Agents, the Trustee and
the Company shall be entitled, notwithstanding any notice to the contrary, to
treat the bearer of any Note or Coupon as the absolute owner thereof (whether or
not such Note or Coupon shall be overdue and notwithstanding any notation of
ownership or other writing thereon) for the purpose of receiving payment when
due in full or in part and for all other purposes and shall not be required to
obtain any proof thereof or as to the identity of the bearer.
(b) The Company shall, by 10:00 a.m. London time at least two Business
Days prior to each date on which any payment (whether of principal, interest or
otherwise) in respect of the Notes or the Coupons becomes due (a "Payment
Date"), cause the bank through which such payment is to be made to confirm, by
tested telex or authenticated Swift message MT100, to the Trustee that
irrevocable payment instructions to effect the relevant payment have been given
by 10:00 a.m. New York time, and shall, by 10:00 a.m. New York time on each
Payment Date, transfer to the Trustee such amount as may be required for the
purposes of such payment.
(c) Subject to payment being duly made by the Company as provided
above, the Paying Agents shall pay or cause to be paid on behalf of the Company
on and after each Payment Date the amounts due in respect of the Notes or the
Coupons, as the case may be, in accordance with the terms of this Indenture. So
long as the Company has made payments as provided in Section 2.3(b) on or before
each Payment Date, the Company shall not be liable for any delay in payments by
the Trustee or any Paying Agent hereunder. Unless and until the full amount of
any payment has been made to the Trustee, none of the Paying Agents shall be
bound to make payments in respect of the Notes or the Coupons as aforesaid.
(d) (i) The Trustee shall forthwith notify by facsimile transmission
each of the Paying Agents and the Company in the event that it has not
received the confirmation referred to in Section 2.3(b) or on any
Payment Date received the full amount so payable on such date.
(ii) In the absence of such notification from the Trustee in
accordance with Section 2.3(d)(i) to the effect that the Trustee (a)
has not received the confirmation referred to in Section 2.3(b) or (b)
has not received payment, such Paying Agent shall assume that the
Trustee has received the confirmation referred to in Section 2.3(b) and
the full amount due on such Payment Date in respect of the Notes or the
Coupons, as the case may be, and shall be entitled:
(A) to pay maturing Notes and Coupons in accordance
with the terms of this Indenture; and
(B) to claim from the Trustee any amounts so paid by
it.
(e) The Trustee shall on demand promptly reimburse the other Paying
Agents for payments in respect of the Notes and the Coupons if properly made by
them in accordance with the term of this Indenture.
(f) If the Trustee has not received by any Payment Date the full amount
payable on such date but receives such full amount later it shall:
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(i) forthwith so notify the Paying Agents and the Company;
and
(ii) as soon as practicable give notice to the holders of the
Notes in the manner provided in Section 10.4 that it has received such
full amount.
(g) All sums payable to the Trustee hereunder with respect to the Notes
shall be paid in United States dollars, subject to applicable laws and
regulations, in immediately available funds to such account as the Trustee may
from time to time notify to the Company.
(h) Notwithstanding any other provision hereof, no payment with respect
to the principal of, or interest or Additional Amounts (if any) on, any Notes
may be made at any office of the Trustee or any Paying Agent in the United
States of America (including the States and the District of Columbia) or its
possessions (including Puerto Rico, the U.S. Virgin Islands, Guam, American
Samoa, Wake Island and the Northern Mariana Islands) (the "United States"), nor
will any payment be made by transfer to an account in, or by mail to an address
in, the United States. Except as provided in Section 2.2(e), payments of
principal and interest will be made against surrender of the Notes or Coupons,
as the case may be, on and after the payment dates in respect thereof at the
specified offices of any of the Paying Agents outside the United States, subject
in each case to any applicable laws and regulations. Such payments will be made
by check, or at the option of the holder, by transfer to an account maintained
by such holder payee with a bank outside the United States.
(i) Subject to Article Six hereof, the Trustee shall be entitled to
deal with monies paid to it hereunder in the same manner as other monies paid to
it as a banker by its customers except that (A) it shall not be entitled to
exercise any lien, right of set-off or similar claim in respect thereof and (B)
it shall not be liable to any person for interest on any sums held by it under
this Indenture.
(j) If on presentation of a Note or Coupon the amount payable in
respect thereof is not paid in full (otherwise than as a result of deduction of
tax as otherwise expressly permitted by the Indenture), the Paying Agent to
which the Note or Coupon is presented shall ensure that such Note or Coupon is
enfaced with a memorandum of the amount paid and the date of payment.
(k) If the Company or any Paying Agent is compelled by United States
law to make any withholding or deduction from any payment due in respect of any
Note, it will make available to the Trustee for inspection, upon its written
request, all records, accounts, certificates and other documents relating to
such payment in order that the Trustee may confirm to the holder of such Note
that such payment has been duly made.
(l) (i) In the case of the redemption of any Note (as provided in
the form thereof) prior to maturity, the Note shall be presented for
payment together with all unmatured Coupons appertaining to that Note;
failing presentation of all such Coupons, the payment of principal
will only be made against the Noteholder giving such indemnity and
providing such other documents in respect of the missing unmatured
Coupons as the Company may require. In the case of any such
redemption, the unmatured Coupons (if any) appertaining thereto shall
become void and no payment shall be due in respect thereof.
(ii) If the due date for redemption of any Note is not an
Interest Payment Date, the interest accrued from the preceding Interest
Payment Date (or from the Issue Date, as the case may be) shall be
payable only against surrender of the relevant Note.
(m) Any moneys deposited with or paid to the Trustee or any Paying
Agent for the payment of the principal of or interest on the Notes or Coupons
and not applied but remaining unclaimed for two years after the date upon which
such principal or interest shall have become due and payable, shall, be repaid
to the Company by the Trustee or by such Paying Agent, and all liability of the
Trustee or any Paying Agent with respect to such moneys shall thereupon cease.
The Holder of any such Note or any Coupon appertaining thereto shall, unless
otherwise
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required by mandatory provisions of applicable escheat or abandoned or unclaimed
property laws, thereafter look only to the Company for payment, as a general
unsecured creditor thereof. Subject to applicable laws and regulations, any
payment that will be made by the Company under this paragraph with respect to
any Notes or Coupons will be made outside the United States.
SECTION 2.4 Collateral Agent and Paying Agents; Appointments.
(a) Citibank, N.A., at its principal corporate trust office in New York
is hereby appointed by the Company as Collateral Agent upon the terms and
subject to the conditions set forth below. Citibank, N.A., at its principal
corporate trust office in New York hereby accepts such appointment.
(b) Citibank, N.A. at its principal corporate trust office in London,
Citibank (Luxembourg) S.A. at its principal corporate trust office in Luxembourg
and Citibank, N.A., Brussels Branch at its principal corporate trust office in
Brussels are hereby appointed paying agents upon the terms and subject to the
conditions set forth below for the payment of the principal of and interest on
the Notes and to perform such other duties relating thereto as are set forth
herein or in the Notes. Citibank, N.A. at its principal corporate trust office
in London, Citibank (Luxembourg) S.A. at its principal corporate trust office in
Luxembourg and Citibank, N.A., Brussels Branch at its principal corporate trust
office in Brussels hereby accept such appointments.
(c) The Company may at any time appoint additional Paying Agents, and
subject to Section 2.4(e), terminate the appointment of any Paying Agent with
the prior written consent of the Trustee, in each case by giving the Paying
Agent concerned and the Trustee no less than 60 days' written notice to that
effect, which notice shall not expire less than 30 days before or after any
Payment Date.
(d) Subject to Section 2.4(e), any Paying Agent may resign its
appointment hereunder at any time by giving to the Company and to the Trustee
not less than 60 days' prior written notice to that effect, which notice shall
expire not less than 30 days before or after any Payment Date.
(e) Notwithstanding Sections 2.4(c) and 2.4(d), no resignation by or
termination of the appointment of any Paying Agent shall take effect if as a
result of such resignation or termination there would cease to be so long as the
Notes are listed on the Luxembourg Stock Exchange and the rules of the
Luxembourg Stock Exchange so require, a Paying Agent in Luxembourg with respect
to the Notes.
(f) Any Paying Agent may change the address of its office within a
particular city, in which event it shall give to the Company and the Trustee not
less than 30 days' prior written notice to that effect, giving the address of
the new office and the date upon which such change is to take effect.
(g) The Trustee shall give to the holders of the Notes, in the manner
provided in Section 10.4, not less than 45 days' notice of any such proposed
appointment, termination, resignation or change of which it is aware.
(h) Any successor Paying Agent appointed hereunder shall execute,
acknowledge and deliver to its predecessor and to the Company an instrument
accepting such appointment hereunder, and thereupon such successor Paying Agent,
without any further act, deed or conveyance shall become vested with all the
authority, rights, powers, trusts, immunities, duties and obligations of such
predecessor with like effect as if originally named as Paying Agent hereunder,
and such predecessor, upon payment of its charges and disbursements then unpaid,
shall thereupon become obligated to transfer, deliver and pay over, and such
successor Paying Agent shall be entitled to receive, all monies, securities and
other property on deposit with or held by such predecessor, as Paying Agent
hereunder.
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(i) Any retiring Paying Agent shall, following its resignation or
removal, continue to enjoy the indemnities set forth herein with respect to the
performance or non-performance of its obligations hereunder while serving as
Paying Agent.
SECTION 2.5 Cancellation, Destruction and Records.
(a) All Notes which are redeemed (together with such unmatured Coupons
as are attached thereto or are surrendered therewith at the time of such
redemption) and all Coupons which are paid or have become void shall be
cancelled forthwith by perforation by the Paying Agent by or through which they
are redeemed, paid or received. Such Paying Agent shall give all relevant
details and forthwith forward the cancelled Notes and Coupons to the Trustee.
(b) The Trustee shall forthwith destroy all cancelled Notes and Coupons
on behalf of the Company upon receipt thereof (whether directly or from any
other Paying Agent).
(c) The Trustee shall as soon as practicable and in any event within
three months after the date of any such redemption or payment furnish to the
Company a certificate stating (i) the aggregate principal amount of Notes which
have been redeemed and cancelled and the aggregate amount paid in respect of
Coupons which have been paid and cancelled, (ii) the serial numbers of such
Notes, (iii) the total numbers by maturity date of such Coupons and (iv) that
all such cancelled Notes and Coupons have been destroyed.
(d) The Trustee shall keep a full and complete record of all Notes and
Coupons and of their validation, redemption, purchase, cancellation or payment
(as the case may be) and of all replacement Notes and Coupons issued in
substitution for lost, stolen, mutilated, defaced or apparently destroyed Notes
or Coupons and shall make such record available at all reasonable times to the
Company.
SECTION 2.6 Issue of Replacement Notes and Coupons.
(a) The Company shall cause a sufficient quantity of additional Notes
and Coupons to be made available, upon request, to the Trustee for the purpose
of issuing replacement Notes and Coupons in accordance with the terms of this
Indenture.
(b) The Trustee (in such capacity, the "Replacement Agent") shall,
subject to and in accordance with the following provisions of this Section 2.6,
and the terms of this Indenture, issue any replacement Notes or Coupons in place
of Notes or Coupons which have been lost, stolen, mutilated, defaced or
apparently destroyed.
(c) In the case of a mutilated or defaced Note, the Replacement Agent
shall ensure that (unless otherwise covered by such indemnity and other
documents as the Company may require) any replacement Note will only have
attached to it Coupons corresponding to those attached to the mutilated or
defaced Note which is presented for replacement.
(d) The Replacement Agent shall not issue any replacement Note or
Coupon unless and until the applicant therefor shall have:
(i) paid such costs as may be incurred in connection
therewith;
(ii) (in the case of a lost, stolen, defaced, mutilated or
destroyed Note or Coupon) furnished the Replacement Agent with such
evidence (including evidence as to the serial number of the Note or
Coupon in question) and indemnity in respect thereof as the Company and
the Replacement Agent may require; and
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(iii) surrendered to the Replacement Agent any mutilated or
defaced Note or Coupon to be replaced.
(e) The Trustee shall cancel and destroy any mutilated or defaced Notes
or Coupons replaced pursuant to this Section 2.6 and shall furnish the Company
with a certificate stating the serial numbers of Notes and Coupons so cancelled
and destroyed.
(f) The Replacement Agent shall, on issuing any replacement Note or
Coupon, forthwith inform the other Paying Agents and the Company of the serial
number of such replacement Note or Coupon issued, the date of issue and the
serial number of the Note or Coupon in place of which such replacement Note or
Coupon has been issued.
(g) Whenever any Note or Coupon alleged to have been lost, stolen or
destroyed in replacement for which a new Note or Coupon has been issued shall be
presented to any of the Paying Agents for payment, the Paying Agent to which
such Note or Coupon is presented shall immediately send notice thereof to the
Trustee (if other than such Paying Agent), which shall so inform the Company and
after consultation between them take appropriate action.
(h) Notwithstanding anything to the contrary stated herein, no
replacement Note or Coupon shall be delivered within the United States.
SECTION 2.7 ISIN Numbers.
The Company in issuing the Notes may use "ISIN" numbers (if then
generally in use), and, if so, the Trustee shall use "ISIN" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Notes or as contained in any notice of a redemption and
that reliance may be placed only on the other identification numbers printed on
the Notes, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Company will promptly notify the Trustee of any
change in the "ISIN" numbers.
ARTICLE THREE
COVENANTS OF THE ISSUER
SECTION 3.1 Payment of Principal and Interest.
The Company covenants and agrees for the benefit of the series of Notes
identified in Section 2.1 that it will duly and punctually pay or cause to be
paid the principal of, and interest on, the Notes, in accordance with the terms
of this Indenture.
The interest on the Notes, except as otherwise provided in Section
2.2(d), shall be payable only upon presentation and surrender of the attached
Coupons (as they mature) at the office of a Paying Agent outside the United
States.
SECTION 3.2 Offices for Payment.
The Company has initially appointed the Paying Agents specified in
Section 2.4(b) hereof. The Company agrees that, so long as any of the Notes are
outstanding, it will maintain (i) a paying agent outside the United States, and
(ii) so long as the Notes are listed on the Luxembourg Stock Exchange and the
rules of the Luxembourg Stock Exchange shall so require, it will maintain a
paying agent in Luxembourg.
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SECTION 3.3 Appointment to Fill a Vacancy in Office of Trustee. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 6.10, a Trustee, so that there
shall at all times be a Trustee with respect to the Series of Notes hereunder.
SECTION 3.4 Written Statement to Trustee. The Company will deliver to
the Trustee for the Series of Notes on or before a date not more than four
months after the end of each of its fiscal years during which the Notes are
outstanding a written statement, signed by two of its officers (which need not
comply with Section 10.5), stating that in the course of the performance of
their duties as officers of the Company they would normally have knowledge of
any default by the Company in the performance or fulfillment of any covenant,
agreement or condition contained in this Indenture, stating whether or not they
have knowledge of any such default and, if so, specifying each such default of
which the signers have knowledge and the nature thereof.
SECTION 3.5 Limitations upon Liens.
(a) The Company will not, nor will it permit any Restricted Subsidiary
to issue, assume or guarantee any indebtedness for money borrowed (hereinafter
in this Section 3.5 called "Debt"), secured by a mortgage, security interest,
pledge, lien or other encumbrance (mortgages, security interests, pledges, liens
and other encumbrances being hereinafter in this Section 3.5 called "mortgage"
or "mortgages") upon any Principal Property of the Company or any Restricted
Subsidiary or upon any shares of stock or indebtedness of any Restricted
Subsidiary (whether such Principal Property, shares of stock or indebtedness are
owned at the date of this Indenture or thereafter acquired) without in any such
case effectively providing concurrently with the issuance, assumption or
guaranty of any such debt, that the Notes (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 Notes and then existing or
thereafter created) shall be secured equally and ratably with (or, at the option
of the Company, prior to) such Debt so long as such Debt shall be so secured;
provided, however, that the foregoing restrictions shall not apply to Debt
secured by:
(i) mortgages on property, shares of stock or indebtedness
(hereinafter in this Section 3.5 called "property") of any corporation
existing at the time such corporation becomes a Restricted Subsidiary;
(ii) mortgages on property existing at the time of acquisition
of the affected property by the Company or a Restricted Subsidiary, or
mortgages to secure the payment of all or any part of the purchase
price of such property upon the acquisition of such property by the
Company or a Restricted Subsidiary or to secure any Debt incurred by
the Company or a Restricted Subsidiary prior to, at the time of, or
within 360 days after the later of the acquisition, the completion of
construction (including any improvements on an existing property) or
the commencement of commercial operation of such property, which Debt
is incurred for the purpose of financing all or any part of the
purchase price thereof or construction or improvements thereon;
provided, however, that in the case of any such acquisition,
construction or improvement, the mortgage shall not apply to any
property theretofore owned by the Company or a Restricted Subsidiary,
other than, in the case of any such construction or improvement, any
real property on which the property so constructed, or the improvement,
is located which in the opinion of the Board of Directors (or duly
authorized committee thereof) was prior to such construction or
improvement, 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 to 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, however, that any such mortgages do not attach to
or affect property theretofore owned by the Company or such Restricted
Subsidiary;
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<PAGE> 18
(v) mortgages on property owned or leased by the Company or a
Restricted Subsidiary in favor of the United States of America or any
State thereof, or any department, agency or instrumentality or
political subdivision of the United States of America or any State
thereof, or in favor of any other country or any political subdivision
thereof, or in favor of holders of securities issued by any such
entity, pursuant to any contract or statute (including, without
limitation, 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 this Indenture,
including the pledge of the Pledged Securities pursuant to Article
Four;
(vii) landlords' liens on fixtures located on premises leased
by the Company or a Restricted Subsidiary in the ordinary course of
business;
(viii) mortgages on property of the Company or a Restricted
Subsidiary to secure partial, progress, advance or other payments or
any Debt incurred for the purpose of financing all or any part of the
purchase price or the cost of construction, development, or substantial
repair, alteration or improvement of the property subject to such
mortgages if the commitment for the financing is obtained not later
than one year after the later of the completion of or the placing into
operation (exclusive of test and start-up periods) of such constructed,
developed, repaired, altered or improved property;
(ix) mortgages arising in connection with contracts and
subcontracts with or made at the request of the United States of
America, or any state thereof, or any department, agency or
instrumentality of the United States of America or any state thereof;
(x) mechanics', materialmen's, carriers' or other like liens
arising in the ordinary course of business (including construction of
facilities) in respect of obligations which are not due or which are
being contested in good faith;
(xi) any mortgage arising by reason of deposits with, or the
giving of any form of security to, any governmental agency or any body
created or approved by law or governmental regulations, which is
required by law or governmental regulation as a condition to the
transaction of any business, or the exercise of any privilege,
franchise or license;
(xii) mortgages for taxes, assessments or governmental charges
or levies not yet delinquent, or mortgages for taxes, assessments or
governmental charges or levies already delinquent but the validity of
which is being contested in good faith;
(xiii) mortgages (including judgment liens) arising in
connection with legal proceedings so long as such proceedings are being
contested in good faith and, in the case of judgment liens, execution
thereon is stayed; 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;
provided, however, that the principal amount of Debt secured thereby
shall not exceed the principal amount of Debt so secured at the time of
such extension, renewal or replacement mortgage, and that such
extension, renewal or replacement mortgage shall be limited to all or a
part of the property which secured the mortgage so extended, renewed or
replaced (plus improvements on such property).
(b) Notwithstanding the foregoing provisions of this Section 3.5, the
Company and any one or more Restricted Subsidiaries may issue, assume or
guarantee Debt secured by mortgages which would otherwise be subject
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<PAGE> 19
to the foregoing restrictions in an aggregate amount which, together with all
other Debt of the Company and its Restricted Subsidiaries which (if originally
issued, assumed or guaranteed at such time) would otherwise be subject to the
foregoing restrictions (not including Debt permitted to be secured under clauses
(i) through (xiv) above), does not at the time exceed 10% of Consolidated Net
Tangible Assets (as defined above), as shown on the latest quarterly
consolidated financial statements of the Company preceding the date of
determination.
SECTION 3.6 Limitation on Liens on Pledged Securities.
The Company will not create, incur, assume or permit to exist any
mortgage on any of the Pledged Securities other than the mortgage of this
Indenture and the mortgage created pursuant to the Indenture dated September 29,
1994 between the Company and The Chase Manhattan Bank, N.A., as trustee and
collateral agent, with respect to the Company's 8-1/8% Secured Notes due
September 29, 1997 and the Company's 5-1/4% Secured Notes due September 29,
1997 (the "Prior Secured Notes").
SECTION 3.7 Limitations upon Sale and Lease-Back Transactions.
(a) The Company will not, nor will it permit any Restricted Subsidiary
to, enter into any arrangement with any person providing for the leasing by the
Company or any Restricted Subsidiary of any Principal Property of the Company or
any Restricted Subsidiary (whether such Principal Property is owned at the date
this Indenture or thereafter acquired) (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), which Principal
Property has been or is to be sold or transferred by the Company or such
Restricted Subsidiary to such person (herein referred to as a "Sale and
Lease-Back Transaction"), unless (a) the Company or such Restricted Subsidiary
would be entitled, pursuant to the provisions of Sections 3.5(a) or 3.5(b), to
issue, assume or guarantee Debt secured by a mortgage upon such Principal
Property at least equal in amount to the Attributable Debt in respect of such
arrangement without equally and ratably securing the Notes; provided, however,
that from and after the date on which such arrangement becomes effective, the
Attributable Debt in respect of such arrangement shall be deemed for all
purposes under Sections 3.5 and 3.7 to be Debt subject to the provisions of
Section 3.5; or (b) the Company shall apply an amount in cash equal to the
Attributable Debt in respect of such arrangement to the retirement (other than
any mandatory retirement or by way of payment at maturity), within 120 days of
the effective date of any such arrangement, of Debt of the Company or any
Restricted Subsidiary (other than Debt owned by the Company or any Restricted
Subsidiary and other than Debt of the Company which is subordinated to the
Notes) which by its terms matures at or is extendible or renewable at the option
of the obligor to a date more than twelve months after the date of the creation
of such Debt.
SECTION 3.8 Limitations upon Certain Activities by Kellogg
(Deutschland).
The Company, as the sole shareholder of Kellogg (Deutschland), agrees
that so long as the pledge of the Pledged Securities is effective pursuant to
Article Four hereof, it will not, without the consent of a majority of the
holders of the Notes, permit Kellogg (Deutschland) to take any of the following
actions other than in the ordinary course of its business:
(a) guarantee, assume or become liable on the obligation of another; or
(b) pay or secure any debt owing by Kellogg (Deutschland) to the
Company.
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ARTICLE FOUR
SECURITY
SECTION 4.1 Pledge of Pledged Securities.
To secure the prompt and complete payment and performance when due of
the Notes, the Company hereby agrees to use commercially reasonable efforts to
pledge to the Collateral Agent, and to grant to the Collateral Agent a security
interest in, the Pledged Securities, as of September 30, 1997 subject only to
the repayment of the Prior Secured Notes on September 29, 1997 and the execution
and delivery of the Notarial Deed. In furtherance of the foregoing, the Company,
Kellogg (Deutschland) and the Collateral Agent will use their commercially
reasonable efforts to enter into a Notarial Deed, to be dated as of September
30, 1997, before a notary in Bern, Switzerland at the expense of the Company.
The Company will pay any taxes which may become payable on the Pledged
Securities, or other charges or fees which may reasonably be incurred as a
result of the pledge, or as a result of transfer pursuant to the provisions of
this Article.
SECTION 4.2 Dividends and Distributions; Voting.
(a) Provided that no Event of Default shall have occurred and be
continuing, the Company shall be entitled to receive all dividends payable on or
distributions in respect of the Pledged Securities (except for certain
distributions described in Section 4.3). The Collateral Agent, upon the written
request of the Company, shall deliver to the Company proper orders in the
Company's favor for such dividends on or distributions in respect of the Pledged
Securities in order that the Company may receive payment thereof for its own
use, and the Collateral Agent shall on demand pay to the Company any such
dividends or distributions which may be received by the Collateral Agent.
(b) Provided that no Event of Default shall have occurred and be
continuing, the Company shall have the right to vote and give consents with
respect to the Pledged Securities for any purpose not inconsistent with this
Indenture. The Collateral Agent shall, upon the request of the Company, give to
the Company or its nominee suitable proxies, or such other written authority as
may reasonably be required, in respect of any and all of the Pledged Securities
standing in the name of the Collateral Agent or its nominee. Such proxies or
other written authority shall at all times contain a provision that the holder
thereof shall have no right to vote for or to otherwise authorize or consent to
anything inconsistent with this Indenture.
(c) Upon the occurrence and during the continuation of an Event of
Default, all dividends payable on or other distributions made in respect of the
Pledged Securities shall be paid to the Collateral Agent and held as part of the
Trust Estate, and shall not be paid over to the Company. The Company agrees to
take such actions as shall accomplish the foregoing.
(d) Upon the occurrence and during the continuation of an Event of
Default, the Company shall grant to the Collateral Agent a power of attorney or
proxy entitling it or its nominee or nominees to exercise all the powers,
including voting rights, of an owner with respect to the Pledged Securities. In
so doing, the Collateral Agent shall not be required to attend any meeting of
holders of the Pledged Securities. The Collateral Agent may exercise such powers
for any purpose or purposes which the Collateral Agent, in its discretion, shall
deem advisable and in the interest of the holders of the Notes, whether or not
such action may involve a change in the character of the Pledged Securities or
in the proportionate interest or voting power represented by any of the Pledged
Securities. In the course of exercising such powers the Collateral Agent may
vote or act by power of attorney or proxy, and such power of attorney or proxy
may be granted to any person selected by the Collateral Agent, other than an
officer or affiliate of the Company.
(e) The Pledged Securities shall, upon the instructions of the
Collateral Agent accompanied by the Pledged Securities, be registered in the
name of the Collateral Agent and the Company agrees to take all actions
necessary to accomplish the same; provided that, unless the Collateral Agent has
taken action pursuant to instructions from the Trustee
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in accordance with Section 5.4, upon the curing or waiver of the Event of
Default giving rise to the transfer, the Pledged Securities shall be registered
back into the name of the Company.
SECTION 4.3 Distributions Belonging to Trust Estate.
The Collateral Agent shall be entitled to receive and hold as a part of
the Trust Estate, and the Company shall make appropriate arrangements in respect
thereof, any of the following forms of distributions:
(a) Distributions of cash or property in the event of the dissolution
or liquidation of Kellogg (Deutschland) GmbH;
(b) Distributions of capital, paid-in capital surplus, cash or other
property in the event of any reorganization of Kellogg (Deutschland); or
(c) Distributions of stock, bonds or other securities intended to
replace the Pledged Securities in the event of any reorganization of the capital
structure of Kellogg (Deutschland).
SECTION 4.4 Collateral Agent May Take Action.
The Collateral Agent may at any time take such steps as in its sole
discretion it shall deem necessary, and shall take such steps as instructed by
the Trustee, to protect the interests of the holders of the Notes in respect of
any Pledged Securities, either by instituting or requesting or authorizing the
institution of any legal proceedings to enforce its rights as a holder of the
Pledged Securities, or in any other manner permitted by applicable law, and the
Collateral Agent may join in any plan of reorganization in respect to the
Pledged Securities and may accept cash or new securities payable or issued in
exchange therefor under such plan, or part cash and part such securities. In
case the Collateral Agent shall not join in a plan of reorganization as
authorized in respect of the Pledged Securities, then the Collateral Agent shall
receive any portion of the cash proceeds of sale or other property accruing on
or with respect to the Pledged Securities and shall hold such cash proceeds of
sale or other property as part of the Trust Estate.
SECTION 4.5 Remedies.
If an Event of Default with respect to the Notes occurs and is
continuing, the Collateral Agent, upon written instructions from the Trustee
pursuant to Section 5.4 hereof, shall:
(i) cause any action at law or suit in equity or other
proceeding to be instituted and prosecuted to realize upon the Trust
Estate in any manner or priority and to collect or enforce any
securities or obligations included in the Trust Estate; and
(ii) sell, in all events subject to any mandatory requirements
of law applicable thereto (including the German Civil Code), upon 10
Business Days prior notice to the Company of the time and place of any
public sale or the time after which any private sale is to be made, the
Trust Estate (as an entirety or, to the extent permitted by law, any
part thereof, in one or more parcels), and all right, title and
interest, claim and demand therein, free of any right of redemption
thereof except as provided by law, such sale or sales to be made in
such manner at such place or places and upon such terms as the
Collateral Agent may fix or determine, or as may be required by law,
and the Collateral Agent may be a purchaser at any such sale and may
apply any amounts due and owing on the Notes to the payment of the
purchase price of the Trust Estate; and on any such sale or sales, the
Collateral Agent is hereby appointed the true and lawful
attorney-in-fact of the Company (which appointment is irrevocable and
coupled with an interest in the Notes), in its name and stead or in the
name of the Collateral Agent, to execute all deeds, bills of sale and
instruments of assignment and transfer, and to make all necessary
conveyances, assignments, transfers and deliveries; and the receipt of
the Collateral Agent for the
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purchase money paid at any such sale shall be a sufficient discharge
therefor to any purchaser of the Trust Estate, or any part thereof.
SECTION 4.6 Application of Money Collected.
Any money collected by the Collateral Agent pursuant to this Article
shall be applied in the following order:
FIRST: To the payment of any and all expenses and fees
(including reasonable attorney's fees) incurred by the Collateral Agent
in affecting any of the remedies under Section 4.5 and any and all
amounts incurred by the Collateral Agent in connection therewith;
SECOND: To the payment of all amounts due the Trustee or
Trustees and Collateral Agent hereunder pursuant to Section 6.7
(pertaining to payments to and indemnification of the Trustee and the
Collateral Agent), ratably, according to the amounts due and owed to
such trustee or trustees;
THIRD: To the payment of the amounts then due and unpaid for
principal of and interest on the Notes in respect of which or for the
benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on such Notes for principal and any premium and interest,
respectively.
FOURTH: To the Company.
SECTION 4.7 Release of Trust Estate.
(a) Subject to subsection (b) of this Section, any portion or all of
the Trust Estate may be released from the lien of this Indenture at any time or
from time to time with the consent, obtained in accordance with Section 8.2, of
Holders of not less than a majority in principal amount of each series of Notes.
(b) At any time when an Event of Default or an event which, with notice
or lapse of time, or both, would constitute an Event of Default shall have
occurred and be continuing and the maturity of the Notes shall have been
accelerated (whether by declaration or otherwise), no release of any portion or
all of the Trust Estate pursuant to this Indenture shall be effective as against
the Holders.
ARTICLE FIVE
REMEDIES OF THE TRUSTEE AND NOTEHOLDERS
ON EVENT OF DEFAULT
SECTION 5.1 Event of Default Defined.
Any one or more of the following events shall constitute an Event of
Default with respect to the Series of Notes within the meaning of this Article:
(a) default in any payment of the principal of any Note as and when the
same shall become due and payable (whether at maturity, upon redemption, or
otherwise); or
(b) default in any payment of any installment of interest or any
required payment of any Additional Amount pursuant to the terms of the Notes on
any of the Notes as and when the same shall become due and payable and
continuance of such default for a period of 30 days; or
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(c) failure on the part of the Company duly to observe or perform any
other of the covenants or agreements on the part of the Company in respect of
the Notes or this Indenture, for a period of 90 days after the date on which
written notice specifying such failure and requiring the Company to remedy the
same and stating that such notice is a "Notice of Default" hereunder shall have
been given by registered or certified mail to the Company by the Trustee, or to
the Company and the Trustee by the Holders of at least twenty-five percent in
aggregate principal amount of the Notes, provided that the failure to execute
the Notarial Deed and pledge the Pledged Securities shall not constitute an
Event of Default hereunder so long as the Company has complied with Section 4.1;
or
(d) the Company shall make an assignment for the benefit of creditors,
or shall file a petition in bankruptcy; or the Company shall be adjudicated
insolvent or bankrupt, or shall petition or shall apply to any court having
jurisdiction in the premises for the appointment of a receiver, trustee,
liquidator or sequestrator of, or for, the Company or any substantial portion of
the property of the Company; or the Company shall commence any proceeding
relating to the Company or any substantial portion of the property of the
Company under any insolvency, reorganization, arrangement, or readjustment of
debt, dissolution, winding-up, adjustment, composition or liquidation law or
statute of any jurisdiction, whether in effect at the date of this Indenture or
thereafter created (hereinafter in this subsection (d) called "Proceeding"); or
if there shall be commenced against the Company any Proceeding and an order
approving the petition shall be entered, or such Proceeding shall remain
undischarged for a period of 60 days; or receiver, trustee, liquidator or
sequestrator of, or for, the Company or any substantial portion of the property
of the Company shall be appointed and shall not be discharged within a period of
60 days; or the Company by any act shall indicate consent to or approval of or
acquiescence in any Proceeding or the appointment of a receiver, trustee,
liquidator or sequestrator of, or for, the Company or any substantial portion of
the property of the Company; provided that a resolution or order for winding-up
the Company with a view to its merger or consolidation with another company or
the sale or conveyance of all or substantially all of its assets to such other
company as provided in Section 6 shall not make the rights and remedies herein
enforceable under this clause (d) if such last-mentioned company shall, as a
part of such merger, consolidation, sale or conveyance, and within 60 days from
the passing of the resolution or the date of the order, comply with the
conditions to that end stated in Article 9; or
SECTION 5.2 Acceleration of Maturity.
If an Event of Default with respect to the Series of Notes hereunder
shall have occurred and be continuing either the Trustee or the Holders of not
less than twenty-five percent in aggregate principal amount at maturity of the
Notes of such Series then Outstanding hereunder, by notice in writing to the
Company (and to the Trustee if given by such Holders), may declare the principal
of the Notes of such Series to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and payable.
SECTION 5.3 Waiver of Default.
(a) The provisions of Section 5.2, however, are subject to the
condition that if the Company shall remedy the default in accordance with the
terms of subsection (b), below, in each and every such case the Holders of a
majority in aggregate principal amount of the Notes of the Series may, by
written notice to the Company and to the Trustee, waive any such default and
rescind and annul any such declaration of acceleration of maturity and its
consequences.
(b) The Company may remedy any such default by the payment to or
deposit with the Trustee of a sum sufficient to pay in the appropriate currency:
(1) all matured and unpaid installments of interest, if any, upon the affected
Notes and any Additional Amounts in respect thereof, (2) any principal which
shall have become due and payable other than by acceleration (including interest
upon such principal and, to the extent that payment of such interest is
enforceable under applicable law, upon overdue installments of interest, at the
same rate as the rate of interest specified in the affected Notes), (3) an
amount sufficient to cover reasonable compensation to the Trustee, its agents,
attorneys and counsel and all other expenses and liabilities incurred, and all
advances made in connection with such Event of Default, and (4) an amount
sufficient to cover reasonable compensation to the Collateral Agent, and all
other expenses and liabilities incurred, if any, by the Collateral Agent in
connection with such Event of Default.
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(c) No waiver or rescission and annulment under this Section shall
extend to or shall affect any subsequent default or shall impair any right
consequent thereof.
SECTION 5.4 Collection of Indebtedness by Trustee; Trustee May
Prove Debt.
(a) The Company covenants that in case default shall be made in the
payment of any installment of interest on the Notes when such interest shall
have become due and payable, including any Additional Amount in respect thereof,
and such default of interest payment shall have continued for a period of 30
days, or in case default shall be made in the payment of all or any part of the
principal of the Notes when such principal shall have become due and payable
(whether upon maturity or the Notes or upon any redemption or by declaration or
otherwise), the Company will upon demand of the Trustee pay to the Trustee:
(i) the whole amount that then shall have become due and
payable on all Notes or Coupons (with interest to the date of such
payment upon the overdue principal and, to the extent that payment of
such interest is enforceable under applicable law, on overdue
installments of interest, at the same rate of interest specified in the
Notes), and
(ii) such amount as shall be sufficient to cover the costs and
expenses of collection, including reasonable compensation to the
Trustee and the Collateral Agent, any predecessor Trustee or Collateral
Agent, their respective agents, attorneys and counsel, and any expenses
or liabilities otherwise reasonably incurred, or advances made, by any
Trustee or Collateral agent.
(b) Until such demand is made by the Trustee, the Company may pay the
principal of and interest on the Notes to the persons entitled thereto, whether
or not the principal of or interest on the Notes are overdue.
(c) (i) In case the Company shall fail forthwith to pay such amounts
upon such demand, the Trustee, in its own name and as trustee of an
express trust, shall be entitled and empowered to institute any action
or proceedings at law or in equity for the collection of the sums so
due and unpaid, and may prosecute any such action or proceedings to
judgment or final decree.
(ii) Such actions or proceedings as may be instituted by the
Trustee pursuant to the provisions of this Article may include, but are
not limited to, directing the Collateral Agent to realize upon the
Trust Estate in the manner provided in Section 4.5.
(iii) The Trustee may enforce any judgment or final decree so
obtained against the Company or other obligor upon the Notes and
collect in the manner provided by law out of the property of the
Company or other obligor upon the Notes or Coupons, wherever situated,
the moneys adjudged or decreed to be payable.
(d) In case there shall be pending proceedings relative to the Company
or any other obligor upon the Notes or Coupons under Title 11 of the United
States Code or any other applicable federal or state bankruptcy, insolvency or
other similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Company or its property or such other
obligor, or in case of any other comparable judicial proceedings relative to the
Company or other obligor under the Notes or Coupons, if any, or to the creditors
or property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of any Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in such proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount
of principal and interest owing and unpaid in respect of the Notes, and
to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for
reasonable compensation to the Trustee and
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Collateral Agent and each predecessor Trustee and Collateral Agent, and
their respective agents, attorneys and counsel, and for reimbursement
of all expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee,) and of the Noteholders and the
Holders of any Coupons appertaining thereto allowed in any judicial
proceedings relative to the Company or other obligor upon the Notes or
to the creditors or property of the Company or such other obligor,
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Noteholders in any election of a trustee or a
standby trustee in arrangement, reorganization, liquidation or other
bankruptcy or insolvency proceedings or person performing similar
functions in comparable proceedings, and
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims, and to distribute all
amounts received with respect to the claims of the Holders of Notes or
Coupons and of the Trustee on their behalf; and any trustee, receiver,
or liquidator, custodian or other similar official is hereby authorized
by each of the Holders to make payments to the Trustee, and, in the
event that such Trustee shall consent to the making of payments
directly to the Holders, to pay to such Trustee such amounts as shall
be sufficient to cover reasonable compensation to such Trustee, each
predecessor Trustee, the Collateral Agent and their respective agents,
attorneys and counsel, and all other expenses and liabilities incurred,
and all advances made, by such Trustee, each predecessor Trustee and
the Collateral Agent and all other amounts due to such Trustee, any
predecessor Trustee or the Collateral Agent pursuant to Section 6.7.
(e) Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or vote for or accept or adopt on behalf of any
Noteholder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Noteholder in any such proceeding
except, as aforesaid, to vote for the election of a trustee in bankruptcy or
similar person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes or any Coupon appertaining thereto, may be enforced by
the Trustee without the possession of any of the Notes or any Coupon
appertaining thereto or the production thereof at any trial or other proceedings
relative thereto, and any such action or proceedings instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment, subject to the payment of the expenses, disbursements and
compensation of the Trustee and Collateral Agent, each predecessor Trustee or
Collateral Agent and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes and Holders of any Coupons in
respect of which such action was taken.
(g) In any proceedings brought by the Trustee, or any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party, the Trustee shall be held to represent all the Holders
of the Notes or Coupons appertaining thereto in respect to which such action was
taken, and it shall not be necessary to make any Holders of the Notes or Coupons
appertaining thereto parties to any such proceedings.
SECTION 5.5 Application of Proceeds. Any moneys collected by the
Trustee pursuant to this Article in respect of the Notes shall be applied in the
following order at the date or dates fixed by the Trustee and, in case of the
distribution of such moneys on account of principal or interest, upon
presentation of the Notes and any Coupons appertaining thereto in respect of
which moneys have been collected and stamping (or otherwise noting)
thereon the payment, or issuing Notes in reduced principal amounts in exchange
for the presented Notes of like Series if only partially paid, or upon surrender
thereof if fully paid:
FIRST: To the payment of costs and expenses applicable to such
Notes in respect of which moneys have been collected, including
reasonable compensation to the Trustee and Collateral Agent and each
predecessor Trustee or Collateral Agent and their respective agents and
attorneys and of all expenses and liabilities incurred, and all
advances made by the Trustee and each predecessor Trustee, and all
other amounts due to the Trustee and Collateral Agent or any
predecessor Trustee or Collateral Agent pursuant to Section 6.7;
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SECOND: In case the principal of the Notes in respect of which
moneys have been collected shall not have become and be then due and
payable, to the payment of interest on the Notes in default in the
order of the maturity of the installments of such interest, with
interest (to the extent that such interest has been collected by the
Trustee) upon the overdue installments of interest at the same rate as
the rate of interest specified in such Notes, such payments to be made
ratably to the persons entitled thereto, without discrimination or
preference;
THIRD: In case the principal of the Notes in respect of which
moneys have been collected shall have become and shall be then due and
payable, to the payment of the whole amount then owing and unpaid upon
all the Notes for principal and interest, with interest upon the
overdue principal, and (to the extent that payment of such interest is
permissible by law and that such interest has been collected by the
Trustee) upon overdue installments of interest at the same rate as the
rate of interest specified in the Notes; and in case such moneys shall
be insufficient to pay in full the whole amount so due and unpaid upon
the Notes or Coupons, then to the payment of such principal and
interest without preference or priority of principal over interest or
of interest over principal, or of any installment of interest over any
other installment of interest, ratably to the aggregate of such
principal and accrued and unpaid interest; and
FOURTH: To the payment of the remainder, if any, to the
Company or any other person lawfully entitled thereto.
SECTION 5.6 Suits for Enforcement. In case an Event of Default has
occurred, has not been waived and is continuing, the Trustee may in its
discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either at law or in
equity or in bankruptcy or otherwise, whether for the specific enforcement of
any covenant or agreement contained in this Indenture or in aid of the exercise
of any power granted in this Indenture or to enforce any other legal or
equitable right vested in the Trustee by this Indenture or by law.
SECTION 5.7 Restoration of Rights on Abandonment of Proceedings. In
case the Trustee shall have proceeded to enforce any right under this Indenture
and such proceedings shall have been discontinued or abandoned for any reason,
or shall have been determined adversely to the Trustee, then and in every such
case the Company and the Trustee shall be restored respectively to their former
positions and rights hereunder, and all rights, remedies and powers of the
Company, the Trustee and the Noteholders shall continue as though no such
proceedings had been taken.
SECTION 5.8 Limitations on Suits by Noteholders.
(a) No Holder of any Note or Holder of any Coupon shall have any right
by virtue or by availing of any provision of this Indenture to institute any
action or proceeding at law or in equity or in bankruptcy or otherwise upon or
under or with respect to this Indenture, or for the appointment of a trustee,
receiver, liquidator, custodian or other similar official or for any other
remedy hereunder, unless
(i) such Holder previously shall have given to the Trustee
written notice of default and of the continuance thereof, as
hereinbefore provided, and
(ii) the Holders of not less than 25% in aggregate principal
amount of the Notes then Outstanding shall have made written request
upon the Trustee to institute such action or proceedings in its own
name as trustee hereunder and shall have offered to the Trustee such
reasonable indemnity, as it may require against the costs, expenses and
liabilities to be incurred therein or thereby and the Trustee for 60
days after its receipt of such notice, request and offer of indemnity
shall have failed to institute any such action or proceeding, and no
direction inconsistent with such written request shall have been given
to the Trustee pursuant to Section 5.11.
(b) It is hereby expressly covenanted by the taker and Holder of every
Note and by the Holder of any Coupon with every other taker and Holder of any
Note or Coupon and the Trustee, that no one or more Holders of the
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Notes or Coupons shall have any right in any manner whatever, by virtue or by
availing of any provision of this Indenture to affect, disturb or prejudice the
rights of any other such Holder of Notes or Coupons, or to obtain or seek to
obtain priority over or preference to any other such Holder, or to enforce any
right under this Indenture, except in the manner herein provided and for the
equal, ratable and common benefit of all Holders of Notes and Coupons. For the
protection and enforcement of the provisions of this Section, each and every
such Holder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.
SECTION 5.9 Unconditional Right of Noteholders to Institute Certain
Suits. Notwithstanding any provision in this Indenture and any provision of any
Note or Coupon, the right of any Holder of any Note and the right of any Holder
of any Coupon appertaining thereto to receive payment of principal or interest
on such Note or Coupon, in the respective amount and in the appropriate currency
on or after the respective due dates expressed in such Note, or to institute
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
SECTION 5.10 Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default. Except as provided in Section 5.8, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
No delay or omission of the Trustee or of any Holder to exercise any
right or power accruing upon any Event of Default occurring and continuing as
aforesaid shall impair any such right or power or shall be construed to be a
waiver of any such Event of Default or an acquiescence therein; and, subject to
Section 5.8, every power and remedy given by this Indenture or by law to the
Trustee, to the Noteholders or to the Holder of any Coupon appertaining thereto
may be exercised from time to time, and as often as shall be deemed expedient,
by the Trustee, the Noteholders or Holders of any Coupon.
SECTION 5.11 Control by Noteholders. The Holders of a majority in
aggregate principal amount of the Notes affected at the time Outstanding shall
have the right to direct the time, method, and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee with respect to the Notes by this Indenture;
provided that such direction shall not be otherwise than in accordance with law
and the provisions of this Indenture and provided further that (subject to the
provisions of Section 6.1) the Trustee shall have the right to decline to follow
any such direction if the Trustee, being advised by counsel, shall determine
that the action or proceeding so directed may not lawfully be taken or if the
Trustee in good faith shall determine that the action or proceedings so directed
would involve the Trustee in personal liability, or if the Trustee in good faith
shall so determine that the actions or forbearance specified in or pursuant to
such direction would be unduly prejudicial to the interests of Holders of the
Notes or of the Holders of any Coupons appertaining thereto not joining in the
giving of said direction, it being understood that (subject to Section 6.1) the
Trustee shall have no duty to ascertain whether or not such actions or
forbearance are unduly prejudicial to such Holders.
Nothing in this Indenture shall impair the right of the Trustee in its
discretion to take any action deemed proper by the Trustee and which is not
inconsistent with such direction or directions by Noteholders.
SECTION 5.12 Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.2, the
Holders of a majority in aggregate principal amount of Notes at the time
Outstanding may, on behalf of the Holders of all the Notes of such Series and
Holders of all Coupons, waive any past default hereunder or its consequences,
except a default in the payment of the principal of or interest on any Note. In
the case of any such waiver, the Company, the Trustee, the Noteholders and the
Holder of any Coupon appertaining thereto shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other default or impair any right consequent thereon.
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Upon any such waiver, such default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
ARTICLE SIX
THE TRUSTEE AND THE COLLATERAL AGENT
SECTION 6.1 Duties and Responsibilities of the Trustee; During Default;
Prior to Default. The Trustee, prior to the occurrence of an Event of Default
with respect to the Notes or after the curing or waiving of an Event of Default
which may have occurred with respect to the Notes, undertakes to perform such
duties and only such duties as are specifically set forth in this Indenture. In
case an Event of Default with respect to the Notes has occurred (which has not
been cured or waived) of which a Responsible Officer has actual knowledge, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own wilful misconduct, except that:
(a) prior to the occurrence of an Event of Default with respect to the
Notes and after the curing or waiving of any such Event of Default with respect
to the Notes which may have occurred:
(i) the duties and obligations of the Trustee with respect to
the Notes shall be determined solely by the express provisions of this
Indenture, and the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set
forth in this Indenture, and no implied covenants or obligations shall
be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee,
the Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon any
statements, certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the case of
any such statements, certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine
whether or not they conform on their face to the requirements of this
Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein);
(b) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Responsible Officers of the Trustee,
unless it shall be proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(c) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of the
Holders pursuant to Section 5.11 relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under this Indenture.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there shall be reasonable ground for believing that the
repayment of such funds or adequate indemnity against such liability is not
reasonably assured to it.
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Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the conditions of this Section
6.1.
SECTION 6.2 Certain Rights of the Trustee. Subject to Section
6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, Officers' Certificate or any other certificate,
statement, instrument, opinion, report, notice, request, consent, order, bond,
debenture, note, coupon, security or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by an Officers' Certificate (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Trustee by a copy
thereof certified by the secretary or any assistant secretary of the Company;
(c) the Trustee may consult with counsel of its selection and
reasonably satisfactory to the Company and any advice or Opinion of Counsel
shall be full and complete authorization and protection in respect of any action
taken, suffered or omitted to be taken by it hereunder in good faith and in
accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
trusts or powers vested in it by this Indenture at the request, order or
direction of any of the Noteholders pursuant to the provisions of this
Indenture, unless such Noteholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted by
it in good faith and reasonably believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture;
(f) prior to the occurrence of any Event of Default hereunder and after
the curing or waiving of all Events of Default, the Trustee shall not be bound
to make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, approval, appraisal, bond, debenture, note, coupon, security, or other
paper or document unless requested in writing to do so by the Holders of not
less than a majority in aggregate principal amount of the Notes affected then
Outstanding; provided that, if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of this
Indenture, the Trustee may require reasonable indemnity against such expenses or
liabilities as a condition to proceeding; the reasonable expenses of every such
investigation shall be paid by the Company or, if paid by the Trustee or any
predecessor Trustee, shall be repaid by the Company upon demand; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys not regularly in its employ and the Trustee shall not be responsible
for any misconduct or negligence on the part of any such agent or attorney
appointed with due care by it hereunder.
(h) the Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such a
default is received by the Trustee at the Corporate Trust Office of the Trustee,
and such notice references the Notes and this Indenture.
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SECTION 6.3 Rights, Duties and Responsibilities of the Collateral
Agent; Additional Collateral Agents.
(a) The Collateral Agent has been appointed by the Company to act as
Collateral Agent for the Trust Estate in accordance with the terms of Article
Four. The Collateral Agent shall act or be required to act only in accordance
with the terms of this Indenture.
(b) Notwithstanding anything else in this Indenture to the contrary, at
any time that the Trustee and the Collateral Agent are the same person, neither
of them shall be required to issue instructions or notices to the other in
fulfilling their respective duties hereunder.
(c) Whenever the Collateral Agent shall deem it necessary or prudent in
order either to (1) conform to any applicable law, or (2) make any claim or
bring any suit with respect to the Pledged Securities or the Trust Estate, or in
the event that the Collateral Agent shall have been requested to do so by the
holders of a majority of the aggregate principal amount outstanding of the
Notes, acting together, the Company shall, promptly upon receipt of written
notice from the Collateral Agent, take such action as may be necessary or proper
to constitute and appoint another bank or trust company, to act as either an
additional collateral agent, jointly with the Collateral Agent, or as a separate
collateral agent (any such additional or separate agent being herein called an
"Additional Collateral Agent"). Any Additional Collateral Agent so appointed
shall have such powers as may be granted pursuant to such action and the
Additional Collateral Agent shall be vested with any property, title, right or
power of the Collateral Agent deemed necessary or advisable by the Collateral
Agent, subject to the remaining provisions of this Section 6.3. Each Additional
Collateral Agent appointed pursuant to this Section shall otherwise be subject
to, and shall have the benefits of the appointment under this Indenture, insofar
as they apply to the Collateral Agent. The Collateral Agent may execute, deliver
and perform any deed, conveyance, assignment or other instrument in writing as
may be required by any Additional Collateral Agent to more fully and certainly
vest in him any property, title, right or power which by the terms of such
agreement supplemental hereto are expressed to be conveyed or conferred to or
upon such Additional Collateral Agent under this Indenture.
(d) If at any time the Collateral Agent shall deem it no longer
necessary or prudent in order to conform to any law or take any such action, or
in the event that the Collateral Agent shall have been requested to do so in
writing by the holders of a majority of the aggregate principal amount
outstanding of the Notes, acting together, the Collateral Agent shall execute
and deliver an agreement supplemental hereto and all other instruments and
agreements necessary or proper to remove any Additional Collateral Agent.
(e) Any request, approval or consent in writing by the Collateral Agent
to any Additional Collateral Agent shall be sufficient warrant to such
Additional Collateral Agent to take such action as may be so requested, approved
or consented.
(f) The Company agrees:
(i) to pay to the Collateral Agent from time to time
reasonable compensation for all services rendered by it hereunder;
(ii) except as otherwise expressly provided herein, to
reimburse the Collateral Agent upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Collateral
Agent in accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(iii) to indemnify the Collateral Agent for, and to hold it
harmless against, any loss, liability or expense incurred without gross
negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of the trust or trusts hereunder
and its duties hereunder, including the costs and expenses of defending
itself against or investigating any claim of liability in connection
with the exercise or
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performance of any of its powers or duties hereunder. The obligations
of the Company under this Section to compensate and indemnify the
Collateral Agent and to pay or reimburse the Collateral Agent for
expenses, disbursements and advances shall constitute additional
indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. Such additional indebtedness shall be a
senior claim to that of the Notes upon all property and funds held or
collected by the Collateral Agent as such.
SECTION 6.4 Not Responsible for Recitals, Disposition of Notes or
Application of Proceeds Thereof. The recitals contained herein and in the Notes,
except the Trustee's certificate of authentication, shall be taken as the
statements of the Company, and neither the Trustee nor the Collateral Agent
assume responsibility for the correctness of the same. Neither the Trustee nor
the Collateral Agent makes any representation as to the validity or sufficiency
of this Indenture or of the Notes or the Coupons. The Trustee and the Collateral
Agent each represents that it is duly authorized to execute and deliver this
Indenture and perform its obligations hereunder. Neither the Trustee nor the
Collateral Agent shall be accountable for the use or application by the Company
of any of the Notes or of the proceeds thereof.
SECTION 6.5 Trustee and Agents May Hold Notes; Collections, etc. Each
of the Trustee, the Collateral Agent, any Paying Agent or any agent of the
Company, the Trustee or the Collateral Agent, in its respective individual or
any other capacity, may become the owner or pledgee of any Notes or Coupons with
the same rights it would have if it were not the Trustee or such agent and,
subject to Section 6.9, if operative, may otherwise deal with the Company and
receive, collect, hold and retain collections from the Company with the same
rights it would have if it were not the Trustee or such agent.
SECTION 6.6 Moneys Held by Trustee. All moneys received by the Trustee
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received, but need not be segregated from other
funds except to the extent required by mandatory provisions of law. Neither the
Trustee nor any agent of the Company or the Trustee shall be under any liability
for interest on any moneys received by it hereunder.
SECTION 6.7 Compensation and Indemnification of Trustee and Its Prior
Claim. The Company covenants and agrees to pay to the Trustee from time to time,
and the Trustee shall be entitled to, reasonable compensation in United States
dollars (which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust) and the Company covenants and
agrees to pay or reimburse the Trustee and each predecessor Trustee upon its
request in Dollars for all reasonable expenses, disbursements and advances
incurred or made by or on behalf of it in accordance with any of the provisions
of this Indenture (including the reasonable compensation and the expenses and
disbursements of its counsel and of all agents and other persons not regularly
in its employ) except any such expense, disbursement or advance as may arise
from its negligence or bad faith. The Company also covenants to indemnify the
Trustee and each predecessor Trustee for, and to hold it harmless against, any
loss, liability or expense, including taxes (other than taxes based upon,
measured by, or determined by the income of the Trustee), incurred without
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration of this Indenture or the trusts hereunder and its
duties hereunder, including the costs and expenses of defending itself against
or investigating any claim of liability in the premises, including, without
limitation, any claim or liability for backup withholding or non-resident alien
withholding taxes (and interest and penalties thereon) under United States tax
laws. The obligations of the Company under this Section to compensate and
indemnify the Trustee and each predecessor Trustee and to pay or reimburse the
Trustee and each predecessor Trustee for expenses, disbursements and advances
shall constitute additional indebtedness hereunder and shall survive the
satisfaction and discharge of this Indenture. Such additional indebtedness shall
be a senior claim to that of the Notes upon all property and funds held or
collected by the Trustee as such.
The Trustee shall have a lien prior to the Notes as to all property and
funds held by it hereunder for any amount owing it or any predecessor Trustee
pursuant to this Section 6.7, except with respect to funds held in trust for the
benefit of the Holders of particular Notes.
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When the Trustee incurs expenses or renders services in connection with
an Event of Default specified in Section 5.1(d), the expenses (including the
reasonable charges and expenses of its counsel) and the compensation for the
services are intended to constitute expenses of administration under any
applicable Federal or state bankruptcy, insolvency or other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 6.8 Right of Trustee and Collateral Agent to Rely on Officers'
Certificate, etc. Subject to Sections 6.1, 6.2 and 6.3, whenever in the
administration of the trusts of this Indenture the Trustee or the Collateral
Agent shall deem it necessary or desirable that a matter be proved or
established prior to taking or suffering or omitting any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence or bad faith on the part of the
Trustee or the Collateral Agent, be deemed to be conclusively proved and
established by an Officers' Certificate complying with Section 10.5 delivered to
the Trustee or the Collateral Agent, and such certificate, in the absence of
negligence or bad faith on the part of the Trustee or the Collateral Agent,
shall be full warrant to the Trustee or the Collateral Agent for any action
taken, suffered or omitted by it or under the provisions of this Indenture upon
the faith thereof.
SECTION 6.9 Disqualification of Trustee or Collateral Agent;
Conflicting Interests. If the Notes shall be in default and the Trustee or the
Collateral Agent for the Notes has or shall acquire any "conflicting interest"
as hereinafter defined, it shall, within 90 days after ascertaining that it has
such conflicting interest, and if the default to which such conflicting interest
relates has not been cured or waived or otherwise eliminated before the end of
such 90-day period, the Trustee or the Collateral Agent, as the case may be,
shall, either eliminate such conflicting interest or resign in the manner and
with the effect specified in this Indenture.
For purposes of this Section 6.9, the Trustee (which term shall include
the Collateral Agent for purposes of the following) with respect to the Series
of Notes shall be deemed to have a conflicting interest if such Notes are in
default (as such term is defined in Section 5.1, but exclusive of any period of
grace or requirement of notice) and--
(1) such Trustee is trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the Company are outstanding,
unless such other indenture is a collateral trust indenture under which
the only collateral consists of Notes; or
(2) such Trustee or any of its directors or executive
officers is an underwriter for the Company;
(3) such Trustee directly or indirectly controls or is
directly or indirectly controlled by or is under direct or indirect
common control with an underwriter for the Company;
(4) such Trustee or any of its directors or executive officers
is a director, officer, partner, employee, appointee, or representative
of the Company, or of an underwriter (other than the Trustee itself)
for the Company who is currently engaged in the business of
underwriting, except that--
(A) an individual may be a director and/or an
executive officer of such Trustee and a director and/or an
executive officer of the Company, but may not be at the same
time an executive officer of both such Trustee and of the
Company, and
(B) if and so long as the number of directors of the
Trustee in office is more than nine, one additional individual
may be a director and/or an executive officer of the Trustee
and a director of the Company, and
(C) such Trustee may be designated by the Company or
by any underwriter for the Company, to act in the capacity of
transfer agent, registrar, custodian, paying agent, fiscal
agent,
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escrow agent, or depositary, or in any other similar
capacity, or, subject to the provisions of paragraph (1) of
this subsection, to act as trustee, whether under an indenture
or otherwise.
(5) 10 per centum or more of the voting securities of such
Trustee is beneficially owned either by the Company or by any director,
partner, or executive officer thereof, or 20 per centum or more of such
voting securities is beneficially owned, collectively, by any two or
more of such persons; or 10 per centum or more of the voting securities
of such Trustee is beneficially owned either by an underwriter for the
Company or by any director, partner, or executive officer thereof, or
is beneficially owned, collectively, by any two or more such persons;
(6) such Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default,
(A) 5 per centum or more of the voting securities, or
10 per centum or more of any other class of security, of the
Company, not including securities issued under any other
indenture under which such Trustee is also trustee, or
(B) 10 per centum or more of any class of security of
an underwriter for the Company;
(7) such Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default, 5 per centum
or more of the voting securities of any person who, to the knowledge of
the Trustee, owns 10 per centum or more of the voting securities of, or
controls directly or is under direct or indirect common control with,
the Company;
(8) such Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in default, 10 per
centum or more of any class of security of any person who, to the
knowledge of the trustee, owns 50 per centum or more of the voting
securities of the Company; or
(9) such Trustee owns, on the date of default upon the Notes
(exclusive of any period of grace or requirement of notice) or any
anniversary of such default while such default upon the Notes remains
outstanding, in the capacity of executor, administrator, testamentary
or inter vivos trustee, guardian, committee or conservator, or in any
other similar capacity, an aggregate of 25 per centum or more of the
voting securities, or of any class of security, of any person, the
beneficial ownership of a specified percentage of which would have
constituted a conflicting interest under paragraph (6), (7), or (8) of
this subsection. As to any such securities of which the Trustee
acquired ownership through becoming executor, administrator or
testamentary trustee of an estate which include them, the provisions of
the preceding sentence shall not apply for a period of not more than 2
years from the date of such acquisition, to the extent that such
securities included in such estate do not exceed 25 per centum of such
voting securities or 25 per centum of any such class of security.
Promptly after the dates of any such default upon the Notes and
annually in each succeeding year that the Notes remain in default such
Trustee shall make a check of its holding of such securities in any of
the above-mentioned capacities as of such dates. If the Company fails
to make payment in full of principal or interest under this Indenture
when and as the same becomes due and payable, and such failure
continues for 30 days thereafter, the Trustee shall make a prompt check
of its holdings of such securities in any of the above-mentioned
capacities as of the date of the expiration of such 30-day period, and
after such date, notwithstanding the foregoing provisions of this
paragraph, all such securities so held by the trustee, with sole or
joint control over such securities vested in it, shall be considered as
though beneficially owned by such trustee, for the purposes of
paragraphs (6), (7), and (8) of this subsection; or
(10) except under the circumstances described in paragraphs
(1), (3), (4), (5) or (6) of Section 6.13(b), the Trustee shall be or
shall become a creditor of the Company.
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SECTION 6.10 Resignation and Removal; Appointment of Successor Trustee.
(a) The Trustee, or any trustee or trustees hereafter appointed, may at any time
resign with respect to the Series of Notes by giving written notice of
resignation to the Company and by mailing notice thereof to the Holders in the
manner and to the extent provided in Section 10.4. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor trustee or trustees
with respect to the applicable Notes by written instrument in duplicate,
executed by authority of the Board of Directors, one copy of which instrument
shall be delivered to the resigning Trustee and one copy to the successor
trustee or trustees. If no successor trustee shall have been so appointed with
respect to the Series and have accepted appointment within 30 days after the
mailing of such notice of resignation, the resigning trustee may petition any
court of competent jurisdiction for the appointment of a successor trustee, or
any Noteholder who has been a bona fide Holder of the Series for at least six
months may, on behalf of himself and all others similarly situated, petition any
such court for the appointment of a successor trustee. Such court may thereupon,
after such notice, if any, as it may deem proper and prescribe, appoint a
successor trustee.
(b) If at any time the Trustee or the Collateral Agent shall become
incapable of competently fulfilling its duties with respect to the Notes, or
shall be adjudged a bankrupt or insolvent, or a receiver or liquidator of the
Trustee or the Collateral Agent, respectively, or of its property shall be
appointed, or any public officer shall take charge or control of the Trustee or
the Collateral Agent, respectively, or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation, the Company may remove
the Trustee or the Collateral Agent with respect to the applicable Notes and
appoint a successor trustee or Collateral Agent for such Notes by written
instrument, in duplicate, executed by order of the Board of Directors of the
Company, one copy of which instrument shall be delivered to the Trustee or
Collateral Agent so removed and one copy to the successor trustee or Collateral
Agent, or any Noteholder who has been a bona fide Holder of the Series for at
least six months may on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee or
Collateral Agent and the appointment of a successor trustee or Collateral Agent
with respect to such Notes. Such court may thereupon, after such notice, if any,
as it may deem proper and prescribe, remove the Trustee or Collateral Agent and
appoint a successor trustee or Collateral Agent.
(c) The Holders of a majority in aggregate principal amount of the
Notes may at any time remove the Trustee or Collateral Agent with respect to
such Notes and appoint a successor trustee or Collateral Agent with respect to
such Notes by delivering to the Trustee or Collateral Agent so removed, to the
successor trustee or Collateral Agent so appointed and to the Company the
evidence provided for in Section 7.3 of the action in that regard taken by the
Noteholders.
(d) Any resignation or removal of the Trustee or Collateral Agent with
respect to the Notes and any appointment of a successor trustee or Collateral
Agent with respect to the Notes pursuant to any of the provisions of this
Section 6.10 shall become effective upon acceptance of appointment by the
successor trustee or Collateral Agent as provided in Section 6.11.
SECTION 6.11 Acceptance of Appointment by Successor Trustee or
Collateral Agent.
(a) Any successor Trustee or Collateral Agent appointed as provided in
Section 6.10 shall execute and deliver to the Company and to its predecessor
Trustee or Collateral Agent an instrument accepting such appointment hereunder,
and thereupon the resignation or removal of the predecessor with respect to all
or any applicable Note shall become effective and such successor, without any
further act, deed or conveyance, shall become vested with all rights, powers,
duties and obligations with respect to the Notes of its predecessor hereunder,
with like effect as if originally named trustee or Collateral Agent for such
Series hereunder.
(b) On the written request of the Company or of the successor Trustee
or Collateral Agent, upon payment of its charges then unpaid, the Trustee or
Collateral Agent ceasing to act shall, subject to Section 2.3(m), pay over to
its successor all moneys at the time held by it hereunder and shall execute and
deliver an instrument transferring to such successor all such rights, powers,
duties and obligations.
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(c) Upon request of any such successor Trustee or Collateral Agent, the
Company shall execute any and all instruments in writing for more fully and
certainly vesting in and confirming to such successor all such rights and
powers. Any Trustee or Collateral Agent ceasing to act shall, nevertheless,
retain a prior claim upon all property or funds held or collected by such
Trustee or Collateral Agent to secure any amounts then due it pursuant to the
provisions of Section 6.7.
(d) If a successor Trustee is appointed with respect to any Notes, the
Company, the predecessor Trustee, each successor trustee with respect to the
Notes and the Collateral Agent shall execute and deliver an indenture
supplemental hereto which shall contain such provisions as shall be deemed
necessary or desirable to confirm that all the rights, powers, trusts and duties
of the predecessor Trustee with respect to the Notes as to which the predecessor
Trustee is not retiring shall continue to be vested in the predecessor Trustee,
and shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such trustees co-trustees of the
same trust and that each such trustee shall be trustee of a trust or trusts
under separate indentures.
Upon acceptance of appointment by any successor trustee or Collateral
Agent as provided in this Section 6.11, the Company shall give notice in the
manner and to the extent provided in Section 10.4 to the Holders of the Notes
for which such successor trustee or Collateral Agent is acting. If the
acceptance of appointment is substantially contemporaneous with the resignation,
then the notice called for by the preceding sentence may be combined with the
notice called for by Section 6.10. If the Company fails to mail such notice
within ten days after acceptance of appointment by the successor, the successor
shall cause such notice to be mailed at the expense of the Company.
SECTION 6.12 Merger, Conversion, Consolidation or Succession to
Business of Trustee or Collateral Agent. Any corporation into which the Trustee
or Collateral Agent may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee or Collateral Agent shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee or Collateral Agent, shall be the successor of the
Trustee or Collateral Agent hereunder, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture, any of the Notes of the Series shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor Trustee and deliver such Notes
so authenticated; and, in case at that time any of the Notes of the Series shall
not have been authenticated, any successor to the Trustee may authenticate such
Notes either in the name of any predecessor Trustee hereunder or in the name of
the successor Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Notes or in this Indenture provided that
the certificate of the Trustee shall have; provided, that the right to adopt the
certificate of authentication of any predecessor Trustee or to authenticate
Notes in the name of any predecessor Trustee shall apply only to its successor
or successors by merger, conversion or consolidation.
SECTION 6.13 Preferential Collection of Claims Against the Company. (a)
Subject to the provisions of this Section, if the Trustee shall be or shall
become a creditor, directly or indirectly, secured or unsecured, of the Company
within three months prior to a default, as defined in subsection (c) of this
Section, or subsequent to such a default, then, unless and until such default
shall be cured, the Trustee shall set apart and hold in a special account for
the benefit of the Trustee individually, the Holders of the Securities of such
Series, the Holders of Coupons, if any appertaining thereto, and the holders of
other indenture securities (as defined in this section):
(1) an amount equal to any and all reductions in the amount
due and owing upon any claim as such creditor in respect of principal
or interest, effected after the beginning of such three month period
and valid as against the Company and its other creditors, except any
such reduction resulting from the receipt or disposition of any
property described in subsection (a)(2) of this Section, or from the
exercise of any right of set-off which
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the Trustee could have exercised if a petition in bankruptcy had been
filed by or against the Company upon the date of such default; and
(2) all property received by the Trustee in respect of any
claim as such creditor, either as security therefor, or in satisfaction
or composition thereof, or otherwise, after the beginning of such three
month period, or an amount equal to the proceeds of any such property,
if disposed of, subject, however, to the rights, if any, of the Company
and its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the
Trustee:
(A) to retain for its own account (i) payments made
on account of any such claim by any person (other than the
Company) who is liable thereon, (ii) the proceeds of the bona
fide sale of any such claim by the Trustee to a third person,
and (iii) distributions made in cash, securities or other
property in respect of claims filed against the Company in
bankruptcy or receivership or in proceedings for
reorganization pursuant to Title 11 of the United States Code
or applicable state law;
(B) to realize, for its own account, upon any
property held by it as security for any such claim, if such
property was so held prior to the beginning of such four month
period;
(C) to realize, for its own account, but only to the
extent of the claim hereinafter mentioned, upon any property
held by it as security for any such claim, if such claim was
created after the beginning of such three month period and
such property was received as security therefor simultaneously
with the creation thereof, and if the Trustee shall sustain
the burden of proving that at the time such property was so
received the Trustee had no reasonable cause to believe that a
default as defined in subsection (c) of this Section would
occur within three months; or
(D) to receive payment on any claim referred to in
paragraph (B) or (C), against the release of any property held
as security for such claim as provided in such paragraph (B)
or (C), as the case may be, to the extent of the fair value of
such property.
For the purposes of paragraphs (B), (C) and (D), property substituted
after the beginning of such three month period for property held as security at
the time of such substitution shall, to the extent of the fair value of the
property released, have the same status as the property released, and, to the
extent that any claim referred to in any of such paragraphs is created in
renewal of or in substitution for or for the purpose of repaying or refunding
any pre-existing claim of the Trustee as such creditor, such claim shall have
the same status as such pre-existing claim.
If the Trustee shall be required to account, the funds and property
held in such special account and the proceeds thereof shall be apportioned
between the Trustee, the Securityholders, the Holders of Coupons, if any,
appertaining thereto and the holders of other indenture securities in such
manner that the Trustee, such Securityholders and the holders of other indenture
securities realize, as a result of payments from such special account and
payments of dividends on claims filed against the Company in bankruptcy or
receivership or in proceedings for reorganization pursuant to Title 11 of the
United States Code or applicable State law, the same percentage of their
respective claims, figured before crediting to the claim of the Trustee anything
on account of the receipt by it from the Company of the funds and property in
such special account and before crediting to the respective claims of the
Trustee, such Securityholders and the holders of other indenture securities,
dividends on claims filed against the Company in bankruptcy or receivership or
in proceedings for reorganization pursuant to Title 11 of the United States Code
or applicable State law, but after crediting thereon receipts on account of the
indebtedness represented by their respective claims from all sources other than
from such dividends and from the funds and property so held in such special
account. As used in this paragraph, with respect to any claim, the term
"dividends" shall include any distribution with respect to such claim, in
bankruptcy or receivership or in proceedings for reorganization pursuant to
Title 11 of the United States Code or applicable State law, whether such
distribution is made in cash, securities or other property, but shall not
include any such distribution with respect to the secured portion,
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if any, of such claim. The court in which such bankruptcy, receivership or
proceeding for reorganization is pending shall have jurisdiction (i) to
apportion between the Trustee, such Securityholders and the holders of other
indenture securities, in accordance with the provisions of this paragraph, the
funds and the property held in such special account and the proceeds thereof, or
(ii) in lieu of such apportionment, in whole or in part, to give to the
provisions of this paragraph due consideration in determining the fairness of
the distributions to be made to the Trustee, such Securityholders and the
holders of other indenture securities with respect to their respective claims,
in which event it shall not be necessary to liquidate or to appraise the value
of any securities or other property held in such special account or as security
for any such claim, or to make a specific allocation of such distributions as
between the secured and unsecured portions of such claims, or otherwise to apply
the provisions of this paragraph as a mathematical formula.
Any Trustee who has resigned or been removed after the beginning of
such three month period shall be subject to the provisions of this subsection
(a) as though such resignation or removal had not occurred. If any
Trustee has resigned or been removed prior to the beginning of such three month
period, it shall be subject to the provisions of this subsection (a) if and only
if the following conditions exist:
(i) the receipt of property or reduction of claim which would
have given rise to the obligation to account, if such Trustee had
continued as trustee, occurred after the beginning of such three month
period; and
(ii) such receipt of property or reduction of claim occurred
within three months after such resignation or removal.
(b) There shall be excluded from the operation of this Section a
creditor relationship arising from:
(1) the ownership or acquisition of securities issued under
any indenture, or any security or securities having a maturity of one
year or more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court
of competent jurisdiction or by this Indenture for the purpose of
preserving any property which shall at any time be subject to the lien
of this Indenture or of discharging tax liens or other prior liens or
encumbrances thereon, if notice of such advance and of the
circumstances surrounding the making thereof is given to the
Securityholders of the applicable Series of Securities and the Holders
of the Coupons, if any, appertaining thereto, at the time and in the
manner provided in this Indenture;
(3) disbursements made in the ordinary course of business in
the capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, fiscal agent or depositary, or other similar
capacity;
(4) an indebtedness created as a result of services rendered
or premises rented or an indebtedness created as a result of goods or
securities sold in a cash transaction as defined in subsection (c)(3)
below;
(5) the ownership of stock or of other securities of a
corporation organized under the provisions of Section 25(a) of the
Federal Reserve Act, as amended, which is directly or indirectly a
creditor of the Company; or
(6) the acquisition, ownership, acceptance or negotiation of
any drafts, bills of exchange, acceptances or obligations which fall
within the classification of self-liquidating paper as defined in
subsection (c)(4) of this Section.
(c) As used in this Section:
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(1) the term "default" shall mean any failure to make payment
in full of the principal of or interest upon any of the Securities or
upon the other indenture securities when and as such principal or
interest becomes due and payable;
(2) the term "other indenture securities" shall mean
securities upon which the Company is an obligor (as defined in the
Trust Indenture Act of 1939) outstanding under any other indenture (i)
under which the Trustee is also trustee, (ii) which contains provisions
substantially similar to the provisions of subsection (a) of this
Section, and (iii) under which a default exists at the time of the
apportionment of the funds and property held in said special account;
(3) the term "cash transaction" shall mean any transaction in
which full payment for goods or securities sold is made within seven
days after delivery of the goods or securities in currency or in checks
or other orders drawn upon banks or bankers and payable upon demand;
(4) the term "self-liquidating paper" shall mean any draft,
bill of exchange, acceptance or obligation which is made, drawn,
negotiated or incurred by the Company for the purpose of financing the
purchase, processing, manufacture, shipment, storage or sale of goods,
wares or merchandise and which is secured by documents evidencing title
to, possession of, or a lien upon the goods, wares or merchandise or
the receivables or proceeds arising from the sale of the goods, wares
or merchandise previously constituting the security, provided the
security is received by the Trustee simultaneously with the creation of
the creditor relationship with the Company arising from the making,
drawing, negotiating or incurring of the draft, bill of exchange,
acceptance or obligation; and
(5) the term "Company" shall mean any obligor upon the
Securities.
ARTICLE SEVEN
MEETINGS OF NOTEHOLDERS
SECTION 7.1 Meetings of Holders.
(a) Any action to be taken by the Holders of any Notes, except with
respect to the giving of a "Notice of Default" as provided in 5.1 hereof, shall
be taken at a meeting duly called and held in accordance with the provisions of
this Section 7.1.
(b) Notice of any meeting of the Holders of any Notes, setting forth
the time and place of such meeting and in general terms the action proposed to
be taken at such meeting, shall be given in accordance with Section 10.4 at
least twice, the first publication to be not less than 20 nor more than 180 days
prior to the date fixed for the meeting. To be entitled to vote at any meeting
of Holders of Notes, a person shall be either a Holder of one or more Notes
(including the beneficial owners of interests in the Temporary Global Note) or a
person appointed by an instrument in writing as proxy by the Holder of one or
more Notes. The only persons who shall be entitled to be present or to speak at
any meeting of Holders of Notes shall be the persons entitled to vote at such
meeting and their counsel and any representatives of the Company and its
counsel.
(c) The persons entitled to vote a majority in principal amount of the
Notes at the time outstanding shall constitute a quorum at a meeting of the
Holders of such Notes convened for the purpose referred to above except as
hereinafter provided. No business shall be transacted in the absence of a
quorum, unless a quorum is present when the meeting is called to order. In the
absence of a quorum, the meeting shall be adjourned for a period of not less
than 10 days as determined by the chairman of the meeting. In the absence of a
quorum at any such adjourned meeting, such adjourned meeting shall be further
adjourned for a period of not less than 10 days as determined by the chairman of
the
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meeting. Notice of the reconvening of any adjourned meeting shall be given
as provided above except that such notice need be given only once but must be
given not less than five days prior to the date on which the meeting is
scheduled to be reconvened. Subject to the foregoing, at the reconvening of any
such meeting further adjourned for the lack of a quorum, the persons entitled to
vote 25% in principal amount of the Notes at the time outstanding shall
constitute a quorum for the taking of any action set forth in the notice of the
original meeting. Notice of the reconvening of an adjourned meeting shall state
expressly the percentage of the aggregate principal amount of the outstanding
Notes which shall constitute a quorum.
(d) At a meeting or an adjourned meeting duly convened and at which a
quorum is present as aforesaid, any resolution to amend, or to waive compliance
with, any of the covenants or conditions provided for in this Indenture or in
the Notes shall be effectively passed and/or decided by the persons entitled to
vote the lesser of (i) a majority in principal amount of the Notes then
outstanding and (ii) 75% in principal amount of the Notes represented and voting
at the meeting. Any Holder of Notes who has executed an instrument in writing
appointing a person as proxy shall be deemed to be present for the purposes of
determining a quorum and be deemed to have voted if such person duly appointed
as proxy is present and has voted; provided that such Holder shall be considered
as present for the purposes of determining a quorum or voting only with respect
to the matters covered by such instrument in writing. Any resolution passed or
decision taken at any meeting of Holders of Notes duly held in accordance with
this Section shall be binding on all the Holders of Notes whether or not present
or represented at the meeting.
(e) The holding of Notes shall be proved by the production of such
Notes or by a certificate, satisfactory to the Company, executed by any bank,
banker, trust company or recognized securities dealer, wherever situated,
satisfactory to the Company. Each such certificate shall be dated and shall
state that on the date thereof a Note bearing a specified serial number was
deposited with or exhibited to such bank, banker, trust company, or recognized
securities dealer by the person named in such certificate. Any such certificate
may be issued in respect of one or more Notes specified therein. The holding by
the person named in any such certificate of any Note specified therein shall be
presumed to continue for a period of one year from the date of such certificate
unless at the time of any determination of such holding (i) another certificate
bearing a later date issued in respect to the same Note shall be produced, (ii)
the Note specified in such certificate shall be produced by some other person or
(iii) the Notes specified in such certificate shall have ceased to be
outstanding. The appointment of any proxy shall be proved by having the
signature of the person executing the proxy guaranteed by any bank, banker,
trust company or London or New York Stock Exchange member firm satisfactory to
the Company.
(f) The Company shall appoint a temporary chairman of the meeting. A
permanent chairman and a permanent secretary of the meeting shall be elected by
vote of the Holders of a majority in principal amount of the Notes voting at
such meeting. At any such meeting each Noteholder shall be entitled to one vote
for each $1,000 of principal amount held or represented by him. No vote shall be
cast or counted at any meeting in respect of any Note challenged as not
outstanding and ruled by the chairman of the meeting to be not outstanding. The
chairman of the meeting shall have no right to vote except as a Holder of Notes
or proxy. Any meeting of Holders of Notes duly called at which a quorum is
present may be adjourned from time to time, and the meeting be held as so
adjourned without further notice.
(g) The vote upon any resolution submitted to any meeting of Holders of
Notes shall be by written ballot on which shall be subscribed the signatures of
the Holders of Notes or proxies and on which shall be inscribed the serial
number or numbers of the Notes held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Holders of Notes shall be prepared by the
secretary of the meeting and there shall be attached to said record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more persons having knowledge of the facts setting forth a
copy of the notice of the meeting and showing that said notice was published as
provided above. The record shall be signed and verified by the permanent
chairman and secretary of the meeting and one of the duplicates shall be
delivered to the Company and the other duplicate
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to the Trustee to be preserved by the Trustee, the latter to have attached
thereto the ballots voted at the meeting. Any record so signed and verified
shall be conclusive evidence of the matters therein stated.
SECTION 7.2 No Delay of Rights by Meeting. Nothing in this
Article Seven shall be deemed or construed to authorize or permit, by reason of
any call of a meeting of Holders or any rights expressly or impliedly
conferred hereunder to make such call, any hindrance or delay in the exercise of
any right or rights conferred upon or reserved to the Trustee or to the Holders
under any of the provisions of this Indenture or of the Notes.
SECTION 7.3 Evidence of Action Taken by Noteholders.
Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by a specified
percentage in principal amount of the Noteholders may be evidenced by one or
more instruments of substantially similar tenor signed by such specified
percentage of Noteholders in person or by agent duly appointed in writing.
Except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee.
Proof of execution of any instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Sections
6.1 and 6.2) conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Article.
SECTION 7.4 Notes Owned by Company Deemed Not Outstanding. In
determining whether the Holders of the requisite aggregate principal amount of
Outstanding Notes have concurred in any direction, consent or waiver under this
Indenture or whether a quorum is present at any meeting of Noteholders, Notes
which are owned by the Company or any other obligor on the Notes with respect to
which such determination is being made or by any person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any other obligor on the Notes with respect to which such
determination is being made shall be disregarded and deemed not to be
Outstanding for the purpose of any such determination, except that for the
purpose of determining whether the Trustee or Collateral Agent shall be
protected in relying on any such direction, consent or waiver, and for purposes
of determining the presence of a quorum, only Notes which the Trustee knows are
so owned shall be so disregarded. Notes so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee or the Collateral Agent the pledgee's right so to
act with respect to such Notes and that the pledgee is not the Company or any
other obligor upon the Notes or any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or any
other obligor on the Notes. In case of a dispute as to such right, the advice of
counsel shall be full protection in respect of any decision made by the Trustee
or Collateral Agent in accordance with such advice. Upon request of the Trustee
or Collateral Agent, the Company shall furnish to the Trustee or the Collateral
Agent, as the case may be, promptly an Officers' Certificate listing and
identifying all Notes, if any, known by the Company to be owned or held by or
for the account of any of the above-described persons; and, subject to Sections
6.1, 6.2 and 6.3, the Trustee or Collateral Agent shall be entitled to accept
such Officers' Certificate as conclusive evidence of the facts therein set forth
and of the fact that all Notes not listed therein are Outstanding for the
purpose of any such determination.
ARTICLE EIGHT
SUPPLEMENTAL INDENTURES
SECTION 8.1 Supplemental Indentures Without Consent of Noteholders. The
Company, when authorized by a resolution of its Board of Directors, the Trustee,
and the Collateral Agent may from time to time and at any time enter into an
indenture or indentures supplemental hereto, in form satisfactory to such
Trustee, for one or more of the following purposes:
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(a) to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Company
pursuant to Article Nine;
(b) to add to the covenants of the Company such further
covenants, restrictions, conditions or provisions as its Board of
Directors and the Trustee shall consider to be for the protection of
the Holders of Notes or any Coupons, and to make the occurrence, or the
occurrence and continuance, of a default in any such additional
covenants, restrictions, conditions or provisions an Event of Default
permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; provided, that in
respect of any such additional covenant, restriction, condition or
provision such supplemental indenture may provide for a particular
period of grace after default (which period may be shorter or longer
than that allowed in the case of other defaults) or may provide for an
immediate enforcement upon such an Event of Default or may limit the
remedies available to the Trustee or the Collateral Agent upon such an
Event of Default or may limit the right of the Holders of a majority in
aggregate principal amount of the Notes to waive such an Event of
Default;
(c) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may
be defective or inconsistent with any other provision contained herein
or in any supplemental indenture; or to make such other provisions in
regard to matters or questions arising under this Indenture or under
any supplemental indenture as the Board of Directors may deem necessary
or desirable and which shall not materially and adversely affect the
interests of the Holders of the Notes or the Holders of any Coupons; or
(d) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee or Collateral Agent with respect to
the Notes and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than the one Trustee or
Collateral Agent, pursuant to the requirements of Section 6.11.
The Trustee and the Collateral Agent are hereby authorized to join with
the Company in the execution of any such supplemental indenture, to make any
further appropriate agreements and stipulations which may be therein contained
and to accept the conveyance, transfer, assignment, mortgage or pledge of any
property thereunder, but the Trustee and the Collateral Agent shall not be
obligated to enter into any such supplemental indenture which affects the
Trustee's or the Collateral Agent's own rights, duties or immunities under this
Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section
may be executed without the consent of the Holders of any of the Notes at the
time Outstanding, notwithstanding any of the provisions of Section 8.2.
SECTION 8.2 Supplemental Indentures With Consent of Noteholders. With
the consent (evidenced as provided in Article Seven) of the Holders of not less
than a majority in aggregate principal amount of the Notes at the time
Outstanding of the Series affected by such supplemental indenture (treated as
one class), the Company, when authorized by a resolution of its Board of
Directors, the Trustee and the Collateral Agent, may, from time to time and at
any time, enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or of any supplemental indenture or of
modifying in any manner the rights of the Holders of the Notes; provided, that
no such supplemental indenture shall (a) extend the final maturity of any Note,
or reduce the principal amount thereof or any premium thereon, or reduce the
rate or extend the time of payment of interest thereon, or reduce any amount
payable on redemption thereof, or impair or affect the right of any Noteholder
to institute suit for payment thereof without the consent of the Holder of each
Note so affected, or waive a default in the payment of the principal of or
interest (including any Additional Amounts in respect thereof) on any Note, or
change the stated maturity of the principal of or any installment of interest on
any such Note; reduce the principal amount of or the rate of interest on any
such Note or change the obligation of the Company to pay Additional Amounts with
respect to such Note; change the currency of payment of principal of or interest
on any such Note; impair the right to institute suit for the enforcement of any
such payment on or with respect to any such Note; or
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modify the obligation of the Company to maintain an office or agency outside the
United States for the purposes specified herein or (b) reduce the aforesaid
percentage of Notes, the consent of the Holders of which is required for any
such supplemental indenture, without the consent of the Holders of each Note so
affected.
Upon the request of the Company, accompanied by a copy of a resolution
of the Board of Directors certified by the secretary or an assistant secretary
of the Company authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee as aforesaid and other documents, if any,
evidencing the action taken pursuant to Section 7.1, the Trustee and the
Collateral Agent shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects such Trustee's
or the Collateral Agent's own rights, duties or immunities under this Indenture
or otherwise, in which case such Trustee or the Collateral Agent, respectively,
may in its discretion, but shall not be obligated to, enter into such
supplemental indenture.
It shall not be necessary for the consent of the Noteholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such consent shall approve the substance thereof.
Promptly after the execution by the Company, the Trustee and the
Collateral Agent of any supplemental indenture pursuant to the provisions of
this Section, the Company shall give notice in the manner and to the extent
provided in Section 10.4 to the Noteholders affected thereby, setting forth in
general terms the substance of such supplemental indenture. Any failure of the
Company to provide such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 8.3 Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and be deemed to be modified and amended in accordance therewith and the
respective rights, limitations of rights, obligations, duties and immunities
under this Indenture of the Trustee, the Collateral Agent, the Company and the
Holders of Notes and the Holders of any Coupons affected thereby shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
SECTION 8.4 Documents to Be Given to Trustee and Collateral Agent. The
Trustee and the Collateral Agent, subject to the provisions of Sections 6.1, 6.2
and 6.3, shall receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant to this
Article Eight complies with the applicable provisions of this Indenture.
ARTICLE NINE
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
SECTION 9.1 Company May Consolidate, etc., on Certain Terms. Subject to
the provisions of Article Four and of Section 9.2, nothing contained in this
Indenture or in any of the Notes shall prevent any consolidation or merger of
the Company with or into any other corporation or corporations (whether or not
affiliated with the Company), or successive consolidations or mergers in which
the Company or its successor or successors shall be a party or parties, or shall
prevent any sale, conveyance or lease of all or substantially all the property
of the Company to any other corporation (whether or not affiliated with the
Company) authorized to acquire and operate the same; provided, however, and the
Company hereby covenants and agrees, that upon any such consolidation, merger,
sale, conveyance or lease, other than a merger in which the Company is the
continuing corporation, the due and punctual payment of the principal of and
interest on all of the Notes, according to their tenor, and the due and punctual
performance and observance of all of the covenants and conditions of this
Indenture to be performed by the Company, shall be expressly assumed, by
supplemental indenture satisfactory in form to the Trustee and the
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Collateral Agent, executed and delivered to the Trustee and the Collateral Agent
by the corporation (if other than the Company) formed by such consolidation, or
into which the Company shall have been merged, or by the corporation which shall
have acquired or leased such property.
SECTION 9.2 Notes to be Secured in Certain Events. If, upon any
consolidation, merger, sale, conveyance or lease referred to in Section 9.1, or
upon any consolidation or merger of any Restricted Subsidiary, or upon any sale,
conveyance or lease of all or substantially all the property of any Restricted
Subsidiary to any other corporation, any Principal Property of the Company or of
any Restricted Subsidiary or any shares of capital stock or indebtedness of any
Restricted Subsidiary which is owned immediately after such consolidation,
merger, sale, conveyance or lease by the Company or a Restricted Subsidiary or a
successor to the Company pursuant to Sections 9.1 and 9.3 would thereupon become
subject to any mortgage, security interest, pledge, lien or encumbrance (other
than a mortgage, security interest, pledge, lien or encumbrance in favor of the
Company, a Restricted Subsidiary or any such successor), the Company, prior to
or concurrently with such consolidation, merger, sale, conveyance or lease, will
effectively provide that the Notes 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 Notes) 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 9.3 Successor Corporation Substituted. In case of any such
consolidation, merger, sale or conveyance, and following such an assumption by
the successor corporation, such successor corporation shall succeed to and be
substituted for the Company, with the same effect as if it had been named
herein. Such successor corporation may cause to be signed, and may issue either
in its own name or in the name of the Company prior to such succession any or
all of the Notes issuable hereunder which theretofore shall not have been signed
by the Company and delivered to the Trustee; and, upon the order of such
successor corporation instead of the Company and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall deliver any Notes and Coupons, if any, appertaining
thereto, which previously shall have been signed and delivered by the officers
of the Company to the Trustee for authentication, and any Notes which such
successor corporation thereafter shall cause to be signed and delivered to the
Trustee for that purpose. All of the Notes and Coupons appertaining thereto so
issued shall in all respects have the same legal rank and benefit under this
Indenture, as the Notes and Coupons theretofore or thereafter issued in
accordance with the terms of this Indenture, as though all of such Notes and
Coupons had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, lease or conveyance,
such changes in phraseology and form (but not in substance) may be made in the
Notes and Coupons thereafter to be issued as may be appropriate.
In the event of any such sale or conveyance (other than a conveyance by
way of lease) the Company or any successor corporation which shall theretofore
have become such in the manner described in this Article shall be discharged
from all obligations and covenants under this Indenture and the Notes and may be
liquidated and dissolved.
SECTION 9.4 Opinion of Counsel. The Trustee and the Collateral Agent
shall receive an Opinion of Counsel, prepared in accordance with Section 10.5,
as conclusive evidence that any such consolidation, merger, sale, lease or
conveyance complies with the applicable provisions of this Indenture.
ARTICLE TEN
MISCELLANEOUS PROVISIONS
SECTION 10.1 Incorporators, Stockholders, Officers and Directors of
Company Exempt from Individual Liability. No recourse under or upon any
obligation, covenant or agreement contained in this Indenture, in any Note or
Coupon appertaining thereto, or because of any indebtedness evidenced thereby,
shall be had against any incorporator, as such or against any past, present or
future stockholder, officer or director, as such, of the Company or of any
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successor, either directly or through the Company or any successor, under any
rule of law, statute or constitutional provision or by the enforcement of any
assessment or by any legal or equitable proceeding or otherwise, all such
liability being expressly waived and released by the acceptance of the Notes and
Coupons, if any, by the Holders thereof and as part of the consideration for the
issue of the Notes.
SECTION 10.2 Provisions of Indenture for the Sole Benefit of Parties
and Noteholders. Nothing in this Indenture or in the Notes or Coupons, expressed
or implied, shall give or be construed to give to any Person, firm or
corporation, other than the parties hereto, any Paying Agent and their
successors hereunder and the Holders of the Notes and Coupons, if any, any legal
or equitable right, remedy or claim under this Indenture or under any covenant
or provision herein contained, all such covenants and provisions being for the
sole benefit of the parties hereto and their successors and of the Holders of
the Notes and Coupons.
SECTION 10.3 Successors and Assigns of Company Bound by Indenture. All
the covenants, stipulations, promises and agreements in this Indenture contained
by or on behalf of the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 10.4 Notices and Communications.
(a) Except where otherwise specifically provided, any notice or demand
which by any provision of this Indenture is required or permitted to be given or
served by the Holders of Notes or Coupons to or on the Company may be given or
served by being deposited postage prepaid, first-class mail (except as otherwise
specifically provided herein) addressed (until another address of the Company is
filed by the Company with the Trustee) to Kellogg Company, One Kellogg Square,
Battle Creek, Michigan 49016, Attention: Secretary. Any notice, direction,
request or demand by any Noteholder to or upon the Trustee or Collateral Agent
shall be deemed to have been sufficiently given or made, for all purposes, if
given or made at the Corporate Trust Office of the Trustee or Collateral Agent,
respectively. In case, by reason of the suspension of or irregularities in
regular mail service, it shall be impracticable to mail notice to the Company
when such notice is required to be given pursuant to any provision of this
Indenture, then any manner of giving such notice as shall be satisfactory to the
Trustee shall be deemed to be a sufficient giving of such notice.
(b) All communications hereunder between the Company, the Trustee, the
Collateral Agent, and the Paying Agents, shall be in writing and shall be
delivered at or sent by facsimile or telexed to the appropriate party at its
address set forth on the signature pages of this Indenture or at such other
address as such party shall have notified to the other parties in a
communication complying with this Section 10.4(b). Any communication so sent by
facsimile or telex shall be deemed to have been delivered at the time of
dispatch with confirmation of receipt or confirmed answerback. The parties
additionally understand that
(i) all communications relating to this Indenture between the
Company and any of the Paying Agents or between the Paying Agents
themselves shall be made through the Trustee.
(ii) any notices received by the Trustee on behalf of the
Company under this Indenture and the Notes shall be delivered to the
Company by the Trustee on the dates on which the Trustee receives such
notices.
(c) All notices to the Holders of interests in the Notes will be given
by publication at least once:
(i) in a newspaper in the English language of general
circulation in London (which is expected to be the Financial Times, and
(ii) so long as the Notes are listed on the Luxembourg Stock
Exchange and the rules of the Luxembourg Stock Exchange so require, in
a newspaper of general circulation in Luxembourg (which is expected to
be the Luxemburger Wort);
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<PAGE> 45
provided, however, if publication in London or Luxembourg is not practicable,
publication may be made in another principal city in Europe in a newspaper of
general circulation. Such notices will be deemed to have been given on the date
of such publication, or if published on different dates, on the first date on
which publication is made in any publication in which it is required.
Couponholders will be deemed for all purposes to have notice of the contents of
any notices given to the Noteholders in accordance with this paragraph.
Until such time as any definitive Notes are issued, there may, so long
as the Temporary Global Note is held in its entirety on behalf of Euroclear and
Cedel, be substituted for such publication in London, the delivery of the
relevant notice to Euroclear and Cedel for communication by them to the persons
shown in their records as having interest in the Temporary Global Note credited
to them and any such notices will be deemed to have been given on the seventh
day after delivery to Euroclear and Cedel; provided, that the foregoing shall
not relieve the Company of its obligation to publish any notices in a newspaper
of general circulation in Luxembourg so long as the Notes are listed on the
Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so
require such publication.
SECTION 10.5 Officers' Certificates and Opinions of Counsel; Statements
to Be Contained Therein. Upon any application or demand by the Company to the
Trustee or Collateral Agent to take any action under any of the provisions of
this Indenture, the Company shall furnish to the Trustee or Collateral Agent an
Officers' Certificate stating that all conditions precedent provided for in this
Indenture relating to the proposed action have been complied with and an Opinion
of Counsel stating that in the opinion of such counsel all such conditions
precedent have been complied with, except that in the case of any such
application or demand as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or demand, no additional certificate or opinion need be
furnished.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee or Collateral Agent with respect to compliance with a
condition or covenant provided for in this Indenture shall include (a) a
statement that the person making such certificate or opinion has read such
covenant or condition, (b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based, (c) a statement that, in the opinion of
such person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant or
condition has been complied with and (d) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the Company may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of or representations by counsel, unless such officer knows that the certificate
or opinion or representations with respect to the matters upon which his
certificate, statement or opinion may be based as aforesaid are erroneous, or in
the exercise of reasonable care should know that the same are erroneous. Any
certificate, statement or opinion of counsel may be based, insofar as it relates
to factual matters, information with respect to which is in the possession of
the Company, upon the certificate, statement or opinion of or representations by
an officer or officers of the Company, unless such counsel knows that the
certificate, statement or opinion or representations with respect to the matters
upon which his certificate, statement or opinion may be based as aforesaid are
erroneous, or in the exercise of reasonable care should know that the same are
erroneous.
Any certificate, statement or opinion of an officer of the Company or
of counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Company, unless such officer or counsel, as the
case may be, knows that the certificate or opinion or representations with
respect to the accounting matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous.
Any certificate or opinion of any independent firm of public
accountants filed with the Trustee or Collateral Agent shall contain a statement
that such firm is independent.
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<PAGE> 46
SECTION 10.6 Governing Law.
(a) (i) Subject to Section 10.6(b), this Indenture, the Temporary
Global Note, the Notes and any Coupons appertaining thereto shall be governed
and construed in accordance with the laws of the State of New York, United
States of America. The pledge of the Pledged Securities will be governed by
German law.
(ii) The Company hereby irrevocably submits to the
non-exclusive jurisdiction of any New York State or United States
Federal court sitting in The City and County of New York over any suit,
action or proceeding arising out of or related to this Indenture or any
Notes. The Company irrevocably waives, to the fullest extent permitted
by law, any objection which it may have to the laying of the venue of
any such suit, action or proceeding brought in such a court and any
claim that any such suit, action or proceeding brought in such a court
has been brought in an inconvenient forum. The Company agrees that
final judgment in any such suit, action or proceeding brought in such a
court shall be conclusive and binding upon the Company and may be
enforced in any court to the jurisdiction of which the Company is
subject by a suit upon such judgment; provided that service of process
is effected upon the Company in the manner specified in the following
paragraph or as otherwise permitted by law.
(iii) As long as any of the Notes remain outstanding, the
Company will at all times have an authorized agent in The City of New
York, upon whom process may be served in any legal action or proceeding
arising out of or relating to this Indenture or any Notes. Service of
process upon such agent and written notice of such service mailed or
delivered to the Company shall to the extent permitted by law be deemed
in every respect effective service of process upon the Company in any
such legal action or proceeding. The Company hereby appoints Citibank,
N.A. as its agent for such purpose, and covenants and agrees that
service of process in any legal action or proceeding may be made upon
it at the office of such agent at 120 Wall Street, 13th Floor, New
York, New York 10043. Attention: Corporate Trust Department (or at such
other address or, at the office of such other authorized agent as the
Company may designate by written notice to the Trustee), with a copy of
the Company at the address for notices set forth in Section 10.4
hereof; provided that failure to deliver any such copy to the Company
shall not affect the validity or effectiveness of any such service of
process.
(b) No failure to exercise, and no delay in exercising, on the part of
the Holder of any Note or Coupon, any right with respect thereto shall operate
as a waiver thereof, nor shall any single or partial exercise thereof preclude
any other or future exercise thereof or the exercise of any other right. Rights
pursuant to the terms of the Notes shall be in addition to all other rights
provided by law. No notice or demand given in any case shall constitute a waiver
of rights to take other action in the same, similar or other instances without
such notice or demand.
SECTION 10.7 Counterparts. This Indenture may be executed in any number
of counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
SECTION 10.8 Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
* * * * * *
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<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed all as of the day and year first above written.
<TABLE>
<S> <C>
Address: KELLOGG COMPANY
One Kellogg Square
Battle Creek, Michigan 49016-3599 By: /S/ John R. Hinton
Attention: General Counsel -------------------------
Telephone: (616) 961-2000 John R. Hinton
Facsimile: (616) 961-3276 Senior Vice President - Administration
Telex: 224454 and Chief Financial Officer
Address: CITIBANK, N.A.,
as Trustee and Collateral Agent
120 Wall Street, 13th Floor
New York, New York 10043
Attention: Corporate Trust By: /S/ Wafaa Orfy
Telephone: (212) 412-6260 ------------------------
Facsimile: (212) 480-1614 Wafaa Orfy
Telex: BCA 235530 Senior Trust Officer
Authorized Signatory
Address: CITIBANK, N.A.,
as Paying Agent
336 Strand
London WC2R 1HB England
Attention: Corporate Trust By: /S/ Wafaa Orfy
Telephone: 44-171-500-5230 -------------------------
Facsimile: 44-171-500-5278 Wafaa Orfy
Telex: 882151/896581 Senior Trust Officer
Authorized Signatory
Address: CITIBANK (LUXEMBOURG) S.A.,
as Paying Agent
P.O. Box 1373
58 Boulevard Grande - Duchesse Charlotte
L-1330 Luxembourg
Attention: Corporate Trust By: /S/ Wafaa Orfy
Telephone: 352 44 22 4060 -------------------------
Facsimile: 352 44 22 4070 Wafaa Orfy
Telex: 2588 CITI LU Senior Trust Officer
Authorized Signatory
Address: CITIBANK, N.A., BRUSSELS BRANCH,
as Paying Agent
Boulevard General
Jacques, 263g
B-1050 Brussels
Attention: Corporate Trust By: /S/ Wafaa Orfy
Telephone: 32-2-626-6170 ------------------------
Facsimile: 32-2-626-5580 Wafaa Orfy
Telex: 65100 CIBK B Senior Trust Officer
Authorized Signatory
</TABLE>
<PAGE> 1
EXHIBIT 4.04
TERMS AND CONDITIONS OF THE NOTES
The U.S. $500,000,000 6 1/8% Notes due August 6, 2001 (the "Notes") have
been issued under an Indenture, dated as of August 5, 1997 (the "Indenture"),
between Kellogg Company (the "Company"), Citibank, N.A., as trustee (the
"Trustee," which expression shall include any successor as trustee under the
terms of the Indenture), Citibank, N.A., as collateral agent (the "Collateral
Agent"), and the paying agents named therein (such paying agents, the Trustee,
in its capacity as principal paying agent, and any successor or additional
paying agents appointed pursuant to the Indenture are referred to collectively
herein as the "Paying Agents"). Certain statements herein are a summary of, and
are subject to the detailed provisions of, the Indenture. The Indenture contains
provisions which are expressed to be for the benefit of the holders of the Notes
(the "Noteholders") and of the coupons attached thereto (the "Couponholders")
and such provisions shall be deemed to be incorporated in these Conditions.
Copies of the Indenture are available for inspection at the offices of the
Trustee and the Paying Agents specified on Schedule I hereto (or, in the case of
any successor Trustee or Paying Agent, identified in the notification to
Noteholders of the appointment of such successor in accordance with Section 11
of the Conditions). The Noteholders and the Couponholders will be deemed to have
notice of and be bound by all the provisions contained in the Indenture.
Section 1. Delivery, Form and Denomination.
The Notes will initially be represented by a single temporary global note
(the "Temporary Global Note"), without interest coupons (the "Coupons"), which
will be deposited with Citibank, N.A., as common depositary (the "Common
Depositary") for Morgan Guaranty Trust Company of New York, Brussels Office, as
the operator of the Euroclear System ("Euroclear"), and Cedel Bank, S.A. ("Cedel
Bank"). The beneficial interests in the Temporary Global Note will be
exchangeable for definitive Notes, with Coupons, upon and to the extent that the
certification requirements set forth in the Indenture have been complied with.
Certain details as to procedures and prerequisites for owners of beneficial
interests in the Temporary Global Note to exchange such interests for definitive
Notes are set forth in the Temporary Global Note and the Indenture. Any
definitive Notes issued in exchange for such interests will be in bearer form
only in denominations of U.S. $1,000, U.S. $10,000 and U.S. $100,000 with
Coupons attached thereto, and title to such definitive Notes and Coupons will
pass upon delivery.
Each definitive Note and Coupon will carry substantially the following
legend:
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<PAGE> 2
"This obligation has not been registered under the United States
Securities Act of 1933, as amended, and may not be offered or sold in
contravention of that Act. Any United States person who holds this obligation
will be subject to limitations under the United States income tax laws,
including the limitations provided in Sections 165(j) and 1287(a) of the United
States Internal Revenue Code."
Section 2. Status.
The Notes constitute direct, unconditional and unsecured obligations of
the Company and will at all times rank equally among themselves and equally
(subject to such obligations as are mandatorily preferred by law) with all other
present and future unsubordinated obligations of the Company. The Company has
agreed to use commercially reasonable efforts to secure the Notes as of
September 30, 1997 by a pledge of all of the outstanding Capital Stock of
Kellogg (Deutschland) GmbH ("Kellogg (Deutschland)"). Pursuant to the Notarial
Deed which will be executed in connection with the foregoing pledge, Kellogg
(Deutschland) will agree, among other things, not to guarantee or assume any
indebtedness of another outside the ordinary course of business without the
approval of the holders of a majority of the Notes. Neither the Indenture nor
the Notes limit other indebtedness or securities which may be incurred or issued
by the Company. The Indenture and the Notes contain only the financial or
similar restrictions on the Company set forth below in these Conditions.
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<PAGE> 3
Section 3. Limitations upon Liens.
(a)
The Company will not, nor will it permit any Restricted Subsidiary (as
defined below) to issue, assume or guarantee any indebtedness for money borrowed
(hereinafter in this Section 3 called "Debt"), secured by a mortgage, security
interest, pledge, lien or other encumbrance (mortgages, security interests,
pledges, liens and other encumbrances being hereinafter in this Section 3 called
"mortgage" or "mortgages") upon any Principal Property (as defined below) of the
Company or any Restricted Subsidiary or upon any shares of stock or indebtedness
of any Restricted Subsidiary (whether such Principal Property, shares of stock
or indebtedness are owned at the date of the Indenture or thereafter acquired)
without in any such case effectively providing concurrently with the issuance,
assumption or guaranty of any such debt that the Notes (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 Notes and then
existing or thereafter created) shall be secured equally and ratably with (or,
at the option of the Company, prior to) such Debt so long as such Debt shall be
so secured; provided, however, that the foregoing restrictions shall not apply
to Debt secured by:
(i) mortgages on property, shares of stock or indebtedness
(hereinafter in this Section 3 called "property") of any corporation
existing at the time such corporation becomes a Restricted Subsidiary;
(ii) mortgages on property existing at the time of acquisition of
the affected property by the Company or a Restricted Subsidiary, or
mortgages to secure the payment of all or any part of the purchase price
of such property upon the acquisition of such property by the Company or
a Restricted Subsidiary or to secure any Debt incurred by the Company or
a Restricted Subsidiary prior to, at the time of, or within 360 days
after the later of the acquisition, the completion of construction
(including any improvements on an existing property) or the commencement
of commercial operation of such property, which Debt is incurred for the
purpose of financing all or any part of the purchase price thereof or
construction or improvements thereon; provided, however, that in the case
of any such acquisition, construction or improvement, the mortgage shall
not apply to any property theretofore owned by the Company or a
Restricted Subsidiary, other than, in the case of any such construction
or improvement, any real property on which the property so constructed,
or the improvement, is located which in the opinion of the Board of
Directors (or duly authorized committee thereof) was prior to such
construction or
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<PAGE> 4
improvement, 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 to 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, however, that any such mortgages do not attach to or 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 or any
State thereof, or any department, agency or instrumentality or political
subdivision of the United States of America or any State thereof, or in
favor of any other country or any political subdivision thereof, or in
favor of holders of securities issued by any such entity, pursuant to any
contract or statute (including, without limitation, 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,
including the pledge of the Pledged Securities under the
Indenture;
(vii) landlords' liens on fixtures located on premises
leased by the Company or a Restricted Subsidiary in the
ordinary course of business;
(viii) mortgages on property of the Company or a Restricted
Subsidiary to secure partial, progress, advance or other payments or any
Debt incurred for the purpose of financing all or any part of the
purchase price or the cost of construction, development, or substantial
repair, alteration or improvement of the property subject to such
mortgages if the commitment for the financing is obtained not later than
one year after the later of the completion of or the placing into
operation (exclusive of test and start-up periods) of such constructed,
developed, repaired, altered or improved property;
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<PAGE> 5
(ix) mortgages arising in connection with contracts and
subcontracts with or made at the request of the United States of America,
or any state thereof, or any department, agency or instrumentality of
the United States of America or any state thereof;
(x) mechanics', materialmen's, carriers' or other like liens
arising in the ordinary course of business (including construction of
facilities) in respect of obligations which are not due or which are
being contested in good faith;
(xi) any mortgage arising by reason of deposits with, or the
giving of any form of security to, any governmental agency or any body
created or approved by law or governmental regulations, which is required
by law or governmental regulation as a condition to the transaction of
any business, or the exercise of any privilege, franchise or license;
(xii) mortgages for taxes, assessments or governmental charges or
levies not yet delinquent, or mortgages for taxes, assessments or
governmental charges or levies already delinquent but the validity of
which is being contested in good faith;
(xiii) mortgages (including judgment liens) arising in connection
with legal proceedings so long as such proceedings are being contested in
good faith and, in the case of judgment liens, execution thereon is
stayed; 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; provided,
however, that the principal amount of Debt secured thereby shall not
exceed the principal amount of Debt so secured at the time of such
extension, renewal or replacement mortgage, and that such extension,
renewal or replacement mortgage shall be limited to all or a part of the
property which secured the mortgage so extended, renewed or replaced
(plus improvements on such property).
(b) Notwithstanding the foregoing provisions of this Section 3, the
Company and any one or more Restricted Subsidiaries may issue, assume or
guarantee Debt secured by mortgages which would otherwise be subject to the
foregoing restrictions in an aggregate amount which, together with all other
Debt of the Company and its Restricted Subsidiaries which (if originally issued,
assumed or guaranteed at such time) would otherwise be subject to the foregoing
restrictions (not including Debt permitted to be secured under clauses (i)
through (xiv) above), does not at the time exceed 10% of Consolidated Net
Tangible Assets (as defined below), as shown on the latest
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<PAGE> 6
quarterly consolidated financial statements of the Company preceding the date
of determination.
(c) As of September 30, 1997 the Company will not create, incur, assume or
permit to exist any mortgage on any of the Pledged Securities other than the
mortgage of this Indenture.
(d) The Company will not, nor will it permit any Restricted Subsidiary to,
enter into any arrangement with any person providing for the leasing by the
Company or any Restricted Subsidiary of any Principal Property of the Company or
any Restricted Subsidiary (whether such Principal Property is owned at the date
of the Indenture or thereafter acquired) (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), which Principal
Property has been or is to be sold or transferred by the Company or such
Restricted Subsidiary to such person (herein referred to as a "Sale and
Lease-Back Transaction"), unless (a) the Company or such Restricted Subsidiary
would be entitled, pursuant to the provisions of Sections 3(a) or (b), to issue,
assume or guarantee Debt secured by a mortgage upon such Principal Property at
least equal in amount to the Attributable Debt in respect of such arrangement
without equally and ratably securing the Notes; provided, however, that from and
after the date on which such arrangement becomes effective, the Attributable
Debt in respect of such arrangement shall be deemed for all purposes under
Section 3 to be Debt subject to the provisions of Section 3; or (b) the Company
shall apply an amount in cash equal to the Attributable Debt in respect of such
arrangement to the retirement (other than any mandatory retirement or by way of
payment at maturity), within 120 days of the effective date of any such
arrangement, of Debt of the Company or any Restricted Subsidiary (other than
Debt owned by the Company or any Restricted Subsidiary and other than Debt of
the Company which is subordinated to the Notes) which by its terms matures at or
is extendible or renewable at the option of the obligor to a date more than
twelve months after the date of the creation of such Debt.
(e) For purposes of this Section 3,
"Attributable Debt" means the present value (discounted at the actual
percentage rate inherent in a Sale and Lease-Back Transaction (as defined
below), as determined in good faith by the Company, compounded semi-annually) of
the obligation of a lessee for rental payments during the remaining term of any
lease (including any period for which such lease has been extended). Such rental
payments shall not include amounts payable by the
Page 6
<PAGE> 7
lessee for maintenance and repairs, insurance, taxes, assessments and similar
charges and for contingent rents (such as those based on sales). In case of any
lease which is terminable by the lessee upon the payment of a penalty, such
rental payments shall also include such penalty, but no rent shall be considered
as required to be paid under such lease subsequent to the first date upon which
it may be so terminated. Any determination of any actual percentage rate
inherent in any such Sale and Lease-Back Transaction made in good faith by the
Company shall be binding and conclusive.
"Consolidated Net Tangible Assets" means, as of any particular time, the
total amount of assets (less applicable reserves) after deducting therefrom (a)
all current liabilities (excluding any thereof which are by their terms
extendible or renewable at the option of the obligor thereon to a time more than
12 months after the time as of which the amount thereof is being computed and
excluding current maturities of long-term indebtedness), and (b) all goodwill,
trade names, trademarks, patents, unamortized debt discount and expense and
other like intangible assets, all as shown in the latest quarterly consolidated
balance sheet of the Company contained in the Company's then most recent annual
report to stockholders or quarterly report filed with the United States
Securities and Exchange Commission, as the case may be, except that assets shall
include an amount equal to the Attributable Debt in respect of any Sale and
Lease-Back Transaction not capitalized on such balance sheet.
"Principal Property" means 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, except any such plant or facility which
the Board of Directors (or a duly authorized committee thereof) of the Company
by resolution declares from time to time is not of material importance to the
total business conducted by the Company and its Restricted Subsidiaries as an
entirety and which, when taken together with all other plants and facilities as
to which such a declaration has been made, are so declared from time to time by
the Board of Directors (or duly authorized committee thereof) of the Company to
be not of material importance to the total business conducted by the Company and
its Restricted Subsidiaries as an entirety.
"Restricted Subsidiary" means any Subsidiary (a) substantially all of the
property of which is located within the continental United States, (b) which
owns a Principal Property, and (c) in which the Company's investment, direct or
indirect and whether in the form of equity, debt or advances, as shown on the
consolidating balance sheet used in the preparation of the latest quarterly
consolidated financial statements of the Company preceding the date of
determination, is in excess of 1% of the total consolidated assets of the
Company as shown on such
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<PAGE> 8
quarterly consolidated financial statements; provided, however, that the term
"Restricted Subsidiary" shall not include any Subsidiary which is principally
engaged in leasing or in financing installment receivables or which is
principally engaged in financing the Company's operation outside the continental
United States of America.
"Subsidiary" means any corporation which is consolidated in the Company's
accounts and any corporation of which at least a majority of the outstanding
stock having by the terms thereof ordinary voting power to elect a majority of
the board of directors of such corporation (irrespective of whether or not at
the time stock of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by the Company, or by one or
more Subsidiaries, or by the Company and one or more Subsidiaries.
Section 4. Company May Consolidate, etc., Only on Certain Terms.
(a) The Company will not merge into or consolidate with, or sell or convey
all or substantially all of its assets to, any other corporation, unless either
(A) the Company shall be the surviving corporation in the case of a merger or
(B) (I) the surviving, resulting or transferee corporation shall expressly
assume the due and punctual payment (including Additional Amounts, if any) of
all the Notes according to their tenor, and the due and punctual performance of
all of the covenants and obligations of the Company under the Notes, the Coupons
and Indenture in respect of the Notes, by supplemental agreement reasonably
satisfactory to the Trustee, (II) such successor corporation shall agree to
indemnify and hold harmless the holder of each Note or Coupon against (y) any
tax, assessment or governmental charge imposed on such holder by a jurisdiction
other than the United States of America or any political subdivision or taxing
authority thereof or therein with respect to, and withheld on the making of, any
payment of principal of or interest on such Note (including Additional Amounts,
if any, in respect thereof) and which would have been so imposed and withheld
had such merger, consolidation, sale or conveyance not been made and (z) any
tax, assessment or governmental charge imposed on or relating to such merger,
consolidation, sale or conveyance, (III) immediately after such merger,
consolidation, sale or conveyance, the Notes will not be subject to United
States Federal estate tax as a result thereof, if held by a person who at the
time of death is not a citizen or resident of the United States of America
unless such successor corporation shall have agreed, by supplemental agreement,
to indemnify the persons liable therefor for the amount of United States Federal
estate tax attributable to and paid in respect of any Notes
Page 8
<PAGE> 9
includable in the gross estate of a person who at the time of death is not a
citizen or resident of the United States of America and (IV) the Trustee shall
have received the documentation required in the context by the Indenture. In
calculating the amount of tax attributable to any Notes for purposes of
sub-clause (III) above in accordance with the provisions of the United States
Internal Revenue Code of 1986, the gross estate of the decedent shall be deemed
to include only Notes issued under the Indenture.
(b) Upon any merger, consolidation, sale or conveyance as provided in
Section 4(a), the successor corporation shall succeed to and be substituted for,
and may exercise every right and power of and be subject to all the obligations
of, the Company under the Notes, the Coupons and the Indenture in respect of the
Notes, with the same effect as if such successor corporation had been named as
the Company therein and herein and the Company shall be released from its
liability as obligor under the Notes, the Coupons and the Indenture in respect
of the Notes.
Section 5. Interest.
(a) Period of Accrual of Interest. The Notes will bear interest from
August 5, 1997 (the "Issue Date"). Interest on each Note will cease to accrue
from the due date for the principal thereof unless (i) the maturity of Notes has
been accelerated pursuant to Section 9 of the Conditions and/or (ii) upon due
presentation of the Note, the payment of principal is improperly withheld or
refused. In either such event, the affected Notes will continue to bear interest
at the rate of 6 1/8% per annum, after as well as before judgment, until such
Notes shall be paid in full or until the seventh day following the date on which
notice is given to the affected Noteholders to the effect that funds for the
payment of principal in respect of all outstanding Notes have been received by
the Trustee and are available for collection (provided that sufficient funds
have actually been received and are available for such purpose), whichever is
the earlier.
(b) Interest Payment Dates and Interest Periods. Interest on the Notes is
payable in arrears on August 6 of each year (commencing with August 6, 1998) or,
if any such day is not a Business Day (as defined below), the immediately
following day which is a Business Day. Every day on which interest on the Notes
is payable is herein called an "Interest Payment Date." If any Interest Payment
Date would otherwise be a day which is not a Business Day, the Interest Payment
Date shall be postponed to the next day which is a Business Day and no
additional interest shall be payable on account of such delayed payment. As used
in this Condition, "Business Day" means a day (other than a Saturday or
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Sunday) on which banks are open for business in New York City and the relevant
place of payment.
(c) Coupons. Interest due on each Interest Payment Date will be paid
against presentation and surrender of the appropriate Coupons attached to the
Notes on issue as they severally mature, in accordance with Section 7 of the
Conditions.
(d) Rate of Interest. The rate at which interest shall accrue from time to
time in respect of the Notes will be 6 1/8% per annum. In the event that
interest is required to be calculated for a period of less than one year, it
will be calculated on the basis of a 360-day year consisting of 12 months of 30
days each and in the case of an incomplete month the actual number of days
elapsed.
Section 6. Redemption.
(a) Final Redemption. Except as provided below, the Notes may not be
redeemed prior to maturity. Unless previously redeemed or repurchased and
cancelled, the Notes will be payable at par on August 6, 2001 or such earlier
date on which the same shall be due and payable in accordance with the terms and
conditions of the Notes; provided that if the maturity date of the Notes is not
a Business Day, the Notes will be payable at their principal amount on the next
succeeding Business Day (and no interest shall accrue for the period from August
6, 2001 to such payment date).
(b) Redemption for Taxation Reasons. The Company may, at its option,
redeem the Notes, as a whole but not in part, upon not more than 60 nor less
than 30 days' notice at 100% of their principal amount, together with interest
accrued to the date fixed for redemption, if (i) at any time the Company becomes
or would become obligated to pay to the holder of any Note or Coupon Additional
Amounts under Section 8 of the Conditions or (ii) on or after August 1, 1997 any
action or further action shall have been taken by any taxing authority, or any
action shall have been brought in a court of competent jurisdiction, of the
United States of America or any political subdivision or taxing authority
thereof or therein, whether or not such action was taken or brought with respect
to the Company or any affiliate thereof, or any change, amendment, application,
interpretation or execution shall have been officially proposed which, in any
such case in the written opinion of independent counsel reasonably acceptable to
the Company, will result in the Company becoming obligated to pay Additional
Amounts and such obligation cannot be avoided by the Company taking reasonable
measures available to it, then the Company may, at its option, redeem the Notes,
as a whole but not in part, upon not more than 60 nor less than 30 days' notice
of 100% of their principal amount, together with
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interest accrued thereon to the date fixed for redemption; provided that no such
notice of redemption shall be given earlier than 90 days prior to the earliest
date on which the Company would be obligated to pay such additional amounts were
a payment in respect of the Notes then due. Prior to the giving of notice of
redemption of the Notes pursuant to this paragraph, the Company will deliver to
the Trustee (i) a certificate setting forth a statement of facts showing that
the conditions precedent to the right to effect such redemption have occurred
and (ii) a copy of such opinion of independent counsel.
Except as set forth in the immediately succeeding paragraph, the Company
shall redeem the Notes, as a whole but not in part, upon not more than 60 nor
less than 30 days' notice, at 100% of their principal amount, together with
interest accrued to the date fixed for redemption, after determining, based on a
written opinion of independent counsel reasonably acceptable to the Company,
that any certification, identification or information reporting requirements of
United States law or regulation with regard to the nationality, residence or
identity (as distinguished from status as a United States Alien (as defined
below)) of a beneficial owner who is a United States Alien of a Note or a Coupon
thereto would be applicable to a payment of principal of or interest on a Note
or a Coupon appertaining thereto made outside the United States of America
(including the States and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction (the "United States") by
the Company or a Paying Agent as agent for the Company and not as agent for the
beneficial owner (other than a requirement (i) that would not be applicable to a
payment made directly to the beneficial owner, (ii) that would not be applicable
to a payment made to a custodian, nominee or other agent of the beneficial owner
or (iii) that could be satisfied by a holder who is not the beneficial owner
thereof or any custodian, nominee or other agent certifying that the beneficial
owner is a United States Alien; provided, however, in each case referred to in
clause (ii) and (iii) above, that payment by a custodian, nominee or agent (who
is not under present law subject to information reporting requirements) to the
beneficial owner is not otherwise subject to any requirement referred to in this
sentence). The Company shall notify the Trustee of such determination as soon as
practicable, stating in the notice the effective date of such certification,
identification or information reporting requirements and the dates within which
the redemption by the Company shall occur, and the Trustee shall give prompt
notice thereof in accordance with Section 11 of the Conditions. Such redemption
of the Notes must take place on a date specified by the Company, such date to be
not later than one year after the publication of the initial notice of the
Company's determination of such certification, identification or information
reporting requirements. The Company shall not so
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redeem the Notes, however, if the Company, based on a written opinion of
independent counsel reasonably acceptable to the Company, shall determine, not
less than 30 days prior to the date fixed for redemption or purchase, as the
case may be, that no payment in respect of the Notes would be subject to any
requirement described above, in which case the Company shall notify the Trustee,
which shall give prompt notice of that determination in accordance with Section
11 of the Conditions, and any earlier redemption notice under this paragraph
shall be revoked and of no further effect.
Notwithstanding the immediately preceding paragraph, if and so long as the
certification, identification or information reporting requirements referred to
therein would be fully satisfied with respect to the Notes by payment of United
States withholding, backup withholding or a similar tax, the Company may elect,
prior to the giving of notice of redemption, to have the provisions of this
paragraph apply in lieu of the provisions of the immediately preceding
paragraph. In that event, the Company will pay such Additional Amounts as are
necessary in order that, following the effect the date of such requirements,
every net payment made outside the United States by the Company or a Paying
Agent of the principal of and interest on a Note or a Coupon appertaining
thereto to a holder who is a United States Alien (but without any requirement
that the nationality, residence or identity (as distinguished from status as a
United States Alien) of the beneficial owner be disclosed to the Company, any
Paying Agent or any United States governmental authority), after deduction for
United States withholding, backup withholding or similar tax (other than a
withholding, backup withholding or similar tax which would not be applicable in
the circumstances referred to in the fourth parenthetical clause of the first
sentence of such immediately preceding paragraph) but before deduction or
withholding on account of tax, assessment or other governmental charge described
in (a), (b), (c), (d), (e), (f), (g) or (h) of Section 8 of the Conditions, will
not be less than the amount provided in the Note or the Coupon to be then due
and payable. If the Company elects to pay such Additional Amounts and as long as
it is obligated to pay such Additional Amounts, the Company may subsequently
redeem the Notes, at any time, as a whole but not in part, upon not more than 60
nor less than 30 days' notice, at 100% of their principal amount, plus accrued
interest to the date fixed for redemption (without reduction for applicable
withholding taxes).
Notice of its election or obligation to redeem Notes pursuant to this
clause (b) shall be given to holders of Notes by the Company by publication at
least twice in the manner required by Section 11 of the Conditions, the first
such publication and such mailing to be not more than 60 days nor less than 30
days prior to the date fixed for redemption.
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(c) Requirements as to Notices of Redemption by Company. Neither the
failure to give notice nor any defect in any notice given to any particular
holder of a Note shall affect the sufficiency of any notice with respect to
other Notes. Notices to redeem Notes shall specify the date fixed for
redemption, the redemption price, the place or places of payment, that payment
will be made upon presentation and surrender of the Notes to be redeemed,
together with all appurtenant Coupons, if any, maturing subsequent to the date
fixed for redemption, that interest accrued to the date fixed for redemption
(unless the redemption date is an Interest Payment Date) will be paid as
specified in said notice, and that on and after said date interest on the Notes
so to be redeemed will cease to accrue. Such notice shall also state that the
conditions precedent to such redemption have occurred and state the amount of
Notes to be redeemed or purchased.
(d) Cancellation. All Notes redeemed pursuant to this Section 6 of the
Conditions will be forthwith cancelled (together with all unmatured Coupons
appertaining thereto) and may not be reissued or resold.
Section 7. Payments.
Payments of principal and interest will be made against surrender of the
Notes or Coupons, as the case may be, at the offices of any of the Paying Agents
specified in the preamble to these Conditions, subject in each case to any
applicable laws or regulations. Such payments will be made, at the option of the
holder, by a United States dollar check, or by a transfer to a United States
dollar account maintained by the payee with a bank outside the United States. No
payment on any Note or Coupon will be made at any office of the Trustee or any
other Paying Agents maintained by the Company in the United States nor will any
payment be made by transfer to an account in, or by mail to an address in, the
United States.
The Company has initially appointed the Paying Agents specified on
Schedule I hereto. The Company agrees that, so long as any of the Notes are
outstanding, it will maintain a paying agent outside the United States, and so
long as the Notes are listed on the Luxembourg Stock Exchange and the Luxembourg
Stock Exchange shall so require, it will maintain a paying agent in Luxembourg,
for payments with respect to definitive Notes and the Coupons appertaining
thereto and where the definitive Notes may be presented or surrendered for
exchange and where notices and demands to or upon the Company in respect of the
Notes, the Coupons and the Indenture may be served. The Company may with the
approval of the Trustee change any of Paying Agents or their specified offices.
Notice of any change in the Paying Agents or
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in their specified offices will be given to the Noteholders in accordance with
the provisions of Section 11 of the Conditions.
Except as ordered by a court of competent jurisdiction or as required by
law, the Paying Agents, the Trustee and the Company shall be entitled,
notwithstanding any notice to the contrary, to treat the bearer of any Note or
Coupon as the absolute owner thereof (whether or not such Note or Coupon shall
be overdue and notwithstanding any notation of ownership or other writing
thereon) for the purpose of receiving payment when due in full or in part and
for all other purposes and shall not be required to obtain any proof thereof or
as to the identity of the bearer.
In the case of the redemption of any Note prior to maturity, the Note
shall be presented for payment together with all unmatured Coupons appertaining
to that Note; failing presentation of all such Coupons, the payment of principal
will only be made against the Noteholder giving such indemnity and providing
such other documents in respect of the missing unmatured Coupons as the Company
may require. In the case of any such redemption, the unmatured Coupons (if any)
appertaining thereto shall become void and no payment shall be due in respect
thereof.
If the due date for redemption of any Note is not an Interest Payment
Date, the interest accrued from the preceding Interest Payment Date (or from the
Issue Date, as the case may be) shall be payable only against surrender of the
relevant Note.
All monies paid by the Company to the Trustee for payment of the principal
of or interest on any Note and remaining unclaimed for two years after such
payment has been made shall be repaid to the Company, and to the extent
permitted by law, the holder of such Note thereafter may look only to the
Company for payment as a general unsecured creditor thereof. Subject to
applicable laws and regulations, any payment that will be made by the Company
under this paragraph with respect to Notes will be made outside the United
States.
Section 8. Payment of Additional Amounts.
The Company will pay as additional interest on the Notes or Coupons to the
holder of any Note or Coupon who is a United States Alien (as defined below)
such Additional Amounts as may be necessary in order that every net payment by
the Company or any Paying Agent of the principal of or interest on such Note or
Coupons (including upon redemption), after deduction or withholding for or on
account of any present or future tax, assessment or other governmental charge
imposed upon or as a result of such payment by the United States or any
political subdivision or taxing authority thereof or therein, will not be less
than the amount provided for in such Note or in such Coupon
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to be then due and payable before any such tax, assessment or other governmental
charge; provided, however, that the foregoing obligation to pay Additional
Amounts shall not apply to:
(a)any tax, assessment or other governmental charge which would not
have been so imposed but for (i) the existence of any present or former
connection between such holder (or between a fiduciary, settlor,
beneficiary, member or shareholder of, or a person having a power over,
such holder, if such holder is an estate, a trust, a partnership or a
corporation) and the United States, including, without limitation, such
holder (or such fiduciary, settlor, beneficiary, member, shareholder or
person having such a power) being or having been a citizen or resident or
treated as a resident thereof or being or having been engaged in a trade
or business therein or being or having been present therein or having or
having had a permanent establishment therein, (ii) the failure of such
holder to comply with any requirement under United States income tax laws
or regulations to establish entitlement to exemption from such tax,
assessment or other governmental charge, (iii) such holder's present or
former status as a personal holding company or a foreign personal holding
company with respect to the United States, as a controlled foreign
corporation with respect to the United States, as a passive foreign
investment company with respect to the United States, as a foreign tax
exempt organization with respect to the United States or as a corporation
which accumulates earnings to avoid United States Federal income tax, or
(iv) payment being made in the United States;
(b)any tax, assessment or other governmental charge imposed by reason
of the holder (i) owning or having owned, directly or indirectly, actually
or constructively, 10% or more of the total combined voting power of all
classes of stock of the Company, (ii) being a bank receiving interest
described in Section 881(c)(3)(A) of the United States Internal Revenue
Code of 1986, as amended, or (iii) being a controlled foreign corporation
with respect to the United States that is related to the Company by stock
ownership;
(c)any tax, assessment or other governmental charge which would not
have been so imposed but for the presentation by the holder of such Note
or Coupon for payment on a date more than 10 days after the date on which
such payment became due and payable or the date on which payment thereof
is duly provided for and notice is given to holders, whichever occurs
later;
(d)any estate, inheritance, gift, sales, transfer, personal property,
wealth, interest equalization or any similar tax, assessment or
governmental charge;
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(e) any tax, assessment, or other governmental charge which is
payable otherwise than by withholding from payment of principal of or
interest on such Note or Coupon;
(f) any tax, assessment or other governmental charge which is payable
by a holder that is not the beneficial owner of such Note or Coupon, or a
portion of either, or that is a foreign partnership, but only to the
extent that a beneficial owner or member of the partnership would not have
been entitled to the payment of an Additional Amount had the beneficial
owner or member received directly its beneficial or distributive share of
the payment;
(g) any tax, assessment or other governmental charge required to be
withheld by any Paying Agent from any payment of principal of or interest
on any Note or Coupon, if such payment can be made without such
withholding by any other Paying Agent; or
(h) any combination of items (a), (b), (c), (d), (e), (f) and (g).
For purposes of the foregoing, the holding of or the receipt of any
payment with respect to a Note shall not constitute a connection between the
holder (or between a fiduciary, settlor, beneficiary, member or shareholder of,
or a person having a power over, such holder if such holder is an estate, a
trust, a partnership or a corporation) and the United States.
The term "United States Alien," as used herein, means any corporation,
partnership, individual or fiduciary that, as to the United States, is (i) a
foreign corporation, (ii) a nonresident alien individual, (iii) a nonresident
alien fiduciary of a foreign estate or trust, (iv) a foreign partnership one or
more of the members of which is, as to the United States, a foreign corporation,
a nonresident alien individual or a nonresident alien fiduciary of a foreign
estate or trust.
Section 9. Events of Default.
The happening of one or more of the following events shall constitute
an Event of Default:
(a) default in any payment of the principal of any Note as and when
the same shall become due and payable (whether at maturity, upon
redemption, or otherwise); or
(b) default in any payment of any installment of interest or any
required payment of any Additional Amount pursuant to Section 8 hereof on
any of the Notes as and when the same
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shall become due and payable and continuance of such default for a period
of 30 days; or
(c) failure on the part of the Company duly to observe or perform any
other of the covenants or agreements on its part in the Notes or in the
Indenture in respect of the Notes for a period of 90 days after the date
on which written notice of such failure requiring the Company to remedy
the same shall have been given to the Company by the holders of at least
25% in aggregate principal amount of the Notes at the time outstanding,
provided that the failure to execute and delivery the Notarial Deed and
pledge the Capital Stock of Kellogg (Deutschland) shall not constitute an
Event of Default hereunder so long as the Company has complied with
Section 2; or
(d) the Company shall make an assignment for the benefit of
creditors, or shall file a petition in bankruptcy; or the Company shall
be adjudicated insolvent or bankrupt, or shall petition or shall apply to
any court having jurisdiction in the premises for the appointment of a
receiver, trustee, liquidator or sequestrator of, or for, the Company or
any substantial portion of the property of the Company; or the Company
shall commence any proceeding relating to the Company or any substantial
portion of the property of the Company under any insolvency,
reorganization, arrangement, or readjustment of debt, dissolution,
winding-up, adjustment, composition or liquidation law or statute of any
jurisdiction, whether in effect at the date of the Indenture or
thereafter created (hereinafter in this subsection (d) called
"Proceeding"); or if there shall be commenced against the Company any
Proceeding and an order approving the petition shall be entered, or such
Proceeding shall remain undischarged for a period of 60 days; or
receiver, trustee, liquidator or sequestrator of, or for, the Company or
any substantial portion of the property of the Company shall be appointed
and shall not be discharged within a period of 60 days; or the Company by
any act shall indicate consent to or approval of or acquiescence in any
Proceeding or the appointment of a receiver, trustee, liquidator or
sequestrator of, or for, the Company or any substantial portion of the
property of the Company; provided that a resolution or order for
winding-up the Company with a view to its merger or consolidation with
another company or the sale or conveyance of all or substantially all of
its assets to such other company as provided in Section 6 shall not make
the rights and remedies herein enforceable under this clause (d) if such
last- mentioned company shall, as a part of such merger, consolidation,
sale or conveyance, and within 60 days from the passing of the resolution
or the date of the order, comply with the conditions to that end stated
in Section 4.
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If an Event of Default shall occur and be continuing, the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
Outstanding hereunder, by notice in writing to the Company (and to the Trustee
if given by such holders), may declare the principal of the Notes and the
interest accrued thereon to be due and payable immediately, and upon any such
declaration the principal of the Notes and the interest accrued thereon shall
become and be immediately due and payable.
Section 10. Replacement of Notes and Coupons.
If any Note (including the Coupons appertaining to any Notes) is
mutilated, defaced, apparently destroyed, lost or stolen, the Company in its
discretion may execute and, upon the written request of the Company, the Trustee
will replace such Note (in such capacity, the "Replacement Agent") by issuing a
new Note upon the surrender of such mutilated or defaced Note or delivery of
satisfactory evidence of the destruction, loss or theft thereof to the
Replacement Agent. In the case of any such Note, indemnity and other documents
satisfactory to the Trustee and the Company may be required of the holders of
such Note before a replacement Note will be issued. All expenses associated with
obtaining such indemnity and in issuing the new Note shall be borne by the
holder of the mutilated, defaced, apparently destroyed, lost or stolen Note. No
such replacement Note or Coupon shall be delivered in the United States.
Section 11. Notices.
All notices to the holders of interests in the Notes will be given by
publication at least once in a newspaper in the English language of general
circulation in London (which is expected to be the Financial Times) and, so long
as the Notes are listed on the Luxembourg Stock Exchange and the Luxembourg
Stock Exchange so requires, in a newspaper of general circulation in Luxembourg
(which is expected to be the Luxemburger Wort) or, if publication in London or
Luxembourg is not practicable, publication may be made in another principal city
in Europe in a newspaper of general circulation. Such notices will be deemed to
have been given on the date of such publication, or if published on different
dates, on the first date on which publication is made in any publication in
which it is required. Couponholders will be deemed for all purposes to have
notice of the contents of any notices given to the Noteholders in accordance
with this paragraph.
Until such time as any definitive Notes are issued, there may, so long as
the Temporary Global Note is held in its entirety on behalf of Euroclear and
Cedel Bank, be substituted for such publication in London, the delivery of the
relevant notice to
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Euroclear and Cedel Bank for communication by them to the persons shown in their
records as having interest in the Temporary Global Note credited to them and any
such notices will be deemed to have been given on the seventh day after delivery
to Euroclear and Cedel Bank; provided, that the foregoing shall not relieve the
Company of its obligation to publish any notices in a newspaper of general
circulation in Luxembourg so long as the Notes are listed on the Luxembourg
Stock Exchange and the Luxembourg Stock Exchange so requires such publication.
Section 12. Meetings of the Noteholders, Modification and Waiver.
(a) Modifications and amendments to the Indenture with respect to the
Notes or to these Conditions, insofar as such modifications or amendments affect
the rights, powers, duties or obligations of the holders of Notes, may be made,
and future compliance with or past default by the Company under any of the
provisions hereof or thereof may be waived, by the holders of the Notes, with
the consent of the holders of at least a majority in aggregate principal amount
of the Notes at the time outstanding, or of such lesser percentage as may act at
a meeting of holders of Notes held in accordance with the provisions set forth
herein, to be held at such time and at such place as the Company shall
determine; provided that no such modification, amendment or waiver may, without
the consent of the holder of each such Note affected thereby, (i) waive a
default in the payment of the principal of or interest on any such Note, or
change the stated maturity of the principal of or any instalment of interest on
any such Note; (ii) reduce the principal amount of or the rate of interest on
any such Note or change the obligation of the Company to pay any Additional
Amounts pursuant to Section 8 hereof; (iii) change the currency of payment of
principal of or interest on any such Note; (iv) impair the right to institute
suit for the enforcement of any such payment on or with respect to any such
Note; (v) reduce the percentage of aggregate principal amount of Notes
outstanding necessary to modify or amend the Indenture or these Conditions or
reduce the percentage of votes required for the adoption of any action at a
meeting of the holders of Note; or (vi) modify the obligation of the Company to
maintain an office or agency outside the United States for the purposes
specified in the Indenture. Any modifications, amendments or waivers to the
Indenture or to these Conditions will be conclusive and binding on all holders
of the Notes, whether or not they have given such consent or were present at
such meeting, and on all holders of coupons, whether or not notation of such
modifications, amendments or waivers is made upon the Notes or Coupons, and on
all future holders of Notes and Coupons. Any instrument given by or on behalf of
any holder of a Note in connection with any consent to any such modification,
amendment
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or waiver will be irrevocable once given and will be conclusive and binding on
all subsequent holders of such Note.
(b) Notice of any meeting of holders of Notes, setting forth the time and
place of such meeting and in general terms the action proposed to be taken at
such meeting, shall be given in accordance with Section 11 of these Conditions
at least twice, the first publication to be not less than 20 nor more than 180
days prior to the date fixed for the meeting. To be entitled to vote at any
meeting of holders of Notes, a person shall be (i) a holder of one or more
Notes, including a beneficial owner of an interest in the Temporary Global Note
with respect to the Notes, or (ii) a person appointed by an instrument in
writing as proxy by the holder of one or more Notes. The only persons who shall
be entitled to be present or to speak at any meeting of holders of Notes shall
be the persons entitled to vote at such meeting and their counsel and any
representatives of the Company and its counsel.
(c) The persons entitled to vote a majority in principal amount of Notes
at the time outstanding shall constitute a quorum at a meeting convened for the
purpose referred to above except as hereinafter provided. No business shall be
transacted in the absence of a quorum, unless a quorum is present when the
meeting is called to order. In the absence of a quorum, the meeting shall be
adjourned for a period of not less than 10 days as determined by the chairman of
the meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting shall be further adjourned for a period of not less than 10
days as determined by the chairman of the meeting. Notice of the reconvening of
any adjourned meeting shall be given as provided above except that such notice
need be given only once but must be given not less than five days prior to the
date on which the meeting is scheduled to be reconvened. Subject to the
foregoing, at the reconvening of any meeting further adjourned for lack of a
quorum, the persons entitled to vote 25% in principal amount of the Notes at the
time outstanding shall constitute a quorum for the taking of any action set
forth in the notice of the original meeting. Notice of the reconvening of an
adjourned meeting shall state expressly the percentage of the aggregate
principal amount of the outstanding Notes which shall constitute a quorum.
(d) At a meeting or an adjourned meeting duly convened and at which a
quorum is present as aforesaid, any resolution to amend, or to waive compliance
with, any of the covenants or conditions referred to above shall be effectively
passed and decided if passed and/or decided by the persons entitled to vote the
lesser of (i) a majority in principal amount of the Notes then outstanding and
(ii) 75% in principal amount of the Notes represented and voting at the meeting.
Any holder of Notes who has executed an instrument in writing appointing a
person as
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proxy shall be deemed to be present for the purposes of determining a quorum and
be deemed to have voted if such person duly appointed as proxy is present and
has voted; provided that such holder of Notes shall be considered as present for
the purposes of determining a quorum or voting only with respect to the matters
covered by such instrument in writing. Any resolution passed or decision taken
at any meeting of holders of Notes duly held in accordance with this Section
shall be binding on all the holders of Notes whether or not present or
represented at the meeting.
(e) The holding of Notes shall be proved by the production of such Notes
or by a certificate, satisfactory to the Company, executed by any bank, banker,
trust company or recognized securities dealer, wherever situated, satisfactory
to the Company. Each such certificate shall be dated and shall state that on the
date thereof a Note bearing a specified serial number was deposited with or
exhibited to such bank, banker, trust company or recognized securities dealer by
the person named in such certificate. Any such certificate may be issued in
respect of one or more Notes specified therein. The holding by the person named
in any such certificate of any Note specified therein shall be presumed to
continue for a period of one year from the date of such certificate unless at
the time of any determination of such holding (i) another certificate bearing a
later date issued in respect of the same Note shall be produced, (ii) the Note
specified in such certificate shall be produced by some other person or (iii)
the Note specified in such certificate shall have ceased to be outstanding. The
appointment of any proxy shall be proved by having the signature of the person
executing the proxy guaranteed by any bank, banker, trust company or London or
New York Stock Exchange member firm satisfactory to the Company.
(f) The Company shall appoint a temporary chairman of the meeting. A
permanent chairman and a permanent secretary of the meeting shall be elected by
vote of the holders of a majority in principal amount of the Notes represented
at the meeting. At any meeting, each holder of Notes or proxy shall be entitled
to one vote for each U.S. $1,000 principal amount of Notes held or represented
by him; provided that no vote shall be cast or counted at any meeting in respect
of any Note challenged as not outstanding and ruled by the chairman of the
meeting to be not outstanding. The chairman of the meeting shall have no right
to vote except as a holder of Notes or proxy. Any meeting of holders of Notes
duly called at which a quorum is present may be adjourned from time to time, and
the meeting may be held as so adjourned without further notice.
(g) The vote upon any resolution submitted to any meeting of holder of
Notes shall be by written ballot on which shall be
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subscribed the signatures of the holders of Notes or proxies and on which shall
be inscribed the serial number or numbers of the Notes held or represented by
them. The permanent chairman of the meeting shall appoint two inspectors of
votes who shall count all votes cast at the meeting for or against any
resolution and who shall make a file with the secretary of the meeting their
verified written reports in duplicate of all votes cast at the meeting. A record
in duplicate of the proceedings of each meeting of holders of Notes shall be
prepared by the secretary of the meeting and there shall be attached to said
record the original reports of the inspectors of votes on any vote by ballot
taken thereat and affidavits by one or more persons having knowledge of the fact
setting forth a copy of the notice of the meeting and showing that said notice
was published as provided above. The record shall be signed and verified by the
permanent chairman and secretary of the meeting and one of the duplicates shall
be delivered to the Company and the other duplicate to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
(h) Notwithstanding anything to the contrary contained in Section 12(a)
above, the Notes (including the Conditions) and the Indenture may be amended by
the Company and the Trustee without the consent of any Noteholders or
Couponholders, for the purpose of (i) adding to the covenants of the Company for
the benefit of the holders of Notes or Coupons, (ii) surrendering any right or
power conferred upon the Company, (iii) permitting payment of principal and
interest on Notes or Coupons in the United States to the extent then permitted
under applicable regulations of the United States Treasury Department and
provided no adverse tax consequences would result to the Noteholders or
Couponholders, as the case may be, (iv) evidencing the succession of a
corporation or other person to the Company and the assumption by such successor
of the covenants and obligations of the Company in the Notes (including the
Conditions) and the Indenture or (v) correcting or supplementing any provision
contained herein or therein.
Section 13. No Waiver; Remedies Cumulative.
No failure to exercise, and no delay in exercising, on the part of the
holder of any Note, any right with respect thereto shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
future exercise thereof or the exercise of any other right. Rights pursuant to
the terms of the Notes shall be in addition to all other rights provided by law.
No notice or demand given in any case shall constitute a waiver of rights to
take other action in the same, similar or other instances without such notice or
demand.
Page 22
<PAGE> 23
Section 14. Governing Law.
(a) This Note shall be governed by and construed in accordance with the
laws of the State of New York, United States of America.
(b) The Company hereby irrevocably submits to the non-exclusive
jurisdiction of the New York State or United States Federal court sitting in The
City and County of New York over any suit, action or proceeding arising out of
or relating to the Indenture or any Note. The Company irrevocably waives, to the
fullest extent permitted by law, any objection which it may have to the laying
of the venue of any such suit, action or proceeding brought in such a court and
any claim that any such suit, action or proceeding brought in such a court has
been brought in an inconvenient forum. The Company agrees that final judgment in
any such suit, action or proceeding brought in such a court shall be conclusive
and binding upon the Company and may be enforced in any court the jurisdiction
of which the Company is subject to by a suit upon such judgment; provided that
service of process is effected upon the Company in the manner specified in the
following paragraph or as otherwise permitted by law.
(c) As long as any of the Notes remain outstanding, the Company will at
all times have an authorized agent in The City of New York, upon whom process
may be served in any legal action or proceeding arising out of or relating to
the Indenture or any Note. Service of process upon such agent and written notice
of such service mailed or delivered to the Company shall to the extent permitted
by law be deemed in every respect effective service of process upon the Company
in any such legal action or proceeding. The Company has appointed Citibank, N.A.
as its agent for such purpose, and covenants and agrees that service of process
in any legal action or proceeding may be made upon it at the office of such
agent at 120 Wall Street, New York, New York 10043 (or at such other address or,
at the office of such other authorized agent, as the Company may designate by
written notice to the Trustee), with a copy to the Company at the address for
notices set forth on the signature page of the Indenture; provided that failure
to deliver any such copy to the Company shall not affect the validity or
effectiveness of any such service of process.
Page 23
<PAGE> 24
Section 15. Warranties of the Company.
Subject to authentication of the Note to which these Conditions are
attached by the Trustee, the Company hereby represents and warrants that all
acts, conditions and things required to be done and performed and to have
happened prior to the creation and issuance of such Note and the Coupons (if
any) appertaining thereto and to constitute the same legal, valid and binding
obligations of the Company enforceable in accordance with their respective
terms, have been done and performed and have happened in accordance with all
applicable laws.
Page 24
<PAGE> 1
EXHIBIT 10.05
INTERNATIONAL
RETIREMENT PLAN
FOR
DESIGNATED EMPLOYEES
OF
KELLOGG COMPANY
AND PARTICIPATING COMPANIES
Original Effective Date: January 1, 1985
Restatement Date: January 1, 1992
<PAGE> 2
RESTATED
INTERNATIONAL
RETIREMENT PLAN
FOR
DESIGNATED EMPLOYEES
OF
KELLOGG COMPANY
AND PARTICIPATING COMPANIES
PREAMBLE
WHEREAS, a certain retirement plan known as the International Retirement
Plan for Designated Employees of Kellogg Company and Participating Companies
(the "Plan") was adopted March 1, 1985, effective January 1, 1985, by Kellogg
Company (the "Company");
WHEREAS, the Plan has been previously amended and restated and the Company
desires to further amend and restate the terms of said Plan;
WHEREAS, Section 10.1 of Article X of the Plan reserves to the Company the
right to change or modify the Plan at any time;
NOW, THEREFORE, pursuant to and in exercise of the power reserved to the
Company in the Plan, the Company hereby restates the International Retirement
Plan for Designated Employees of Kellogg Company and Participating Companies,
effective January 1, 1992, as follows:
<PAGE> 3
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 2
ARTICLE I
PURPOSE AND DEFINITIONS
Section 1.1 Purpose: The purpose of the Plan is to ensure a regular income after
retirement, and other benefits, to Designated Employees of the Company, its
affiliates and subsidiaries. Those designated will usually be Employees who
accept transfer of employment from one (1) country to another at the request of
the Company and who, as a result, are unable to accrue retirement and other
benefits at a level approximately equal to that which would be accrued as a
Company Employee as determined by the Committee with all Credited Service
occurring in the United States.
Section 1.2 Beneficiary: That person or persons selected by the Participant in
writing who is eligible to receive benefits from the Plan on the death of the
Participant.
Section 1.3 Employer: The Company or any subsidiary or affiliate so designated
by the Committee.
Section 1.4 Committee: The International Retirement Plan Administration
Committee described in Article XI.
Section 1.5 Disability: For purposes of this Plan,
Disability is defined as follows:
(a) Inability of the Employee, due to mental or physical impairment, to
perform the functions of his regular occupation. This definition (a)
applies exclusively for the purpose of determining a Participant's
eligibility for a Disability Income Benefit under Section 7.2.
<PAGE> 4
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 3
(b) Inability of the Employee, due to mental or physical impairment, to
perform any job for which he is reasonably qualified by reason of his
education, skill or experience. This definition (b) applies
exclusively for the purpose of determining a Participant's eligibility
for a Disability Income Benefit under Section 7.3.
(c) Inability of the Participant to perform any substantially gainful work
due to mental or physical impairment, and such mental or physical
impairment is expected to last at least twelve (12) months or result
in earlier death. This definition (c) applies exclusively for the
purpose of determining a Participant's eligibility for a Disability
Retirement Benefit under Section 7.5. The determination as to whether
a Participant has incurred a Disability under this definition (c) is
solely within the judgment of the Committee.
Section 1.6 Participant: Any Employee of an Employer who satisfies the
conditions for participation set forth in Section 2.1
Section 1.7 Employee: Any permanent, full-time Employee who is classified as
such in accordance with the Company's personnel policy.
Section 1.8 Board: The Board of Directors of the Company.
Section 1.9 Effective Date: January 1, 1992. The provisions of this Restatement
are effective with respect to
<PAGE> 5
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 4
those Participants in active service with an Employer on or after January 1,
1992, and it shall apply with respect to benefits accrued before and after that
date.
Section 1.10 Plan Year: A twelve-month (12-month) period beginning on January 1
and ending on December 31.
Section 1.11 Actuarial Equivalent: Equality in value of the aggregate amounts
expected to be received under different forms of payments, which value shall be
determined assuming interest at a rate and mortality tables as adopted from time
to time by the Committee.
Section 1.12 Approved Absence: Any leave of absence granted by an Employer for
temporary Disability and for military service under approved written policies,
or for other reasons approved by the Committee.
Section 1.13 Credited Service: Total period in full and fractional years by
month of full-time uninterrupted employment rendered as an Employee with an
Employer between the eligibility date designated by the Committee and
retirement, provided that if there is a break in employment, Credited Service
shall include only the period of employment rendered following such break,
unless the Company designates in writing a different period.
(a) An Approved Absence or a transfer between locations or between one (1)
Employer and another normally shall not be regarded as constituting a
break in employment.
<PAGE> 6
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 5
(b) At the discretion of the Committee, service with another company prior
to its becoming an Employer may be counted as Credited Service.
(c) Any period during which a Participant was entitled to participate in a
private retirement program of an Employer and elected not to
participate or who withdraws his contributions subsequent to
participation, shall not be counted as Credited Service; unless local
law allows restoration of Credited Service and the Participant
complies with local law so as to restore Credited Service.
Section 1.14 Earnings: the total of Cash Earnings paid by the Employer as
base salary, fixed Earnings [such as thirteenth (13th) month payment], any type
of cash incentive Earnings (e.g. bonuses) but specifically excluding
termination indemnities, any payments in lieu of time off for vacation and
expatriation premiums, allowances and any awards under a long-term [longer
than one (1) year] incentive plan or stock option plan.
Section 1.15 Final Average Earnings: The highest annual average Earnings
over a consecutive three-year (3-year) period during the ten (10) years
immediately preceding retirement, Disability, death or termination of
employment. Any period of Approved Absence or a period not qualifying as
Credited Service may be excluded from the computation at the discretion of the
Committee. If an Approved Absence is due to a long-term Disability, Final
Average Earnings shall be no less than the amount of Final Average Earnings
determined as of the date of Disability.
<PAGE> 7
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 6
Section 1.16 Life Annuity: An annuity paid monthly, commencing on a given
date and ending on the first (1st) day of the month in which the Participant's
death occurs.
Section 1.17 Gender: The masculine pronoun, wherever used, includes the
feminine. Whenever any words are used in the singular, they shall be construed
as though they were also used in the plural, in all cases where they would so
apply.
Section 1.18 Determinations: The length of Credited Service and the amount
of Earnings shall be determined by the Committee from the records of the
Employer and the Committee's determination shall for all purposes under this
Plan be final and conclusive upon all persons interested or who may become
interested in the Plan.
Section 1.19 Amounts: The amounts of retirement income and the amounts of
the offsets referred to in Article V shall be determined by the Committee in its
sole discretion.
<PAGE> 8
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 7
ARTICLE II
ELIGIBILITY AND APPROVAL FOR PARTICIPATION
Section 2.1: An Employee of an Employer may become a Participant of this
Plan on the first (1st) day of any month coincident with or subsequent to the
date upon which all of the following conditions shall be met:
(a) Employer Recommendation: He is an Employee as described in Section
1.7 of this Plan, and has been recommended for participation in this
Plan by an Employer.
(b) Committee Designation: He is designated for participation in the Plan
by the Committee in accordance with rules and regulations adopted by
the Committee.
Section 2.2: Participation in the Plan does not constitute a guarantee or
contract of employment with the Employer.
Section 2.3: The Committee shall have the right to determine whether any
Participant shall continue to accrue benefits under the terms of the Plan.
<PAGE> 9
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 8
ARTICLE III
PAYMENT OF PLAN BENEFITS
Section 3.1: The Committee shall advise the Participant of the amounts and
conditions of payment of benefits under the Plan as approved by the Committee,
at Retirement.
Section 3.2: All benefit amounts determined under the Plan shall be denominated
in United States of America dollars and any Earnings, offsets or sums in other
currencies used to compute benefits shall be converted to dollars according to
rates of exchange determined by the Committee.
Section 3.3: At the time benefits commence, the Participant or his Beneficiary
may elect to have the benefit payable in U.S. dollars, in the currency of the
country of his citizenship, or in the currency of the country in which he plans
to retire. Payment in any other currency may be made only with the approval of
the Committee. This election may be made only once; however, if, after such
initial election, the currency so elected becomes a "blocked" currency through
governmental action, the Participant or his Beneficiary will be afforded a
subsequent election. Similarly, if a subsequently elected currency becomes a
"blocked" currency through governmental action, the Participant or his
Beneficiary will be afforded the right to a subsequent election.
(a) The exchange rate applied in converting the benefits calculated in
dollars to the currency of payment shall be determined by the
Committee in accordance with consistent rules adopted by the
Committee.
<PAGE> 10
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 9
(b) Once determined, benefits payable under the Plan shall remain fixed in
the currency elected by the Participant or his Beneficiary unless the
Committee, in the light of special circumstances and with the
agreement of the Participant or his Beneficiary, approves a change.
For purposes of this Section 3.3, a currency shall be considered blocked if
the Plan is unable to make payment to a Participant or Beneficiary in the
currency elected.
Section 3.4: The Committee reserves the right to terminate benefits to any
Participant who fails to comply with any administrative requirement imposed by
the Committee.
In addition, the Committee reserves the right to terminate benefits to any
Participant, or the Beneficiary of such Participant, whose actions are
detrimental to the interests of the Company or an Employer.
<PAGE> 11
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 10
ARTICLE IV
RETIREMENT DATES
Section 4.1 Normal Retirement Date: A Participant's Normal Retirement Date
shall be the first (1st) day of the month coincident with or next following his
sixty-fifth (65th) birthday.
Section 4.2 Early Retirement Date: Upon written notice filed with the
Committee, a Participant may retire on the first (1st) day of any month
coincident with or following the Participant's fifty-fifth (55th) birthday and
prior to his Normal Retirement Date, provided he has completed twenty (20) years
of Credited Service. Provided he had completed at least thirty (30) years of
Credited Service, a Participant who has not attained age fifty-five (55) may
retire on the first (1st) day of any month coincident with or following
completion of thirty (30) years of Credited Service.
Section 4.3 Pre-Normal Retirement Date: A Participant may retire on the
first (1st) day of any month coincident with or following the Participant's
sixty-second (62nd) birthday.
Section 4.4 Disability Retirement Date: If a Participant incurs a
Disability as defined in Section 1.5 (c), he shall be eligible to retire on the
first (1st) day of any month following the date of Disability as determined by
the Committee.
Section 4.5 Deferred Retirement Date: If the Retirement Date of any
Participant is deferred to a date beyond Normal Retirement Date, Credited
Service will include all years of full-time employment beyond Normal Retirement
Date.
<PAGE> 12
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 11
ARTICLE V
RETIREMENT INCOME
Section 5.1 Retirement Income at Normal Retirement Date: The Normal
Retirement Income payments to a Participant who retires at his Normal Retirement
Date shall be, unless the Committee authorizes otherwise, a Life Annuity,
payable monthly commencing on his Normal Retirement Date. The annual benefit
shall be determined as follows:
(a) The Participant's Final Average Earnings multiplied by the sum (i) and
(ii) below:
(i) two percent (2%) multiplied by the full and fractional years by
month of Credited Service after January 1, 1985;
(ii) one and eight tenths percent (1.8%) multiplied by the full and
fractional years by month of Credited Service before January 1,
1985;
LESS
(b) The Life Annuity Actuarial Equivalent of the sum of any annual
pensions payable from any private plan, statutory termination
indemnity benefit, other mandatory benefits, or old age benefit under
any national, regional or local government or agency thereof and/or
termination or liquidation benefit or premium or bonus or any
combination thereof which an Employer must pay according to law
attributable to service during which the Employer has contributed of
<PAGE> 13
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 12
attributable to the same period of service as covered by this Plan,
including the annuity value of any lump-sum benefits whether paid or
payable from any Employer-sponsored pension plans, and savings plans
or provident funds which are attributable to Company contributions;
provided, however, that the Life Annuity Actuarial Equivalent of any
benefit attributable to a Participant's own pre- or post-tax
contributions to a defined contribution plan shall not be recognized
under this paragraph (b).
Section 5.2 Retirement Income at Early Retirement Date: The amount of retirement
income payments to a Participant who retires on an Early Retirement Date shall
be determined as follows:
(a) An amount calculated as under Section 5.1(a) above, but (i) if the
Participant's retirement income payments commence prior to his 62nd
birthday but on or after his 60th birthday, such amount shall be
reduced one-sixth percent (1/6%) for each full month by which the
Participant's Early Retirement Date precedes age sixty-two (62) and
follows his 60th birthday, and (ii) if the Participant's retirement
income payments commence prior to his 60th birthday, such amount shall
also be reduced by one-third percent (1/3%) for each full month by
which the Participant's Early Retirement Date precedes age sixty (60);
LESS
(b) An amount calculated as in Section 5.1(b) above, estimated when
necessary under the assumption that
<PAGE> 14
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 13
Earnings remain level from the Early Retirement Date until the
earliest commencement date of each such pension, as appropriate.
In the event that early retirement occurs before (i) age sixty-two
(62) and after the completion of ten (10) years of Credited Service
and is on account of Disability or (ii) after age fifty-five (55) and
after completion of thirty (30) years of Credited Service, the
reduction in Section 5.2(a), above, does not apply.
Section 5.3 Retirement Income at Deferred Retirement Date: The amount of
retirement income payments to a Participant who retires on a Deferred Retirement
Date shall be calculated according to Section 5.1 above, based on Final Average
Earnings and Credited Service as of the Deferred Retirement Date. Credited
Service may, under this circumstance, include all years of full-time employment.
Section 5.4 Payments of Retirement Income: Retirement income payments determined
in accordance with Sections 5.1, 5.2, 5.3 and 5.4, and any death benefit
determined in accordance with Section 6.1 may be paid in any form (Life Annuity,
installments, lump sum etc.) authorized by the Committee. Any optional payment
form shall be calculated to be Actuarially Equivalent to the normal form of
benefit. However:
(a) If any retirement income is less than a minimum amount determined by
the Committee, the Committee may, in its sole discretion, direct that
the retirement income be paid at intervals greater than monthly or, in
lieu of and in full satisfaction of such retirement income,
<PAGE> 15
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 14
direct that its Actuarial Equivalent be paid in one (1) lump-sum
payment or in installments.
(b) In the event that the Committee finds that a Participant or other
person entitled to retirement income is unable to care for his affairs
because of illness or accident or is a minor, the Committee may direct
that any benefit payment due him, unless claim shall have been made
therefore by a duly appointed legal representative, be paid to the
relative of the Participant determined by the Committee to be
responsible for the Participant's care and support.
Any payment so made shall be a complete discharge of the liabilities
of the Plan.
(c) If a Participant dies and there is no surviving Beneficiary designated
by the Participant, the Committee may pay any benefit due him, unless
claim shall have been made by a duly appointed legal representative,
to the following in sequence, if living: spouse, children, parents,
brothers or sisters. Any such payment shall be a complete discharge of
the liabilities of the Plan.
Section 5.5 Early Retirement Supplement: If a Participant retires after
attaining the Early Retirement Date specified in Section 4.2, such Participant
may at the Discretion of the Committee be entitled to receive, in addition to
the benefit provided under Section 5.2, an Early Retirement Supplement of two
hundred and ninety dollars ($290.00) per month from the Early Retirement Date to
age sixty-two (62); but if, and only if, the Participant is at least fifty-five
(55) years of age and
<PAGE> 16
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 15
has completed thirty (30) or more Years of Service. Participants who would have
met the requirements to receive an early retirement supplement as described in
the preceding sentence, but for the fact they did not complete thirty (30) or
more Years of Service, may at the discretion of the Committee be entitled to
receive an early retirement supplement from the Early Retirement Date to age
sixty-two (62) of nine dollars and fifty cents ($9.50) per month for each year
of Credited Service; but if, and only if, the sum of the Participant's age and
Years of Service equal eighty-five (85).
Notwithstanding any provisions of this Article V to the contrary,
Participants continuing to work after their Early Retirement Date, either for
themselves or for others, and earning an amount for services rendered after
retirement during any calendar year, which exceeds the total amount of the Early
Retirement Supplement which was paid during that calendar year, shall be
ineligible to receive an Early Retirement Supplement the following calendar year
and the calendar year thereafter; except as otherwise provided herein. A
Participant disqualified from receiving an Early Retirement Supplement may
qualify to receive an Early Retirement Supplement during any succeeding calendar
year if he would otherwise be eligible under the provisions of this Section 5.5,
and his Earnings for services rendered after retirement during the calendar year
prior to the calendar year in which he desires to receive an Early Retirement
Supplement, did not exceed the amount of the Early Retirement Supplement to
which he would have been entitled during such prior calendar year had he been
eligible to receive an Early Retirement Supplement.
Participants may also be deemed ineligible to receive an Early Retirement
Supplement at the discretion of the Committee,
<PAGE> 17
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 16
should they fail to supply the Committee, at the Committee's request,
information necessary to ascertain such Participant's calendar year income.
The reference to U.S. Dollars ($) in this Section 5.5 are solely for
purposes of calculating the benefit and payments of benefits under this Section
5.5 will be made in accordance with the provisions of Article III.
Section 5.6 Benefit Adjustments: The benefits of any Participant or
Beneficiary in pay status may be adjusted at the sole discretion of the
Committee.
<PAGE> 18
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 17
ARTICLE VI
DEATH BENEFITS
Section 6.1 Income Replacement Upon Death of a Participant Prior to
Retirement: In the event of the death of a married Participant who has five (5)
or more years of Credited Service, but who has not yet retired under this Plan
at the time of his death, the Committee will authorize the payment to the
Participant's surviving spouse of a benefit calculated as though the Participant
had retired on the day before his death, and elected a fifty percent (50%)
spouse joint-annuity optional form of benefit. The fifty percent (50%) spouse
joint-annuity shall be calculated by determining the benefit that would be
payable in accordance with Section 5.1(a) less the amount determined in Section
5.1(b) adjusting that net amount for the fifty percent (50%) spouse
joint-annuity form and for any early retirement factor if applicable, and
dividing that adjusted net benefit by two. Such surviving spouse benefit shall
commence as of the later of (a) the month following the month of the
Participant's death or (b) the month the Participant would have attained his
fifty-fifth (55) birthday. Notwithstanding the foregoing in the case of a
Participant who has completed 30 years of Credited Service, such benefit shall
commence in the month following the Participant's death.
Section 6.2 Lump Sum Benefit Paid upon Death of a Participant Prior to
Retirement: In the event of the death of a Participant prior to his retirement,
his Beneficiary is entitled to a lump-sum death benefit, equal to the remainder
of Section 6.2(a)(1) minus section 6.2(a)(2) below or Section 6.2(b)(1) minus
Section 6.2(b)(2) below, whichever is appropriate.
<PAGE> 19
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 18
(a) Death Not Resulting from an Accident
(1) One and one-half (1 1/2) times the Participant's annual base
salary [including other fixed Earnings such as a thirteenth
(13th) monthly payment]. The maximum amount of lump-sum death
benefit is such amount established from time to time by the
Committee;
LESS
(2) Any lump-sum death benefits or the lump-sum Actuarial Equivalent
of any death benefits provided by any other plans of the
Employer.
(b) Death Resulting from an Accident
(1) In the event of an accidental death of a Participant, a lump sum
benefit of three (3) times the Participant's annual base salary
[including other fixed Earnings such as a thirteenth (13th)
monthly payment]. The maximum amount of lump sum death benefit
will be established from time to time by the Committee.
In the case of permanent partial Disability, a prorated portion
of the lump-sum benefit may be paid, in accordance with rules
established from time to time by the Committee;
LESS
<PAGE> 20
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 19
(2) Any lump-sum death benefits or the lump-sum Actuarial Equivalent
of any death benefits provided by any other plans of the
Employer, except for any business travel accident insurance
benefits.
Notwithstanding paragraph (a) and (b) above, no accidental death or
dismemberment payment will be made for any loss which results directly or
indirectly, wholly or partly, from any of the following:
(a) self-destruction or attempted self-destruction,
(b) war or any act of war whether or not declared,
(c) accident occurring while on full-time active duty in the armed forces
of any country,
(d) illness, disease, pregnancy, childbirth, miscarriage, bodily infirmity
or bacterial infection from an accident cut or wound, and
(e) travel in experimental aircraft, space travel, air travel in any
aircraft owned, operated or leased by the Participant.
Section 6.3 Death of a Participant After Retirement: In the event of the
death of a Participant after his retirement there will be no further payments
under this Plan beyond that which may be inherent in the form of benefit payment
elected at the time of retirement; e.g., Contingent Annuitant or period certain
and Life Annuity.
<PAGE> 21
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 20
Section 6.4 Death of a Participant During Disability: If a Participant
incurs a Disability, he shall remain eligible for the lump sum death benefit in
effect as of the date of the onset of Disability until he reaches his Normal
Retirement Date or recovers from the Disability, if this should occur earlier.
<PAGE> 22
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 21
ARTICLE VII
DISABILITY BENEFITS
Section 7.1 Short-Term Disability: No benefits will be paid under this Plan
for a Disability, as defined in Section 1.5(a) or Section 1.5(b) until the last
day of the twelfth (12th) month after the onset of such condition.
Section 7.2 Intermediate-Term Disability: Should a Participant have
incurred a Disability, as defined in Section 1.5(a), beginning with the first
(1st) day of the thirteenth (13th) month after the onset of such condition and
continuing to the last day of the thirtieth (30th) month after the onset of such
condition, the Participant will receive a monthly Disability Income Benefit for
each month such Disability continues equal to sixty percent (60%) of one-twelfth
(1/12) of annual base salary [including any other fixed Earnings such as
thirteenth (13th) monthly payment], reduced by one hundred percent (100%) of any
and all disability income benefits payable from any Employer sponsored programs,
including at the discretion of the Committee any early retirement benefit
payable under Section 5.2, and any benefits payable from a statutory disability
program as required under local law.
Section 7.3 Long-Term Disability: Should a Participant have incurred a
Disability, which at its onset met the definition contained in Section 1.5(a)
and beginning with the first (1st) day of the thirty-first (31st) month after
its onset meets the definition contained in Section 1.5(b), the Participant will
receive a monthly Disability Income Benefit for each month such Disability
continues equal to sixty percent (60%) of one-twelfth (1/12) of annual base
salary [including any other fixed Earnings such as a thirteenth (13th) monthly
<PAGE> 23
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 22
payment], reduced by one hundred percent (100%) of any and all disability income
benefits payable from any Employer sponsored programs, including at the
discretion of the Committee any early retirement benefits payable under Section
5.2.
Section 7.4 Duration of Disability Income Benefits:
(a) For Participants under age sixty (60) at the date of Disability, the
Disability Income Benefit shall be paid each month that the
Participant lives until he recovers, no longer satisfies the
applicable definition of Disability, becomes employed, or until he
attains age sixty-five (65), whichever occurs first (lst).
(b) For Participants over age sixty (60) at the date of Disability, the
Disability Income Benefit will be limited to five (5) years, until he
no longer satisfies the applicable definition of Disability, becomes
employed or dies, whichever occurs first (1st).
Section 7.5 Disability Retirement:
(a) Should a Participant incur a Disability within the meaning of Section
1.5(c), he will be eligible for a Disability Retirement Benefit should
the Participant have ten (10) or more years of Credited Service as
defined in Section 8.1 at the time of the Disability Retirement Date.
Such benefit shall be payable monthly commencing on the first (1st)
day of the month following the Participant's Disability Retirement
Date. The annual Disability Retirement Benefit shall
<PAGE> 24
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 23
be equal to the benefit calculated under Section 5.1. Unless the
Participant elects otherwise, the Disability Retirement Benefit shall
be paid as a Life Annuity, if the Participant is not married, or as a
fifty percent (50%) spouse joint-annuity form of benefit, if the
Participant is married, or under an optional form elected by the
Participant in accordance with Section 5.4.
The Disability Retirement Benefit shall be paid each month the
Participant lives until he recovers or no longer satisfies the
applicable definition of Disability, or until the death of the
Participant or the Participant's spouse, depending on the form of
benefit chosen.
(b) In no event shall a Participant receive a Disability Income Benefit
under Sections 7.2 or 7.3 while also receiving a Disability Retirement
Benefit under this Section 7.5. In the event a Participant has
satisfied the eligibility requirements for both a Disability Income
Benefit under Section 7.2 or 7.3 and a Disability Retirement Benefit
under this Section 7.5 the Participant may elect (i) to receive the
income benefit described in Section 7.2 or 7.3 until he attains age 65
(or such later date as provided in Section 7.4(b)) at which time his
benefit shall be converted to a retirement benefit in accordance with
Section 5.1, or (ii) to commence receipt of the benefit described in
Section 7.5(a).
<PAGE> 25
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 24
ARTICLE VIII
TERMINATION OF EMPLOYMENT
Section 8.1: Upon the termination of a Participant's employment before
completion of five (5) years of Credited Service, such Participant shall cease
to be a Participant and shall not be entitled to receive any benefits under this
Plan.
Section 8.2: If employment is terminated after completion of five (5) years
of Credited Service and before the attainment of age fifty-five (55), a
Participant is entitled to a pension calculated as in Section 5.1 based on
Credited Service to termination date and in the event of the terminated
Participant's death prior to the commencement of such benefits, his spouse, if
any, shall be entitled to the survivor pension calculated as in Section 6.1.
Payments begin at age sixty-five (65), or, at the Participant's election,
payments may start as early as age fifty-five (55). Payments to a surviving
spouse begin when the Participant would have attained age sixty-five (65), or,
at the surviving spouse's election, payments may start as early as when the
Participant would have attained age fifty-five (55). In the latter cases
payments will be the Actuarial Equivalent of the amount payable at Normal
Retirement Date.
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INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 25
ARTICLE IX
FINANCING
Section 9.1 Employee contributions: No Participant shall be required to
make contributions under the Plan. No voluntary contributions will be accepted.
Section 9.2 Company Contributions: The Company shall provide for the entire
cost of the Plan in a manner determined by the Company.
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INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 26
ARTICLE X
AMENDMENT OR TERMINATION
Section 10.1: The Company reserves the right to change, modify or
discontinue the Plan at any time. Such change, modification or discontinuance
shall not affect the Plan's obligation to pay benefits previously accrued.
Section 10.2: In the event that the Plan should be so discontinued, the
Committee shall determine the amount of benefits attributable under the Plan to
the date of discontinuance. Actual payment of any benefits, including payments
to Participants already retired, however, shall be subject to approval of the
Committee as provided in Article III.
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INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 27
ARTICLE XI
ADMINISTRATION OF PLAN
Section 11.1 Appointment of Committee: The Chairman of the Board shall
appoint a Committee of no less than three (3) members, one (1) of whom shall be
designated by the Chairman of the Board as Chairman. Members of this Committee
may be directors, officers or Employees of the Company or another Employer. All
members of the Committee shall serve at the pleasure of the Chairman of the
Board. Vacancies on the Committee, arising for any reason whatsoever, shall be
filled by the Chairman of the Board. Any member of the Committee may resign of
his own accord by delivering his written resignation to the Chairman of the
Board.
Section 11.2 Organization and Operation of Committee: In the Chairman of
the Committee's absence, those present will choose one (1) of their number to
act as Chairman. The Committee shall act by the majority of members then in
office at all meetings and may set up a procedure to act upon matters by vote in
writing without a meeting. The Committee, by unanimous written consent, may
authorize one (1) or more of its members to sign directions, communications and
to execute documents on behalf of the Committee.
Section 11.3 Powers of Committee: The Committee shall administer the Plan
and is authorized to make such rules and regulations as it may deem necessary
and proper to carry out the provisions of the Plan and to designate actuaries,
attorneys, accountants and such other persons as it shall deem necessary or
desirable in the administration of the Plan. The Committee shall consider any
question arising in the administration, interpretation and application of the
Plan, and its
<PAGE> 29
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 28
determination on said question shall be conclusive and binding on all
persons.
Section 11.4 Actuarial Calculations: The Committee shall adopt from time to
time actuarial methodology, assumptions, and factors to be used in administering
the Plan. The Committee shall determine from time to time the per centum rate of
interest to be used as the basis for any actuarial calculations, or for
calculation of the forms of payment authorized by the Committee under Article V.
Section 11.5 Accounts and Reports: The Committee shall maintain records
showing the fiscal operations of the Plan, and shall keep in convenient form
such data as may be necessary for actuarial valuations of the liabilities of the
Plan, or calculation of benefit entitlements of Participants.
Section 11.6 Expenses of Committee: All reasonable expenses of the
Committee shall be paid by the Company, but no compensation will be paid to any
Committee member for serving on the Committee. Such expenses shall include any
expenses incident to the functioning of the Committee, including, but not
limited to, fees for actuarial and legal counsel, accounting and clerical
services, and other costs of administering the Plan.
<PAGE> 30
INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 29
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1 Subsidiaries: All subsidiaries or affiliates of the Company are
designated as an Employer. In the event that a subsidiary or affiliate has
ceased to be an Employer, the Committee shall reserve the right to determine the
Plan's liability for each Participant who is an Employee of such former
subsidiary or affiliate.
Section 12.2 Limitation of Responsibility: Neither the establishment of
this Plan or any modification thereof, nor the creation of any fund or account,
nor the payment of any benefits, shall be construed as giving to any Participant
or other person any legal or equitable right against the Employer, or any
officer or Employee thereof, or the Committee, except as herein provided; and in
no event shall the terms of employment of any Participant be modified or in any
way affected thereby.
Section 12.3 Restrictions on Alienation and Assignment: The right of any
Participant or any other person to any benefit or to any payment hereunder or to
any separate account shall not be subject to alienation or assignment.
Section 12.4 Authority of Officers of the Company: Whenever the Company
under the terms of this Plan is permitted or required to do or perform any act
or matter or thing, it shall be done and performed by any officer thereunder
duly authorized by its Board of Directors.
Section 12.5 Laws of Michigan to Control: The validity and effect of this
Plan and the rights and obligations of all parties hereto and of all other
persons affected thereby shall
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INTERNATIONAL RETIREMENT PLAN -- RESTATED
PAGE 30
be construed and determined in accordance with the laws of the State of
Michigan, except that by reason of the company being a Delaware Corporation, the
laws of Delaware control its powers and those of its Directors. In case any
provisions of this Plan shall be held illegal or invalid for any reason, said
illegality or invalidity shall not affect the remaining provision hereof, but
this Plan shall be construed and enforced as if said illegal and invalid
provisions had never been inserted herein.
IN WITNESS WHEREOF, the Kellogg Company has caused its corporate seal to be
affixed and has caused its name to be signed hereby by its Chairman, pursuant to
due authority of its Board of Directors this day of ,
----------- -------------- ---.
KELLOGG COMPANY
-----------------------
By: Chairman
ATTEST:
- ----------------------
<PAGE> 1
EXHIBIT 10.08
KELLOGG COMPANY
KEY EMPLOYEE LONG TERM INCENTIVE PLAN
ARTICLE I
Purpose
The purpose of this Key Employee Long Term Incentive Plan (the "Plan")
is to enable Kellogg Company (the "Company") to offer key employees of the
Company and Designated Subsidiaries (defined below) performance-based stock
incentives and other equity interests in the Company and other incentive awards,
thereby attracting, retaining and rewarding such key employees, and
strengthening the mutuality of interests between key employees and the Company's
shareholders.
ARTICLE II
Definitions
For purposes of this Plan, the following terms shall have the following
meanings:
2.1 "Award" shall mean any award under this Plan of any Stock Option,
Accelerated Ownership Feature Option, Restricted Stock, Performance Shares,
Performance Units or Other Stock-Based Award.
2.2 "Board" shall mean the Board of Directors of the Company.
2.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.4 "Committee" shall mean the Compensation Committee of the Board
consisting of three or more Directors, none of whom shall be eligible to receive
any Award pursuant to this Plan.
2.5 "Common Stock" means the Common Stock, $0.25 par value per share,
of the Company.
2.6 "Designated Subsidiary" shall mean one of such subsidiaries of the
Company, 80 percent or more of the voting capital stock of which is owned,
directly or indirectly, by the Company, which is designated from time to time by
the Board.
2.7 "Disability" shall mean Total Disability as defined in the
Company's Long Term Disability Plan.
2.8 "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d)(3) as promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, or any successor definition adopted by the
Commission.
2.9 "Fair Market Value" for purposes of this Plan, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder, shall mean, as of any date,
<PAGE> 2
the mean between the high and low sales prices of a share of Common Stock as
reported for exchange, quoted on an automated quotation system sponsored by a
national securities association.
2.10 "Incentive Stock Option" shall mean any Stock Option awarded under
this Plan intended to be and designated as an "Incentive Stock Option" within
the meaning of Section 422 of the Code.
2.11 "Non-Qualified Stock Option" shall mean any Stock Option awarded
under this Plan that is not an Incentive Stock Option.
2.12 "Other Stock-Based Award" shall mean an Award under Article 11 of
this Plan that is valued in whole or in part by reference to, or is payable in
or otherwise based on, Common Stock.
2.13 "Participant" shall mean an employee to whom an Award has been
made pursuant to this Plan.
2.14 "Performance Cycle" shall have the meaning set forth in Section
10.1.
2.15 "Performance Period" shall have the meaning set forth in Section
9.1.
2.16 "Performance Share" shall mean an Award made pursuant to Article 9
of this Plan of the right to receive Common Stock or cash of an equivalent value
at the end of a specified performance period.
2.17 "Performance Unit" shall mean an Award made pursuant to Article 10
of this Plan of the right to receive a fixed dollar amount, payable in cash or
Common Stock or a combination of both.
2.18 "Accelerated Ownership Feature" Option ("AOF") shall have the
meaning set forth in Section 6.5.
2.19 "Restricted Stock" shall mean an Award of shares of Common Stock
under this Plan that is subject to restrictions under Article 7.
2.20 "Restriction Period" shall have the meaning set forth in
Subsection 7.3(a).
2.21 "Retirement" shall mean termination of employment by an employee
who is at least 55 years of age after at least 5 years of employment by the
Company and/or a Designated Subsidiary.
2.22 "Stock Option" or "Option" shall mean any option to purchase
shares of Common Stock (including Restricted Stock and Performance Share, if the
Committee so determines) granted pursuant to Article 6.
2
<PAGE> 3
2.23 "Termination of employment" shall mean a termination of service
for reasons other than a military or personal leave of absence granted by the
Company.
2.24 "Withholding Election" shall have the meaning set forth in Section
13.4.
ARTICLE III
Administration
3.1 The Committee. The Plan shall be administered and interpreted by
the Committee.
3.2 Awards. The Committee shall have full authority to grant, pursuant
to the terms of this Plan, to officers and other key employees eligible under
Article 5: (i) Stock Options, (ii) Restricted Stock, (iii) Performance Shares,
(iv) Performance Units, and (v) Other Stock-Based Awards. In particular, the
Committee shall have the authority:
(a) to select the officers and other key employees of the
Company to whom Stock Options, Restricted Stock, Performance Shares, Performance
Units and Other Stock-Based Awards may from time to time be granted hereunder;
(b) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Restricted Stock, Performance Shares,
Performance Units and Other Stock-Based Awards, or any combination thereof, are
to be granted hereunder to one or more eligible employees; provided, however,
that the maximum number of Incentive Stock Options, Non-Qualified Stock Options,
Restricted Stock, Performance Shares, Performance Units, and Other Stock-Based
Awards that may be granted to any one individual in any fiscal year shall not
exceed, individually or in the aggregate, Awards to purchase or receive more
than one million (1,000,000) shares of common stock;
(c) to determine the number of shares of Common Stock to be
covered by each such Award granted hereunder;
(d) to determine the terms and conditions, not inconsistent
with the terms of this Plan, of any Award granted hereunder (including, but not
limited to, the share price, any restriction or limitation, any vesting schedule
or acceleration thereof, or any forfeiture restrictions or waiver thereof,
regarding any Stock Option or other Award and the shares of Common Stock
relating thereto, based on such factors as the Committee shall determine, in its
sole discretion);
(e) to determine whether, to what extent and under what
circumstances grants of Options and other Awards under this Plan are to operate
on a tandem basis and/or in conjunction with or apart from other cash awards
made by the Company outside of this Plan;
(f) to determine whether and under what circumstances a Stock
Option may be settled in cash, Stock, and/or Restricted Stock under Subsection
6.4(k); and
3
<PAGE> 4
(g) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an Award
under this Plan shall be deferred either automatically or at the election of the
Participant.
3.3 Guidelines. Subject to Article 11 hereof, the Committee shall have
the authority to adopt, alter and repeal such administrative rules, guidelines
and practices governing this Plan as it shall, from time to time, deem
advisable; to interpret the terms and provisions of this Plan and any Award
issued under this Plan (and any agreements relating thereto); and to otherwise
supervise the administration of this Plan. The Committee may correct any defect,
supply any omission or reconcile any inconsistency in this Plan or in any Award
granted in the manner and to the extent it shall deem necessary to carry this
Plan into effect. Notwithstanding the foregoing, no action of the Committee
under this Section 3.3 shall impair the rights of any Participant without the
Participant's consent.
3.4 Decisions Final. Any decision, interpretation or other action made
or taken in good faith by the Committee arising out of or in connection with the
Plan shall be final, binding and conclusive on the Company and all employees and
their respective heirs, executors, administrators, successors and assigns.
ARTICLE IV
Share Limitation
4.1 Shares. The maximum aggregate number of shares of Common Stock
which may be issued under this Plan shall not exceed twelve million (12,000,000)
shares (subject to any increase or decrease pursuant to Section 4.2) which may
be either authorized and unissued Common Stock or issued Common Stock reacquired
by the Company. If any Option granted under this Plan shall expire, terminate or
be canceled for any reason without having been exercised in full, the number of
unpurchased shares shall again be available for the purposes of the Plan;
provided, however, that if such expired, terminated or canceled Option shall
have been issued in conjunction with another Award, none of such unpurchased
shares shall again become available for purposes of this Plan to the extent that
the related Award granted under this Plan is exercised. If an Option is
exercised using Common Stock already owned by the Participant exercising the
Option, the number of shares that shall be treated as issued under the Plan
shall be (i) the number of shares issued minus (ii) the number of shares
exchanged in satisfaction of the Option Price and the number of shares so
exchanged shall be added to the total number of shares of Common Stock available
under the Plan. Further, if any shares of Common Stock granted hereunder are
forfeited or such Award otherwise terminates without the delivery of such shares
upon the lapse of restrictions, the shares subject to such grant, to the extent
of such forfeiture or termination, shall again be available under this Plan.
4.2 Changes. In the event of any merger, reorganization, consolidation,
recapitalization, dividend (other than a dividend or its equivalent which is
credited to a Plan Participant or a regular cash dividend), Stock split, or
other change in corporate structure affecting the Common Stock, such
substitution or adjustment shall be made in the maximum aggregate number of
shares which may
4
<PAGE> 5
be issued under this Plan, in the number and option price of shares subject to
outstanding Options granted under this Plan, and in the number of shares
subject to other outstanding Awards (including but not limited to Awards of
Restricted Stock, Performance Shares, Performance Units and Other Stock-Based
Awards) granted under this Plan, as may be determined to be appropriate by the
Committee, in its sole discretion, provided that the number of shares subject to
any Award shall always be a whole number.
ARTICLE V
Eligibility
5.1 Senior officers, senior management, and key employees of the
Company and its Designated Subsidiaries are eligible to be granted Options and
other Awards under this Plan. Eligibility under this Plan shall be determined by
the Committee.
ARTICLE VI
Stock Options
6.1 Options. Stock Options may be granted alone or in addition to other
Awards granted under this Plan. Each Stock Option granted under this Plan shall
be of one of two types: (i) an Incentive Stock Option or (ii) a Non-Qualified
Stock Option.
6.2 Grants. The Committee shall have the authority to grant to any
Participant one or more Incentive Stock Options, Non-Qualified Stock Options, or
both types of Stock Options. To the extent that any Stock Option does not
qualify as an Incentive Stock Option (whether because of its provisions or the
time or manner of its exercise or otherwise), such Stock Option or the portion
thereof which does not qualify shall constitute a separate Non-Qualified Stock
Option.
6.3 Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term of this Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be so exercised, so as to disqualify the Plan under
Section 422 of the Code, or, without the consent of the Participants affected,
to disqualify any Incentive Stock Option under such Section 422.
6.4 Terms of Options. Options granted under this Plan shall be subject
to the following terms and conditions and shall be in such form and contain such
additional terms and conditions, not inconsistent with the terms of this Plan,
as the Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant but shall be not less than 100% of the Fair Market Value of the
Common Stock at grant if the Stock Option is intended to be an Incentive Stock
Option and shall not be less than 85% of the Fair Market Value of the Common
Stock at grant if the Stock Option is intended to be a Non-Qualified Stock
Option.
5
<PAGE> 6
(b) Option Term. The term of each Stock Option shall be fixed
by the Committee, but no Incentive Stock Option shall be exercisable more than
ten years after the date the Option is granted, and no Non-Qualified Stock
Option shall be exercisable more than ten years and one day after the date the
Option is granted.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee at grant; provided, however, that, except as provided in
subsections (f) and (g) below and Article 3, unless otherwise determined by the
Committee and the Committee may waive such installment exercise provisions at
any time at or after grant in whole or in part, based on such factors as the
Committee shall determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever installment
exercise and waiting period provisions apply under subsection (c) above, Stock
Options may be exercised in whole or in part at any time during the option term,
by giving written notice of exercise to the Company specifying the number of
shares to be purchased. Such notice shall be accompanied by payment in full of
the purchase price in such form as the Committee may accept. If and to the
extent determined by the Committee in its sole discretion at or after grant,
payment in full or in part may also be made in the form of Common Stock duly
owned by the Participant (and for which the Participant has good title free and
clear of any liens and encumbrances) or Restricted Stock, or by reduction in the
number of shares issuable upon such exercise based, in each case, on the Fair
Market Value of the Stock on the last trading date preceding payment as
determined by the Committee (without regard to any forfeiture restrictions
applicable to Restricted Stock). No shares of Stock shall be issued until
payment, as provided herein, therefor has been made. A Participant shall
generally have the rights to dividends or other rights of a shareholder with
respect to shares subject to the Option when the optionee has given written
notice of exercise, has paid for such shares as provided herein, and, if
requested, has given the representation described in Section 14.1.
Notwithstanding the foregoing, if payment in full or in part has been made in
the form of Restricted Stock, an equivalent number of shares of Common Stock
issued on exercise of the Option shall be subject to the same restrictions and
conditions, and during the remainder of the Restriction Period, applicable to
the shares of Restricted Stock surrendered therefor.
(e) Non-Transferability of Options. Unless otherwise
determined by the Compensation Committee, no Stock Option shall be transferable
by the Participant otherwise than by will or by the laws of descent and
distribution, and all Stock Options shall be exercisable, during the
Participant's lifetime, only by the Participant.
(f) Termination by Death. Except for Incentive Stock Options
subject to subsection (j) below, if a Participant's employment by the Company or
a Designated Subsidiary terminates by reason of death, any Stock Option held by
such Participant, unless otherwise determined by the Committee at grant, shall
be fully vested and may thereafter be exercised by the legal representative of
the estate, for a period of one year (or such other period as the Committee may
specify at grant) from the date of such death or until the expiration of the
option term of such Stock Option, whichever period is the shorter.
6
<PAGE> 7
(g) Termination by Reason of Disability. Except for Incentive
Stock Options subject to subsection (j) below, or Bonus Replacement Stock Option
Awards issued under Article 10, if a Participant's employment by the Company or
a Designated Subsidiary terminates by reason of Disability, any Stock Option
held by such Participant, unless otherwise determined by the Committee at grant,
shall be fully vested and may thereafter be exercised by the Participant for a
period of five years (or such other period as the Committee may specify at
grant) from the date of such termination of employment or until the expiration
of the stated term of such Stock Option, whichever period is the shorter;
provided, however, that, if the Participant dies within such five-year period
(or such other period as the Committee shall specify at grant), any unexercised
Stock Option held by such Participant shall thereafter be exercisable to the
extent to which it was exercisable at the time of death for a period of twelve
months from the date of such death or until the expiration of the option term of
such Stock Option, whichever period is the shorter. In the event of termination
of employment by reason of Disability, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified
Stock Option.
(h) Termination by Reason of Retirement. Except for Incentive
Stock Options subject to subsection (j) below, or Bonus Replacement Stock Option
Awards issued under Article 10, if a Participant's employment by the Company or
a Designated Subsidiary terminates by reason of Retirement, any Stock Option
held by such Participant, unless otherwise determined by the Committee at grant,
shall be fully vested and may thereafter be exercised by the Participant for a
period of five years (or such other period as the Committee may specify at
grant) from the date of such termination of employment or the expiration of the
stated term of such Stock Option, whichever period is the shorter; provided,
however, that, if the Participant dies within such five-year period, any
unexercised Stock Option held by such Participant shall thereafter be
exercisable, to the extent to which it was exercisable at the time of death, for
a period of twelve months from the date of such death or until the expiration of
the option term of such Stock Option, whichever period is the shorter. In the
event of termination of employment by reason of Retirement, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, such Stock Option will thereafter
be treated as a Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the
Committee at or after grant, if a Participant's employment by the Company
terminates for any reason other than death, Disability or Retirement, the Stock
Option shall thereupon terminate, except that such Stock Option may be exercised
for the lesser of three months or the balance of such Stock Option's term if the
Participant is involuntarily terminated by the Company without cause.
(j) Incentive Stock Option Limitations. To the extent that the
aggregate Fair Market Value (determined as of the time of grant) of the Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by the Participant during any calendar year under the Plan and/or any
other stock option plan of the Company or any subsidiary or parent corporation
(within the meaning of Section 425 of the Code) exceeds $100,000, such Options
shall be treated as Options which are not Incentive Stock Options.
7
<PAGE> 8
To the extent (if any) permitted under Section 422 of
the Code, or the applicable regulations thereunder or any applicable Internal
Revenue Service pronouncement, if (i) a Participant's employment with the
Company or a Designated Subsidiary is terminated by reason of death, Disability
or Retirement and (ii) the portion of any Incentive Stock Option that is
otherwise exercisable during the post-termination period specified under
subsections (f), (g) or (h) above, applied without regard to the $100,000
limitation currently contained in Section 422(d) of the Code, is greater than
the portion of such Stock Option that is immediately exercisable as an
"incentive stock option" during such post-termination period under Section 422,
such excess shall be treated as a Non-Qualified Stock Option.
Should any of the foregoing provisions not be
necessary in order for the Stock Options to qualify as Incentive Stock Options,
or should any additional provisions be required, the Committee may amend the
Plan accordingly, without the necessity of obtaining the approval of the
shareholders of the Company.
(k) Buyout and Settlement Provisions. The Committee may at any
time offer to buy out an Option previously granted, based on such terms and
conditions as the Committee shall establish and communicate to the Participant
at the time that such offer is made.
In addition, if the Option agreement so provides at
grant or is amended after grant and prior to exercise to so provide (with the
Participant's consent), the Committee may require that all or part of the shares
to be issued with respect to the spread value of an exercised Option take the
form of Performance Shares or Restricted Stock, which shall be valued on the
date of exercise on the basis of the Fair Market Value of such Performance
Shares or Restricted Stock determined without regard to the deferral limitations
and/or forfeiture restrictions involved.
6.5 Accelerated Ownership Feature Option. Without in any way limiting
the authority of the Committee to make grants hereunder, and in order to induce
officers and other key employees to retain ownership of shares in the Company,
the Committee shall have the authority (but not an obligation) to include within
any option agreement a provision entitling the optionee to a further option (an
"AOF" Option) in the event the optionee exercises the option evidenced by the
option agreement, in whole or in part, by surrendering other shares of the
Company in accordance with this Plan and the terms and conditions of the option
agreement. Any such AOF Option shall be for a number of shares equal to the
number of shares delivered to satisfy the exercise price and delivered or
withheld for tax withholding, shall become exercisable in the event the
purchased shares are held for a minimum period of time established by the
Committee, and shall be subject to such other terms and conditions as the
Committee may determine.
ARTICLE VII
Restricted Stock
7.1 Awards of Restricted Stock. Shares of Restricted Stock may be
issued either alone or in addition to other Awards granted under the Plan. The
Committee shall determine the eligible persons to whom, and the time or times at
which, grants of Restricted Stock will be made, the
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<PAGE> 9
number of shares to be awarded, the price (if any) to be paid by the recipient
(subject to Section 7.2), the time or times within which such Awards may be
subject to forfeiture, the vesting schedule and rights to acceleration thereof,
and all other terms and conditions of the Awards.
The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals or such other factors as the Committee
may determine, in its sole discretion.
The provisions of Restricted Stock awards need not be the same with
respect to each Participant, and such Awards to individual Participants need not
be the same in subsequent years.
7.2 Awards and Certificates. The prospective Participant selected to
receive a Restricted Stock Award shall not have any rights with respect to such
Award, unless and until such Participant has executed an agreement evidencing
the Award and has delivered a fully executed copy thereof to the Company, and
has otherwise complied with the applicable terms and conditions of such Award.
Further, such Award shall be subject to the following conditions:
(a) Purchase Price. The purchase price for shares of
Restricted Stock shall be equal to or less than their par value and may be zero.
(b) Acceptance. Awards of Restricted Stock must be accepted
within a period of 60 days (or such shorter period as the Committee may specify
at grant) after the Award date, by executing a Restricted Stock Award agreement
and by paying whatever price (if any) the Committee has designated hereunder.
(c) Legend. Each Participant receiving a Restricted Stock
Award shall be issued a stock certificate in respect of such shares of
Restricted Stock. Such certificate shall be registered in the name of such
Participant, and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award, substantially in the
following form:
"The transferability of this certificate and the
shares of stock represented hereby are subject to the terms and conditions
(including forfeiture) of Kellogg Company (the "Company") Key Employee Long Term
Incentive Plan and an Agreement entered into between the registered owner and
the Company dated______.Copies of such Plan and Agreement are on file in the
offices of the Company, One Kellogg Square, Battle Creek, Michigan 49016-3599".
(d) Custody. The Committee may require that the stock
certificates evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock Award, the Participant shall have delivered a duly signed stock
power, endorsed in blank, relating to the Stock covered by such Award.
7.3 Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to this Plan shall be subject to the following restrictions and
conditions:
(a) Restriction Period. Subject to the provisions of this Plan
and the Award agreement, during a period set by the Committee commencing with
the date of such Award (the
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<PAGE> 10
"Restriction Period"), the Participant shall not be permitted to sell, transfer,
pledge or assign shares of Restricted Stock awarded under this Plan. Within
these limits, the Committee, in its sole discretion, may provide for the lapse
of such restrictions in installments and may accelerate or waive such
restrictions in whole or in part, based on service, performance and/or such
other factors or criteria as the Committee may determine in its sole discretion.
(b) Rights as Shareholder. Except as provided in this
subsection (b) and subsection (a) above, the Participant shall have, with
respect to the shares of Restricted Stock, all of the rights of a holder of
shares of Common Stock of the Company including the right to receive any
dividends. The Committee, in its sole discretion, as determined at the time of
Award, may permit or require the payment of dividends to be deferred.
(c) Termination of Employment. Subject to the applicable
provisions of the Award agreement and this Article 7, upon termination of a
Participant's employment with the Company for any reason during the Restriction
Period, all Restricted Shares still subject to restriction will vest or be
forfeited in accordance with the terms and conditions established by the
Committee at or after grant.
(d) Hardship. In the event of hardship or other special
circumstances of a Participant whose employment with the Company or a Designated
Subsidiary is involuntarily terminated (other than for cause), the Committee
may, in its sole discretion, waive in whole or in part any or all remaining
restrictions with respect to such Participant's shares of Restricted Stock,
based on such factors as the Committee may deem appropriate.
(e) Lapse of Restrictions. If and when the Restriction Period
expires without a prior forfeiture of the Restricted Stock subject to such
Restriction Period, the certificates for such shares shall be delivered to the
Participant. All legends shall be removed from said certificates at the time of
delivery to the Participant.
ARTICLE VIII
Performance Shares
8.1 Award of Performance Shares. Performance Shares may be awarded
either alone or in addition to other Awards granted under this Plan. The
Committee shall determine the eligible persons to whom and the time or times at
which Performance Shares shall be awarded, the number of Performance Shares to
be awarded to any person, the duration of the period (the "Performance Period")
during which, and the conditions under which, receipt of the Shares will be
deferred, and the other terms and conditions of the Award in addition to those
set forth in Section 8.2.
The Committee may condition the grant of Performance Shares upon the
attainment of specified performance goals or such other factors or criteria as
the Committee shall determine, in its sole discretion.
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<PAGE> 11
The provisions of Performance Share Awards need not be the same with
respect to each Participant, and such Awards to individual Participants need not
be the same in subsequent years.
8.2 Terms and Conditions. Performance Shares awarded pursuant to this
Article 8 shall be subject to the following terms and conditions:
(a) Non-Transferability. Subject to the provisions of this
Plan and the Award agreement referred to in subsection (g) below, Performance
Share Awards may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Performance Period. At the expiration of the Performance
Period, share certificates or cash of an equivalent value (as the Committee may
determine in its sole discretion) shall be delivered to the Participant, or his
legal representative, in a number equal to the shares covered by the Performance
Share Award.
(b) Dividends. Unless otherwise determined by the Committee at
the time of Award, amounts equal to any dividends declared during the
Performance Period with respect to the number of shares of Common Stock covered
by a Performance Share Award will not be paid to the Participant.
(c) Termination of Employment. Subject to the provisions of
the Award agreement and this Article 8, upon termination of a Participant's
employment with the Company for any reason during the Performance Period for a
given Award, the Performance Shares in question will vest or be forfeited in
accordance with the terms and conditions established by the Committee at or
after grant.
(d) Accelerated Vesting. Based on service, performance and/or
such other factors or criteria as the Committee may determine, the Committee
may, at or after grant, accelerate the vesting of all or any part of any
Performance Share Award and/or waive the deferral limitations for all or any
part of such Award.
(e) Hardship. In the event of hardship or other special
circumstances of a Participant whose employment with the Company or a Designated
Subsidiary is involuntarily terminated other than for cause, the Committee may,
in its sole discretion, based on such factors as the Committee may deem
appropriate, waive in whole or in part any or all of the remaining deferral
limitations imposed hereunder with respect to any or all of the Participant's
Performance Shares, based on such factors as the Committee deems appropriate.
(f) Agreement. Each Award shall be confirmed by, and subject
to the terms of, a Performance Share agreement executed by the Company and the
Participant.
ARTICLE IX
Performance Units
9.1 Award of Performance Units. Performance Units may be awarded either
alone or in addition to other Awards granted under this Plan. The Committee
shall determine the eligible
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<PAGE> 12
persons to whom and the time or times at which Performance Units shall be
awarded, the number of Performance Units to be awarded to any person, the
duration of the period (the "Performance Cycle") during which, and the
conditions under which, a Participant's right to Performance Units will be
vested, the ability of Participants to defer the receipt of payment of such
Units, and the other terms and conditions of the Award in addition to those set
forth in Section 9.2.
A Performance Unit shall have a fixed dollar value.
The Committee may condition the vesting of Performance Units upon the
attainment of specified performance goals or such other factors or criteria as
the Committee shall determine, in its sole discretion.
The provisions of Performance Unit Awards need not be the same with
respect to each Participant, and such Awards to individual Participants need not
be the same in subsequent years.
9.2 Terms and Conditions. The Performance Units awarded pursuant to
this Article 10 shall be subject to the following terms and conditions:
(a) Non-Transferability. Subject to the provisions of this
Plan and the Award agreement referred to in subsection (g) below, Performance
Unit Awards may not be sold, assigned, transferred, pledged or otherwise
encumbered.
(b) Vesting. At the expiration of the Performance Cycle, the
Committee shall determine the extent to which the performance goals have been
achieved, and the percentage of the Performance Units of each Participant that
have vested.
(c) Payment. Subject to the provisions of this Plan and the
Award agreement referred to in subsection (g) below, the vested Performance
Units shall be paid to the Participant or his legal representative as soon as
practicable after the end of a Performance Cycle. Payment may be made in cash,
shares of Common Stock or a combination of both, as determined by the Committee,
in its sole discretion.
(d) Termination of Employment. Subject to the provisions of
the Award agreement and this Article 9, upon termination of a Participant's
employment with the Company for any reason during the Performance Cycle for a
given Award, the Performance Units in question will vest or be forfeited in
accordance with the terms and conditions established by the Committee at or
after grant.
(e) Accelerated Vesting. Based on service, performance and/or
such other factors or criteria as the Committee may determine, the Committee
may, at or after grant, accelerate the vesting of all or any part of any
Performance Unit Award and/or waive the deferral limitations for all or any part
of such Award.
(f) Hardship. In the event of hardship or other special
circumstances of a Participant whose employment with the Company or a Designated
Subsidiary is involuntarily
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<PAGE> 13
terminated (other than for cause), the Committee may, in its sole discretion,
based on such factors as the Committee may deem appropriate, waive in whole or
in part any or all of the remaining deferral limitations imposed hereunder with
respect to any or all of the Participant's Performance Units, based on such
factors as the Committee deems appropriate.
(g) Agreement. Each Award shall be confirmed by, and subject
to the terms of, a Performance Unit agreement executed by the Company and the
Participant.
ARTICLE X
Other Stock-Based Awards
10.1 Other Awards. Other Awards of Common Stock and other Awards that
are valued in whole or in part by reference to, or are payable in or otherwise
based on, Common Stock ("Other Stock-Based Awards"), including, without
limitation, Awards valued by reference to subsidiary performance, may be granted
either alone or in addition to or in tandem with Stock Options, Restricted
Stock, Performance Shares or Performance Units.
Subject to the provisions of this Plan, the Committee shall have
authority to determine the persons to whom and the time or times at which such
Awards shall be made, the number of shares of Common Stock to be awarded
pursuant to such Awards, and all other conditions of the Awards. The Committee
may also provide for the grant of Common Stock under such Awards upon the
completion of a specified performance period.
The provisions of Other Stock-Based Awards need not be the same with
respect to each Participant and such Awards to individual Participants need not
be the same in subsequent years.
10.2 Terms and Conditions. Other Stock-Based Awards made pursuant to
this Article 10 shall be subject to the following terms and conditions:
(a) Non-Transferability. Unless otherwise determined by the
Compensation Committee, subject to the provisions of this Plan and the Award
agreement referred to in subsection (e) below, shares of Common Stock subject to
Awards made under this Article 10 may not be sold, assigned, transferred,
pledged or otherwise encumbered prior to the date on which the shares are
issued, or, if later, the date on which any applicable restriction, performance
or deferral period lapses.
(b) Dividends. Unless otherwise determined by the Committee at
the time of Award, subject to the provisions of this Plan and the Award
agreement, the recipient of an Award under this Article 10 shall be entitled to
receive, currently or on a deferred basis, dividends or dividend equivalents
with respect to the number of shares of Common Stock covered by the Award, as
determined at the time of the Award by the Committee, in its sole discretion.
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<PAGE> 14
(c) Vesting. Any Award under this Article 10 and any Common
Stock covered by any such Award shall vest or be forfeited to the extent so
provided in the Award agreement, or as determined by the Committee, in its sole
discretion.
(d) Waiver of Limitation. In the event of the Participant's
Retirement, Disability or death, or in cases of special circumstances, the
Committee may, in its sole discretion, waive in whole or in part any or all of
the limitations imposed hereunder (if any) with respect to any or all of an
Award under this Article 10.
(e) Agreement. Each Award under this Article 10 shall be
confirmed by, and subject to the terms of, an agreement or other instrument
executed by the Company and the Participant.
(f) Price. Common Stock issued on a bonus basis under this
Article 10 may be issued for no cash consideration; Common Stock purchased
pursuant to a purchase right awarded under this Article 10 shall be priced as
determined by the Committee.
ARTICLE XI
Termination or Amendment of the Plan
11.1 Termination or Amendment. The Board may at any time amend,
discontinue or terminate this Plan or any part thereof (including any amendment
deemed necessary to ensure that the Company may comply with any regulatory
requirement referred to in Article 13); provided, however, that, unless
otherwise required by law, the rights of a Participant with respect to Options
or other Awards granted prior to such amendment, discontinuance or termination,
may not be impaired without the consent of such Participant and, provided
further, without the approval of the Company's stockholders, no amendment may be
made which would (i) increase the aggregate number of shares of Common Stock
that may be issued under this Plan (except by operation of Section 4.2); (ii)
change the definition of employees eligible to receive Stock Awards under this
Plan; (iii) decrease the option price of any Stock Option to less than 100% of
the Fair Market Value on the date of grant for a Stock Option intended to be an
Incentive Stock Option or to 85% of the Fair Market Value on the date of grant
for a Stock Option intended to be a Non-Qualified Stock Option; or (iv) extend
the maximum option period under Section 6.4 of the Plan.
The Committee may amend the terms of any Stock Option or other Award
theretofore granted, prospectively or retroactively, but, subject to Article 4
above, no such amendment or other action by the Committee shall impair the
rights of any holder without the holder's consent. The Committee may also
substitute new Stock Options for previously granted Stock Options having higher
option exercise prices.
ARTICLE XII
Unfunded Plan
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<PAGE> 15
12.1 Unfunded Status of Plan. This Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant by the Company, nothing contained herein
shall give any such Participant any rights that are greater than those of a
general creditor of the Company.
ARTICLE XIII
General Provisions
13.1 Legend. The Committee may require each person purchasing shares
pursuant to a Stock Option or other Award under the Plan to represent to and
agree with the Company in writing that the Participant is acquiring the shares
without a view to distribution thereof. In addition to any legend required by
this Plan, the certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Common Stock delivered under the Plan
shall be subject to such stock transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other requirements
of the Securities and Exchange Commission, any stock exchange upon which the
Stock is then listed, any applicable Federal or state securities law, and any
applicable corporate law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such restrictions.
13.2 Other Plans. Nothing contained in this Plan shall prevent the
Board from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
13.3 No Right to Employment. Neither this Plan nor the grant of any
Option or other Award hereunder shall give any Participant or other employee any
right with respect to continuance of employment by the Company or any
subsidiary, nor shall there be a limitation in any way on the right of the
Company or any subsidiary by which an employee is employed to terminate his
employment at any time.
13.4 Withholding of Taxes. The Company shall have the right to deduct
from any payment to be made pursuant to this Plan, or to otherwise require,
prior to the issuance or delivery of any shares of Common Stock or the payment
of any cash hereunder, payment by the Participant of, any Federal, state or
local taxes required by law to be withheld.
The Committee may permit any such withholding obligation to be
satisfied by reducing the number of shares of Common Stock otherwise
deliverable. A person required to file reports under Section 16(a) of the
Securities Act of 1933 with respect to securities of the Company may elect to
have a sufficient number of shares of Common Stock withheld to fulfill such tax
obligations (hereinafter a "Withholding Election") only if the election complies
with the following conditions: (x) the Withholding Election shall be subject to
the disapproval of the Committee and (y) the Withholding Election is made (i)
during the period beginning on the third business day following
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<PAGE> 16
the date of release for publication of the quarterly or annual summary
statements of sales and earnings of the Company and ending on the twelfth
business day following such date, (ii) six months before the Stock Award becomes
taxable, or (iii) during any other period in which a Withholding Election may be
made under the provisions of Rule 16b-3 promulgated pursuant to the Act. Any
fraction of a share of Common Stock required to satisfy such tax obligations
shall be disregarded and the amount due shall be paid instead in cash by the
Participant.
13.5 No Assignment of Benefits. No Option, Award or other benefit
payable under this Plan shall, except as otherwise specifically provided by law
or as determined by the Compensation Committee, be subject in any manner to
anticipation, alienation, attachment, sale, transfer, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, attach, sell,
transfer, assign, pledge, encumber or charge any such benefit shall be void, and
any such benefit shall not in any manner be liable for or subject to the debts,
contracts, liabilities, engagements or torts of any person who shall be entitled
to such benefit, nor shall it be subject to attachment or legal process for or
against such person.
13.6 Listing and Other Conditions.
(a) As long as the Common Stock is listed the on New York
Stock Exchange or a national securities exchange or system sponsored by a
national securities association, the issue of any shares of Common Stock
pursuant to an Option or other Award shall be conditioned upon such shares being
listed on such exchange or system. The Company shall have no obligation to issue
such shares unless and until such shares are so listed, and the right to
exercise any Option or other Award with respect to such shares shall be
suspended until such listing has been effected.
(b) If at any time counsel to the Company shall be of the
opinion that any sale or delivery of shares of Common Stock pursuant to an
Option or other Award is or may in the circumstances be unlawful or result in
the imposition of excise taxes under the statutes, rules or regulations of any
applicable jurisdiction, the Company shall have no obligation to make such sale
or delivery, or to make any application or to effect or to maintain any
qualification or registration under the Securities Act of 1933, as amended, or
otherwise with respect to shares of Common Stock or Awards, and the right to
exercise any Option or other Award shall be suspended until, in the opinion of
said counsel, such sale or delivery shall be lawful.
(c) Upon termination of any period of suspension under this
Section 13.6, any Award affected by such suspension which shall not then have
expired or terminated shall be reinstated as to all shares available before such
suspension and as to shares which would otherwise have become available during
the period of such suspension, but no such suspension shall extend the term of
any Option.
13.7 Governing Law. This Plan and actions taken in connection herewith
shall be governed and construed in accordance with the laws of the State of
Delaware (regardless of the law that might otherwise govern under applicable
Delaware principles of conflict of laws).
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13.8 Construction. Wherever any words are used in this Plan in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
13.9 Liability of Committee. No member of the Board of Directors, no
employee of the Company nor the Committee (nor its members) shall be liable for
any act or action hereunder, whether of omission or commission, by any other
member or employee or by any agent to whom duties in connection with the
administration of the Plan have been delegated or, except in circumstances
involving his bad faith, gross negligence or fraud, for anything done or omitted
to be done by himself.
13.10 Other Benefits. No Award payment under this Plan shall be deemed
compensation for purposes of computing benefits under any retirement plan of the
Company or its subsidiaries nor affect any benefits under any other benefit plan
now or subsequently in effect under which the availability or amount of benefits
is related to the level of compensation.
13.11 Costs. The Company shall bear all expenses incurred in
administering this Plan, including expenses of issuing Common Stock pursuant to
any Awards hereunder.
ARTICLE XIV
Effective Date of Plan
The Plan shall be effective as of its approval by the Company's shareholders.
ARTICLE XV
Term of Plan
No Stock Option, Restricted Stock, Performance Shares, Performance Unit
or Other Stock-Based Award shall be granted pursuant to the Plan on or after the
tenth anniversary of its approval, but Awards granted prior to such tenth
anniversary may extend beyond that date.
17
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EXHIBIT 10.11
KELLOGG COMPANY
STOCK COMPENSATION PROGRAM
FOR
NON-EMPLOYEE DIRECTORS
(as amended)
This is the Stock Compensation Program for Non-Employee Directors of
Kellogg Company (the "Program").
1. Purpose. The purpose of the Program is to attract and retain
outstanding non-employee directors by enabling them to participate in the
Company's growth through automatic, non-discretionary awards of shares of
common stock of the Company.
2. Eligibility. Eligibility for participation in the Program is limited
to persons then currently serving as directors of the Company who are not
"employees" of the Company (or any of its subsidiaries) within the meaning of
the Employee Retirement Income Security Act of 1974 or for federal income tax
withholding purposes (the "Participants").
3. Stock Available for the Program. Shares of stock available for
issuance pursuant to the Program may be either authorized but unissued shares
or shares which have been or may be reacquired by the Company including
Treasury shares of the common stock of the Company, $0.25 par value (the
"Stock"). An aggregate of 374,400 shares of the Stock shall be so available.
No awards shall be made under the Program after 1999.
4. Awards of Restricted Stock. An Award of 1,000 shares of Stock shall be
made to each Participant following each Annual Meeting of Stockholders. All
such Stock shall be restricted, in that the Participants may not sell, transfer
or otherwise encumber the shares and the shares will be placed in a trust and
will not be available to a Participant until his or her service as a member of
the Board of Directors is terminated.
5. Rights of Participants. The Company shall establish a bookkeeping
account in the name of each Participant (the "Stock Account"). As of the date
that shares are awarded to a Participant, the Participant's Stock Account shall
be adjusted to reflect such shares and an aggregate number of shares credited
to each Participant on such date shall be transferred by the Company to the
Kellogg Company Grantor Trust for Non-Employee Directors. Except for the right
to direct the Trustee as to the manner which the shares are to be voted, a
Participant shall not have any rights with respect to any shares credited to
the Participant's Stock Account and transferred to the Trust until the date the
Participant ceases, for any reason, to serve as a director of the Company.
6. Changes in Capitalization or Organization. Nothing contained in this
document shall alter or diminish in any way the right and authority of the
Company to effect changes in its capital or organizational structure; provided,
however, that the following procedures shall be recognized.
<PAGE> 2
6.1. Stock Split, Stock Dividend, or Extraordinary Distribution. In the
event the number of shares of common stock of the Company is increased at any
time by a stock split, by declaration by the Board of Directors of the Company
of a dividend payable only in shares of such stock, or by any other
extraordinary distribution of shares, the number of shares granted pursuant to
Article 4 above shall be proportionately adjusted.
6.2. Organizational Changes. In the event a merger, consolidation,
reorganization, or other change in corporate structure materially changes the
terms or value of the common stock of the Company, the number of shares granted
pursuant to Article 4 above shall be adjusted in such manner as the Board of
Directors in its sole discretion shall determine to be equitable and consistent
with the purposes of the Program. Such determination shall be conclusive for
all purposes with respect to the grant made in Article 4 above.
7. Listing, Registration, and Legal Compliance. Each award made pursuant
to Article 4 above shall be subject to the requirement that if at any time
counsel to the Company shall determine that the listing, registration or
qualification thereof or of any shares of the stock subject thereto upon any
securities exchange or under any foreign, federal or state securities or other
law or regulation, or the consent or approval of any governmental body or the
taking of any other action to comply with or otherwise with respect to any such
law or regulation, is necessary or desirable as a condition to or in connection
with such award or delivery of shares of the Stock thereunder, no such award
may be made or implemented unless such listing, registration, qualification,
consent, approval or other action shall have been effected or obtained free of
any conditions not acceptable to the Company. The holder of any such award
shall supply the Company with such certificates, representations and
information as the Company shall request and shall otherwise cooperate with the
Company in effecting or obtaining such listing, registration, qualification,
consent, approval or other action.
8. Obligation to Reelect. Nothing in this Program shall be deemed to
create any obligation on the part of the Board of Directors to nominate any
Director for reelection by the Company's shareholders.
9. Termination or Amendment of the Program. The Board of Directors
reserves the right to terminate or amend the Program at any time; provided,
however, that such action shall not adversely affect the rights of any
Participant under its provisions with respect to awards of the Stock
theretofore made, and provided further that such action shall not increase the
amount of authorized and unissued shares of the Stock available for the program
as specified in Article 3 above or materially increase the benefits to
Participants.
10. Effective Date. This program shall become effective as of the date
that it is ratified by the stockholders and no award made hereunder shall be
effective unless the Program is so ratified.
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<PAGE> 1
EXHIBIT 10.12
KELLOGG COMPANY BONUS REPLACEMENT
---------------------------------
STOCK OPTION PLAN
-----------------
1. Purpose of the Plan: The purpose of the Kellogg Company Bonus
Replacement Stock Option Plan ("Plan") is to provide senior executive officers
of Kellogg Company and its subsidiaries ("Company") who are primarily
responsible for the management of the business of the Company, the ability to
receive stock options in lieu of a portion of the bonus payable to them under
the Annual Incentive Program, thereby increasing the proportion of compensation
tied to stock ownership and encouraging focus on the growth and profitability
of the Company and its common stock.
2. Effective Date of Plan: This Plan shall become effective September 26,
1997 and shall apply to bonuses paid after January 1, 1998.
3. Participants: Senior executive officers of the Company selected by the
Compensation Committee of the Board of Directors ("Committee").
4. Administration of the Plan: The Plan shall be administered by the
Committee. The Committee shall have authority to adopt rules and regulations
for carrying out the purpose of the Plan, select the employees to whom grants
will be made, the number of shares to be optioned, to interpret, construe and
implement the provisions of the Plan, and to amend the Plan from time to time.
5. Option Terms: The Options granted hereunder shall be issued pursuant
to the Kellogg Company Key Employee Long Term Incentive Plan and shall be
governed by such terms and conditions as the Committee deems appropriate.
6. Bonus: The Plan shall only apply to the annual bonus. A participant
shall be allowed to make an annual election to forego up to 100% of their
bonus. A participant's first election shall be made on or before December 31
of the year the participant becomes eligible to participate in the Plan.
Thereafter, each election shall be made on or before August 31 of the year
prior to the year the bonus is to be paid.
7. Valuation of Stock/Cash: A participant shall receive options valued
according to the rules set forth by the Committee.
8. Irrevocability: The election to receive options in lieu of bonus is
irrevocable.
<PAGE> 1
EXHIBIT 10.13
KELLOGG COMPANY
EXECUTIVE COMPENSATION DEFERRAL PLAN
I. NAME AND PURPOSE.
The name of this Plan is the Kellogg Company Executive Compensation
Deferral Plan. Its purpose is to provide for deferral of the payment
of certain compensation earned by covered employees of the Company.
II. EFFECTIVE DATE.
The Plan is effective as of January 1, 1997.
III. COVERED EMPLOYEES.
To the extent that the Applicable Employee Remuneration of any
Covered Employee for any taxable year of such employee is expected
to exceed $950,000, such excess amount shall be deferred under the
terms of this Plan until such employee's termination of employment
with the Company. For the purposes of this Plan, the terms
"Applicable Employee Remuneration" and "Covered Employee" shall have
the meanings given under Section 162(m) of the Internal Revenue Code
of 1986, as amended, and the regulations in effect thereunder from
time to time.
IV. DEFERRAL.
(A) The amount of a Covered Employee's Applicable Employee Remuneration
for any taxable year that is to be deferred hereunder shall be
deducted from the Covered Employee's base salary in twelve equal
monthly installments during the course of the taxable year, provided
that the Company may adjust the amount of such deductions in the
event of a change in the amount of the Covered Employee's Applicable
Employee Remuneration during a taxable year. A Covered Employee
whose compensation is deferred under the Plan is hereinafter called
a "Participant".
<PAGE> 2
V. MAINTENANCE OF DEFERRED ACCOUNTS
An record keeping account shall be established and maintained in the
name of each Participant in the Plan. Compensation which is
deferred hereunder shall be converted into Units based on the fair
market value of the Company's common stock, and such Units
(including, any fractional Units) shall be credited to the
Participant's account. The conversion and crediting of compensation
deferrals shall occur as of the date that such compensation would
otherwise have been payable to the Participant. The fair market
value per Unit shall be the average between the highest and lowest
quoted selling price per share of common stock on the New York Stock
Exchange Consolidated Reporting Tape. If there should be no sale of
the shares of common stock of the Company on such date, then the
price per share shall be the average between the highest and lowest
quoted selling price on the Consolidated Reporting Tape on the next
preceding day of which there shall have been a sale. Dividend
equivalents earned on the basis of whole Units previously credited
to the Participant's account shall be credited to the Participant's
account as Units, including fractional Units, on the date any such
dividend has been declared to be payable on shares of common stock
of the Company by the Board of Directors of the Company. Units,
excluding fractional Units, shall earn dividend equivalents from the
date of crediting until the date of final valuation of the Units on
the last day of the Participant's service as an employee. Dividend
equivalents shall be computed by multiplying the dividend paid per
share of common stock of the Company during the period Units are
credited to a Participant's account times the number of whole Units
so credited, but Units, excluding fractional Units, shall earn such
dividend equivalents only as, if and when dividends are declared and
paid on the common stock of the Company.
VI. METHOD OF DISTRIBUTION OF DEFERRED COMPENSATION.
(A) No distribution of deferred compensation may be made except as
provided in this Section VI.
(B) The final value of the Units, including fractional Units, credited
to a Participant's account shall be computed in accordance with the
provisions of the fourth and fifth sentences of Section V and
determined on and as of the last day of a Participant's employment
with the Company. The
-2-
<PAGE> 3
value of Units, including fractional Units, credited to a
Participant's account shall be paid to the Participant only in cash
upon the termination of the Participant's employment with the
Company either in a lump sum or up to ten (10) annual installments,
as elected by the Participant prior to making any deferrals
hereunder and pursuant to procedures established by the Company.
Payment of the lump sum or the first annual installment shall be
made or shall commence, as the case may be, as soon as practicable,
but not later than fifteen (15) days following the date on which the
Participant's employment terminates. If annual installments are to
be made, the amount of the first payment shall be a fraction of the
amount of the Participant's account as of the last day of a
Participant's employment, the numerator of which is one and the
denominator of which is the total number of installments elected.
The amount of such subsequent payment shall be a fraction of the
amount as of December 31 of the year preceding each subsequent
payment, the numerator of which is one and the denominator of which
is the total number of installments minus the number of installments
previously paid.
(C) Each distribution of deferred compensation, subsequent to the first
distribution, in annual installments, shall be made on January 10
(or, if that date is a Saturday, Sunday or holiday, the next business
day) of the year, or years, as the case may be, of distribution.
(D) The account will be credited with dividend equivalents in accordance
with the Plan until the last day of the Participant's employment
with the Company.
(E) Interest shall accrue and be payable each succeeding January 10 (or,
if that date is a Saturday, Sunday or holiday, the next business
day), on and with respect to the total amount credited to a
Participant's account on and as of the final valuation of said
account on the Participant's last day of employment with the Company
through the date of initial distribution and until the subsequent
January 10 (or, if that date is a Saturday, Sunday or holiday, the
next business day) on the total amount less the initial
distribution. Such interest shall accrue at the prime corporate
rate in effect (at Morgan Guaranty, New York City) on the last day
of service. Regardless, if the Participant receives a lump sum
distribution, such lump sum
-3-
<PAGE> 4
distribution shall include the interest accrued through such
date. Thereafter, interest will accrue on remaining principal
amounts at the prime corporate rate in effect (at Morgan Guaranty,
New York City) on January 10 of each succeeding year, and be payable
in full on each immediately following January 10 (or, in each case,
if such date is a Saturday, Sunday or holiday, the next business
day) until all principal amounts in the Participant's account have
been paid in accordance with his or her election regarding lump sum
or installment payments of deferred amounts.
(F) At the written request of a Participant, the Plan's
Administrative Committee, in its sole discretion, may accelerate
payment of any installments at any time after the Participant's
termination of employment with the Company, upon a showing of
unforeseeable emergency by such Participant. For purposes of this
paragraph, "unforeseeable emergency" is defined as severe financial
hardship resulting from extraordinary and unanticipated
circumstances arising as a result of one or more recent events
beyond the control of the Participant. In any event, payment may
not be made to the extent such emergency is or may be relieved: (1)
through reimbursement or compensation by insurance or otherwise; (2)
by liquidation of the Participant's assets, to the extent the
liquidation of such assets would not, itself, cause severe financial
hardship; and (3) by cessation of deferrals under the Plan.
Examples of what are not considered to be unforeseeable emergencies
include the need to send a Participant's child to college or the
desire to purchase a home.
VII. DISTRIBUTION UPON DEATH.
If any Participant dies while an employee of the Company or
thereafter, before receiving all amounts credited to his or her
account, the unpaid amount in the Participant's account shall be
paid in one lump sum on the last business day of the month following
the month of death to any beneficiary or beneficiaries designated by
the Participant by written notice to the Company or, in the absence
of such designation, to such Participant's estate.
-4-
<PAGE> 5
VIII. PARTICIPANT'S RIGHTS IN ACCOUNT - UNFUNDED STATUS OF THE PLAN.
A Participant shall not have any interest in any amount
credited to his or her account until it is distributed in accordance
with the Plan. Any and all cash payments made to a Participant
pursuant to the Plan shall be made only from the general assets of
the Company. All amounts deferred under the Plan shall remain the
sole property of the Company, subject to the claims of its general
creditors and available for its use for whatever purposes are
desired. With respect to amounts deferred, a Participant is merely
a general creditor of the Company; and the obligation of the Company
hereunder is purely contractual and shall not be funded or secured
in any way.
IX. NON-ALIENABILITY AND NON-TRANSFERABILITY.
The rights of a Participant to the payment of deferred compensation
as provided in the Plan shall not be assigned, transferred, pledged
or encumbered or be subject in any manner to alienation or
anticipation. No Participant may borrow against amounts credited to
the Participant's account and such amounts shall not be subject in
any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, change, garnishment, execution or levy of any
kind, whether voluntary or involuntary, prior to distribution in
accordance with Section VI.
X. STATEMENT OF ACCOUNT.
Statements will be sent to each Participant during February of
each year as to the balance in the Participant's account as of the
end of the previous calendar year.
XI. ADMINISTRATION.
The Administrator of this Plan shall be the Administrative
Committee. The Plan's Administrative Committee shall consist of up
to (but may be less than) three (3) persons who are not and cannot
be Participants in the Plan and who shall be Directors of the
Company. The Administrative Committee shall be appointed by the
Compensation Committee of the Company. The Administrative Committee
shall have authority to adopt rules and regulations for carrying out
the
-5-
<PAGE> 6
Plan and to interpret, construe and implement the provisions
thereof.
XII. AMENDMENT AND TERMINATION.
The Plan may, at any time, be amended, modified or terminated
by the Board of Directors or the Compensation Committee of the
Company. No amendment, modification or termination shall, without
the consent of a Participant, adversely affect such Participant's
rights with respect to amounts accrued in his or her deferred
compensation account. Notwithstanding the foregoing, as a
consequence of any such amendment, modification or termination, the
Board or Compensation Committee may provide in its sole discretion
that the account of any Participant may be paid on an accelerated
basis without regard to the payment election of the Participant or
the tax affect that it may have for the Participant or his
beneficiaries or estate.
XIII. NOTICES.
All notices to the Company hereunder shall be delivered to the
attention of the Secretary of the Company.
-6-
<PAGE> 7
KELLOGG COMPANY EXECUTIVE DEFERRAL PLAN
NOTICE OF ELECTION
TO: SECRETARY
KELLOGG COMPANY
In accordance with the provisions of the Kellogg Company Executive Compensation
Deferral Plan, I hereby elect to defer future compensation in excess of
$950,000 (excluding expense reimbursements) otherwise payable to me for
services as Chief Executive Officer of Kellogg Company as shown below.
The compensation deferred is to be paid to me in _____(a lump sum) or in _____
(Insert number from one through ten) annual installments, the first of which is
payable on the last business day of the month in which my service as Chief
Executive Officer terminates. All subsequent payments, if installments are
elected, shall be payable on each subsequent January 10 (or if that date is a
Saturday, Sunday or holiday, the next business day).
____________________________________
Signature of Chief Executive Officer
____________________________________
Date
Received on the ______ day of _______, 19____, on behalf of Kellogg Company.
____________________________________
Secretary
<PAGE> 1
EXHIBIT 13.01
SELECTED FINANCIAL DATA
(millions, except per share data and number of employees)
<TABLE>
<CAPTION>
PER COMMON SHARE DATA (C)
------------------------------
(A)(B) (A)(B)
EARNINGS EARNINGS (D)
(A) BEFORE AVERAGE BEFORE PRICE/
NET % OPERATING % ACCOUNTING % SHARES ACCOUNTING CASH EARNINGS
SALES GROWTH PROFIT GROWTH CHANGE GROWTH OUTSTANDING(C) CHANGE DIVIDENDS RATIO
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10-year
compound
growth rate 6% 4% 4% 5% 11%
1997 $6,830.1 2% $1,009.1 5% $564.0 6% 414.1 $1.36 $ .87 36
1996 6,676.6 (5) 958.9 14 531.0 8 424.9 1.25 .81 26
1995 7,003.7 7 837.5 (28) 490.3 (30) 438.3 1.12 .75 34
1994 6,562.0 4 1,162.6 16 705.4 4 448.6 1.57 .70 18
1993 6,295.4 2 1,004.6 (5) 680.7 - 463.0 1.47 .66 19
1992 6,190.6 7 1,062.8 3 682.8 13 477.7 1.43 .60 23
1991 5,786.6 12 1,027.9 16 606.0 21 482.4 1.26 .54 26
1990 5,181.4 11 886.0 21 502.8 19 483.2 1.04 .48 18
1989 4,651.7 7 732.5 (8) 422.1 (12) 488.4 .87 .43 20
1988 4,348.8 15 794.1 15 480.4 21 492.8 .98 .38 16
1987 3,793.0 14 691.2 7 395.9 24 494.8 .80 .32 16
</TABLE>
<TABLE>
<CAPTION>
PER COMMON SHARE DATA (C)
- -------------------------
NET CASH
NET CASH PROVIDED BY/
STOCK PROVIDED BY (USED IN) COMMON
PRICE OPERATING FINANCING STOCK
RANGE ACTIVITIES ACTIVITIES REPURCHASES
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
$32-50 $879.8 ($607.3) $426.0
31-40 711.5 94.0 535.7
26-40 1041.0 (759.2) 374.7
24-30 966.8 (559.5) 327.3
23-34 800.2 (464.2) 548.1
27-37 741.9 (422.6) 224.1
17-33 934.4 (537.7) 83.6
14-19 819.2 (490.9) 86.9
14-20 533.5 (143.2) 78.6
12-17 492.3 52.1 33.6
9-17 523.5 (130.5) 22.6
</TABLE>
<TABLE>
<CAPTION>
(E) PRETAX
RETURN ON RETURN ON DEBT TO INTEREST
TOTAL AVERAGE SHAREHOLDERS' AVERAGE PROPERTY, CAPITAL DEPRECIATION LONG-TERM MARKET COVERAGE
ASSETS ASSETS EQUITY EQUITY NET EXPENDITURES AND AMORTIZATION DEBT CAPITALIZATION (TIMES)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $4,877.6 11% $ 997.5 49% $2,773.3 $312.4 $287.3 $1,415.4 10% 9
1996 5,050.0 11 1,282.4 37 2,932.9 307.3 251.5 726.7 14 13
1995 4,414.6 11 1,590.9 29 2,784.8 315.7 258.8 717.8 5 12
1994 4,467.3 16 1,807.5 40 2,892.8 354.3 256.1 719.2 8 23
1993 4,237.1 16 1,713.4 37 2,768.4 449.7 265.2 521.6 7 27
1992 4,015.0 11 1,945.2 21 2,662.7 473.6 231.5 314.9 3 33
1991 3,925.8 16 2,159.8 30 2,646.5 333.5 222.8 15.2 3 17
1990 3,749.4 14 1,901.8 28 2,595.4 320.5 200.2 295.6 7 10
1989 3,390.4 14 1,634.4 30 2,406.3 508.7 167.6 371.4 10 10
1988 3,297.9 16 1,483.2 36 2,131.9 538.1 139.7 272.1 9 14
1987 2,680.9 17 1,211.4 38 1,738.8 478.4 113.1 290.4 7 14
</TABLE>
<TABLE>
<CAPTION>
CURRENT ADVERTISING R&D NUMBER OF
RATIO EXPENSE EXPENSE EMPLOYEES
--------------------------------------
<S> <C> <C> <C>
.9 $780.4 $106.1 14,339
.7 778.9 84.3 14,511
1.1 891.5 72.2 14,487
1.2 856.9 71.7 15,657
1.0 772.4 59.2 16,151
1.2 782.3 56.7 16,551
.9 708.3 34.7 17,017
.9 648.5 38.3 17,239
.9 611.4 42.9 17,268
.9 560.9 42.0 17,461
.9 486.9 40.0 17,762
</TABLE>
(a) Operating profit for 1997 includes non-recurring charges of $184.1 ($140.5
after tax or $.34 per share). Operating profit for 1996 includes
non-recurring charges of $136.1 ($97.8 after tax or $.23 per share).
Earnings before accounting change for 1996 include a charge of $35.0 ($22.3
after tax or $.05 per share) for a contribution to the Kellogg's Corporate
Citizenship Fund. Operating profit for 1995 includes non-recurring charges
of $421.8 ($271.3 after tax or $.62 per share). Operating profit for 1993
includes non-recurring charges of $64.3 ($41.1 after tax or $.09 per
share). Refer to Management's Discussion and Analysis on pages 18-22 and
Notes 3 and 4 within Notes to Consolidated Financial Statements for further
explanation of non-recurring charges and other unusual items for years
1995-1997.
(b) Earnings before accounting change for 1997 exclude the effect of a charge
of $18.0 after tax ($.04 per share) to write off business process
reengineering costs in accordance with guidance issued by the Emerging
Issues Task Force of the FASB. Earnings before accounting change for 1992
and 1989 exclude the effect of adopting the following Statements of
Financial Accounting Standards (SFAS): in 1992, a charge of $251.6 ($.53
per share) net of $144.6 of income tax benefit for the transition effect
of SFAS #106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," and, in 1989, a gain of $48.1 ($.10 per share) for SFAS
#96 "Accounting for Income Taxes."
(c) All share data retroactively restated to reflect 2-for-1 stock splits in
1997 and 1991. All earnings per share presented represent both basic
and diluted earnings per share.
(d) The price/earnings ratio was calculated based on year-end stock price
divided by earnings before the accounting changes referred to in note (b).
These earnings include the non-recurring charges and other unusual items
referred to in note (a). Excluding the impact of these unusual items, the
price/earnings ratio in 1997, 1996, 1995, and 1993 would have been 29, 21,
22, and 19, respectively.
(e) Debt to market capitalization was calculated based on year-end total debt
balance divided by market capitalization. Market captitalization was
calculated based on year-end stock price multiplied by the number of shares
outstanding at year-end.
17
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
OVERVIEW
Kellogg Company operates in a single industry - manufacturing and marketing
grain-based convenience food products, including ready-to-eat cereal, toaster
pastries, frozen waffles, cereal bars, and bagels, throughout the world. The
Company leads the global ready-to-eat cereal category, with an estimated 39%
annualized share of worldwide volume. Additionally, the Company is the North
American market leader in the toaster pastry, cereal/granola bar, frozen
waffle, and pre-packaged bagel categories.
During 1997, the Company returned to growth in earnings per share (excluding
unusual items, discussed below), as management continued with its global
strategy of brand-differentiated pricing, investment in new product research,
brand-building marketing activities, and cost structure reduction initiatives.
Results for 1997 were significantly improved over 1996, a year in which
earnings were negatively impacted by competitive conditions in the Company's
major markets.
For the full year of 1997, Kellogg Company reported net earnings and earnings
per share of $546.0 million and $1.32, respectively, compared to 1996 net
earnings of $531.0 million and net earnings per share of $1.25. Net earnings
and earnings per share for 1995 were $490.3 million and $1.12, respectively.
(All per share amounts reflect the 2-for-1 stock split effective August 22,
1997. All earnings per share presented represent both basic and diluted
earnings per share.)
During the current and prior years, the Company reported non-recurring charges
and other unusual items that have been excluded from all applicable amounts
presented below for purposes of comparison between years. Additionally,
results for 1997 are presented before the cumulative effect of a change in the
method of accounting for business process reengineering costs. Refer to the
separate section below on non-recurring charges and other unusual items for
further information.
1997 COMPARED TO 1996
Excluding non-recurring charges and other unusual items, the Company reported
1997 earnings per share of $1.70, an 11% increase over the prior-year results
of $1.53. The year-over-year increase in earnings per share of $.17 resulted
from $.12 of business growth, $.03 of common stock repurchases, and $.04 of
favorable tax rate movements, partially offset by $.02 of unfavorable foreign
currency movements. The business growth was principally attributable to cereal
volume growth in the Company's U.S. and Latin American markets, continued
double-digit growth in other convenience foods volume, and reductions in
manufacturing and marketing costs. Foreign currency movements negatively
impacted earnings by 2% in Europe, 3% in other non-U.S. areas, and 1% on a
consolidated basis. The negative impact on 1997 earnings per share due to
results of the Lender's Bagels business, acquired in December 1996, was
approximately $.05.
The Company achieved the following volume growth during 1997:
<TABLE>
<CAPTION>
=======================================================
CHANGE
=======================================================
<S> <C>
Global cereal +3.4%
- -------------------------------------------------------
U.S. cereal +3.9%
- -------------------------------------------------------
Global total +11.3%
- -------------------------------------------------------
Global total excluding Lender's(a) +5.0%
=======================================================
</TABLE>
(a) Lender's Bagels business acquired in December 1996.
Within the U.S. market, the Company recovered cereal volume declines of the
prior year, and slightly exceeded 1995 results. Growth in most other non-U.S.
cereal markets offset softness in the Company's United Kingdom, Canada, and
Australia volume. The Company's Latin American region achieved record annual
volume results. Other convenience foods volume continued to increase at a
double-digit rate, even after excluding sales from the Lender's Bagels
business.
On an annualized basis, regional volume share of the ready-to-eat cereal
category remained strong during the year, at approximately 34% in North
America, 44% in Europe, 43% in Asia-Pacific, and 60% in Latin America.
Consolidated net sales increased 2% for 1997. The favorable impact of strong
volumes was partially offset by unfavorable pricing and product mix movements,
and a negative foreign currency impact of 2%. Excluding the Lender's business,
consolidated net sales were even with the prior year. On a geographic basis,
net sales versus the prior year were:
<TABLE>
==============================================================================
NET SALES BY GEOGRAPHIC AREA - 1997 VS. 1996 % CHANGE
- ------------------------------------------------------------------------------
U.S. Europe All other Consolidated
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Business +5% +2% +6% +4%
Foreign currency impact --- -5% -4% -2%
- ------------------------------------------------------------------------------
TOTAL CHANGE +5% -3% +2% +2%
==============================================================================
</TABLE>
Margin performance for 1997 was:
<TABLE>
<CAPTION>
========================================================================
1997 1996 CHANGE
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Gross margin 52.1% 53.2% -1.1%
SGA%(a) -34.6% -36.8% +2.2%
- ------------------------------------------------------------------------
Operating margin 17.5% 16.4% +1.1%
========================================================================
</TABLE>
(a) Selling, general, and administrative expense as a percentage of net
sales.
Gross margin performance for 1997 benefited from volume increases and
year-over-year operational cost savings. However, these favorable factors were
outweighed by the negative impact of prior-year pricing actions. The
improvement in SGA% primarily reflects reduced promotional spending in the U.S.
market, in line with the Company's integrated pricing strategy.
18
<PAGE> 3
Operating profit results on a geographic basis were:
<TABLE>
<CAPTION>
==================================================================================================
OPERATING PROFIT BY GEOGRAPHIC AREA - 1997 VS. 1996
- --------------------------------------------------------------------------------------------------
(millions) U.S. Europe All other Consolidated
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
1997 operating profit as reported $706.8 $158.9 $143.4 $1,009.1
Non-recurring charges 35.2 119.1 29.8 184.1
- --------------------------------------------------------------------------------------------------
1997 OPERATING PROFIT EXCLUDING
NON-RECURRING CHARGES $742.0 $278.0 $173.2 $1,193.2
==================================================================================================
1996 operating profit as reported $611.2 $204.4 $143.3 $958.9
Non-recurring charges 24.1 76.5 35.5 136.1
- --------------------------------------------------------------------------------------------------
1996 OPERATING PROFIT EXCLUDING
NON-RECURRING CHARGES $635.3 $280.9 $178.8 $1,095.0
==================================================================================================
% change - 1997 vs. 1996 excluding non-recurring charges:
Business +17% +3% +1% +11%
Foreign currency impact --- -4% -4% -2%
- --------------------------------------------------------------------------------------------------
TOTAL CHANGE +17% -1% -3% +9%
==================================================================================================
</TABLE>
Gross interest expense, prior to amounts capitalized, increased 70% versus the
prior year to $117.9 million. The higher interest expense resulted from
increased debt levels to fund the Lender's Bagels business acquisition and the
Company's common stock repurchase program.
Excluding the impact of non-recurring charges and other unusual items, the
effective income tax rate was 35.3%, 1.5 percentage points lower than the
prior-year rate. The lower effective tax rate is primarily due to enactment of
a 2% statutory rate reduction in the United Kingdom, effective April 1, 1997, as
well as favorable adjustments in other jurisdictions. The effective income tax
rate based on reported earnings (before cumulative effect of accounting change)
was 37.6% in 1997 and 38.2% in 1996. For both 1997 and 1996, the higher
reported rate (as compared to the rate excluding the impact of unusual items)
primarily relates to certain non-recurring charges for which no tax benefit was
provided, based on management's assessment of the likelihood of recovering such
benefit in future years.
1996 COMPARED TO 1995
The Company's 1996 results were negatively impacted by competitive conditions
in the U.S. ready-to-eat cereal market, in which significant price reductions
were undertaken by all major competitors during the year. In an effort to
improve the brand value proposition to the consumer, the Company implemented
several pricing actions in 1996, most notably reductions announced June 10,
1996, averaging 19% on brands comprising approximately two-thirds of its U.S.
cereal business. Following an integrated strategy, the Company combined its
price reductions with reduced marketing expenditures, while competitors
continued heavy deep-discount promotional spending during most of the year. As
a result, the Company reported a 12% decline in 1996 earnings per share
(excluding non-recurring charges and other unusual items) to $1.53, versus
$1.74 in 1995. The $.21 decrease was comprised of $.22 in business decline and
$.03 in unfavorable foreign currency movements, mitigated by $.03 of common
stock repurchases, and $.01 from a lower effective tax rate. Foreign currency
movements negatively impacted earnings by 3% in Europe, 4% in other non-U.S.
areas, and 1% on a consolidated basis.
The Company experienced the following volume results during 1996:
<TABLE>
<CAPTION>
=========================================================
CHANGE
- ---------------------------------------------------------
<S> <C>
Global cereal -.7%
- ---------------------------------------------------------
U.S. cereal -3.6%
- ---------------------------------------------------------
Global total +1.2%
=========================================================
</TABLE>
Total volume growth was led by strength in the Company's Asia-Pacific and Latin
American ready-to-eat cereal shipments and low double-digit growth in other
convenience foods volume. These volume gains offset softness in the Company's
U.S. and United Kingdom ready-to-eat cereal markets.
Net sales were down 5%, primarily reflecting the price reductions, ready-to-eat
cereal volume loss, and unfavorable product mix and foreign currency movements.
On a geographic basis, net sales versus the prior year were:
<TABLE>
<CAPTION>
============================================================================
NET SALES BY GEOGRAPHIC AREA - 1996 VS. 1995 % CHANGE
- ----------------------------------------------------------------------------
U.S. Europe All other Consolidated
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Business -7% -1% +8% -4%
Foreign currency impact -- -3% -3% -1%
- ----------------------------------------------------------------------------
TOTAL CHANGE -7% -4% +5% -5%
============================================================================
</TABLE>
Margin performance for 1996 was:
<TABLE>
<CAPTION>
=========================================================================
1996 1995 CHANGE
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Gross margin 53.2% 54.6% -1.4%
SGA% -36.8% -36.6% -.2%
- -------------------------------------------------------------------------
Operating margin 16.4% 18.0% -1.6%
=========================================================================
</TABLE>
The decline in gross profit margin reflected the price reductions, partially
offset by the effect of operational cost savings. The SGA% was maintained at
nearly a constant level versus the prior year despite the relatively high level
of spending related to the Company's 90th Anniversary promotional programs,
implementation costs associated with pricing actions, and competitive
conditions in the U.S. cereal market.
Operating profit results on a geographic basis were:
<TABLE>
<CAPTION>
=================================================================================================
OPERATING PROFIT BY GEOGRAPHIC AREA - 1996 VS. 1995
- -------------------------------------------------------------------------------------------------
(millions) U.S. Europe All other Consolidated
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 OPERATING PROFIT EXCLUDING
NON-RECURRING CHARGES $635.3 $280.9 $178.8 $1,095.0
- -------------------------------------------------------------------------------------------------
1995 operating profit as reported $443.1 $293.6 $100.8 $837.5
Non-recurring charges 325.0 38.4 58.4 421.8
- -------------------------------------------------------------------------------------------------
1995 OPERATING PROFIT EXCLUDING
NON-RECURRING CHARGES $768.1 $332.0 $159.2 $1,259.3
- -------------------------------------------------------------------------------------------------
% change - 1996 vs. 1995 excluding non-recurring charges:
Business -17% -11% +16% -11%
Foreign currency impact -- -4% -4% -2%
- -------------------------------------------------------------------------------------------------
TOTAL CHANGE -17% -15% +12% -13%
=================================================================================================
</TABLE>
19
<PAGE> 4
Gross interest expense prior to amounts capitalized was $69.4 million, compared
to $69.8 million in 1995. Despite an increase in debt during the year, total
interest expense was maintained at prior-year levels due to the favorable
effect of lower rates on short-term borrowings.
Other expense for 1996 included a charge of $35.0 million for a contribution to
the Kellogg's Corporate Citizenship Fund, a private trust established for
charitable donations. Excluding this unusual item, other income, net,
decreased $19.5 million to $1.6 million, primarily due to foreign currency
losses in Latin American markets and lower interest income during 1996.
Excluding the impact of non-recurring charges and other unusual items, the
effective income tax rate was 36.8%, .7 percentage points lower than the
prior-year rate, primarily due to favorable audit settlements in foreign
jurisdictions and country mix.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained strong throughout 1997. A strong
cash flow, combined with a program of issuing commercial paper and maintaining
worldwide credit facilities, provides adequate liquidity to meet the Company's
operational needs.
Net cash provided by operating activities during 1997 was $879.8 million,
compared to $711.5 million in 1996, with the increase due principally to higher
earnings, lower benefit plan contributions, and favorable working capital
movements. The ratio of current assets to current liabilities was .9 at
December 31, 1997, compared to .7 at December 31, 1996.
Net cash used in investing activities was $329.3 million, principally comprised
of $312.4 million in property additions. Net cash used in investing activities
decreased significantly from the prior year, in which the Company paid $466
million to purchase the Lender's Bagels business.
Net cash used in financing activities was $607.3 million, primarily related to
common stock repurchases of $426.0 million and dividend payments of $360.1
million, partially offset by a net increase in total debt of $108.1 million.
The Company's total 1997 per share dividend payment was $.87, a 7.4% increase
over the prior-year payment of $.81.
On August 1, 1997, the Company's Board of Directors approved a 2-for-1 stock
split to shareholders of record at the close of business August 8, 1997,
effective August 22, 1997, and also authorized retirement of 105.3 million
common shares (pre-split) held in treasury. All per share and shares
outstanding data have been restated retroactively to reflect the stock split.
Under existing plans authorized by the Company's Board of Directors, management
spent $426.0 million during 1997 to repurchase 10.9 million shares (on a
post-split basis) of the Company's common stock at an average price of $39 per
share. The open repurchase authorization, which extends through December 31,
1998, was $389.1 million at year-end 1997.
Notes payable consist principally of commercial paper borrowings in the United
States. Associated with these borrowings, during September 1997, the Company
purchased a $225 million notional, four-year fixed interest rate cap. Under
the terms of the cap, if the Federal Reserve AA composite rate on 30-day
commercial paper increases to 6.33%, the Company will pay this fixed rate on
$225 million of its commercial paper borrowings. If the rate increases to
7.83% or above, the cap will expire. As of year-end 1997, the rate was 5.65%.
To reduce short-term borrowings, on February 4, 1998, the Company issued $400
million of three-year 5.75% fixed rate U.S. Dollar Notes. Accordingly, an
equivalent amount of commercial paper borrowings was classified as long-term
debt in the December 31, 1997, balance sheet. These Notes were issued under an
existing "shelf registration" with the Securities and Exchange Commission, and
provide an option to holders to extend the obligation for an additional four
years at a predetermined interest rate of 5.63% plus the Company's then-current
credit spread. Concurrent with this issuance, the Company entered into a $400
million notional, three-year fixed-to-floating interest rate swap, indexed to
the Federal Reserve AA composite rate on 30-day commercial paper.
As of December 31, 1997, current maturities of long-term debt primarily
consisted of $200 million of five-year notes due October 1998. Management
currently intends to replace these notes with new long-term debt issuances as
of the maturity date and, as of year-end 1997, had entered into $25 million
notional amount of interest rate hedges to effectively fix the U.S. Treasury
rate on which an equivalent amount of future issuances would be priced.
Subject to market conditions, management intends to gradually increase the
notional amount of interest rate hedges to $200 million, prior to the maturity
date of the notes.
On January 29, 1997, the Company issued $500 million of seven-year 6.625% fixed
rate Euro Dollar Notes. This debt was issued primarily to fund the purchase of
the Lender's Bagels business, acquired in December 1996. In conjunction with
this issuance, the Company settled $500 million notional amount of interest
rate forward swap agreements, which effectively fixed the interest rate on the
debt at 6.354%. Associated with this debt, during September 1997, the Company
entered into a $225 million notional, 4 1/2-year fixed-to-
20
<PAGE> 5
floating interest rate swap, indexed to the three-month London Interbank
Offered Rate (LIBOR). Under the terms of the swap, if three-month LIBOR
decreases to 4.71% or below, the swap will expire. At year-end 1997,
three-month LIBOR was 5.81%.
To replace other long-term debt maturing during the year, the Company issued
$500 million of four-year 6.125% Euro Dollar Notes on August 5, 1997. In
conjunction with this issuance, the Company settled $400 million notional
amount of interest rate forward swap agreements that effectively fixed the
interest rate on the debt at 6.4%. Associated with this debt, during September
1997, the Company entered into a $200 million notional, four-year
fixed-to-floating interest rate swap, indexed to three-month LIBOR.
The ratio of total debt to market capitalization at December 31, 1997, was 10%,
down from 14% at December 31, 1996, principally due to an increase in the
market price of the Company's stock since that date.
NON-RECURRING CHARGES AND OTHER UNUSUAL ITEMS
From 1995 to the present, management has commenced major productivity and
operational streamlining initiatives in an effort to optimize the Company's
cost structure and move toward a global business model. The incremental costs
of these programs have been reported throughout 1995-1997 as non-recurring
charges.
In addition to the non-recurring charges reported during 1995-1997 for
streamlining initiatives, the Company incurred charges for other unusual items.
Furthermore, net earnings for 1997 included a cumulative effect of accounting
change related to business process reengineering costs. In summary, the
following charges were excluded from reported results for purposes of
comparison within the "Results of operations" section above:
<TABLE>
<CAPTION>
====================================================================================================
NON-RECURRING CHARGES & OTHER UNUSUAL ITEMS
- ----------------------------------------------------------------------------------------------------
EARNINGS BEFORE
INCOME TAXES AND
CUMULATIVE EFFECT
Impact on (millions, OPERATING OF ACCOUNTING NET NET EARNINGS PER
expect per share data): PROFIT CHANGE EARNINGS SHARE
- ----------------------------------------------------------------------------------------------------
1997:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Streamlining initiatives $161.1 $161.1
Impairment losses 23.0 23.0
- ----------------------------------------------------------------------------------------------------
TOTAL NON-RECURRING
CHARGES $184.1 $184.1 $140.5 $.34
- ----------------------------------------------------------------------------------------------------
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE __ __ $18.0 $.04
=====================================================================================================
1996:
- ----------------------------------------------------------------------------------------------------
Streamlining initiatives $121.1 $121.1
Litigation provision 15.0 15.0
Private trust contribution(a) --- 35.0
- ----------------------------------------------------------------------------------------------------
TOTAL $136.1 $171.1 $120.1 $.28
=====================================================================================================
1995:
- ----------------------------------------------------------------------------------------------------
Streamlining initiatives $348.0 $348.0
Impairment losses 73.8 73.8
- ----------------------------------------------------------------------------------------------------
TOTAL $421.8 $421.8 $271.3 $.62
=====================================================================================================
</TABLE>
(a) Recorded in other income (expense), net.
The 1997 charges for streamlining initiatives relate principally to
management's plan to optimize the Company's pan-European operations, as well as
ongoing productivity programs in the United States and Australia. A major
component of the pan-European initiatives was the late-1997 closing of
manufacturing plants and separation of employees in Riga, Latvia; Svendborg,
Denmark; and Verola, Italy.
Approximately 50% of the total 1997 streamlining charges consist of
manufacturing asset write-downs, with the balance comprised of current and
anticipated cash outlays for employee separation benefits, equipment removal,
production redeployment, associated management consulting, and similar costs.
Related primarily to the pan-European initiatives, streamlining programs begun
in 1997 will result in employee headcount reductions of approximately 600 and
are expected to deliver annual pre-tax savings of approximately $60 million
when fully implemented. Total cash outlays for streamlining initiatives were
approximately $85 million during 1997 and are expected to be approximately $50
million in 1998. Refer to Note 3 within Notes to Consolidated Financial
Statements for additional information.
The streamlining programs commenced since 1995, including the aforementioned
pan-European initiatives, are expected to result in the elimination of
approximately 3,000 employee positions by the end of 1998, with approximately
90% of this reduction already achieved. These programs are expected to deliver
average annual pre-tax savings in excess of $200 million by the year 2000, with
approximately 75% of that amount being realized currently. These savings are
not necessarily indicative of current and future incremental earnings due to
management's commitment to invest in competitive business strategies, new
markets, and growth opportunities.
Also included in the 1997 charges are $23.0 million of asset impairment losses,
which result from evaluation of the Company's ability to recover components of
its investments, based on management's ongoing strategic assessment of local
conditions, in the emerging markets of Asia-Pacific.
In addition to the non-recurring charges reported during 1995 and 1996 for
streamlining initiatives, the Company incurred charges for the following
unusual items:
- - During 1996, the Company included in non-recurring charges a provision of
$15.0 million for the potential settlement of certain litigation.
21
<PAGE> 6
- - During 1996, the Company included in other expense a charge of $35.0
million for a contribution to the Kellogg's Corporate Citizenship Fund,
which is expected to satisfy the charitable-giving plans of this private
trust through the year 2000.
- - During 1995, the Company included in non-recurring charges $73.8 million
of asset impairment losses that resulted from the evaluation of the
Company's ability to recover asset costs given changes in local market
conditions, sourcing of products, and other strategic factors in its North
American and Asia-Pacific operations.
The foregoing discussion of streamlining initiatives contains forward-looking
statements regarding headcount reductions, cash requirements, and realizable
savings. Actual amounts may vary depending on the final determination of
important factors, such as identification of specific employees to be separated
from pre-determined pools, actual amounts of asset removal and relocation
costs, dates of asset disposal and costs to maintain assets up to the date of
disposal, proceeds from asset disposals, final negotiation of third party
contract buy-outs, and other items.
On November 20, 1997, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a consensus in Issue 97-13 that the costs of
business process reengineering activities are to be expensed as incurred. This
consensus also applies to business process reengineering activities that are
part of an information technology project. Beginning in 1996, the Company has
undertaken an Enterprise Business Applications (EBA) initiative that combines
design and installation of business processes and software packages to achieve
global best practices. Under the EBA initiative, the Company had capitalized
certain external costs associated with business process reengineering
activities as part of the software asset. EITF Issue 97-13 prescribes that
previously capitalized business process reengineering costs should be expensed
and reported as a cumulative effect of a change in accounting principle.
Accordingly, for the fourth quarter of 1997, the Company reported a charge of
$18.0 million (net of tax benefit of $7.7 million) or $.04 per share for
write-off of business process reengineering costs. Such costs were expensed as
incurred during the fourth quarter of 1997, and were insignificant.
1998 OUTLOOK
Management is not aware of any adverse trends that would materially affect the
Company's strong financial position. Should suitable investment opportunities
or working capital needs arise that would require additional financing,
management believes that the Company's strong credit rating, balance sheet, and
earnings history provide a base for obtaining additional financial resources
at competitive rates and terms. Based on the expectation of continued cereal
volume growth, and strong results from product innovation and the global
introduction of other convenience foods, management believes the Company is
well-positioned to deliver sales and earnings growth for the full year 1998.
The Company will continue to identify and pursue streamlining and productivity
initiatives to optimize its cost structure.
Additional expectations for 1998 include a gross profit margin of 53-54%, an
SGA% of 35-36%, an effective income tax rate of 36-37%, capital spending of
approximately $400 million, common stock repurchase activity of $390 million,
and an increase in interest expense of 10%.
To address the millennium date change issue (the inability of certain computer
software, hardware, and other equipment with embedded computer chips to
properly process two-digit year-date codes after 1999), the Company formed a
global task force to perform a risk assessment, and develop and execute action
plans, as necessary. The global risk assessment is substantially complete.
Remediation and testing activities for critical business operations are under
way, with completion scheduled by year-end 1998. Remediation and testing of
non-critical business operations will continue, as necessary, throughout 1999.
Management currently believes that the total cost of becoming Year 2000
compliant will not be significant to the Company's financial results, partly due
to other significant systems initiatives currently under way. While the
Company believes all necessary work will be completed, there can be no guarantee
that all systems will be in compliance by the year 2000 or that the systems of
other companies and government agencies on which the Company relies will be
converted in a timely manner. Such failure to complete the necessary work by
the year 2000 could result in material financial risk.
The foregoing projections of volume growth, profitability, capital spending,
and common stock repurchase activity are forward-looking statements that
involve risks and uncertainties. Actual results may differ materially due to
the impact of competitive conditions, marketing spending and/or incremental
pricing actions on actual volumes and product mix; the levels of spending on
system initiatives, properties, business opportunities, continued streamlining
initiatives, and other general and administrative costs; raw material price and
labor cost fluctuations; foreign currency exchange rate fluctuations; changes
in statutory tax law; interest rates available on short-term financing; the
impact of stock market conditions on common stock repurchase activity; and
other items.
22
<PAGE> 7
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
Year ended December 31,
<TABLE>
<CAPTION>
====================================================================================================================================
(millions, except per share data) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $6,830.1 $6,676.6 $7,003.7
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of goods sold 3,270.1 3,122.9 3,177.7
Selling and administrative expense 2,366.8 2,458.7 2,566.7
Non-recurring charges 184.1 136.1 421.8
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT 1,009.1 958.9 837.5
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense 108.3 65.6 62.6
Other income (expense), net 3.7 (33.4) 21.1
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 904.5 859.9 796.0
Income taxes 340.5 328.9 305.7
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 564.0 531.0 490.3
Cumulative effect of accounting change (net of tax) (18.0) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 546.0 $ 531.0 $ 490.3
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE AMOUNTS (BASIC AND DILUTED):
EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
$ 1.36 $ 1.25 $ 1.12
Cumulative effect of accounting change (0.04) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS PER SHARE $ 1.32 $ 1.25 $ 1.12
====================================================================================================================================
</TABLE>
Refer to Notes to Consolidated Financial Statements.
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
====================================================================================================================================
Capital in Currency Total
Common stock excess of Retained Treasury stock translation shareholders'
(millions) shares amount par value earnings shares amount adjustment equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 310.4 $ 77.6 $68.6 $3,801.2 88.7 ($1,980.6) ($ 159.3) $1,807.5
Stock options exercised .7 .2 36.6 36.8
Common stock repurchases 5.7 (374.7) (374.7)
Net earnings 490.3 490.3
Dividends (328.5) (328.5)
Currency translation adjustments (34.6) (34.6)
Other -- (5.9) (5.9)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 311.1 77.8 105.2 3,963.0 94.4 (2,361.2) (193.9) 1,590.9
Stock options exercised .4 .1 18.7 18.8
Common stock repurchases 7.4 (535.7) (535.7)
Net earnings 531.0 531.0
Dividends (343.7) (343.7)
Currency translation adjustments 27.6 27.6
Other .1 (6.5) (6.5)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 311.5 77.9 123.9 4,150.3 101.9 (2,903.4) (166.3) 1,282.4
Stock options exercised(pre-split) .6 .1 31.9 (.1) 2.1 34.1
Common stock repurchases(pre-split) 3.9 (290.9) (290.9)
Other(pre-split) .1 (6.0) (6.0)
Retirement of treasury stock (105.3) (26.3) (55.8) (3,095.8) (105.3) 3,177.9 --
Two-for-one stock split 206.8 51.7 (51.7) .5 -- --
Stock options exercised(post-split) 1.2 .3 44.3 (.1) 2.1 46.7
Common stock repurchases(post-split) 3.1 (135.1) (135.1)
Net earnings 546.0 546.0
Dividends (360.1) (360.1)
Currency translation adjustments (115.6) (115.6)
Other(post-split) .1 (4.0) (4.0)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 414.8 $103.7 $92.6 $1,240.4 4.1 ($ 157.3) ($ 281.9) $ 997.5
================================================================================================================================
</TABLE>
Refer to Notes to Consolidated Financial Statements.
23
<PAGE> 8
Kellogg Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
At December 31,
<TABLE>
<CAPTION>
=======================================================================================
(millions, except share data) 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $173.2 $243.8
Accounts receivable, less allowances of $7.5 and $6.6 587.5 592.3
Inventories 434.3 424.9
Other current assets 272.7 267.6
- ---------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,467.7 1,528.6
- ---------------------------------------------------------------------------------------
PROPERTY, NET 2,773.3 2,932.9
OTHER ASSETS 636.6 588.5
- ---------------------------------------------------------------------------------------
TOTAL ASSETS $4,877.6 $5,050.0
=======================================================================================
CURRENT LIABILITIES
Current maturities of long-term debt $211.2 $501.2
Notes payable 368.6 652.6
Accounts payable 328.0 335.2
Other current liabilities 749.5 710.0
- ---------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,657.3 2,199.0
- ---------------------------------------------------------------------------------------
LONG-TERM DEBT 1,415.4 726.7
OTHER LIABILITIES 807.4 841.9
SHAREHOLDERS' EQUITY
Common stock, $.25 par value, 500,000,000 shares authorized
Issued: 414,823,142 shares in 1997 and 311,524,437 in 1996 103.7 77.9
Capital in excess of par value 92.6 123.9
Retained earnings 1,240.4 4,150.3
Treasury stock, at cost:
4,143,124 shares in 1997 and 101,876,325 in 1996 (157.3) (2,903.4)
Currency translation adjustment (281.9) (166.3)
- ---------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 997.5 1,282.4
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,877.6 $5,050.0
=======================================================================================
</TABLE>
Refer to Notes to Consolidated Financial Statements.
24
<PAGE> 9
Kellogg Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
==========================================================================================================
(millions) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $546.0 $531.0 $490.3
Items in net earnings not requiring (providing) cash:
Depreciation and amortization 287.3 251.5 258.8
Deferred income taxes 38.5 58.0 (78.7)
Non-recurring charges, net of cash paid 133.8 90.6 385.3
Other 9.5 14.5 9.1
Pension and other postretirement benefit contributions (114.5) (156.8) (74.5)
Changes in operating assets and liabilities (20.8) (77.3) 50.7
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 879.8 711.5 1,041.0
- ----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to properties (312.4) (307.3) (315.7)
Acquisitions of businesses (25.4) (505.2) --
Property disposals 5.9 11.6 6.3
Other 2.6 14.1 .5
- ----------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (329.3) (786.8) (308.9)
- ----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net issuances (reductions) of notes payable, with maturities
less than or equal to 90 days (374.7) 906.6 (86.8)
Issuances of notes payable, with maturities greater than 90 days 4.8 137.0 --
Reductions of notes payable, with maturities greater than 90 days (14.1) (79.0) --
Issuances of long-term debt 1,000.0 -- --
Reductions of long-term debt (507.9) (3.4) (.4)
Net issuances of common stock 70.7 12.2 31.2
Common stock repurchases (426.0) (535.7) (374.7)
Cash dividends (360.1) (343.7) (328.5)
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (607.3) 94.0 (759.2)
- ----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (13.8) 3.2 (17.3)
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (70.6) 21.9 (44.4)
Cash and cash equivalents at beginning of year 243.8 221.9 266.3
- ----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $173.2 $243.8 $221.9
==========================================================================================================
</TABLE>
Refer to Notes to Consolidated Financial Statements.
25
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kellogg Company and Subsidiaries
NOTE 1 ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Kellogg Company
and its majority-owned subsidiaries. Intercompany balances and transactions are
eliminated.
Certain amounts in the prior year financial statements have been reclassified to
conform to the current year presentation.
CASH AND CASH EQUIVALENTS
Highly liquid temporary investments with original maturities of less than three
months are considered to be cash equivalents. The carrying amount approximates
fair value.
INVENTORIES
Inventories are valued at the lower of cost (principally average) or market.
PROPERTY
Fixed assets are recorded at cost and depreciated over estimated useful lives
using straight-line methods for financial reporting and accelerated methods for
tax reporting. Cost includes an amount of interest associated with significant
capital projects.
ADVERTISING
The costs of advertising are generally expensed as incurred.
STOCK COMPENSATION
The Company follows Accounting Principles Board Opinion (APB) #25, "Accounting
for Stock Issued to Employees," in accounting for its employee stock options and
other stock-based compensation. Under APB #25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of the grant, no compensation expense is recognized. As permitted,
the Company has elected to adopt the disclosure provisions only of Statement of
Financial Accounting Standards (SFAS) #123, "Accounting for Stock-Based
Compensation." (Refer to Note 7 for further information.)
NET EARNINGS PER SHARE
Basic net earnings per share is determined by dividing net earnings by the
weighted average number of common shares outstanding during the period. Weighted
average shares outstanding, in millions, were 414.1, 424.9, and 438.3 for the
years 1997, 1996, and 1995, respectively. Diluted net earnings per share is
similarly determined except that the denominator is increased to include the
number of additional common shares that would have been outstanding if all
dilutive potential common shares had been issued. Dilutive potential common
shares are principally comprised of employee stock options issued by the Company
and had an insignificant impact on the computation of diluted net earnings per
share during the periods presented.
CHANGE IN ACCOUNTING PRINCIPLE
On November 20, 1997, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a consensus in EITF 97-13 that the costs of
business process reengineering activities are to be expensed as incurred. This
consensus also applies to business process reengineering activities that are
part of an information technology project. Beginning in 1996, the Company has
undertaken an Enterprise Business Applications (EBA) initiative that combines
design and installation of business processes and software packages to achieve
global best practices. Under the EBA initiative, the Company had capitalized
certain external costs associated with business process reengineering activities
as part of the software asset. EITF Issue 97-13 prescribes that previously
capitalized business process reengineering costs should be expensed and reported
as a cumulative effect of a change in accounting principle. Accordingly, for the
fourth quarter of 1997, the Company reported a charge of $18.0 million (net of
tax benefit of $7.7 million) or $.04 per share for write-off of business process
reengineering costs. Such costs were expensed as incurred during the fourth
quarter of 1997 and were insignificant.
COMMON STOCK SPLIT
On August 1, 1997, the Company's Board of Directors approved a 2-for-1 stock
split to shareholders of record at the close of business August 8, 1997,
effective August 22, 1997, and also authorized retirement of 105.3 million
common shares (pre-split) held in treasury. All per share and shares outstanding
data in the Consolidated Statement of Earnings and Notes to Consolidated
Financial Statements have been retroactively restated to reflect the stock
split.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 ACQUISITION
On December 16, 1996, the Company purchased certain assets and liabilities of
the Lender's Bagels business from Kraft Foods, Inc. for $466 million in cash,
including related acquisition costs. The acquisition was accounted for as a
purchase. The assets and liabilities of the acquired business are included in
the consolidated balance sheet as of December 31, 1996. The results of Lender's
operations from the date of the acquisition to December 31, 1996, were not
significant. The acquisition was initially financed through commercial paper
borrowings that were replaced with long-term debt in January 1997.
The components of intangible assets included in the allocation of purchase
price, along with the related straight-line amortization periods, were:
<TABLE>
<CAPTION>
================================================================================
Amount Amortization
(millions) period (yrs.)
- --------------------------------------------------------------------------------
<S> <C> <C>
Trademarks and tradenames $ 150.0 40
Non-compete covenants 20.0 5
Goodwill 179.0 40
- --------------------------------------------------------------------------------
Total $ 349.0
================================================================================
</TABLE>
The unaudited pro forma combined historical results, as if the Lender's Bagels
business had been acquired at the beginning of fiscal 1996 and 1995,
respectively, are estimated to be:
<TABLE>
<CAPTION>
==================================================================================
(millions, except per share data) 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 6,873.1 $ 7,219.4
Net earnings $ 524.3 $ 489.3
Net earnings per share $ 1.23 $ 1.12
==================================================================================
</TABLE>
The pro forma results include amortization of the intangibles presented above
and interest expense on debt presumed issued to finance the purchase. The pro
forma results are not necessarily indicative of what actually would have
occurred if the acquisition had been completed as of the beginning of each of
the fiscal periods presented, nor are they necessarily indicative of future
consolidated results.
NOTE 3 NON-RECURRING CHARGES
Operating profit for 1997 includes non-recurring charges of $184.1 million
($140.5 million after tax or $.34 per share), comprised of $161.1 million for
streamlining initiatives and $23.0 million for asset impairment losses.
Operating profit for 1996 includes non-recurring charges of $136.1 million
($97.8 million after tax or $.23 per share), comprised of $121.1 million for
streamlining initiatives and $15.0 million for potential settlement of certain
litigation.
Operating profit for 1995 includes non-recurring charges of $421.8 million
($271.3 million after tax or $.62 per share), comprised of $348.0 million for
streamlining initiatives and $73.8 million for asset impairment losses.
STREAMLINING INITIATIVES
From 1995 to the present, management has commenced major productivity and
operational streamlining initiatives in an effort to optimize the Company's cost
structure and move toward a global business model. The incremental costs of
these programs have been reported throughout 1995-1997 as non-recurring charges.
The 1997 charges for streamlining initiatives relate principally to management's
plan to optimize the Company's pan-European operations, as well as ongoing
productivity programs in the United States and Australia. A major component of
26
<PAGE> 11
the pan-European initiatives was the late-1997 closing of plants and separation
of employees in Riga, Latvia; Svendborg, Denmark; and Verola, Italy.
Approximately 50% of the total 1997 streamlining charges consist of
manufacturing asset write-downs, with the balance comprised of current and
anticipated cash outlays for employee separation benefits, equipment removal,
production redeployment, associated management consulting, and similar costs.
Principally related to the pan-European initiatives, streamlining programs
commenced in 1997 will result in employee headcount reductions of approximately
600. Total cash outlays during 1997 for streamlining initiatives were
approximately $85 million.
The 1996 and 1995 charges for streamlining initiatives result from management's
actions to consolidate and reorganize operations in the United States, Europe,
and other international locations. Cash outlays for streamlining initiatives
were approximately $120 million in 1996 and $40 million in 1995. The
streamlining programs commenced since 1995, including the aforementioned
pan-European initiatives, are expected to result in the elimination of
approximately 3,000 employee positions by the end of 1998, with approximately
90% of this headcount reduction already achieved.
The components of the streamlining charges, as well as reserve balances
remaining at December 31, 1997, 1996, and 1995, were:
<TABLE>
<CAPTION>
===============================================================================================================================
Employee
retirement &
severance Asset Asset Other
(millions) benefits (a) write-offs removal costs Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 streamlining charges $183.6 $106.5 $39.5 $18.4 $348.0
Amounts utilized during 1995 (126.1) (106.5) (3.0) (18.4) (254.0)
- -------------------------------------------------------------------------------------------------------------------------------
Remaining reserve at
December 31, 1995 57.5 --- 36.5 --- 94.0
1996 streamlining charges (b) 31.4 37.5 13.5 38.7 121.1
Amounts utilized during 1996 (65.0) (37.5) (19.6) (38.7) (160.8)
- -------------------------------------------------------------------------------------------------------------------------------
Remaining reserve at
December 31, 1996 23.9 --- 30.4 --- 54.3
1997 streamlining charges 22.4 78.1 19.3 41.3 161.1
Amounts utilized during 1997 (22.7) (78.1) (21.4) (41.3) (163.5)
- -------------------------------------------------------------------------------------------------------------------------------
Remaining reserve at
December 31, 1997 $23.6 $ --- $28.3 $ --- $51.9
===============================================================================================================================
</TABLE>
(a) Includes approximately $100 and $5 of pension and postretirement health care
curtailment losses and special termination benefits recognized in 1995 and
1996, respectively. (Refer to Notes 8 and 9.)
(b) Includes $23 of reversals of prior-year reserves due to lower than expected
employee severance payments and asset removal costs, and other favorable
factors.
OTHER
In addition to the non-recurring charges reported for streamlining initiatives,
the Company incurred charges for the following unusual items:
o During 1997, asset impairment losses of $23.0 million, which resulted from
evaluation of the Company's ability to recover components of its
investments, based on management's ongoing strategic assessment of local
conditions, in the emerging markets of Asia-Pacific.
o During 1996, a provision of $15.0 million for the potential settlement of
certain litigation.
o During 1995, asset impairment losses of $73.8 million which resulted from
the evaluation of the Company's ability to recover asset costs given changes
in local market conditions, sourcing of products, and other strategic
factors in its North American and Asia-Pacific operations.
NOTE 4 OTHER INCOME AND EXPENSE
Other income and expense includes non-operating items such as interest income,
foreign exchange gains and losses, and charitable donations.
Other expense for 1996 includes a charge of $35.0 million ($22.3 million after
tax or $.05 per share) for a contribution to the Kellogg's Corporate Citizenship
Fund, a private trust established for charitable donations. This contribution is
expected to satisfy the charitable-giving plans of this trust through the year
2000.
NOTE 5 LEASES
Operating leases are generally for equipment and warehouse space. Rent expense
on all operating leases was $38.6 million in 1997, $37.9 million in 1996, and
$32.0 million in 1995. At December 31, 1997, future minimum annual rental
commitments under non-cancelable operating leases totaled $68 million consisting
of (in millions): 1998- $17; 1999-$12; 2000-$9; 2001-$8; 2002-$7; 2003 and
beyond-$15.
NOTE 6 DEBT
Notes payable consist principally of commercial paper borrowings in the United
States at the highest credit rating available and, to a lesser extent, bank
loans of foreign subsidiaries at competitive market rates. U.S. borrowings at
December 31, 1997 (including $400 million classified in long-term debt, as
discussed in (f) below), were $744.2 million with an effective interest rate of
5.7%. U.S. borrowings at December 31, 1996 (including $500 million classified in
long-term debt, as discussed in (f) below), were $1.12 billion with an effective
interest rate of 5.4%. Associated with these borrowings, during September 1997,
the Company purchased a $225 million notional, four-year fixed interest rate
cap. Under the terms of the cap, if the Federal Reserve AA composite rate on
30-day commercial paper increases to 6.33%, the Company will pay this fixed rate
on $225 million of its commercial paper borrowings. If the rate increases to
7.83% or above, the cap will expire. As of year-end 1997, the rate was 5.65%. At
December 31, 1997, the Company had $775.1 million of short-term lines of credit,
of which $749.4 million were unused and available for borrowing on an unsecured
basis.
Long-term debt at year-end consisted of:
<TABLE>
<CAPTION>
==========================================================================================
(millions) 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
(a) Seven-Year Notes due 2004 $500.0 $ --
(b) Four-Year Notes due 2001 500.0 --
(c) Five-Year Notes due 1998 200.0 200.0
(d) Three-Year Notes due 1997 -- 200.0
(e) Five-Year Notes due 1997 -- 299.9
(f) Commercial paper 400.0 500.0
Other 26.6 28.0
- -----------------------------------------------------------------------------------------
1,626.6 1,227.9
Less current maturities (211.2) (501.2)
- -----------------------------------------------------------------------------------------
Balance, December 31 $1,415.4 $726.7
=========================================================================================
</TABLE>
(a) In January 1997, the Company issued $500 of seven-year 6.625% fixed rate
Euro Dollar Notes. In conjunction with this issuance, the Company settled
$500 notional amount of interest rate forward swap agreements, which
effectively fixed the interest rate on the debt at 6.354%. Associated with
this debt, during September 1997, the Company entered into a $225
notional, 4 1/2-year fixed-to-floating interest rate swap, indexed to the
three-month London Interbank Offered Rate (LIBOR). Under the terms of the
swap, if three-month LIBOR decreases to 4.71% or below, the swap will
expire. At year-end 1997, three-month LIBOR was 5.81%.
(b) In August 1997, the Company issued $500 of four-year 6.125% Euro Dollar
Notes. In conjunction with this issuance, the Company settled $400
notional amount of interest rate forward swap agreements which effectively
fixed the interest rate on the debt at 6.4%. Associated with this debt,
during September 1997, the Company entered into a $200 notional, four-year
fixed-to-floating interest rate swap, indexed to three-month LIBOR.
(c) In October 1993, the Company issued $200 of five-year 6.25% Euro Canadian
Dollar Notes which were swapped into 4.629% fixed rate U.S. Dollar
obligations for the duration of the five-year term.
(d) In September 1994, the Company issued $200 of three-year debt consisting
of both 8.125% Euro Canadian Dollar Secured Notes and 5.25% Swiss Franc
Secured Notes. These Notes were swapped into U.S. Dollar obligations, with
a variable rate indexed to the Federal Reserve AA composite rate on 30-day
commercial paper, for the duration of the three-year term.
(e) In July 1992, the Company issued $300 of five-year 5.9% U.S. Dollar
obligations.
(f) At December 31, 1997, $400 of the Company's commercial paper was
classified as long-term, based on the Company's intent and ability to
refinance as evidenced by an issuance of $400 of three-year 5.75% fixed
rate U.S. Dollar Notes on February 4, 1998. These Notes were issued under
an existing "shelf registration" with the Securities and Exchange
Commission, and provide an option to holders to extend the obligation for
an additional four years at a predetermined interest rate of 5.63% plus
the Company's then-current credit spread. Concurrent with this issuance,
the Company entered into a $400 notional, three-year fixed-to-floating
interest rate swap, indexed to the Federal Reserve AA composite rate on
30-day commercial paper.
At December 31, 1996, $500 of the Company's commercial paper was
classified as long-term, based on the Company's intent and ability to
refinance as evidenced by the issuance described in (a) above.
27
<PAGE> 12
The $200 million of five-year notes will mature during the fourth quarter of
1998 and are classified in current maturities as of December 31, 1997.
Management currently intends to replace these borrowings with new long-term debt
issuances as of the maturity date and, as of year-end 1997, had entered into $25
million notional amount of interest rate forward swap agreements to pay fixed
and receive variable interest, effectively fixing the U.S. Treasury rate on
which an equivalent amount of future issuances would be priced.
Scheduled principal repayments on long-term debt are (in millions): 1998-$211;
1999-$2; 2000-$1; 2001-$901; 2002-$5; 2003 and beyond-$507.
Interest paid was $85 million for 1997 and approximated interest expense for
1996 and 1995. Interest expense capitalized as part of the construction cost of
fixed assets was (in millions): 1997- $9.6; 1996- $3.8; 1995-$7.2.
NOTE 7 STOCK OPTIONS
The Key Employee Long-Term Incentive Plan provides for benefits to be awarded to
executive-level employees in the form of stock options, performance shares,
performance units, incentive stock options, restricted stock grants, and other
stock-based awards. Options granted under this plan generally vest over two
years and, prior to September 1997, vested at the date of grant. The Bonus
Replacement Stock Option Plan allows certain key executives to receive stock
options that generally vest immediately in lieu of part or all of their
respective bonus. Options granted under this plan are issued from the Key
Employee Long-Term Incentive Plan. The Kellogg Employee Stock Ownership Plan is
designed to offer stock and other incentive awards based on Company performance
to employees who are not eligible to participate in the Key Employee Long-Term
Incentive Plan or the Bonus Replacement Stock Option Plan. Options awarded under
the Kellogg Employee Stock Ownership Plan are subject to graded vesting over a
five-year period. Under these plans (the "stock option plans"), options are
granted with exercise prices equal to the fair market value of the Company's
common stock at the time of grant, exercisable for a 10-year period following
the date of grant, subject to vesting rules.
The Key Employee Long-Term Incentive Plan contains an accelerated ownership
feature ("AOF"). An AOF option is granted when Company stock is surrendered to
pay the exercise price of a stock option. The holder of the option is granted an
AOF option for the number of shares surrendered. For all AOF options, the
original expiration date is not changed but the options vest immediately.
As permitted by SFAS #123 "Accounting for Stock-Based Compensation," the Company
has elected to account for the stock option plans under APB #25 "Accounting for
Stock Issued to Employees." Accordingly, no compensation cost has been
recognized for these plans.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Had compensation cost
for the stock option plans been determined based on the fair value at the grant
date consistent with SFAS #123, the Company's net earnings and earnings per
share for employee stock options granted after December 31, 1994, are estimated
as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(millions, except per share data) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings
As reported $546.0 $531.0 $490.3
Pro forma $520.8 $514.1 $476.4
Net earnings per share (basic and diluted)
As reported $ 1.32 $ 1.25 $ 1.12
Pro forma $ 1.26 $ 1.21 $ 1.09
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 6.31% 6.16% 6.89%
Dividend yield 1.97% 2.30% 2.30%
Volatility 19.83% 19.16% 21.45%
Average expected term (years) 3.52 3.34 3.02
Fair value of options granted $7.48 $6.32 $5.47
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the Key Employee Long-Term Incentive Plan, options for 13.2 million and
15.5 million shares were available for grant at December 31, 1997 and 1996,
respectively. Under the Kellogg Employee Stock Ownership Plan, options for 6.9
million and 8.3 million shares were available for grant at December 31, 1997 and
1996, respectively. Transactions under these plans were:
<TABLE>
<CAPTION>
===================================================================================================================================
(millions, except per share data) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Under option, January 1 11.2 8.4 7.6
Granted 6.0 5.2 4.8
Exercised (4.5) (2.1) (3.8)
Cancelled (.3) (.3) (.2)
- -----------------------------------------------------------------------------------------------------------------------------------
Under option, December 31 12.4 11.2 8.4
- -----------------------------------------------------------------------------------------------------------------------------------
Exercisable, December 31 8.1 7.6 6.1
- -----------------------------------------------------------------------------------------------------------------------------------
Shares available, December 31,
for options that may be granted 20.1 23.8 27.4
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Average prices per share
------------------------
<S> <C> <C> <C>
Under option, January 1 $33 $30 $28
Granted 36 38 31
Exercised 33 30 28
Cancelled 34 30 27
- -----------------------------------------------------------------------------------------------------------------------------------
Under option, December 31 $35 $33 $30
- -----------------------------------------------------------------------------------------------------------------------------------
Exercisable, December 31 $36 $35 $31
===================================================================================================================================
</TABLE>
Employee stock options outstanding and exercisable under these plans as of
December 31, 1997, were:
<TABLE>
=================================================================================
(millions, except Outstanding Exercisable
per share data) --------------------------------- --------------------------
Weighted
Weighted average Weighted
Range of average remaining average
exercise Number exercise contractual Number exercise
prices of options price life (yrs.) of options price
- ----------------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
$15 - 34 6.4 $ 31 8.0 3.4 $ 31
35 - 39 4.7 38 8.3 3.4 38
40 - 44 .7 44 9.8 .7 44
45 - 50 .6 48 9.7 .6 48
- ----------------------------------------------------- --------------------------
12.4 8.1
=================================================================================
</TABLE>
NOTE 8 PENSION BENEFITS
The Company has a number of U.S. and foreign pension plans to provide retirement
benefits for its employees. Benefits for salaried employees are generally based
on salary and years of service, while union employee benefits are generally a
negotiated amount for each year of service. Plan funding strategies are
influenced by tax regulations. Plan assets consist primarily of equity
securities with smaller holdings of bonds, real estate, and other investments.
Investment in Company common stock represented 4.2% and 6.8% of consolidated
plan assets at December 31, 1997, and 1996, respectively.
The components of pension expense were:
<TABLE>
<CAPTION>
================================================================================================
(millions) 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $29.9 $27.6 $27.4
Interest cost 79.6 72.8 66.0
Actual return on plan assets (210.4) (102.8) (163.3)
Net amortization and deferral 118.0 19.7 100.3
Curtailment loss and special
termination benefits expense - 4.0 77.7
- ------------------------------------------------------------------------------------------------
Pension expense - Company plans 17.1 21.3 108.1
Pension expense - multiemployer plans 1.9 2.0 1.8
- ------------------------------------------------------------------------------------------------
Total pension expense $19.0 $23.3 $109.9
================================================================================================
</TABLE>
28
<PAGE> 13
The worldwide weighted average actuarial assumptions were:
<TABLE>
<CAPTION>
===============================================================================================================
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.6% 7.9% 7.5%
Long-term rate of compensation increase 4.9% 5.2% 5.1%
Long-term rate of return on plan assets 10.5% 10.5% 9.6%
===============================================================================================================
</TABLE>
Reconciliation of funded status of the plans at year-end was:
<TABLE>
<CAPTION>
==============================================================================================================
Underfunded Overfunded
(millions) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated benefit obligation:
Nonvested $ 6.6 $ 6.0 $ 60.0 $ 46.9
Vested 62.5 41.5 926.3 845.2
- --------------------------------------------------------------------------------------------------------------
Total 69.1 47.5 986.3 892.1
Projected salary increases 18.0 17.4 60.0 79.3
- --------------------------------------------------------------------------------------------------------------
Projected benefit obligation 87.1 64.9 1,046.3 971.4
Plan assets at fair value 15.4 - 1,193.6 1,048.7
- --------------------------------------------------------------------------------------------------------------
Assets (less) greater than
projected benefit obligation (71.7) (64.9) 147.3 77.3
Unrecognized net (gain) loss 14.4 15.0 (7.0) 28.8
Unrecognized transition amount 2.6 (2.8) 1.8 .6
Unrecognized prior service cost 3.9 3.4 43.3 49.3
Minimum liability adjustment (10.7) (5.7) - -
- --------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension ($61.5) ($55.0) $185.4 $156.0
==============================================================================================================
</TABLE>
Curtailment losses and special termination benefits expense recognized in 1996
and 1995 relate to operational workforce reduction initiatives undertaken during
these years and are recorded as a component of non-recurring charges. (Refer to
Note 3 for further information.)
The amount of intangible assets related to underfunded pension plans was $10.7
million and $5.7 million at year-end 1997 and 1996, respectively. All gains and
losses, other than curtailment losses, are recognized over the average remaining
service period of active employees.
Certain of the Company's subsidiaries sponsor 401(k) or similar savings plans
for active employees. Expense related to these plans was (in millions):
1997-$16; 1996-$17; 1995-$18.
NOTE 9 NONPENSION POSTRETIREMENT BENEFITS
Certain of the Company's North American subsidiaries provide health care and
other benefits to substantially all retired employees, their covered dependents,
and beneficiaries. Generally, employees are eligible for these benefits when one
of the following service/age requirements is met: 30 years and any age; 20 years
and age 55; 5 years and age 62.
Components of postretirement benefit expense were:
<TABLE>
<CAPTION>
============================================================================================================================
(millions) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 9.6 $11.2 $11.8
Interest cost 37.2 40.2 41.5
Actual return on plan assets (23.0) - -
Net amortization and deferral 2.9 .3 (.6)
Curtailment loss - 1.0 26.3
- ----------------------------------------------------------------------------------------------------------------------------
Postretirement benefit expense $ 26.7 $52.7 $79.0
- ----------------------------------------------------------------------------------------------------------------------------
Discount rate used for accumulated benefit obligation 7.25% 7.75% 7.25%
============================================================================================================================
</TABLE>
The assumed health care cost trend rate was 7.0% for 1997, decreasing gradually
to 4.5% by the year 2003 and remaining at that level thereafter. These trend
rates reflect the Company's prior experience and management's expectation that
future rates will decline. Increasing the assumed health care cost trend rates
by 1 percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1997, by $63.5 million and postretirement
benefit expense for 1997 by $6.8 million. All gains and losses, other than
curtailment losses, are recognized over the average remaining service period of
active plan participants. Curtailment losses recognized in 1996 and 1995 relate
to operational workforce reduction initiatives undertaken during these years and
were recorded as a component of non-recurring charges. (Refer to Note 3 for
further information.) Since December 1996, the Company has contributed to a
voluntary employee benefit association (VEBA) trust for funding of its
nonpension postretirement benefit obligations. Plan assets consist primarily of
equity securities with smaller holdings of bonds.
The accrued postretirement benefit cost included in the balance sheet at
year-end was:
<TABLE>
<CAPTION>
============================================================================================================
(millions) 1997 1996
- ------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation:
<S> <C> <C>
Retirees $347.4 $305.9
Active plan participants 175.9 188.2
- ------------------------------------------------------------------------------------------------------------
523.3 494.1
Plan assets at fair value (150.7) (81.0)
- ------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation greater than assets 372.6 413.1
Unrecognized experience gain 86.5 95.1
Unrecognized prior service adjustments 8.1 8.6
- ------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $467.2 $516.8
============================================================================================================
</TABLE>
NOTE 10 INCOME TAXES
Earnings before income taxes and cumulative effect of accounting change, and the
provision for U.S. federal, state, and foreign taxes on these earnings, were:
<TABLE>
<CAPTION>
=================================================================================================================
(millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
Earnings before income taxes
and cumulative effect of accounting change:
<S> <C> <C> <C>
United States $576.4 $516.7 $430.9
Foreign 328.1 343.2 365.1
- -----------------------------------------------------------------------------------------------------------------
$904.5 $859.9 $796.0
=================================================================================================================
Income taxes:
Currently payable:
Federal $129.4 $130.6 $205.2
State 29.6 21.9 34.7
Foreign 143.0 118.4 144.5
- -----------------------------------------------------------------------------------------------------------------
302.0 270.9 384.4
- -----------------------------------------------------------------------------------------------------------------
Deferred:
Federal 50.2 45.7 (81.0)
State 4.0 11.4 (10.7)
Foreign (15.7) .9 13.0
- -----------------------------------------------------------------------------------------------------------------
38.5 58.0 (78.7)
- -----------------------------------------------------------------------------------------------------------------
Total income taxes $340.5 $328.9 $305.7
=================================================================================================================
</TABLE>
The difference between the U.S. federal statutory tax rate and the Company's
effective rate was:
<TABLE>
<CAPTION>
==============================================================================================================
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory rate 35.0% 35.0% 35.0%
Foreign rates varying from 35% .1 .7 .2
State income taxes,
net of federal benefit 2.4 2.5 2.0
Net change in valuation allowance 1.6 (.1) 1.9
Statutory rate changes,
deferred tax impact (.5) - .4
Other (1.0) .1 (1.1)
- --------------------------------------------------------------------------------------------------------------
Effective income tax rate 37.6% 38.2% 38.4%
==============================================================================================================
</TABLE>
The 1997 increase in valuation allowance on deferred tax assets and
corresponding impact on the effective income tax rate, as presented above,
primarily result from management's assessment of the Company's ability to
utilize certain operating loss and tax credit carryforwards. Total tax benefits
of carryforwards at year-end 1997 were $30.4 million and principally expire
after the year 2002.
29
<PAGE> 14
The 1995 increase in valuation allowance on deferred tax assets and
corresponding impact on the effective income tax rate, as presented above,
primarily relate to asset impairment losses recorded as non-recurring charges
(refer to Note 3) for which no tax benefit was provided, based on management's
assessment of the likelihood of recovering such benefit in future years.
The deferred tax assets and liabilities included in the balance sheet at
year-end were:
<TABLE>
<CAPTION>
====================================================================================================================================
Deferred tax assets Deferred tax liabilities
(millions) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Promotion and advertising $65.0 $78.4 $10.5 $6.7
Wages and payroll taxes 13.8 13.8 - -
Health and postretirement benefits 15.7 17.2 2.4 6.3
State taxes 8.1 8.6 - -
Operating loss and credit carryforwards 2.1 0.1 - -
Other 24.2 23.4 12.3 23.3
- ------------------------------------------------------------------------------------------------------------------------------------
128.9 141.5 25.2 36.3
Less valuation allowance (4.1) (2.5) - -
- ------------------------------------------------------------------------------------------------------------------------------------
124.8 139.0 25.2 36.3
====================================================================================================================================
Noncurrent:
Depreciation and asset disposals 18.8 25.6 326.0 337.0
Health and postretirement benefits 163.5 179.6 56.2 43.0
Capitalized interest 3.5 3.3 32.3 31.5
State taxes - 0.9 2.6 -
Operating loss and credit carryforwards 28.3 1.4 - -
Other 26.6 26.3 5.8 .7
- ------------------------------------------------------------------------------------------------------------------------------------
240.7 237.1 422.9 412.2
Less valuation allowance (41.8) (29.1) - -
- ------------------------------------------------------------------------------------------------------------------------------------
198.9 208.0 422.9 412.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total deferred taxes $323.7 $347.0 $448.1 $448.5
====================================================================================================================================
</TABLE>
At December 31, 1997, foreign subsidiary earnings of $1.3 billion were
considered permanently invested in those businesses. Accordingly, U.S. income
taxes have not been provided on these earnings. Foreign withholding taxes of
approximately $64 million would be payable upon remittance of these earnings.
Subject to certain limitations, the withholding taxes would then be available
for use as credits against the U.S. tax liability.
Cash paid for income taxes was (in millions): 1997-$332; 1996-$281; 1995-$404.
NOTE 11 FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION
The fair values of the Company's financial instruments are based on carrying
value in the case of short-term items, quoted market prices for derivatives and
investments, and, in the case of long-term debt, incremental borrowing rates
currently available on loans with similar terms and maturities. The carrying
amounts of the Company's cash, cash equivalents, receivables, notes payable, and
long-term debt approximate fair value.
The Company is exposed to certain market risks which exist as a part of its
ongoing business operations and uses derivative financial and commodity
instruments, where appropriate, to manage these risks. In general, instruments
used as hedges must be effective at reducing the risk associated with the
exposure being hedged and must be designated as a hedge at the inception of the
contract. Deferred gains or losses related to any instrument 1) designated but
ineffective as a hedge of existing assets, liabilities, or firm commitments, or
2) designated as a hedge of an anticipated transaction which is no longer likely
to occur, are recognized immediately in the statement of earnings.
For all derivative financial and commodity instruments held by the Company,
changes in fair values of these instruments and the resultant impact on the
Company's cash flows and/or earnings would generally be offset by changes in
value of underlying exposures. The impact on the Company's results and financial
position of holding derivative financial and commodity instruments was
insignificant during the periods presented.
FOREIGN EXCHANGE RISK
The Company is exposed to fluctuations in foreign currency cash flows primarily
related to third party purchases, intercompany product shipments, and
intercompany loans. The Company is also exposed to fluctuations in the value of
foreign currency investments in subsidiaries and cash flows related to
repatriation of these investments. Additionally, the Company is exposed to
volatility in the translation of foreign currency earnings to U.S. Dollars.
The Company assesses foreign currency risk based on transactional cash flows and
enters into forward contracts of generally less than twelve months duration to
reduce fluctuations in net long or short currency positions. Foreign currency
contracts are marked-to-market with net amounts due to or from counterparties
recorded in accounts receivable or payable. For contracts hedging firm
commitments, mark-to-market gains and losses are deferred and recognized as
adjustments to the basis of the transaction. For contracts hedging subsidiary
investments, mark-to-market gains and losses are recorded in the currency
translation adjustment component of shareholders' equity. For all other
contracts, mark-to-market gains and losses are recognized currently in other
income or expense.
The notional amounts of open forward contracts were $143.2 million and $80.0
million at December 31, 1997, and 1996, respectively. Refer to Supplemental
Financial Information on page 33 for further information regarding these
contracts.
INTEREST RATE RISK
The Company is exposed to interest rate volatility with regard to future
issuances of fixed rate debt and existing issuances of variable rate debt. The
Company uses interest rate caps, and currency and interest rate swaps, including
forward swaps, to reduce interest rate volatility and funding costs associated
with certain debt issues, and to achieve a desired proportion of variable versus
fixed rate debt, based on current and projected market conditions.
Interest rate forward swaps are marked-to-market with net amounts due to or from
counterparties recorded in interest receivable or payable. Mark-to-market gains
and losses are deferred and recognized over the life of the debt issue as a
component of interest expense. For other caps and swaps entered into
concurrently with the debt issue, the interest or currency differential to be
paid or received on the instrument is recognized in the statement of earnings as
incurred, as a component of interest expense. If a position were to be
terminated prior to maturity, the gain or loss realized upon termination would
be deferred and amortized to interest expense over the remaining term of the
underlying debt issue or would be recognized immediately if the underlying debt
issue was settled prior to maturity.
The notional amounts of currency and interest rate swaps were $875.0 million and
$1.05 billion at December 31, 1997, and 1996, respectively. Refer to Note 6 and
Supplemental Financial Information on page 33 for further information regarding
these swaps.
PRICE RISK
The Company is exposed to price fluctuations primarily as a result of
anticipated purchases of raw and packaging materials. The Company uses the
combination of long cash positions with vendors, and exchange-traded futures and
option contracts to reduce price fluctuations in a desired percentage of
forecasted purchases over a duration of generally less than one year. Commodity
contracts are marked-to-market with net amounts due to or from brokers recorded
in accounts receivable or payable. Mark-to-market gains and losses are deferred
and recognized as adjustments to the basis of the underlying material purchases.
30
<PAGE> 15
CREDIT RISK CONCENTRATION
The Company is exposed to credit loss in the event of nonperformance by
counterparties on derivative financial and commodity contracts. This credit loss
is limited to the cost of replacing these contracts at current market rates.
Management believes that the probability of such loss is remote.
Financial instruments which potentially subject the Company to concentrations of
credit risk are primarily cash, cash equivalents, and accounts receivable. The
Company places its investments in highly rated financial institutions and
investment grade short-term debt instruments, and limits the amount of credit
exposure to any one entity. Concentrations of credit risk with respect to
accounts receivable are limited due to the large number of customers, generally
short payment terms, and their dispersion across geographic areas.
NOTE 12 QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
====================================================================================================================================
(millions, except Net sales Gross profit
per share data) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $1,688.9 $1,785.9 $860.9 $995.5
Second 1,719.7 1,651.4 908.9 876.2
Third 1,803.8 1,681.6 944.4 865.6
Fourth 1,617.7 1,557.7 845.8 816.4
- ------------------------------------------------------------------------------------------------------------------------------------
$6,830.1 $6,676.6 $3,560.0 $3,553.7
====================================================================================================================================
<CAPTION>
Earnings before Earnings per share
cumulative effect of before cumulative effect
accounting change (a) of accounting change (a)(b)
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $160.6 $206.1 $ .38 $ .48
Second 163.6 78.1 .39 .18
Third 207.2 159.5 .50 .38
Fourth 32.6 87.3 .08 .21
- ------------------------------------------------------------------------------------------------------------------------------------
$564.0 $531.0
====================================================================================================================================
<CAPTION>
Net earnings (a) Net earnings per share (a)(b)
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $160.6 $206.1 $ .38 $ .48
Second 163.6 78.1 .39 .18
Third 207.2 159.5 .50 .38
Fourth 14.6 87.3 .04 .21
====================================================================================================================================
$546.0 $531.0
====================================================================================================================================
</TABLE>
(a) The quarterly results of 1997 and 1996 include the following non-recurring
charges, other unusual items and cumulative effect of accounting change.
(Refer to Notes 1, 3 and 4 for further information.)
<TABLE>
<CAPTION>
====================================================================================================================================
Earnings Earnings per share
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-recurring charges and other unusual items:
First $ - ($6.1) $ - ($.01)
Second (8.0) (16.9) (.02) (.04)
Third (6.6) (21.3) (.02) (.05)
Fourth (125.9) (75.8) (.31) (.18)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before cumulative
effect of accounting change (140.5) (120.1)
Cumulative effect of accounting change -Fourth (18.0) - (.04) -
====================================================================================================================================
Net earnings ($158.5) ($120.1)
====================================================================================================================================
</TABLE>
(b) Earnings per share presented represent both basic and diluted earnings per
share.
The principal market for trading Kellogg shares is the New York Stock Exchange
(NYSE). The shares are also traded on the Boston, Chicago, Cincinnati, Pacific,
and Philadelphia Stock Exchanges. At year-end 1997, the closing price (on the
NYSE) was $49 5/8 and there were 25,305 shareholders of record.
Dividends paid and the quarterly price ranges on the NYSE during the last two
years were:
<TABLE>
<CAPTION>
====================================================================================================================================
Stock Price
-----------
1997 - QUARTER Dividend High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fourth $ .225 $50.38 $40.00
Third .225 50.38 42.00
Second .210 43.44 32.00
First .210 36.38 32.06
====================================================================================================================================
$ .870
<CAPTION>
====================================================================================================================================
1996 - Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fourth $ .210 $34.56 $31.00
Third .210 38.69 32.81
Second .195 37.88 33.69
First .195 40.31 36.25
====================================================================================================================================
$ .810
====================================================================================================================================
</TABLE>
NOTE 13 OPERATING SEGMENTS
The Company operates in a single industry - manufacturing and marketing
grain-based convenience food products including ready-to-eat cereal, toaster
pastries, frozen waffles, cereal bars, and bagels throughout the world. The
following table describes operations by geographic area. Geographic operating
profit includes allocated corporate overhead expenses. Corporate assets are
comprised principally of cash and cash equivalents held for general corporate
purposes.
<TABLE>
<CAPTION>
====================================================================================================================================
% % %
(millions) 1997 change 1996 change 1995 change
====================================================================================================================================
NET SALES
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
United States $3,961.8 +5 $3,779.5 -7 $4,080.3 +6
% of total 58% 57% 58%
Europe 1,702.0 -3 1,749.6 -4 1,829.1 +9
% of total 25% 26% 26%
Other areas 1,166.3 +2 1,147.5 +5 1,094.3 +5
% of total 17% 17% 16%
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated $6,830.1 +2 $6,676.6 -5 $7,003.7 +7
====================================================================================================================================
OPERATING PROFIT (A)
====================================================================================================================================
United States $706.8 +16 $ 611.2 +38 $443.1 -37
% of total 70% 64% 53%
Europe 158.9 -22 204.4 -30 293.6 +2
% of total 16% 21% 35%
Other areas 143.4 -- 143.3 +42 100.8 -39
% of total 14% 15% 12%
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated $1,009.1 +5 $ 958.9 +14 $837.5 -28
====================================================================================================================================
IDENTIFIABLE ASSETS
====================================================================================================================================
United States $2,819.9 +1 $ 2,785.9 +27 $2,194.8 -1
% of total 58% 55% 50%
Europe 1,160.2 -8 1,258.2 -1 1,269.4 -1
% of total 24% 25% 29%
Other areas 882.3 -9 973.3 +5 929.7 -1
% of total 18% 19% 21%
Corporate assets 15.2 -53 32.6 +57 20.7 +9
% of total - 1% -
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated $4,877.6 -3 $ 5,050.0 +14 $4,414.6 -1
====================================================================================================================================
</TABLE>
(a) Operating profit includes the following non-recurring charges, by
geographic area. (Refer to Note 3 for further information.)
<TABLE>
<CAPTION>
====================================================================================================================================
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States ($35.2) ($24.1) ($325.0)
Europe (119.1) (76.5) (38.4)
All other (29.8) (35.5) (58.4)
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated ($184.1) ($136.1) ($421.8)
====================================================================================================================================
</TABLE>
31
<PAGE> 16
NOTE 14 SUPPLEMENTAL FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
(millions)
===============================================================================================================================
Consolidated Statement of Earnings 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Research and development expense $106.1 $ 84.3 $ 72.2
Advertising expense $780.4 $778.9 $891.5
===============================================================================================================================
<CAPTION>
===============================================================================================================================
Consolidated Statement of Cash Flows 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts receivable $5.1 $10.9 ($25.6)
Inventories (8.1) (35.4) 19.6
Other current assets (11.0) (.5) (33.7)
Accounts payable (8.7) (41.0) 36.3
Other current liabilities 1.9 (11.3) 54.1
- -------------------------------------------------------------------------------------------------------------------------------
CHANGES IN OPERATING ASSETS AND LIABILITIES ($20.8) ($77.3) $50.7
===============================================================================================================================
<CAPTION>
===============================================================================================================================
Consolidated Balance Sheet 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $ 135.0 $ 135.2
Finished goods and materials in process 299.3 289.7
- -------------------------------------------------------------------------------------------------------------------------------
INVENTORIES $ 434.3 $ 424.9
- -------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes $ 113.4 $ 117.9
Prepaid advertising and promotion 95.2 83.4
Other 64.1 66.3
- -------------------------------------------------------------------------------------------------------------------------------
OTHER CURRENT ASSETS $ 272.7 $ 267.6
- -------------------------------------------------------------------------------------------------------------------------------
Land $ 49.0 $ 52.4
Buildings 1,213.8 1,226.1
Machinery and equipment 3,434.7 3,464.1
Construction in progress 283.1 277.5
Accumulated depreciation (2,207.3) (2,087.2)
- -------------------------------------------------------------------------------------------------------------------------------
PROPERTY, NET $2,773.3 $2,932.9
- -------------------------------------------------------------------------------------------------------------------------------
Goodwill $ 194.3 $ 193.7
Other intangibles 191.2 186.6
Other 251.1 208.2
- -------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS $ 636.6 $ 588.5
- -------------------------------------------------------------------------------------------------------------------------------
Accrued income taxes $ 30.5 $ 50.5
Accrued salaries and wages 99.7 84.6
Accrued advertising and promotion 308.8 336.8
Other 310.5 238.1
- -------------------------------------------------------------------------------------------------------------------------------
Other current liabilities $ 749.5 $ 710.0
- -------------------------------------------------------------------------------------------------------------------------------
Nonpension postretirement benefits $ 444.1 $ 494.2
Deferred income taxes 237.7 226.3
Other 125.6 121.4
- -------------------------------------------------------------------------------------------------------------------------------
Other liabilities $ 807.4 $ 841.9
- -------------------------------------------------------------------------------------------------------------------------------
===============================================================================================================================
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
To the Shareholders and Board of Directors of Kellogg Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of earnings, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Kellogg
Company and its subsidiaries at December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for business process reengineering costs effective October
1, 1997.
Price Waterhouse LLP
Battle Creek, Michigan
January 30, 1998
32
<PAGE> 17
SUPPLEMENTAL FINANCIAL INFORMATION
QUANTITATIVE & QUALITATIVE DISCLOSURES RELATED TO MARKET RISK
SENSITIVE INSTRUMENTS
The Company is exposed to certain market risks which exist as a part of its
ongoing business operations and uses derivative financial and commodity
instruments, where appropriate, to manage these risks. The Company, as a matter
of policy, does not engage in trading or speculative transactions. Refer to Note
11 within Notes to Consolidated Financial Statements for further information on
accounting policies related to derivative financial and commodity instruments.
FOREIGN EXCHANGE RISK
The Company is exposed to fluctuations in foreign currency cash flows related to
third party purchases, intercompany product shipments, and intercompany loans.
The Company is also exposed to fluctuations in the value of foreign currency
investments in subsidiaries and cash flows related to repatriation of these
investments. Additionally, the Company is exposed to volatility in the
translation of foreign currency earnings to U.S. Dollars. Primary exposures
include the U.S. Dollar versus functional currencies of the Company's major
markets, i.e. British Pound, German Deutchmark, French Franc, Australian Dollar,
Canadian Dollar, and Mexican Peso, and in the case of inter-subsidiary
transactions, the British Pound versus other European currencies. The Company
assesses foreign currency risk based on transactional cash flows and enters into
forward contracts of generally less than twelve months duration to reduce
fluctuations in net long or short currency positions.
The tables below summarize forward contracts held at year-end 1997. All
contracts are valued in U.S. Dollars using year-end 1997 exchange rates, are
hedges of anticipated transactions (unless indicated otherwise), and mature in
1998.
<TABLE>
<CAPTION>
=================================================================================================
CONTRACTS TO SELL FOREIGN CURRENCY
- -------------------------------------------------------------------------------------------------
CURRENCY CURRENCY NOTIONAL VALUE EXCHANGE RATE FAIR VALUE
SOLD RECEIVED (MILLIONS) [FC/1US$] (MILLIONS)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Belgian Franc British Pound $ 11.7 35.19 $ .5
- -------------------------------------------------------------------------------------------------
Swiss Franc German Deutchmark 3.9 1.46 ---
- -------------------------------------------------------------------------------------------------
French Franc German Deutchmark 4.3 6.08 ---
- -------------------------------------------------------------------------------------------------
French Franc Danish Kroner .6 6.06 ---
- -------------------------------------------------------------------------------------------------
Danish Kroner British Pound 5.4 6.67 .1
- -------------------------------------------------------------------------------------------------
Belgian Franc French Franc 1.0 36.87 ---
- -------------------------------------------------------------------------------------------------
French Franc British Pound 48.0 5.70 2.3
- -------------------------------------------------------------------------------------------------
Irish Punt British Pound 27.4 .66 1.7
- -------------------------------------------------------------------------------------------------
Spanish Peseta British Pound 1.3 134.72 .2
- -------------------------------------------------------------------------------------------------
Swedish Kroner Danish Kroner 16.0 7.89 .1
- -------------------------------------------------------------------------------------------------
Total $119.6 $4.9
=================================================================================================
<CAPTION>
=======================================================================================================
CONTRACTS TO PURCHASE FOREIGN CURRENCY
- -------------------------------------------------------------------------------------------------------
CURRENCY CURRENCY NOTIONAL VALUE EXCHANGE RATE FAIR VALUE
PURCHASED EXCHANGED (MILLIONS) [FC/1US$] (MILLIONS)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Swiss Franc (a) British Pound $ 4.7 1.42 ($.1)
- -------------------------------------------------------------------------------------------------------
German Deutchmark (a) British Pound .3 1.72 ---
- -------------------------------------------------------------------------------------------------------
German Deutchmark British Pound 18.6 1.71 ( .8)
- -------------------------------------------------------------------------------------------------------
Total $23.6 ($.9)
=======================================================================================================
</TABLE>
(a) Designated as hedge of firm committment.
INTEREST RATE RISK
The Company is exposed to interest rate volatility with regard to future
issuances of fixed rate debt and existing issuances of variable rate debt.
Primary exposures include movements in U.S. Treasury rates, London Interbank
Offered rates (LIBOR), and commercial paper rates. The Company uses interest
rate caps, and currency and interest rate swaps, including forward swaps, to
reduce interest rate volatility and funding costs associated with certain debt
issues, and to achieve a desired proportion of variable versus fixed rate debt,
based on current and projected market conditions.
The tables below provide information on the Company's significant debt issues
and related hedging instruments at year-end 1997. For foreign
currency-denominated debt, the information is presented in U.S. Dollar
equivalents. Variable interest rates are based on effective rates or implied
forward rates as of year-end 1997. Refer to Note 6 within Notes to
Consolidated Financial Statements for further information.
<TABLE>
<CAPTION>
========================================================================================================================
SIGNIFICANT DEBT ISSUES
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL BY YEAR OF MATURITY (MILLIONS)
DEBT --------------------------------------------------- FAIR VALUE
CHARACTERISTICS 1998 2001 2004 (MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Euro Canadian Dollar $200.0 $186.6
- ------------------------------------------------------------------------------------------------------------------------
fixed rate 6.25%
========================================================================================================================
Euro Dollar $500.0 $502.6
- ------------------------------------------------------------------------------------------------------------------------
fixed rate 6.125%
- ------------------------------------------------------------------------------------------------------------------------
effective rate (a) 6.400%
========================================================================================================================
Euro Dollar $500.0 $515.3
- ------------------------------------------------------------------------------------------------------------------------
fixed rate 6.625%
- ------------------------------------------------------------------------------------------------------------------------
effective rate (a) 6.354%
========================================================================================================================
U.S. commercial paper (b) $744.2 $744.2
- ------------------------------------------------------------------------------------------------------------------------
weighted av. variable 5.74%
========================================================================================================================
</TABLE>
(a) Effective fixed interest rate paid, as a result of settlement of forward
interest rate swap at date of debt issuance.
(b) $400 million of commercial paper classified in long-term debt as of
year-end 1997. Refer to Note 6 within Notes to Consolidated Financial
Statements for further information.
<TABLE>
<CAPTION>
==================================================================================================================================
INTEREST & CURRENCY SWAPS & CAPS
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR OF MATURITY (MILLIONS)
INSTRUMENT ------------------------------------------- FAIR VALUE
CHARACTERISTICS 1998 2001 2002 (MILLIONS)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Notional amt. $200.0 ($10.8)
Mixed swap - currency/interest -----------------------------------------------------------------------------------------------
- - pay/receive fixed - hedge of Pay US$/4.629%
existing debt issue -----------------------------------------------------------------------------------------------
Receive C$/6.250%
==================================================================================================================================
Notional amt. $200.0 1.3
Interest rate swap - pay -----------------------------------------------------------------------------------------------
variable/receive fixed - hedge Pay 5.96%
of existing debt issue -----------------------------------------------------------------------------------------------
Receive 6.40%
==================================================================================================================================
Notional amt. $225.0 1.2
Interest rate swap - pay -----------------------------------------------------------------------------------------------
variable/receive fixed - hedge Pay 5.600%
of existing debt issue (a) -----------------------------------------------------------------------------------------------
Receive 6.354%
==================================================================================================================================
Notional amt. $25.0 ( .1)
Interest rate forward swap - -----------------------------------------------------------------------------------------------
pay fixed/receive variable - Pay 5.8125%
hedge of future debt issue -----------------------------------------------------------------------------------------------
Receive 5.7730%
==================================================================================================================================
Notional amt. $225.0 ( .4)
Interest rate cap - pay fixed -----------------------------------------------------------------------------------------------
if 30-day C.P. rate rises to Strike 6.33%
strike rate - hedge of U.S. -----------------------------------------------------------------------------------------------
commercial paper (b) Reference 5.65%
==================================================================================================================================
</TABLE>
(a) Under the terms of this swap, if three-month LIBOR falls to 4.71% or
below, the swap will expire. At year-end 1997, three-month LIBOR
was 5.81%.
(b) Under the terms of this cap, if the Federal Reserve AA composite rate on
30-day commercial paper increases to 7.83% or above, the cap will expire.
At year-end 1997 the rate was 5.65%.
PRICE RISK
The Company is exposed to price fluctuations primarily as a result of
anticipated purchases of raw and packaging materials. Primary exposures include
corn, wheat, soybean oil, sugar, and other ingredients for the Company's
grain-based convenience foods products. The Company uses the combination of long
cash positions with vendors, and exchange-traded futures and option contracts to
reduce price fluctuations in a desired percentage of forecasted purchases over a
duration of generally less than one year. The fair values of commodity contracts
held at year-end 1997 were insignificant, and potential near-term changes in
commodity prices are not expected to have a significant impact on the Company's
future earnings or cash flows.
For all derivative financial instruments presented in the tables above, changes
in fair values of these instruments and the resultant impact on the Company's
cash flows and/or earnings would generally be offset by changes in values of
underlying transactions and positions. Therefore, it should be noted that the
exclusion of certain of the underlying exposures from the tables above may be a
limitation in assessing the net market risk of the Company.
33
<PAGE> 1
EXHIBIT 21.01
DOMESTIC AND FOREIGN SUBSIDIARIES OF THE COMPANY
Kellogg Sales Company - Michigan
Kelogg Services Group, Inc. - Delaware
Kellogg USA Inc. - Michigan
The Eggo Company - Delaware
Kellogg (Aust.) Pty. Ltd. - Australia
Kellogg Canada Inc. - Canada
Kellogg Company of Great Britain Limited - England
Kellogg Management Services (Europe) Limited - England
Kellogg Marketing and Sales Company (UK) Limited - England
Kellogg Supply Services (Europe) Limited - England
Kellogg U.K. Holding Company Limited - England
Kellogg (Deutschland) GmbH - Germany
Kellogg de Mexico, S.A. de C.V. - Mexico
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 33-20731,
33-38846 and 33-49875) and the Registration Statements on Form S-8 (Nos.
2-77316, 33-27293, 33-27294, 33-40651 and 33-53403) of Kellogg Company of our
report dated January 30, 1998 appearing on page 32 of the Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 11 of this Form 10-K.
PRICE WATERHOUSE LLP
Battle Creek, Michigan
March 27, 1998
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-27294) of Kellogg Company of our report dated
March 16, 1998 which appears on page 1 of Exhibit 99.01 of this Form 10-K and
to the incorporation by reference in the Registration Statement on Form S-8
(No. 33-27293) of Kellogg Company of our report dated March 16, 1998 which
appears on page 1 of Exhibit 99.02 of this Form 10-K.
PRICE WATERHOUSE LLP
Battle Creek, Michigan
March 27, 1998
<PAGE> 1
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark,
Senior Vice President, General Counsel and Secretary of Kellogg Company, as my
lawful attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1997, and any exhibits,
amendments and other documents related thereto, with the Securities and
Exchange Commission. Said filing shall be for the purpose of fulfilling
applicable legal requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
/s/ Arnold G. Langbo
------------------------------
Director
Arnold G. Langbo
Dated: January 22, 1998
----------
<PAGE> 2
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark,
Senior Vice President, General Counsel and Secretary of Kellogg Company, as my
lawful attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1997, and any exhibits,
amendments and other documents related thereto, with the Securities and
Exchange Commission. Said filing shall be for the purpose of fulfilling
applicable legal requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
/s/ Benjamin S. Carson
------------------------------
Director
Benjamin S. Carson
Dated January 29, 1998
----------
<PAGE> 3
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark,
Senior Vice President, General Counsel and Secretary of Kellogg Company, as my
lawful attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1997, and any exhibits,
amendments and other documents related thereto, with the Securities and
Exchange Commission. Said filing shall be for the purpose of fulfilling
applicable legal requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
/s/ Carleton S. Fiorina
------------------------------
Director
Carleton S. Fiorina
Dated: February 3, 1998
----------
<PAGE> 4
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark,
Senior Vice President, General Counsel and Secretary of Kellogg Company, as my
lawful attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1997, and any exhibits,
amendments and other documents related thereto, with the Securities and
Exchange Commission. Said filing shall be for the purpose of fulfilling
applicable legal requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
/s/ Claudio X. Gonzalez
------------------------------
Director
Claudio X. Gonzalez
Dated: January 30, 1998
----------
<PAGE> 5
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark,
Senior Vice President, General Counsel and Secretary of Kellogg Company, as my
lawful attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1997, and any exhibits,
amendments and other documents related thereto, with the Securities and
Exchange Commission. Said filing shall be for the purpose of fulfilling
applicable legal requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
/s/ Gordon Gund
------------------------------
Director
Gordon Gund
Dated: January 26, 1998
----------
<PAGE> 6
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark,
Senior Vice President, General Counsel and Secretary of Kellogg Company, as my
lawful attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1997, and any exhibits,
amendments and other documents related thereto, with the Securities and
Exchange Commission. Said filing shall be for the purpose of fulfilling
applicable legal requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
/s/ William E. LaMothe
------------------------------
Director
William E. LaMothe
Dated: January 23, 1998
----------
<PAGE> 7
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark,
Senior Vice President, General Counsel and Secretary of Kellogg Company, as my
lawful attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1997, and any exhibits,
amendments and other documents related thereto, with the Securities and
Exchange Commission. Said filing shall be for the purpose of fulfilling
applicable legal requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
/s/ Russell G. Mawby
------------------------------
Director
Russell G. Mawby
Dated: January 30, 1998
----------
<PAGE> 8
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark,
Senior Vice President, General Counsel and Secretary of Kellogg Company, as my
lawful attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1997, and any exhibits,
amendments and other documents related thereto, with the Securities and
Exchange Commission. Said filing shall be for the purpose of fulfilling
applicable legal requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
/s/ Ann McLaughlin
------------------------------
Director
Ann McLaughlin
Dated: January 28, 1998
----------
<PAGE> 9
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark,
Senior Vice President, General Counsel and Secretary of Kellogg Company, as my
lawful attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1997, and any exhibits,
amendments and other documents related thereto, with the Securities and
Exchange Commission. Said filing shall be for the purpose of fulfilling
applicable legal requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
/s/ J. Richard Munro
------------------------------
Director
J. Richard Munro
Dated: January 27, 1998
----------
<PAGE> 10
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark,
Senior Vice President, General Counsel and Secretary of Kellogg Company, as my
lawful attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1997, and any exhibits,
amendments and other documents related thereto, with the Securities and
Exchange Commission. Said filing shall be for the purpose of fulfilling
applicable legal requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
/s/ Harold A. Poling
------------------------------
Director
Harold A. Poling
Dated: January 22, 1998
----------
<PAGE> 11
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark,
Senior Vice President, General Counsel and Secretary of Kellogg Company, as my
lawful attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1997, and any exhibits,
amendments and other documents related thereto, with the Securities and
Exchange Commission. Said filing shall be for the purpose of fulfilling
applicable legal requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
/s/ William C. Richardson
------------------------------
Director
William C. Richardson
Dated: January 23, 1998
----------
<PAGE> 12
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark,
Senior Vice President, General Counsel and Secretary of Kellogg Company, as my
lawful attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1997, and any exhibits,
amendments and other documents related thereto, with the Securities and
Exchange Commission. Said filing shall be for the purpose of fulfilling
applicable legal requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
/s/ Donald H. Rumfeld
------------------------------
Director
Donald H. Rumsfeld
Dated February 3, 1998
----------
<PAGE> 13
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of
Kellogg Company, a Delaware corporation, hereby appoint Richard M. Clark,
Senior Vice President, General Counsel and Secretary of Kellogg Company, as my
lawful attorney-in-fact and agent, to act on my behalf, with full power of
substitution, in preparing, executing and filing the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1997, and any exhibits,
amendments and other documents related thereto, with the Securities and
Exchange Commission. Said filing shall be for the purpose of fulfilling
applicable legal requirements.
Whereupon, I grant unto said Richard M. Clark full power and authority
to perform all necessary and appropriate acts in connection therewith, and
hereby ratify and confirm all that said attorney-in-fact and agent, or his
substitute, may lawfully do, or cause to be done, by virtue hereof.
/s/ John L. Zabriskie
------------------------------
Director
John L. Zabriskie
Dated: January 22, 1998
----------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Kellogg
Company and subsidiaries Consolidated Financial Statements for the twelve months
ended December 31, 1997 and is qualified in its entirety by reference to such
Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 173,200
<SECURITIES> 0
<RECEIVABLES> 595,000
<ALLOWANCES> (7,500)
<INVENTORY> 434,300
<CURRENT-ASSETS> 1,467,700
<PP&E> 4,980,600
<DEPRECIATION> (2,207,300)
<TOTAL-ASSETS> 4,877,600
<CURRENT-LIABILITIES> 1,657,300
<BONDS> 1,415,400
0
0
<COMMON> 103,700
<OTHER-SE> 893,800
<TOTAL-LIABILITY-AND-EQUITY> 4,877,600
<SALES> 6,830,100
<TOTAL-REVENUES> 6,830,100
<CGS> 3,270,100
<TOTAL-COSTS> 3,270,100
<OTHER-EXPENSES> 2,547,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108,300
<INCOME-PRETAX> 904,500
<INCOME-TAX> 340,500
<INCOME-CONTINUING> 564,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (18,000)
<NET-INCOME> 546,000
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
</TABLE>
<PAGE> 1
EXHIBIT 99.01
FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT
PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED OCTOBER 31, 1997
COMMISSION FILE NUMBER 1-4171
KELLOGG COMPANY
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
(Full Title of the Plan)
---------------
KELLOGG COMPANY
(Name of Issuer)
ONE KELLOGG SQUARE
BATTLE CREEK, MICHIGAN 49016-3599
(Principal Executive Office)
<PAGE> 2
KELLOGG COMPANY
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
FINANCIAL STATEMENTS
AND ADDITIONAL INFORMATION
OCTOBER 31, 1997
<PAGE> 3
KELLOGG COMPANY
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
INDEX TO FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS 1
FINANCIAL STATEMENTS AS OF OCTOBER 31, 1997 AND 1996 AND FOR THE YEARS THEN
ENDED:
Statement of net assets available for benefits, with fund information 2-3
Statement of changes in net assets available for benefits, with
fund information 4-5
Notes to financial statements 6-10
ADDITIONAL INFORMATION:
Item 27a - Schedule of assets held for investment
purposes - October 31, 1997 11
Item 27b - Schedule of loans or fixed income obligations -
October 31, 1997 12-20
Item 27d - Schedule of reportable transactions -
year ended October 31, 1997 21
</TABLE>
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Participants of the
Kellogg Company American Federation
of Grain Millers Savings and Investment Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Kellogg Company American Federation of Grain Millers Savings and
Investment Plan at October 31, 1997 and 1996, and the changes in net assets
available for benefits for the years then ended, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the plan's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information included on
pages 11-21 is presented for purposes of additional analysis and is not a
required part of the basic financial statements but is additional information
required by ERISA. The fund information in the statements of net assets
available for benefits and the statement of changes in net assets available for
benefits is presented for purposes of additional analysis rather than to present
the net assets available for benefits and changes in net assets available for
benefits of each fund. The additional information and the fund information have
been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
PRICE WATERHOUSE LLP
Battle Creek, Michigan
March 16, 1998
<PAGE> 5
KELLOGG COMPANY 2
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
OCTOBER 31, 1997
<TABLE>
<CAPTION>
LOAN BOND
TOTAL FUND FUND
ASSETS:
<S> <C> <C> <C>
Receivables:
Employer contributions $ 568,423 $ - $ 7,793
Employee contributions 280,805
Interest 9,043
----------------- ---------------- ----------------
Total receivables 858,271 7,793
----------------- ---------------- ----------------
Investments:
Plan's interest in Master Trust 208,537,576 5,838,178
Guaranteed investment contracts 411,867,794
Loans to participants 9,349,277 9,349,277
TBC Pooled Funds Daily Liquidity 6,205
----------------- ---------------- ----------------
Total investments 629,760,852 9,349,277 5,838,178
----------------- ---------------- ----------------
Total assets 630,619,123 9,349,277 5,845,971
----------------- ---------------- ----------------
LIABILITIES:
Benefits payable 2,424,218
Investment services fees payable 77,265 2,416
----------------- ---------------- ----------------
Total liabilities 2,501,483 2,416
----------------- ---------------- ----------------
Net assets available for benefits $ 628,117,640 $ 9,349,277 $ 5,843,555
================= ================ ================
<CAPTION>
FIXED COMPANY
INCOME EQUITY STOCK
FUND FUND FUND
ASSETS:
<S> <C> <C> <C>
Receivables:
Employer contributions $ 238,347 $ 157,680 $ 164,603
Employee contributions 280,805
Interest 9,043
----------------- ----------------- ----------------
Total receivables 528,195 157,680 164,603
----------------- ----------------- ----------------
Investments:
Plan's interest in Master Trust 7,455,690 117,661,788 77,581,920
Guaranteed investment contracts 411,867,794
Loans to participants
TBC Pooled Funds Daily Liquidity 6,205
----------------- ----------------- ----------------
Total investments 419,329,689 117,661,788 77,581,920
----------------- ----------------- ----------------
Total assets 419,857,884 117,819,468 77,746,523
----------------- ----------------- ----------------
LIABILITIES:
Benefits payable 2,424,218
Investment services fees payable 38,947 33,572 2,330
----------------- ----------------- ----------------
Total liabilities 2,463,165 33,572 2,330
----------------- ----------------- ----------------
Net assets available for benefits $ 417,394,719 $ 117,785,896 $ 77,744,193
================= ================= ================
</TABLE>
See accompanying notes to financial statements
<PAGE> 6
KELLOGG COMPANY 3
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
OCTOBER 31, 1996
<TABLE>
<CAPTION>
LOAN BOND
TOTAL FUND FUND
ASSETS:
<S> <C> <C> <C>
Receivables:
Employer contributions $ 553,041 $ - $ 7,926
Employee contributions 14,639
Interest 53,867
----------------- ---------------- ----------------
Total receivables 621,547 7,926
----------------- ---------------- ----------------
Investments:
Plan's interest in Master Trust 138,574,423 6,564,519
Interfund borrowings
Guaranteed investment contracts 472,790,551
Loans to participants 10,692,528 10,692,528
TBC Pooled Funds Daily Liquidity 7,304,194
----------------- ---------------- ----------------
Total investments 629,361,696 10,692,528 6,564,519
----------------- ---------------- ----------------
Net assets available for benefits $ 629,983,243 $ 10,692,528 $ 6,572,445
================= ================ ================
<CAPTION>
FIXED COMPANY
INCOME EQUITY STOCK
FUND FUND FUND
ASSETS:
<S> <C> <C> <C>
Receivables:
Employer contributions $ 288,952 $ 88,533 $ 167,630
Employee contributions 14,639
Interest 53,867
----------------- ----------------- ----------------
Total receivables 357,458 88,533 167,630
----------------- ----------------- ----------------
Investments:
Plan's interest in Master Trust 65,003,279 67,006,625
Interfund borrowings 1,108,530 (1,108,530)
Guaranteed investment contracts 472,790,551
Loans to participants
TBC Pooled Funds Daily Liquidity 7,304,194
----------------- ----------------- ----------------
Total investments 481,203,275 63,894,749 67,006,625
----------------- ----------------- ----------------
Net assets available for benefits $ 481,560,733 $ 63,983,282 $ 67,174,255
================= ================= ================
</TABLE>
See accompanying notes to financial statements
<PAGE> 7
KELLOGG COMPANY 4
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
LOAN BOND
TOTAL FUND FUND
<S> <C> <C> <C>
Contributions:
Employer $ 5,934,691 $ - $ 80,574
Employee 15,034,466 223,406
Loans repaid (4,416,624) 83,676
Rollover from other qualified plans 165,297 2,726
----------------- ---------------- ----------------
Total contributions 21,134,454 (4,416,624) 390,382
----------------- ---------------- ----------------
Earnings on Investments:
Plan's interest in income of Master Trust 43,932,668 491,218
Interest income 30,154,510 860,847
Investment services fees (31,204)
Trustee fees (47,299) (446)
----------------- ---------------- ----------------
Total earnings on investments, net 74,008,675 860,847 490,772
----------------- ---------------- ----------------
Net transfers between funds (522,539)
Participant withdrawals (96,850,090) (620,010) (1,020,635)
New loan distributions 2,853,202 (58,340)
Net transfers between Plans (158,642) (20,666) (8,530)
----------------- ---------------- -----------------
Net increase (decrease) (1,865,603) (1,343,251) (728,890)
Net assets available for benefits at
beginning of year 629,983,243 10,692,528 6,572,445
----------------- ---------------- ----------------
Net assets available for benefits at
end of year $ 628,117,640 $ 9,349,277 $ 5,843,555
================= ================ ================
<CAPTION>
FIXED COMPANY
INCOME EQUITY STOCK
FUND FUND FUND
<S> <C> <C> <C>
Contributions:
Employer $ 2,921,957 $ 1,385,918 $ 1,546,242
Employee 8,100,357 4,300,164 2,410,539
Loans repaid 2,464,755 1,063,095 805,098
Rollover from other qualified plans 57,255 44,402 60,914
----------------- ----------------- ----------------
Total contributions 13,544,324 6,793,579 4,822,793
----------------- ----------------- ----------------
Earnings on Investments:
Plan's interest in income of Master Trust 402,596 22,385,085 20,653,769
Interest income 29,293,663
Investment services fees (31,204)
Trustee fees (35,291) (6,307) (5,255)
------------------ ------------------ ----------------
Total earnings on investments, net 29,629,764 22,378,778 20,648,514
----------------- ----------------- ----------------
Net transfers between funds (25,462,667) 33,614,370 (7,629,164)
Participant withdrawals (80,343,553) (8,393,711) (6,472,181)
New loan distributions (1,612,586) (659,620) (522,656)
Net transfers between Plans 78,704 69,218 (277,368)
----------------- ----------------- ----------------
Net increase (decrease) (64,166,014) 53,802,614 10,569,938
Net assets available for benefits at
beginning of year 481,560,733 63,983,282 67,174,255
----------------- ----------------- ----------------
Net assets available for benefits at
end of year $ 417,394,719 $ 117,785,896 $ 77,744,193
================= ================= ================
</TABLE>
See accompanying notes to financial statements
<PAGE> 8
5
KELLOGG COMPANY
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
LOAN BOND
TOTAL FUND FUND
<S> <C> <C> <C>
Contributions:
Employer $ 6,643,589 $ - $ 100,981
Employee 16,411,046 275,076
Loans repaid (5,577,494) 109,771
Rollover from other qualified plans 38,482
----------------- ---------------- ----------------
Total contributions 23,093,117 (5,577,494) 485,828
----------------- ---------------- ----------------
Earnings on Investments:
Plan's interest in income of Master Trust 2,965,475 270,576
Interest income 36,025,322 1,086,360
Investment services fees (70,588) (555)
Trustee fees (15,492)
----------------- ---------------- ----------------
Total earnings on investments, net 38,904,717 1,086,360 270,021
----------------- ---------------- ----------------
Net transfers between funds 1,862,524
Participant withdrawals (112,865,444) (2,653,632) (843,331)
New loan distributions 3,206,091 (85,447)
Net transfers between Plans (2,130)
----------------- ---------------- ----------------
Net increase (decrease) (50,869,740) (3,938,675) 1,689,595
Net assets available for benefits at
beginning of year 680,852,983 14,631,203 4,882,850
----------------- ---------------- ----------------
Net assets available for benefits at
end of year $ 629,983,243 $ 10,692,528 $ 6,572,445
================= ================ ================
<CAPTION>
FIXED COMPANY
INCOME EQUITY STOCK
FUND FUND FUND
<S> <C> <C> <C>
Contributions:
Employer $ 3,723,157 $ 787,452 $ 2,031,999
Employee 10,182,593 2,440,596 3,512,781
Loans repaid 3,376,738 858,091 1,232,894
Rollover from other qualified plans 37,680 802
----------------- ----------------- ----------------
Total contributions 17,320,168 4,086,139 6,778,476
----------------- ----------------- ----------------
Earnings on Investments:
Plan's interest in income of Master Trust (1,587) 10,087,708 (7,391,222)
Interest income 34,938,962
Investment services fees (56,763) (3,558) (9,712)
Trustee fees (15,492)
----------------- ----------------- -----------------
Total earnings on investments, net 34,865,120 10,084,150 (7,400,934)
----------------- ----------------- ----------------
Net transfers between funds (15,714,715) 26,992,837 (13,140,646)
Participant withdrawals (94,475,192) (7,387,039) (7,506,250)
New loan distributions (1,946,254) (439,240) (735,150)
Net transfers between Plans (358) (1,178) (594)
----------------- ------------------ ----------------
Net increase (decrease) (59,951,231) 33,335,669 (22,005,098)
Net assets available for benefits at
beginning of year 541,511,964 30,647,613 89,179,353
----------------- ----------------- ----------------
Net assets available for benefits at
end of year $ 481,560,733 $ 63,983,282 $ 67,174,255
================= ================= ================
</TABLE>
See accompanying notes to financial statements
<PAGE> 9
KELLOGG COMPANY 6
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Kellogg Company American Federation of Grain Millers Savings and
Investment Plan ("the Plan") operates as a qualified defined contribution
plan and was established under Section 401(k) of the Internal Revenue Code.
The accounts of the Plan are maintained on the accrual basis. Expenses of
administration are paid by Kellogg Company.
INVESTMENTS
All investments are reported at current quoted market values except for
guaranteed insurance contracts, which are reported at contract value and
represent contributions made plus interest at the contract rate. The
following investments exceeded five percent of the net assets available for
benefits at October 31, 1997 or 1996:
<TABLE>
<CAPTION>
INTEREST OCTOBER 31,
DESCRIPTION RATE 1997 1996
<S> <C> <C> <C>
Brundage, Story & Rose Managed
Synthetic GIC Fund Variable $ 54,084,310 $ 51,000,246
Putnam Horizon Managed Synthetic
GIC Fund Variable 57,916,613 54,897,596
Allstate Life Ins. GAC #5686A 8.13% 50,073,567 46,308,672
John Hancock GAC #5919-10001 8.82% 28,378,237 71,360,224
John Hancock GAC #7605 7.87% 50,456,501 46,775,286
Metropolitan Life GIC 6.27% 37,049,089 34,863,169
New York Life GAC #3032100 6.72% 43,440,242 40,704,874
Plan's Interest in Master Trust Variable 208,537,576 138,574,423
</TABLE>
ALLOCATION OF NET INVESTMENT INCOME TO PARTICIPANTS
Net investment income related to the respective investment options is
allocated monthly to participant accounts in proportion to their respective
ownership at the beginning of the month.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Plan's management to make
estimates and assumptions that affect the reported amounts of net assets
available for benefits at the date of the financial statements and changes
in net assets available for benefits during the reporting period. Actual
results could differ from those estimates.
<PAGE> 10
KELLOGG COMPANY 7
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
2. PROVISIONS OF THE PLAN
PLAN ADMINISTRATION
The Plan is administered by trustees appointed by Kellogg and employees
represented by the American Federation of Grain Millers.
PLAN PARTICIPATION
Generally, all Kellogg Company hourly employees belonging to American
Federation of Grain Millers Union Local Nos. 3, 50, 211, 252, 374 and 401
are eligible to participate in the Plan.
Subject to limitations prescribed by the Internal Revenue Service,
participants may elect to contribute from 1 percent to 16 percent of their
annual wages. Employee contributions not exceeding 5 percent of wages are
matched by Kellogg Company at an 80 percent rate, with 12.5 percent of the
Company match restricted for investment in the Kellogg Company stock fund.
Employees may contribute to the Plan from their date of hire; however, the
monthly contributions are not matched by the Company until the participant
has completed one year of service.
Participants of the Plan may elect to invest the contributions to their
accounts as well as their account balances in an equity, bond, fixed income
or Kellogg Company stock fund or a combination thereof in multiples of one
percent.
VESTING
Participant account balances are fully vested.
PARTICIPANT LOANS
Participants may borrow from their fund accounts a minimum of $1,000 up to
a maximum equal to the lesser of $50,000 or 50% of their account balance.
Loan transactions are treated as transfers between the Loan fund and the
other funds. Loan terms range from 12 to 60 months. Interest is paid at a
constant rate equal to one percent over the prime rate in the month the
loan begins. Principal and interest are paid ratably through monthly
payroll deductions. Loans that are considered to be uncollectible at year
end result in the outstanding principal being considered a hardship
withdrawal from the participant's plan account.
PARTICIPANT DISTRIBUTIONS
Participants may elect to withdraw all or a portion of their contributions
made after October 31, 1978, plus related net investment income. The
withdrawal of any participant contributions which were not previously
subject to income tax is restricted by Internal Revenue Service
regulations. Under certain circumstances and subject to approval by the
Trustees, participants may request withdrawal of a portion of Company
contributions and their own contributions made prior to November 1, 1978,
including net investment income thereon.
<PAGE> 11
KELLOGG COMPANY 8
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
2. PROVISIONS OF THE PLAN (CONTINUED)
Participants who terminate employment before retirement, by reasons other
than death or disability, may remain in the Plan or receive payment of
their account balances in a lump sum. If the account balance is less than
$3,500 the terminated participant will receive the account balance in a
lump sum.
Participants are eligible to retire from the Company at age 62, upon
reaching 55 with 20 years of service, or after 30 years of service. Upon
retirement, disability, or death, a participant's account balance may be
received in a lump sum or installment payments.
3. INCOME TAX STATUS
The Plan administrator has received a favorable letter from the Internal
Revenue Service regarding the Plan's qualification under applicable income
tax regulations as an entity exempt from federal income taxes.
4. MASTER TRUST
Assets of the Plan have been combined for investment purposes with assets
of the Kellogg Company Salaried Savings and Investment Plan and Kellogg
Company sponsored pension plans in a Master Trust.
The Plan has an undivided interest in the net assets held in the Master
Trust in which interests are determined on the basis of cumulative funds
specifically contributed on behalf of the Plan adjusted for an allocation
of income. Such income allocation is based on the Plan's funds available
for investment during the year.
Master Trust net assets at October 31, 1997 and 1996 and the changes in net
assets for the periods then ended are as follows:
<PAGE> 12
KELLOGG COMPANY 9
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLANS
NOTES TO FINANCIAL STATEMENTS
4. MASTER TRUST (CONTINUED)
KELLOGG COMPANY MASTER TRUST
SCHEDULE OF ASSETS AND LIABILITIES FOR MASTER TRUST INVESTMENT ACCOUNTS
<TABLE>
<CAPTION>
PENSION PLANS SAVINGS & INVESTMENT PLANS
10/31/96 10/31/97 10/31/96 10/31/97
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
CASH/EQUIVALENTS:
Non-Interest Bearing $ 1,316 $ (535,778) $ 431 $ (32,619)
Interest Bearing Cash $ 2,771,776 $ 2,683,385 $ 0 $ 0
------------------------------ -------------------------------
TOTAL CASH/EQUIVALENTS $ 2,773,092 $ 2,147,607 $ 431 $ (32,619)
------------------------------ -------------------------------
RECEIVABLES $ 60,900,475 $ 100,949,571 $ 274,793 $ 11,609,621
------------------------------ -------------------------------
GENERAL INVESTMENTS:
Long Term U.S. Gov't Securities $ 50,267,438 $ 26,106,325 $ 7,389,825 $ 18,251,094
Short Term U.S. Gov't Securities $ 0 $ 0 $ 402,416 $ 133,414
Long Term U.S. Municipal Securities $ 0 $ 0 $ 0 $ 0
Corporate Debt - Long Term $ 14,301,477 $ 39,280,506 $ 7,648,217 $ 7,542,524
Corporate Debt - Short Term $ 0 $ 3,142,545 $ 25,139 $ 100,380
Corporate Stocks - Preferred $ 1,838,037 $ 1,697,910 $ 0 $ 0
Corporate Stocks - Convertible $ 5,419,318 $ 0 $ 0 $ 0
Corporate Stocks - Common $ 477,113,443 $ 568,799,792 $ 252,507,733 $ 380,020,756
Real Estate Pooled Funds $ 17,810,044 $ 0 $ 0 $ 0
Value of Interest in Pooled Funds $ 8,948,629 $ 94,003,448 $ 333,995 $ 14,663,025
Guaranteed Investment Contracts $ 68,035,400 $ 41,790,582 $ 0 $ 0
------------------------------ -------------------------------
TOTAL INVESTMENTS $ 643,733,786 $ 774,821,108 $ 268,307,325 $ 420,711,193
------------------------------ -------------------------------
TOTAL ASSETS $ 707,407,353 $ 877,918,286 $ 268,582,549 $ 432,288,195
------------------------------ -------------------------------
PAYABLES
Unsettled Trades $ (62,117,871) $( 103,169,276) $ 0 $ (14,289,335)
Investment Services Fees $ 0 $ (495,436) $ 0 $ (96,265)
------------------------------ -------------------------------
TOTAL LIABILITIES $ (62,117,871) $ (103,664,712) $ 0 $ (14,385,600)
------------------------------ -------------------------------
NET ASSETS $ 645,289,482 $ 774,253,574 $ 268,582,549 $ 417,902,595
============================== ===============================
Percentage Interest held by the Plan 0.0% 0.0% 51.6% 49.9%
<CAPTION>
TOTAL
10/31/96 10/31/97
---------------------------------
<S> <C> <C>
CASH/EQUIVALENTS:
Non-Interest Bearing $ 1,747 $ (568,397)
Interest Bearing Cash $ 2,771,776 $ 2,683,385
--------------------------------
TOTAL CASH/EQUIVALENTS $ 2,773,523 $ 2,114,988
--------------------------------
RECEIVABLES $ 61,175,268 $ 112,559,192
--------------------------------
GENERAL INVESTMENTS:
Long Term U.S. Gov't Securities $ 57,657,263 $ 44,357,419
Short Term U.S. Gov't Securities $ 402,416 $ 133,414
Long Term U.S. Municipal Securities $ 0 $ 0
Corporate Debt - Long Term $ 21,949,694 $ 46,823,030
Corporate Debt - Short Term $ 25,139 $ 3,242,925
Corporate Stocks - Preferred $ 1,838,037 $ 1,697,910
Corporate Stocks - Convertible $ 5,419,318 $ 0
Corporate Stocks - Common $ 729,621,176 $ 948,820,548
Real Estate Pooled Funds $ 17,810,044 $ 0
Value of Interest in Pooled Funds $ 9,282,624 $ 108,666,473
Guaranteed Investment Contracts $ 68,035,400 $ 41,790,582
--------------------------------
TOTAL INVESTMENTS $ 912,041,111 $1,195,532,301
--------------------------------
TOTAL ASSETS $ 975,989,902 $1,310,206,481
--------------------------------
PAYABLES
Unsettled Trades $ (62,117,871) $ (117,458,611)
Investment Services Fees $ 0 $ (591,701)
--------------------------------
TOTAL LIABILITIES $ (62,117,871) $ (118,050,312)
--------------------------------
NET ASSETS $ 913,872,031 $1,192,156,169
================================
Percentage Interest held by the Plan 15.2% 17.5%
</TABLE>
<PAGE> 13
KELLOGG COMPANY 10
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
4. MASTER TRUST (CONTINUED)
KELLOGG COMPANY MASTER TRUST
SCHEDULE OF INCOME AND EXPENSES, CHANGES IN NET ASSETS
AND NET INCREASE (DECREASE) IN NET ASSETS OF MASTER TRUST INVESTMENT ACCOUNTS
<TABLE>
<CAPTION>
PENSION PLANS SAVINGS & INVESTMENT PLANS
10/31/96 10/31/97 10/31/96 10/31/97
------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
Transfer of Assets Into
Investment Account $ 60,000,541 $ 187,169,786 $ 471,493,020 $ 441,501,150
Earnings on Investments
Interest $ 7,804,578 $ 10,683,275 $ 1,153,223 $ 1,679,043
Dividends $ 2,789,517 $ 4,790,038 $ 2,829,397 $ 2,409,770
Corporate Actions $ 1,597,268 $ 86,594 $ 0 $ 0
Pooled Fund Distributions $ 4,177,043 $ 2,662,638 $ 0 $ 0
Miscellaneous $ 125 $ 2,762 $ 0 $ 0
Net Realized Gain/(Loss) $ 26,178,076 $ 84,030,675 $ 18,018,388 $ 10,375,664
--------------------------------- ---------------------------------
TOTAL ADDITIONS $ 102,547,148 $ 289,425,768 $ 493,494,028 $ 455,965,627
--------------------------------- ---------------------------------
Transfer of Assets Out of
Investment Account $ (38,227,387) $ (197,877,441) $ (437,982,138) $ (378,952,686)
Fees and Commissions $ (1,487,578) $ (1,627,714) $ (58,996) $ (180,330)
--------------------------------- ---------------------------------
TOTAL DISTRIBUTIONS $ (39,714,965) $ (199,505,155) $ (438,041,134) $ (379,133,016)
--------------------------------- ---------------------------------
Change in Unrealized Appreciation $ 25,931,479 $ 39,043,479 $ (8,466,574) $ 72,487,435
--------------------------------- ---------------------------------
NET CHANGE IN ASSETS $ 88,763,662 $ 128,964,092 $ 46,986,320 $ 149,320,046
Net Assets at Beginning of Year $ 556,525,820 $ 645,289,482 $ 221,596,229 $ 268,582,549
--------------------------------- ---------------------------------
Net Assets at End of Year $ 645,289,482 $ 774,253,574 $ 268,582,549 $ 417,902,595
================================= =================================
<CAPTION>
TOTAL
10/31/96 10/31/97
--------------------------------------
<S> <C> <C>
Transfer of Assets Into
Investment Account $ 531,493,561 $ 628,670,936
Earnings on Investments
Interest $ 8,957,801 $ 12,362,318
Dividends $ 5,618,914 $ 7,199,808
Corporate Actions $ 1,597,268 $ 86,594
Pooled Fund Distributions $ 4,177,043 $ 2,662,638
Miscellaneous $ 125 $ 2,762
Net Realized Gain/(Loss) $ 44,196,464 $ 94,406,339
----------------------------------
TOTAL ADDITIONS $ 596,041,176 $ 745,391,395
----------------------------------
Transfer of Assets Out of
Investment Account $ (476,209,525) $ (576,830,127)
Fees and Commissions $ (1,546,574) $ (1,808,044)
----------------------------------
TOTAL DISTRIBUTIONS $ (477,756,099) $ (578,638,171)
----------------------------------
Change in Unrealized Appreciation $ 17,464,905 $ 111,530,914
----------------------------------
NET CHANGE IN ASSETS $ 135,749,982 $ 278,284,138
Net Assets at Beginning of Year $ 778,122,049 $ 913,872,031
----------------------------------
Net Assets at End of Year $ 913,872,031 $1,192,156,169
==================================
</TABLE>
<PAGE> 14
KELLOGG COMPANY 11
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES - OCTOBER 31, 1997
<TABLE>
<CAPTION>
MARKET UNREALIZED
SECURITY DESCRIPTION COST PRICE VALUE GAIN/LOSS
<S> <C> <C> <C> <C>
TBC, Inc. Pooled Employee Funds
Daily Liquidity Fund $ 6,205 1.00 $ 6,205 $ -
Loans to participants 9,349,277 1.00 9,349,277
Brundage Story & Rose Managed
Synthetic GIC Fund Variable Rate 54,084,310 1.00 54,084,310
John Hancock GAC #5919-10001
8.82% 6/1/97 28,378,237 1.00 28,378,237
Putnam Horizon Managed Synthetic
GIC Variable Rate 6/1/99 57,916,613 1.00 57,916,613
Principal Mutual GAC #4-12130-01
5.30% 12/1/98 20,920,719 1.00 20,920,719
Peoples Security Ins #BDA00378FR
5.15% 12/1/97 7,437,358 1.00 7,437,358
Allstate Life Ins. GAC #5686A
8.13% 12/1/98 50,073,567 1.00 50,073,567
Commonwealth Life #ADA00687FR
7.64% 6/1/98 21,427,449 1.00 21,427,449
John Hancock GAC #7605
7.87% 12/1/98 50,456,501 1.00 50,456,501
Commonwealth Life GIC
6.19% 6/1/98 9,802,815 1.00 9,802,815
Metropolitan Life GIC
6.27% 6/1/99 37,049,089 1.00 37,049,089
New York Life GIC
6.20% 6/1/98 11,287,375 1.00 11,287,375
New York Life GAC # 30321002
6.72% 6/1/00 43,440,242 1.00 43,440,242
Security Life of Denver #FA434
6.54% 12/1/01 19,593,518 1.00 19,593,518
----------------- -----------------
$ 421,223,276 $ 421,223,276 $ -
================= ================= =====
</TABLE>
<PAGE> 15
KELLOGG COMPANY 12
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
DURING REPORTING
ORIGINAL YEAR UNPAID
IDENTITY AND ADDRESS AMOUNT --------------------- BALANCE AT
OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END
<S> <C> <C> <C> <C>
Larry J. Thomas $ 1,000 $ 384 $ 33 $ 616
1431 W. Southern Ave.
South Williamsport, PA 17701
George F. Neuhauser 22,000 2,899 847 11,431
332 Pearl St.
Lancaster, PA 17603
Kendall E. Allen 38,000 4,206 1,542 22,482
18753 River Rd.
Three Rivers, MI 49093
Diane J. Hazen 12,000 - - 7,090
296 Perrett
Marshall, MI 49068
Frederick J. Moore, Jr. 12,000 2,480 182 1,874
81 Brown Drive
Battle Creek, MI 49017
Eugene R Weeks, Jr. 10,000 - - 7,704
7435 1 1/2 Mile Rd.
East Leroy, MI 49051
<CAPTION>
TERMS AMOUNT OVERDUE
IDENTITY AND ADDRESS ----------------------------------------- --------------------
OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST
<S> <C> <C> <C> <C> <C>
Larry J. Thomas 03/31/97 9.3% 03/31/98 $ 616 $ -
1431 W. Southern Ave.
South Williamsport, PA 17701
George F. Neuhauser 09/30/94 8.8% 09/30/99 11,431 250
332 Pearl St.
Lancaster, PA 17603
Kendall E. Allen 12/31/94 9.5% 12/31/99 22,482 712
18753 River Rd.
Three Rivers, MI 49093
Diane J. Hazen 10/31/94 8.8% 10/31/98 7,090 103
296 Perrett
Marshall, MI 49068
Frederick J. Moore, Jr. 09/30/94 8.8% 09/30/97 1,874 27
81 Brown Drive
Battle Creek, MI 49017
Eugene R Weeks, Jr. 09/30/94 8.8% 09/30/99 7,704 618
7435 1 1/2 Mile Rd.
East Leroy, MI 49051
</TABLE>
<PAGE> 16
KELLOGG COMPANY 13
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
DURING REPORTING
ORIGINAL YEAR UNPAID
IDENTITY AND ADDRESS AMOUNT ---------------------- BALANCE AT
OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END
<S> <C> <C> <C> <C>
William E. Shrubb, Jr. $ 7,000 $ - $ - $ 6,683
3947 Kistler Rd
Battle Creek, MI 49017
Kenneth J. Miles 5,000 - - 3,374
3649 Devine Rd.
Nashville, MI 49073
Dana L. Gibson 4,997 - - 3,291
1200 Arms, #49
Marshall, MI 49068
Shirley M. Drake 4,500 - - 2,090
575 Old Highway Road
Sparta, TN 38583
Joseph A. Markovich 25,000 2,902 1,167 15,039
7961 Poorman Rd.
Battle Creek, MI 49017
Peggy A. Erskine 2,200 - - 1,645
750 E. Michigan Ave., Apt. 8
Battle Creek, MI 49017
<CAPTION>
TERMS AMOUNT OVERDUE
IDENTITY AND ADDRESS -------------------------------------------- --------------------
OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST
<S> <C> <C> <C> <C> <C>
William E. Shrubb, Jr. 10/31/94 8.8% 10/31/99 $ 6,683 $ 536
3947 Kistler Rd
Battle Creek, MI 49017
Kenneth J. Miles 08/31/94 8.3% 08/31/99 3,374 139
3649 Devine Rd.
Nashville, MI 49073
Dana L. Gibson 08/31/94 8.3% 08/31/99 3,291 249
1200 Arms, #49
Marshall, MI 49068
Shirley M. Drake 11/30/94 8.7% 11/30/97 2,090 168
575 Old Highway Road
Sparta, TN 38583
Joseph A. Markovich 01/31/95 9.5% 01/31/00 15,039 238
7961 Poorman Rd.
Battle Creek, MI 49017
Peggy A. Erskine 01/31/95 9.5% 01/31/00 1,645 130
750 E. Michigan Ave., Apt. 8
Battle Creek, MI 49017
</TABLE>
<PAGE> 17
KELLOGG COMPANY 14
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
DURING REPORTING
ORIGINAL YEAR UNPAID
IDENTITY AND ADDRESS AMOUNT ----------------------- BALANCE AT
OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END
<S> <C> <C> <C> <C>
Paul L. Sharp $ 5,283 $ - $ - $ 3,534
70 Ardmoor
Battle Creek, MI 49017
Rhonda G. Chester 13,000 498 165 7,726
60 Sunnyside Dr.
Battle Creek, MI 49015
Elbert J. Thurman 8,000 126 42 6,759
1163 Little Clear Lake
Battle Creek, MI 49017
David E. Johns 6,000 4,484 36 36
4822 Brookfield
Charlotte, MI 48813
Genevia D. Snyder 20,000 - - 17,092
236 Walker Dr.
Battle Creek, MI 49017
Dennis L. Ferris 5,000 - - 3,543
2554 Old US 27
Tekonsha, MI 49092
<CAPTION>
TERMS AMOUNT OVERDUE
IDENTITY AND ADDRESS ----------------------------------------- --------------------
OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST
<S> <C> <C> <C> <C> <C>
Paul L. Sharp 08/31/94 8.3% 08/31/98 $ 3,534 $ 122
70 Ardmoor
Battle Creek, MI 49017
Rhonda G. Chester 08/31/94 8.3% 08/31/99 7,726 159
60 Sunnyside Dr.
Battle Creek, MI 49015
Elbert J. Thurman 02/28/95 9.5% 02/29/00 6,759 321
1163 Little Clear Lake
Battle Creek, MI 49017
David E. Johns 02/28/95 9.5% 02/29/00 36 3
4822 Brookfield
Charlotte, MI 48813
Genevia D. Snyder 09/30/94 8.8% 09/30/99 17,092 249
236 Walker Dr.
Battle Creek, MI 49017
Dennis L. Ferris 11/30/94 8.8% 11/30/99 3,543 284
2554 Old US 27
Tekonsha, MI 49092
</TABLE>
<PAGE> 18
KELLOGG COMPANY 15
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
DURING REPORTING
ORIGINAL YEAR UNPAID
IDENTITY AND ADDRESS AMOUNT ---------------------- BALANCE AT
OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END
<S> <C> <C> <C> <C>
Serafina F. Lincoln $ 27,982 $ - $ - $ 22,026
11726 Battle Creek Highway
Bellevue, MI 49021
Phillip M. Smith 37,000 - - 24,580
9869 2 1/2 Mile Rd.
East Leroy, MI 49051
Sally J. Everett 4,000 - - 2,614
140 Parkridge Drive
Battle Creek, MI 49017
Ronald C. Locke 6,000 195 83 3,713
4705 E. Lone Cactus Drive
Phoenix, AZ 85024
Stephen Sharp 18,000 - - 12,848
6591 Oak Grove Road
Burlington, MI 49029
Donald D. Richmond, Jr. 11,000 - - 7,509
2 NW 12th St.
Delray Beach, FL 33444
<CAPTION>
TERMS AMOUNT OVERDUE
IDENTITY AND ADDRESS ----------------------------------------- --------------------
OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST
<S> <C> <C> <C> <C> <C>
Serafina F. Lincoln 08/31/94 8.3% 08/31/99 $ 22,026 $ 1,060
11726 Battle Creek Highway
Bellevue, MI 49021
Phillip M. Smith 08/31/94 8.3% 08/31/99 24,580 1,690
9869 2 1/2 Mile Rd.
East Leroy, MI 49051
Sally J. Everett 08/31/94 8.3% 08/31/99 2,614 198
140 Parkridge Drive
Battle Creek, MI 49017
Ronald C. Locke 09/30/94 8.8% 09/30/99 3,713 217
4705 E. Lone Cactus Drive
Phoenix, AZ 85024
Stephen Sharp 11/30/94 8.8% 11/30/99 12,848 937
6591 Oak Grove Road
Burlington, MI 49029
Donald D. Richmond, Jr. 09/30/94 8.8% 09/30/99 7,509 603
2 NW 12th St.
Delray Beach, FL 33444
</TABLE>
<PAGE> 19
KELLOGG COMPANY 16
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
DURING REPORTING
ORIGINAL YEAR UNPAID
IDENTITY AND ADDRESS AMOUNT --------------------- BALANCE AT
OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END
<S> <C> <C> <C> <C>
David L. Whelan $ 12,000 $3,797 $ 166 $ 283
3241 Capital Ave., SW, #16B
Battle Creek, MI 49015
Arthur L. Moore 4,000 - - 2,247
P.O. Box 161195
Memphis, TN 38186
Leon E. Hunter 14,141 - - 11,516
3377 Sara Woods Dr.
Memphis, TN 38133
Tommy W. Poston 1,000 - - 12
15605 N. Circle
Omaha, NE 68135
Bobby L. Newson 2,000 - - 648
4987 Boeingshire Dr.
Memphis, TN 38116
Virgie L. Yancey 30,000 - - 19,608
4072 Cecil
Memphis, TN 38116
<CAPTION>
TERMS AMOUNT OVERDUE
IDENTITY AND ADDRESS ------------------------------------------ --------------------
OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST
<S> <C> <C> <C> <C> <C>
David L. Whelan 08/31/94 8.3% 08/31/97 $ 283 $ 2
3241 Capital Ave., SW, #16B
Battle Creek, MI 49015
Arthur L. Moore 08/31/94 8.3% 08/31/98 2,247 77
P.O. Box 161195
Memphis, TN 38186
Leon E. Hunter 06/30/95 10.0% 06/30/00 11,516 960
3377 Sara Woods Dr.
Memphis, TN 38133
Tommy W. Poston 05/31/96 9.8% 05/31/98 12 -
15605 N. Circle
Omaha, NE 68135
Bobby L. Newson 03/31/95 10.0% 03/31/97 648 49
4987 Boeingshire Dr.
Memphis, TN 38116
Virgie L. Yancey 08/31/94 8.3% 08/31/99 19,608 1,483
4072 Cecil
Memphis, TN 38116
</TABLE>
<PAGE> 20
KELLOGG COMPANY 17
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
DURING REPORTING
ORIGINAL YEAR UNPAID
IDENTITY AND ADDRESS AMOUNT --------------------- BALANCE AT
OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END
<S> <C> <C> <C> <C>
Charles R. Boydstun, Jr. $ 3,500 $ - $ - $ 1,706
3038 Gainsborough Cv.
Memphis, TN 38133
Terry A. Maxwell 5,472 - - 3,577
145 Bloomington Dr.
Brighton, TN 38011
Tyrone Redden 5,500 - - 4,238
3003 Atmore
Memphis, TN 38118
David W. Yancey 17,000 - - 14,797
3268 Foxgate Dr.
Memphis, TN 38115
Dorothy J. Weeks 23,000 2,423 807 12,243
7314 Isherwood
Memphis, TN 38125
Reuben Rhodes 3,798 - - 1,686
1556 Crider
Memphis, TN 38111
<CAPTION>
TERMS AMOUNT OVERDUE
IDENTITY AND ADDRESS ------------------------------------------ --------------------
OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST
<S> <C> <C> <C> <C> <C>
Charles R. Boydstun, Jr. 12/31/94 9.5% 12/31/97 $ 1,706 $ 149
3038 Gainsborough Cv.
Memphis, TN 38133
Terry A. Maxwell 08/31/94 8.3% 08/31/99 3,577 222
145 Bloomington Dr.
Brighton, TN 38011
Tyrone Redden 03/31/95 10.0% 03/31/00 4,238 353
3003 Atmore
Memphis, TN 38118
David W. Yancey 10/31/95 9.8% 10/31/00 14,797 1,323
3268 Foxgate Dr.
Memphis, TN 38115
Dorothy J. Weeks 08/31/94 8.3% 08/31/99 12,243 84
7314 Isherwood
Memphis, TN 38125
Reuben Rhodes 09/30/94 8.8% 09/30/97 1,686 111
1556 Crider
Memphis, TN 38111
</TABLE>
<PAGE> 21
KELLOGG COMPANY 18
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
DURING REPORTING
ORIGINAL YEAR UNPAID
IDENTITY AND ADDRESS AMOUNT --------------------- BALANCE AT
OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END
<S> <C> <C> <C> <C>
James T. Hutcherson $ 30,000 $ 5,542 $ 1,342 $ 13,435
818 Needham Road
Drummond, TN 38023
Isaac L.J. Bradley 12,419 - - 10,458
3229 Ancroft Cv.
Memphis, TN 38128
Kerry R. Rhoades 4,400 - - 2,958
2926 Laverne Dr.
Nesbit, MS 38651
Barry W. Shearon 19,250 - - 12,680
P.O. Box #10
Ellendale, TN 38029
Kimberly Hodge 4,400 - - 2,408
4488 Berkley Woods Dr.
Memphis, TN 38125
Juanita R. Ruffin 8,400 344 123 5,391
4283 Mt. Hood, Apt. 1
Memphis, TN 38118
Rebecca A. Williams 3,000 - - 2,062
4021 Los Padres
Nesbit, MS 38651
<CAPTION>
TERMS AMOUNT OVERDUE
IDENTITY AND ADDRESS ------------------------------------------ --------------------
OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST
<S> <C> <C> <C> <C> <C>
James T. Hutcherson 08/31/94 8.3% 08/31/99 $ 13,435 $ -
818 Needham Road
Drummond, TN 38023
Isaac L.J. Bradley 08/31/95 9.8% 08/31/00 10,458 935
3229 Ancroft Cv.
Memphis, TN 38128
Kerry R. Rhoades 09/30/94 8.8% 09/30/99 2,958 237
2926 Laverne Dr.
Nesbit, MS 38651
Barry W. Shearon 08/31/94 8.3% 08/31/99 12,680 959
P.O. Box #10
Ellendale, TN 38029
Kimberly Hodge 08/31/94 8.3% 08/31/98 2,408 166
4488 Berkley Woods Dr.
Memphis, TN 38125
Juanita R. Ruffin 11/30/94 8.8% 11/30/99 5,391 39
4283 Mt. Hood, Apt. 1
Memphis, TN 38118
Rebecca A. Williams 01/31/95 9.5% 01/31/98 2,062 82
4021 Los Padres
Nesbit, MS 38651
</TABLE>
<PAGE> 22
KELLOGG COMPANY 19
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
DURING REPORTING
ORIGINAL YEAR UNPAID
IDENTITY AND ADDRESS AMOUNT --------------------- BALANCE AT
OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END
<S> <C> <C> <C> <C>
L. J. Payne $ 11,700 $ - $ - $ 7,514
4901 Shayne Lane
Memphis, TN 38109
Issac Taylor 50,000 - - 46,917
537 Whiteville
Memphis, TN 38109
Leodies Moore 30,000 - - 19,761
262 W. Goguac Street
Battle Creek, MI 49015
Vernell G. Cribbs 38,000 3,970 1,068 20,067
150 Northside Dr., E
Battle Creek, MI 49017
Julia M. Carston 6,704 - - 5,448
6209 Wilson Circle
Omaha, NE 68107
Richard T. Hughes 23,000 - - 18,446
35458 Farnhum Dr.
Newark, CA 94560
Jesse G. Gonzalez 12,000 - - 9,624
27848 Ormond St.
Hayward, CA 94544
<CAPTION>
TERMS AMOUNT OVERDUE
IDENTITY AND ADDRESS ------------------------------------------ --------------------
OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST
<S> <C> <C> <C> <C> <C>
L. J. Payne 08/31/94 8.3% 08/31/99 $ 7,514 $ 258
4901 Shayne Lane
Memphis, TN 38109
Issac Taylor 03/31/96 9.3% 03/31/01 46,917 3,617
537 Whiteville
Memphis, TN 38109
Leodies Moore 08/31/94 8.3% 08/31/99 19,761 1,495
262 W. Goguac Street
Battle Creek, MI 49015
Vernell G. Cribbs 08/31/94 8.3% 08/31/99 20,067 690
150 Northside Dr., E
Battle Creek, MI 49017
Julia M. Carston 08/31/94 8.3% 08/31/99 5,448 262
6209 Wilson Circle
Omaha, NE 68107
Richard T. Hughes 08/31/94 8.3% 08/31/99 18,446 1,395
35458 Farnhum Dr.
Newark, CA 94560
Jesse G. Gonzalez 08/31/94 8.3% 08/31/99 9,624 728
27848 Ormond St.
Hayward, CA 94544
</TABLE>
<PAGE> 23
KELLOGG COMPANY 20
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
DURING REPORTING
ORIGINAL YEAR UNPAID
IDENTITY AND ADDRESS AMOUNT --------------------- BALANCE AT
OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END
<S> <C> <C> <C> <C>
Teresa M. Soria $ 5,000 $ - $ - $ 4,310
852 Kipling Street
South San Francisco, CA 94080
Rafael G. Alejandre 21,000 - - 16,842
853 Billings Blvd.
San Leandro, CA 94577
<CAPTION>
TERMS AMOUNT OVERDUE
IDENTITY AND ADDRESS ------------------------------------------ --------------------
OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST
<S> <C> <C> <C> <C> <C>
Teresa M. Soria 10/31/94 8.8% 10/31/99 $ 4,310 $ 346
852 Kipling Street
South San Francisco, CA 94080
Rafael G. Alejandre 08/31/94 8.3% 08/31/99 16,842 1,274
853 Billings Blvd.
San Leandro, CA 94577
</TABLE>
<PAGE> 24
KELLOGG COMPANY 21
AMERICAN FEDERATION OF GRAIN MILLERS
SAVINGS AND INVESTMENT PLAN
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS - YEAR ENDED OCTOBER 31, 1997 (1)
<TABLE>
<CAPTION>
CURRENT VALUE AT TRANSACTION DATE
---------------------------------------- COST OF NET
NET NET SECURITIES REALIZED
IDENTITY OF ISSUE PURCHASE PRICE SALES PRICE SOLD GAIN
<S> <C> <C> <C> <C>
John Hancock GAC 5919-10001
8.30% 6/1/97 $ 2,710,187 $ 45,692,174 $ 45,692,174 $ -
TBC Inc. Pooled Employee Funds -
Daily Liquidity Fund 99,331,443 116,409,532 116,409,532
</TABLE>
(1)Represents Plan's interest in a transaction (or a series of transactions of
the same issue) in excess of five percent of the Plan's assets available
at November 1, 1996.
<PAGE> 1
EXHIBIT 99.02
FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT
PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED OCTOBER 31, 1997
COMMISSION FILE NUMBER 1-4171
KELLOGG COMPANY SALARIED
SAVINGS AND INVESTMENT PLAN
(Full Title of the Plan)
- - - - - - - - - - - - - - - - - -
KELLOGG COMPANY
(Name of Issuer)
ONE KELLOGG SQUARE
BATTLE CREEK, MICHIGAN 49016-3599
(Principal Executive Office)
<PAGE> 2
KELLOGG COMPANY SALARIED
SAVINGS AND INVESTMENT PLAN
FINANCIAL STATEMENTS
AND ADDITIONAL INFORMATION
OCTOBER 31, 1997
<PAGE> 3
KELLOGG COMPANY SALARIED
SAVINGS AND INVESTMENT PLAN
INDEX TO FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
PAGE
REPORT OF INDEPENDENT ACCOUNTANTS 1
FINANCIAL STATEMENTS AS OF OCTOBER 31, 1997
AND 1996 AND FOR THE YEARS THEN ENDED:
Statement of net assets available for benefits, with fund information 2-3
Statement of changes in net assets available for benefits, with
fund information 4-5
Notes to financial statements 6-10
ADDITIONAL INFORMATION:
Item 27a - Schedule of assets held for investment
purposes - October 31, 1997 11
Item 27b - Schedule of loans or fixed income obligations -
October 31, 1997 12-17
Item 27d - Schedule of reportable transactions -
year ended October 31, 1997 18
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the ERISA Finance Committee
and Participants of the Kellogg Company
Salaried Savings and Investment Plan
In our opinion, the accompanying statements of net assets available for
benefits and the related statements of changes in net assets available for
benefits present fairly, in all material respects, the net assets available for
benefits of the Kellogg Company Salaried Savings and Investment Plan at October
31, 1997 and 1996, and the changes in net assets available for benefits for the
years then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the plan's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information included on
pages 11-18 is presented for purposes of additional analysis and is not a
required part of the basic financial statements but is additional information
required by ERISA. The fund information in the statements of net assets
available for benefits and the statements of changes in net assets available
for benefits is presented for purposes of additional analysis rather than to
present the net assets available for benefits and changes in net assets
available for benefits of each fund. The additional information and the fund
information have been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
PRICE WATERHOUSE LLP
Battle Creek, Michigan
March 16, 1998
<PAGE> 5
KELLOGG COMPANY SALARIED 2
SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
OCTOBER 31, 1997
<TABLE>
<CAPTION>
FIXED COMPANY
LOAN BOND INCOME EQUITY STOCK
TOTAL FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Receivables:
Employer contributions $ 427,924 $ - $ 15,699 $ 101,037 $ 200,915 $ 110,273
Employee contributions 266,297 266,297
Interest 4,242 4,242
------------ ---------- ----------- ------------ ------------ -----------
Total receivables 698,463 15,699 371,576 200,915 110,273
------------ ---------- ----------- ------------ ------------ -----------
Investments:
Plan's interest in Master Trust 209,461,284 10,510,300 13,236,293 134,577,719 51,136,972
Guaranteed investment contracts 234,272,998 234,272,998
Loans to participants 4,696,214 4,696,214
TBC Pooled Funds Daily Liquidity 20,922 20,922
------------ ---------- ----------- ------------ ------------ -----------
Total investments 448,451,418 4,696,214 10,510,300 247,530,213 134,577,719 51,136,972
------------ ---------- ----------- ------------ ------------ -----------
Total assets 449,149,881 4,696,214 10,525,999 247,901,789 134,778,634 51,247,245
LIABILITIES:
Investment services fees payable 55,869 1,573 22,216 30,553 1,527
------------ ---------- ----------- ------------ ------------ -----------
Net assets available for benefits $449,094,012 $4,696,214 $10,524,426 $247,879,573 $134,748,081 $51,245,718
============ ========== =========== ============ ============ ===========
</TABLE>
See accompanying notes to financial statements
<PAGE> 6
KELLOGG COMPANY SALARIED 3
SAVINGS AND INVESTMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
OCTOBER 31, 1996
<TABLE>
<CAPTION>
FIXED COMPANY
LOAN BOND INCOME EQUITY STOCK
TOTAL FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Receivables:
Employer contributions $ 372,162 $ - $ 14,708 $ 120,899 $ 125,311 $ 111,244
Employee contributions 3,296 3,296
Interest 19,702 19,702
------------ ---------- ---------- ------------ ----------- -----------
Total receivables 395,160 14,708 143,897 125,311 111,244
------------ ---------- ---------- ------------ ----------- -----------
Investments:
Plan's interest in Master Trust 130,008,126 9,333,237 84,379,931 36,294,958
Interfund borrowings (16,615) 16,615
Guaranteed investment contracts 262,368,944 262,368,944
Loans to participants 4,650,237 4,650,237
TBC Pooled Funds Daily Liquidity 5,386,548 5,386,548
------------ ---------- ---------- ------------ ----------- -----------
Total investments 402,413,855 4,650,237 9,333,237 267,738,877 84,396,546 36,294,958
------------ ---------- ---------- ------------ ----------- -----------
Net assets available for benefits $402,809,015 $4,650,237 $9,347,945 $267,882,774 $84,521,857 $36,406,202
============ ========== ========== ============ =========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE> 7
KELLOGG COMPANY SALARIED 4
SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
FIXED COMPANY
LOAN BOND INCOME EQUITY STOCK
TOTAL FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
Contributions:
Employer $ 5,720,190 $ - $ 227,627 $ 1,704,900 $ 2,305,661 $ 1,482,002
Employee 13,930,880 612,257 4,537,488 6,567,524 2,213,611
Loans repaid (2,504,968) 72,536 976,226 981,527 474,679
Rollover from other qualified plans 3,258,456 132,940 231,832 512,818 1,693,361 687,505
------------ ----------- ----------- ------------ ------------ -----------
Total contributions 22,909,526 (2,372,028) 1,144,252 7,731,432 11,548,073 4,857,797
------------ ----------- ----------- ------------ ------------ -----------
Earnings on Investments:
Plan's interest in income of Master Trust 42,838,918 846,887 877,745 28,602,004 12,512,282
Interest income 16,935,316 406,769 16,528,547
Trustee fees (16,540) (380) (10,980) (3,575) (1,605)
Administrative fees (210,509) (4,370) (142,590) (45,761) (17,788)
------------ ----------- ----------- ------------ ------------ -----------
Total earnings on investments, net 59,547,185 406,769 842,137 17,252,722 28,552,668 12,492,889
------------ ----------- ----------- ------------ ------------ -----------
Net transfers between funds 164,008 (15,749,040) 15,499,371 85,661
Participant withdrawals (36,330,356) (189,123) (886,131) (28,472,787) (4,524,626) (2,257,689)
New loans distributions 2,179,693 (89,823) (880,617) (839,830) (369,423)
Net transfers between Plans 158,642 20,666 2,038 115,089 (9,432) 30,281
------------ ----------- ----------- ------------ ------------ -----------
Net increase (decrease) 46,284,997 45,977 1,176,481 (20,003,201) 50,226,224 14,839,516
Net assets available for benefits at
beginning of year 402,809,015 4,650,237 9,347,945 267,882,774 84,521,857 36,406,202
------------ ----------- ----------- ------------ ------------ -----------
Net assets available for benefits at
end of year $449,094,012 $ 4,696,214 $10,524,426 $247,879,573 $134,748,081 $51,245,718
============ =========== =========== ============ ============ ===========
</TABLE>
See accompanying notes to financial statements
<PAGE> 8
KELLOGG COMPANY SALARIED 5
SAVINGS AND INVESTMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
FIXED COMPANY
LOAN BOND INCOME EQUITY STOCK
TOTAL FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
Contributions:
Employer $ 5,359,464 $ - $ 211,000 $ 1,927,927 $ 1,474,352 $ 1,746,185
Employee 12,956,687 611,442 5,179,614 4,261,610 2,904,021
Loans repaid (2,086,990) 66,617 899,071 585,481 535,821
Rollover from other qualified plans 392,994 45,796 33,086 205,038 109,074
------------ ----------- ---------- ------------ ----------- -----------
Total contributions 18,709,145 (2,086,990) 934,855 8,039,698 6,526,481 5,295,101
------------ ----------- ---------- ------------ ----------- -----------
Earnings on Investments:
Plan's interest in income of Master Trust 10,509,961 421,398 1,261 14,388,278 (4,300,976)
Interest income 19,313,397 422,481 18,890,916
Trustee fees (38,253) (737) (27,760) (4,888) (4,868)
Administrative fees (252,891) (5,080) (183,020) (37,200) (27,591)
------------ ----------- ---------- ------------ ----------- -----------
Total earnings on investments, net 29,532,214 422,481 415,581 18,681,397 14,346,190 (4,333,435)
------------ ----------- ---------- ------------ ----------- -----------
Net transfers between funds 1,645,007 (16,245,305) 18,920,456 (4,320,158)
Participant withdrawals (37,781,580) (312,680) (563,265) (29,844,720) (3,831,863) (3,229,052)
New loans distributions 1,685,686 (47,886) (858,857) (369,807) (409,136)
Net transfers between Plans 2,130 358 1,178 594
------------ ----------- ---------- ------------ ----------- -----------
Net increase (decrease) 10,461,909 (291,503) 2,384,292 (20,227,429) 35,592,635 (6,996,086)
Net assets available for benefits at
beginning of year 392,347,106 4,941,740 6,963,653 288,110,203 48,929,222 43,402,288
------------ ----------- ---------- ------------ ----------- -----------
Net assets available for benefits at
end of year $402,809,015 $ 4,650,237 $9,347,945 $267,882,774 $84,521,857 $36,406,202
============ =========== ========== ============ =========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE> 9
KELLOGG COMPANY SALARIED 6
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Kellogg Company Salaried Savings and Investment Plan ("the Plan")
operates as a qualified defined contribution plan and was established under
Section 401(k) of the Internal Revenue Code. The accounts of the Plan are
maintained on the accrual basis. Expenses of administration are paid by the
Plan.
INVESTMENTS
All investments are reported at current quoted market values except for
guaranteed insurance contracts, which are reported at contract value and
represent contributions made plus interest at the contract rate. The
following investments exceeded five percent of the net assets available for
benefits at October 31, 1997 or 1996:
<TABLE>
<CAPTION>
INTEREST OCTOBER 31,
DESCRIPTION RATE 1997 1996
<S> <C> <C> <C>
Putnam Horizon Managed Synthetic
GIC Fund Variable $ 31,701,110 $ 30,048,621
Brundage Story & Rose Managed
Synthetic GIC Fund Variable 32,009,730 30,184,431
John Hancock GAC #5917-10001 8.82% 16,173,608 40,670,332
Allstate Life Ins. GAC #5686-01 8.13% 28,210,134 26,089,091
John Hancock GAC #7606 7.87% 27,302,372 25,310,440
New York Life GAC #30320002 6.72% 32,347,720 30,310,832
Plan's interest in Master Trust Variable 209,461,284 130,008,126
</TABLE>
ALLOCATION OF NET INVESTMENT INCOME TO PARTICIPANTS
Net investment income related to the respective investment options is
allocated monthly to participant accounts in proportion to their respective
ownership at the beginning of the month.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Plan's management to make
estimates and assumptions that affect the reported amounts of net assets
available for benefits at the date of the financial statements and changes
in net assets available for benefits during the reporting period. Actual
results could differ from those estimates.
2. PROVISIONS OF THE PLAN
PLAN ADMINISTRATION
The Plan is administered by the ERISA Administrative Committee appointed by
Kellogg Company.
<PAGE> 10
KELLOGG COMPANY SALARIED 7
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
2. PROVISIONS OF THE PLAN (CONTINUED)
PLAN PARTICIPATION
Generally, all salaried employees of Kellogg Company and its U.S.
subsidiaries are eligible to participate in the Plan.
Subject to limitations prescribed by the Internal Revenue Service,
participants may elect to contribute from 1 percent to 16 percent of their
annual wages. Employee contributions not exceeding 5 percent of wages are
matched by Kellogg Company at an 80 percent rate, with 12.5 percent of the
Company match restricted for investment in the Kellogg Company stock fund.
Employees may contribute to the Plan from their date of hire; however, the
monthly contributions are not matched by the Company until the participant
has completed one year of service.
Participants of the Plan may elect to invest the contributions to their
accounts as well as their account balances in an equity, bond, fixed income
or Kellogg Company stock fund or a combination thereof in multiples of one
percent.
VESTING
Participant account balances are fully vested.
PARTICIPANT LOANS
Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum equal to the lesser of $50,000 or 50% of their account balance.
Loan transactions are treated as transfers between the Loan fund and the
other funds. Loan terms range from 12 to 60 months. Interest is paid at a
constant rate equal to one percent over the prime rate in the month the loan
begins. Principal and interest are paid ratably through monthly payroll
deductions. Loans that are considered to be uncollectible at year end
result in the outstanding principal being considered a hardship withdrawal
from the participant's plan account.
PARTICIPANT DISTRIBUTIONS
Participants may elect to withdraw all or a portion of their contributions
made after October 31, 1978, plus related net investment income. The
withdrawal of any participant contributions which were not previously
subject to income tax is restricted by Internal Revenue Service regulations.
Under certain circumstances and subject to approval by the Trustees,
participants may request withdrawal of a portion of Company contributions
and their own contributions made prior to November 1, 1978, including net
investment income thereon.
Participants who terminate employment before retirement, by reasons other
than death or disability, may remain in the Plan or receive payment of their
account balances in a lump sum. If the account balance is less than $3,500
the terminated participant will receive the account balance in a lump sum.
Participants are eligible to retire from the Company at age 62, upon
reaching 55 with 20 years of service, or after 30 years of service. Upon
retirement, disability, or death, a participant's account balance may be
received in a lump sum or installment payments.
<PAGE> 11
KELLOGG COMPANY SALARIED 8
SAVINGS AND INVESTMENT PLAN
3. INCOME TAX STATUS
The Plan administrator has received a favorable letter from the Internal
Revenue Service regarding the Plan's qualification under applicable income
tax regulations as an entity exempt from federal income taxes.
4. MASTER TRUST
Assets of the Plan have been combined for investment purposes with assets of
the Kellogg Company American Federation of Grain Millers Savings and
Investment Plan and Kellogg Company sponsored pension plans in a Master
Trust.
The Plan has an undivided interest in the net assets held in the Master
Trust in which interests are determined on the basis of cumulative funds
specifically contributed on behalf of the Plan adjusted for an allocation of
income. Such income allocation is based on the Plan's funds available for
investment during the year.
Master Trust net assets at October 31, 1997 and 1996 and the changes in net
assets for the periods then ended are as follows:
<PAGE> 12
KELLOGG COMPANY SALARIED 9
SAVINGS AND INVESTMENT PLANS
NOTES TO FINANCIAL STATEMENTS
4. MASTER TRUST (CONTINUED)
KELLOGG COMPANY MASTER TRUST
SCHEDULE OF ASSETS AND LIABILITIES FOR MASTER TRUST INVESTMENT ACCOUNTS
<TABLE>
<CAPTION>
PENSION PLANS SAVINGS & INVESTMENT PLANS TOTAL
10/31/96 10/31/97 10/31/96 10/31/97 10/31/96 10/31/97
---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH/EQUIVALENTS:
Non-Interest Bearing $1,316 ($535,778) $431 ($32,619) $1,747 ($568,397)
Interest Bearing Cash $2,771,776 $2,683,385 $0 $0 $2,771,776 $2,683,385
---------------------------- --------------------------- ----------------------------
TOTAL CASH/EQUIVALENTS $2,773,092 $2,147,607 $431 ($32,619) $2,773,523 $2,114,988
---------------------------- --------------------------- ----------------------------
RECEIVABLES $60,900,475 $100,949,571 $274,793 $11,609,621 $61,175,268 $112,559,192
---------------------------- --------------------------- ----------------------------
GENERAL INVESTMENTS:
Long Term U.S. Gov't Securities $50,267,438 $26,106,325 $7,389,825 $18,251,094 $57,657,263 $44,357,419
Short Term U.S. Gov't Securities $0 $0 $402,416 $133,414 $402,416 $133,414
Long Term U.S. Municipal Securities $0 $0 $0 $0 $0 $0
Corporate Debt - Long Term $14,301,477 $39,280,506 $7,648,217 $7,542,524 $21,949,694 $46,823,030
Corporate Debt - Short Term $0 $3,142,545 $25,139 $100,380 $25,139 $3,242,925
Corporate Stocks - Preferred $1,838,037 $1,697,910 $0 $0 $1,838,037 $1,697,910
Corporate Stocks - Convertible $5,419,318 $0 $0 $0 $5,419,318 $0
Corporate Stocks - Common $477,113,443 $568,799,792 $252,507,733 $380,020,756 $729,621,176 $948,820,548
Real Estate Pooled Funds $17,810,044 $0 $0 $0 $17,810,044 $0
Value of Interest in Pooled Funds $8,948,629 $94,003,448 $333,995 $14,663,025 $9,282,624 $108,666,473
Guaranteed Investment Contracts $68,035,400 $41,790,582 $0 $0 $68,035,400 $41,790,582
---------------------------- --------------------------- ----------------------------
TOTAL INVESTMENTS $643,733,786 $774,821,108 $268,307,325 $420,711,193 $912,041,111 $1,195,532,301
---------------------------- --------------------------- ----------------------------
TOTAL ASSETS $707,407,353 $877,918,286 $268,582,549 $432,288,195 $975,989,902 $1,310,206,481
---------------------------- --------------------------- ----------------------------
PAYABLES
Unsettled Trades ($62,117,871) ($103,169,276) $0 ($14,289,335) ($62,117,871) ($117,458,611)
Investment Services Fees $0 ($495,436) $0 ($96,265) $0 ($591,701)
---------------------------- --------------------------- ----------------------------
TOTAL LIABILITIES ($62,117,871) ($103,664,712) $0 ($14,385,600) ($62,117,871) ($118,050,312
---------------------------- --------------------------- ----------------------------
NET ASSETS $645,289,482 $774,253,574 $268,582,549 $417,902,595 $913,872,031 $1,192,156,169
============================ =========================== ============================
Percentage Interest held by the Plan 0.0% 0.0% 48.4% 50.1% 14.2% 17.6%
</TABLE>
<PAGE> 13
KELLOGG COMPANY SALARIED 10
SAVINGS AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
4. MASTER TRUST (CONTINUED)
KELLOGG COMPANY MASTER TRUST
SCHEDULE OF INCOME AND EXPENSES, CHANGE IN NET ASSETS
AND NET INCREASE (DECREASE) IN NET ASSETS OF MASTER TRUST INVESTMENT ACCOUNTS
<TABLE>
<CAPTION>
PENSION PLANS SAVINGS & INVESTMENT PLANS TOTAL
10/31/96 10/31/97 10/31/96 10/31/97 10/31/96 10/31/97
---------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Transfer of Assets Into
Investment Account $60,000,541 $187,169,786 $471,493,020 $441,501,150 $531,493,561 $628,670,936
Earnings on Investments
Interest $7,804,578 $10,683,275 $1,153,223 $1,679,043 $8,957,801 $12,362,318
Dividends $2,789,517 $4,790,038 $2,829,397 $2,409,770 $5,618,914 $7,199,808
Corporate Actions $1,597,268 $86,594 $0 $0 $1,597,268 $86,594
Pooled Fund Distributions $4,177,043 $2,662,638 $0 $0 $4,177,043 $2,662,638
Miscellaneous $125 $2,762 $0 $0 $125 $2,762
Net Realized Gain/(Loss) $26,178,076 $84,030,675 $18,018,388 $10,375,664 $44,196,464 $94,406,339
---------------------------- ----------------------------- -----------------------------
TOTAL ADDITIONS $102,547,148 $289,425,768 $493,494,028 $455,965,627 $596,041,176 $745,391,395
---------------------------- ----------------------------- -----------------------------
Transfer of Assets Out of
Investment Account ($38,227,387) ($197,877,441) ($437,982,138) ($378,952,686) ($476,209,525) ($576,830,127)
Fees and Commissions ($1,487,578) ($1,627,714) ($58,996) ($180,330) ($1,546,574) ($1,808,044)
---------------------------- ----------------------------- -----------------------------
TOTAL DISTRIBUTIONS ($39,714,965) ($199,505,155) ($438,041,134) ($379,133,016) ($477,756,099) ($578,638,171)
---------------------------- ----------------------------- -----------------------------
Change in Unrealized Appreciation $25,931,479 $39,043,479 ($8,466,574) $72,487,435 $17,464,905 $111,530,914
---------------------------- ----------------------------- -----------------------------
NET CHANGE IN ASSETS $88,763,662 $128,964,092 $46,986,320 $149,320,046 $135,749,982 $278,284,138
Net Assets at Beginning of Year $556,525,820 $645,289,482 $221,596,229 $268,582,549 $778,122,049 $913,872,031
---------------------------- ----------------------------- -----------------------------
Net Assets at End of Year $645,289,482 $774,253,574 $268,582,549 $417,902,595 $913,872,031 $1,192,156,169
============================ ============================= =============================
</TABLE>
<PAGE> 14
KELLOGG COMPANY SALARIED 11
SAVINGS AND INVESTMENT PLAN
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES - OCTOBER 31, 1997
<TABLE>
<CAPTION>
MARKET UNREALIZED
SECURITY DESCRIPTION COST PRICE VALUE GAIN/LOSS
<S> <C> <C> <C> <C>
TBC, Inc. Pooled Employee Funds
Daily Liquidity Fund $ 20,922 1.00 $ 20,922 $ -
Loans to participants 4,696,214 1.00 4,696,214
Brundage Story & Rose Managed
Synthetic GIC Fund Variable Rate 32,009,730 1.00 32,009,730
John Hancock GAC #5917-10001
8.82% 6/1/97 16,173,608 1.00 16,173,608
Principal Mutual GAC #4-11730-01
5.30% 12/1/98 9,164,266 1.00 9,164,266
Putnam Horizon Managed Synthetic
GIC Variable Rate 6/1/99 31,701,110 1.00 31,701,110
Peoples Security Ins Co #BDA00379FR
5.15% 12/1/97 3,470,011 1.00 3,470,011
Allstate Life Insurance GAC #5686-01
8.13% 12/1/98 28,210,134 1.00 28,210,134
Commonwealth Life #ADA00668FR
7.64% 6/1/98 11,920,750 1.00 11,920,750
John Hancock GAC #7606
7.87% 12/1/98 27,302,372 1.00 27,302,372
Commonwealth Life GIC
6.19% 6/1/98 5,049,058 1.00 5,049,058
Metropolitan Life GIC
6.27% 6/1/99 11,930,193 1.00 11,930,193
New York Life GIC
6.20% 6/1/98 3,846,890 1.00 3,846,890
New York Life #GA30320002
6.72% 6/1/00 32,347,720 1.00 32,347,720
Security Life of Denver #FA433
6.34% 12/1/01 14,188,410 1.00 14,188,410
Metropolitan LIfe #24667
6.5% 12/1/01 6,958,746 1.00 6,958,746
------------ ------------ --------
$238,990,134 $238,990,134 $ -
============ ============ ========
</TABLE>
<PAGE> 15
KELLOGG COMPANY SALARIED 12
SAVINGS AND INVESTMENT PLAN
ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
ORIGINAL DURING REPORTING UNPAID
IDENTITY AND ADDRESS AMOUNT YEAR BALANCE AT TERMS AMOUNT OVERDUE
OF OBLIGOR OF LOAN ------------------- YEAR END ---------------------------------- -------------------
PRINCIPAL INTEREST LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
John B. Zuzo $2,000 $165 $86 $1,755 06/30/96 9.3% 06/30/01 $1,755 $68
967 Hillbrook
Battle Creek, MI 49015
Stephen J. Peltz 19,000 - - 13,924 01/31/95 9.5% 01/31/00 13,924 772
4561 Fine Lake Road
Battle Creek, MI 49017
Michael J. O'Boyle 5,000 161 43 3,002 08/31/94 8.3% 08/31/99 3,002 145
231 Tidyman Road
Reisterstown, MD 21136
L. S. Sipple 2,000 1,181 49 173 05/31/96 9.8% 05/31/97 173 3
P.O. Box 983
Monroeville, NJ 08343
Lauri L. Smith 9,500 - - 5,380 06/30/95 10.0% 06/30/97 5,380 493
4641 Arlington Park Drive
Lakeland, FL 33801
Michael S. Lyons 4,624 847 309 3,535 06/30/96 9.3% 06/30/00 3,535 27
1716 Wheeland Drive
Williamsport, PA 17701
Daniel R. Barch 6,400 - - 5,362 03/31/95 10.0% 03/31/00 5,362 492
403 N. Leonard
Liberty, MO 64068
</TABLE>
<PAGE> 16
KELLOGG COMPANY SALARIED 13
SAVINGS AND INVESTMENT PLAN
ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
ORIGINAL DURING REPORTING UNPAID
IDENTITY AND ADDRESS AMOUNT YEAR BALANCE AT TERMS AMOUNT OVERDUE
OF OBLIGOR OF LOAN ------------------- YEAR END ---------------------------------- -------------------
PRINCIPAL INTEREST LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Janice B. Wilkes $5,572 $582 $157 $2,943 08/31/94 8.3% 08/31/99 $2,943 $101
1818 Englewood Way
Snellville, GA 30278
Allen M. Hintz 9,500 277 22 2,878 08/31/94 8.3% 08/31/97 2,878 198
40597 Slife Road
La Grange, OH 44050
Kenneth E. Stamm 3,600 290 40 2,329 02/29/96 9.5% 02/28/98 2,329 185
469 N. Wattles Road
Battle Creek, MI 49017
James A. Byrd 5,000 - - 3,936 08/31/94 8.3% 08/31/99 3,936 190
1374 Merrybrook
Kalamazoo, MI 49004
Gary W. Shoffner 20,000 14,044 114 309 01/31/95 9.5% 01/31/00 309 22
3464 Center Road
Hastings, MI 49058
Stephen R. Crane 20,000 - - 14,958 02/28/95 9.5% 02/29/00 14,958 1,066
16435 M-89
Augusta, MI 49012
Robert L. Birt 10,000 - - 6,326 08/31/94 8.3% 08/31/99 6,326 348
4910 Arcaida
Omaha, NE 68114
</TABLE>
<PAGE> 17
KELLOGG COMPANY SALARIED 14
SAVINGS AND INVESTMENT PLAN
ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
ORIGINAL DURING REPORTING UNPAID
IDENTITY AND ADDRESS AMOUNT YEAR BALANCE AT TERMS AMOUNT OVERDUE
OF OBLIGOR OF LOAN ------------------- YEAR END ---------------------------------- -------------------
PRINCIPAL INTEREST LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Linda F. Carter-Thomas $12,000 $568 $175 $7,626 11/30/94 8.8% 11/30/97 $7,626 $445
517 S. Moorland Dr.
Battle Creek, MI 49015
Veronica L. Riley 10,000 2,330 418 7,670 10/31/96 9.3% 10/31/98 7,670 118
258 E. Michigan Ave.
Kalamazoo, MI 49007
Robyn Smith 1,000 - - 767 02/28/95 9.5% 02/28/97 767 67
500 Fort St.
Papillion, NE 68046
Karlee M. Smith 1,000 29 23 971 06/30/97 9.5% 06/30/02 971 -
256 Hunter St.
Battle Creek, MI 49017
Rosetta M. Albright 25,000 - - 19,558 08/31/94 8.3% 08/31/99 19,558 1,479
950 Hester Rd.
Memphis, TN 38116
John Flood 6,100 261 185 5,839 12/31/96 9.3% 12/31/01 5,839 225
374 Casca Cove
Collierville, TN 38017
Kimberly C. Rankhorn 1,124 249 11 102 04/30/95 10.0% 04/30/97 102 6
185 High St.
Rossville, TN 38066
</TABLE>
<PAGE> 18
KELLOGG COMPANY SALARIED 15
SAVINGS AND INVESTMENT PLAN
ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
ORIGINAL DURING REPORTING UNPAID
IDENTITY AND ADDRESS AMOUNT YEAR BALANCE AT TERMS AMOUNT OVERDUE
OF OBLIGOR OF LOAN ------------------- YEAR END ---------------------------------- -------------------
PRINCIPAL INTEREST LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
L. Hibbler $5,596 $1,166 $66 $ 692 08/31/94 8.3% 08/31/97 $ 692 $ 19
3851 N. Advantage Way, #106
Memphis, TN 38128
Darryl D. Pugh 8,437 1,205 557 6,552 03/31/96 9.3% 03/31/01 6,552 -
646 W. Naranja Ave.
Mesa, AZ 85210
Lillian Goodlow 1,000 74 52 926 12/31/96 9.3% 12/31/01 926 7
401 N. Locust St.
Florence, AL 35630
Jerri S. Bridges 3,000 686 74 1,135 11/30/95 9.8% 11/30/97 1,135 37
1742 Central Ave.
Memphis, TN 38104
Lincoln Richardson, Jr. 10,000 - - 7,871 08/31/94 8.3% 08/31/99 7,871 541
1201 Kelley Court
Pinole, CA 94564
Beverly K. Carter 2,600 175 3 59 11/30/94 8.8% 11/30/96 59 3
1308 Hodges Ave.
Ruston, LA 71270
Robert D. Crawford 16,000 1,201 658 12,864 12/31/95 9.8% 12/31/00 12,864 627
308 Oakwood Dr.
Papillion, NE 68133
</TABLE>
<PAGE> 19
KELLOGG COMPANY SALARIED 16
SAVINGS AND INVESTMENT PLAN
ITEM 27b - SCHEUDLE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
ORIGINAL DURING REPORTING UNPAID
IDENTITY AND ADDRESS AMOUNT YEAR BALANCE AT TERMS AMOUNT OVERDUE
OF OBLIGOR OF LOAN ------------------- YEAR END ---------------------------------- -------------------
PRINCIPAL INTEREST LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rhonda Brown $2,500 $134 $38 $2,366 09/30/96 9.3% 09/30/98 $2,366 $91
101 Collin Green Dr.
Prosper, TX 75078
Gertie M. Barlow 10,000 - - 7,871 08/31/94 8.3% 08/31/99 7,871 595
9755 Mockingbird Dr., #13
Omaha, NE 68103
Annette H. Gonzales 2,019 539 20 92 04/30/95 10.0% 04/30/97 92 3
6403 Lynngate Dr.
Spring, TX 77373
Leticia Tampa 1,000 77 28 656 02/28/95 9.5% 02/29/00 656 31
6242 Warner Ave., Apt 23E
Huntington Beach, CA 92647
Benjamin Ardelean 15,000 1,720 422 7,768 08/31/94 8.3% 08/31/99 7,768 267
20920 Woodland Glen, #203
Northville, MI 48167
L. Robinson-Semien 4,000 2,325 93 14 11/30/94 8.8% 11/30/98 14 1
2728 Almondridge Dr.
Antioch, CA 94509
Terrence D. Drace 24,000 - - 19,999 09/30/94 8.8% 09/30/99 19,999 1,605
431 Concord St.
Lodi, CA 95240
</TABLE>
<PAGE> 20
KELLOGG COMPANY SALARIED 17
SAVINGS AND INVESTMENT PLAN
ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
ORIGINAL DURING REPORTING UNPAID
IDENTITY AND ADDRESS AMOUNT YEAR BALANCE AT TERMS AMOUNT OVERDUE
OF OBLIGOR OF LOAN ------------------- YEAR END ---------------------------------- -------------------
PRINCIPAL INTEREST LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Judith A. Bieger $18,000 $2,013 $1,182 $15,987 09/30/96 9.3% 09/30/01 $15,987 $ -
5020 Rodeo Circle
Antioch, CA 94509
Daniel Perez 13,000 209 57 10,024 08/31/94 8.3% 08/31/99 10,024 758
10410 Singleton Rd.
San Jose, CA 95111
</TABLE>
<PAGE> 21
KELLOGG COMPANY SALARIED 18
SAVINGS AND INVESTMENT PLAN
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS - YEAR ENDED OCTOBER 31, 1997 (1)
<TABLE>
<CAPTION>
CURRENT VALUE AT TRANSACTION DATE
--------------------------------- COST OF NET
NET NET SECURITIES REALIZED
IDENTITY OF ISSUE PURCHASE PRICE SALES PRICE SOLD GAIN
<S> <C> <C> <C> <C>
TBC Inc., Pooled Employee Funds -
Daily Liquidity Fund $60,654,537 $67,820,163 $67,820,163 $ -
John Hancock GAC #5917-10001
8.30% 6/1/95 1,544,616 26,041,340 26,041,340
</TABLE>
(1) Represents Plan's interest in a transaction (or a series of transactions
of the same issue) in excess of five percent of the Plan's assets
available at November 1, 1996.
