-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EwgmNDTGPlBfFuyLH34QJUvOU8qprMK7hNctpkX6m4cY3PXmTWeAMFjTvL2Hlb3Z JpV9ccbapyNU5zZ5PBPkeg== 0000950124-98-001836.txt : 19980401 0000950124-98-001836.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950124-98-001836 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KELLOGG CO CENTRAL INDEX KEY: 0000055067 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 380710690 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04171 FILM NUMBER: 98581082 BUSINESS ADDRESS: STREET 1: ONE KELLOGG SQ STREET 2: P O BOX 3599 CITY: BATTLE CREEK STATE: MI ZIP: 49016 BUSINESS PHONE: 6169612000 MAIL ADDRESS: STREET 1: ONE KELLOGG SQUARE STREET 2: P O BOX 3599 CITY: BATTLE CREEK STATE: MI ZIP: 49016 10-K 1 FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ 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) DELAWARE 38-0710690 State of Incorporation I.R.S. Employer Identification No.
ONE KELLOGG SQUARE BATTLE CREEK, MICHIGAN 49016-3599 (Address of Principal Executive Offices) REGISTRANT'S TELEPHONE NUMBER: (616) 961-2000 --------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered: COMMON STOCK, $0.25 PAR VALUE PER SHARE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE --------------------------- 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. ================================================================================ 2 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), 2 3 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 3 4 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. 4 5 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. 5 6 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. 6 7 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. 7 8 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:
PAGE ---- Schedule II -- Valuation Reserve............................ 10 Report of Independent Accountants........................... 11
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
EXHIBIT NO. DESCRIPTION - ----------- ----------- 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.*
8 9
EXHIBIT NO. DESCRIPTION - ----------- ----------- 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.
- ------------------------- * 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. 9 10 SCHEDULE II -- VALUATION RESERVE (in millions)
1997 1996 1995 ---- ---- ---- 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 ===== ===== =====
10 11 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 11 12 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.
NAME CAPACITY DATE ---- -------- ---- /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
12 13 EXHIBIT INDEX
ELECTRONIC(E) PAPER(P) INCORP. BY EXHIBIT NO. DESCRIPTION REF.(IBRF) - ----------- ----------- ------------- 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
13 14
ELECTRONIC(E) PAPER(P) INCORP. BY EXHIBIT NO. DESCRIPTION REF.(IBRF) - ----------- ----------- ------------- 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
- ------------------------- * 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 EX-4.01 2 EXHIBIT 4.01 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 ================================================================================ 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 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 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 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 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 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 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 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 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 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 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 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 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 15 IN WITNESS WHEREOF this Fiscal Agency Agreement has been entered into on the day and year first above written. 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
14 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 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 18 IN WITNESS WHEREOF the Company has caused this Temporary Global Note to be signed on its behalf by its duly authorized officer. 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
Exhibit A, Page 3 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 20 SCHEDULE II EXCHANGES FOR DEFINITIVE NOTES The following exchanges of a part of this Temporary Global Note for Definitive Notes have been made:
Remaining principal Principal amount amount Notation made exchanged for following on behalf of Date Made Definitive Notes such exchange the Fiscal Agent ------ -------------- ------------- ------------- ------ -------------- ------------- ------------- ------ -------------- ------------- ------------- ------ -------------- ------------- ------------- ------ -------------- ------------- ------------- ------ -------------- ------------- ------------- ------ -------------- ------------- ------------- ------ -------------- ------------- ------------- ------ -------------- ------------- -------------
Exhibit A, Page 5 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 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 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 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 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
Exhibit B, Page 4 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 EX-4.02 3 EXHIBIT 4.02 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 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 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 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 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 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 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 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 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 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 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 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 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 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 EX-4.03 4 EXHIBIT 4.03 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 ___________ ================================================================================ 2
TABLE OF CONTENTS 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
-i- 3 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
-ii- 4 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
-iii- 5 ARTICLE NINE CONSOLIDATION, MERGER, SALE OR CONVEYANCE 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
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 -iv- 6 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. 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. -2- 8 "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. -3- 9 "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. -4- 10 "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 -5- 11 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. -6- 12 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: -7- 13 (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 -8- 14 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. -9- 15 (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 -10- 16 (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. -11- 17 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; -12- 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 -13- 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. -14- 20 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 -15- 21 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 -16- 22 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 -17- 23 (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. -18- 24 (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 -19- 25 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; -20- 26 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 -21- 27 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. -22- 28 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. -23- 29 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. -24- 30 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 -25- 31 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. -26- 32 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, -27- 33 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. -28- 34 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. -29- 35 (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 -30- 36 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, -31- 37 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: -32- 38 (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 -33- 39 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 -34- 40 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: -35- 41 (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 -36- 42 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 -37- 43 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 -38- 44 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); -39- 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. -40- 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. * * * * * * -41- 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. 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
EX-4.04 5 EXHIBIT 4.04 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: Page 1 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. Page 2 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 Page 3 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; Page 4 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 Page 5 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 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 Page 7 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 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 Page 9 10 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 Page 10 11 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 Page 11 12 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. Page 12 13 (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 Page 13 14 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 Page 14 15 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; Page 15 16 (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 Page 16 17 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. Page 17 18 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 Page 18 19 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 Page 19 20 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 Page 20 21 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 Page 21 22 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 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 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 EX-10.05 6 EXHIBIT 10.05 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 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: 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. 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 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. 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. 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. 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. 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. 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. 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. 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 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 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, 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 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 ($9.50) per month for each year of Credited Service; but if, and only if, the sum of the Participant's age and Years of Service equal eighty-five (85). Notwithstanding any provisions of this Article V to the contrary, Participants continuing to work after their Early Retirement Date, either for themselves or for others, and earning an amount for services rendered after retirement during any calendar year, which exceeds the total amount of the Early Retirement Supplement which was paid during that calendar year, shall be ineligible to receive an Early Retirement Supplement the following calendar year and the calendar year thereafter; except as otherwise provided herein. A Participant disqualified from receiving an Early Retirement Supplement may qualify to receive an Early Retirement Supplement during any succeeding calendar year if he would otherwise be eligible under the provisions of this Section 5.5, and his Earnings for services rendered after retirement during the calendar year prior to the calendar year in which he desires to receive an Early Retirement Supplement, did not exceed the amount of the Early Retirement Supplement to which he would have been entitled during such prior calendar year had he been eligible to receive an Early Retirement Supplement. Participants may also be deemed ineligible to receive an Early Retirement Supplement at the discretion of the Committee, 17 INTERNATIONAL RETIREMENT PLAN -- RESTATED PAGE 16 should they fail to supply the Committee, at the Committee's request, information necessary to ascertain such Participant's calendar year income. The reference to U.S. Dollars ($) 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. 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. 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 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. 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. 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 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 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). 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. 26 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. 27 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. 28 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 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. 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 31 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: - ---------------------- EX-10.08 7 EXHIBIT 10.08 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, 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 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 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 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 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 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 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 8 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 9 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. 10 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 11 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 12 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. 13 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 14 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 15 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). 16 17 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 EX-10.11 8 EXHIBIT 10.11 1 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. 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. 2 EX-10.12 9 EXHIBIT 10.12 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. EX-10.13 10 EXHIBIT 10.13 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". 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- 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- 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- 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- 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- 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 EX-13.01 11 EXHIBIT 13.01 1 EXHIBIT 13.01 SELECTED FINANCIAL DATA (millions, except per share data and number of employees)
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 - ----------------------------------------------------------------------------------------------------------------------------- 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
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 - ---------------------------------------------------------------------------- $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
(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) - ---------------------------------------------------------------------------------------------------------------------------------- 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
CURRENT ADVERTISING R&D NUMBER OF RATIO EXPENSE EXPENSE EMPLOYEES -------------------------------------- .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
(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 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:
======================================================= CHANGE ======================================================= Global cereal +3.4% - ------------------------------------------------------- U.S. cereal +3.9% - ------------------------------------------------------- Global total +11.3% - ------------------------------------------------------- Global total excluding Lender's(a) +5.0% =======================================================
(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: ============================================================================== NET SALES BY GEOGRAPHIC AREA - 1997 VS. 1996 % CHANGE - ------------------------------------------------------------------------------ U.S. Europe All other Consolidated - ------------------------------------------------------------------------------ Business +5% +2% +6% +4% Foreign currency impact --- -5% -4% -2% - ------------------------------------------------------------------------------ TOTAL CHANGE +5% -3% +2% +2% ==============================================================================
Margin performance for 1997 was:
======================================================================== 1997 1996 CHANGE - ------------------------------------------------------------------------ Gross margin 52.1% 53.2% -1.1% SGA%(a) -34.6% -36.8% +2.2% - ------------------------------------------------------------------------ Operating margin 17.5% 16.4% +1.1% ========================================================================
(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 3 Operating profit results on a geographic basis were:
================================================================================================== OPERATING PROFIT BY GEOGRAPHIC AREA - 1997 VS. 1996 - -------------------------------------------------------------------------------------------------- (millions) U.S. Europe All other Consolidated - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- 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% ==================================================================================================
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:
========================================================= CHANGE - --------------------------------------------------------- Global cereal -.7% - --------------------------------------------------------- U.S. cereal -3.6% - --------------------------------------------------------- Global total +1.2% =========================================================
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:
============================================================================ NET SALES BY GEOGRAPHIC AREA - 1996 VS. 1995 % CHANGE - ---------------------------------------------------------------------------- U.S. Europe All other Consolidated - ---------------------------------------------------------------------------- Business -7% -1% +8% -4% Foreign currency impact -- -3% -3% -1% - ---------------------------------------------------------------------------- TOTAL CHANGE -7% -4% +5% -5% ============================================================================
Margin performance for 1996 was:
========================================================================= 1996 1995 CHANGE - ------------------------------------------------------------------------- Gross margin 53.2% 54.6% -1.4% SGA% -36.8% -36.6% -.2% - ------------------------------------------------------------------------- Operating margin 16.4% 18.0% -1.6% =========================================================================
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:
================================================================================================= OPERATING PROFIT BY GEOGRAPHIC AREA - 1996 VS. 1995 - ------------------------------------------------------------------------------------------------- (millions) U.S. Europe All other Consolidated - ------------------------------------------------------------------------------------------------- 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% =================================================================================================
19 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 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:
==================================================================================================== 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: - ---------------------------------------------------------------------------------------------------- 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 =====================================================================================================
(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 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 7 Kellogg Company and Subsidiaries CONSOLIDATED STATEMENT OF EARNINGS Year ended December 31,
==================================================================================================================================== (millions, except per share data) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ 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 ====================================================================================================================================
Refer to Notes to Consolidated Financial Statements. Kellogg Company and Subsidiaries CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
==================================================================================================================================== Capital in Currency Total Common stock excess of Retained Treasury stock translation shareholders' (millions) shares amount par value earnings shares amount adjustment equity - ------------------------------------------------------------------------------------------------------------------------------------ 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 ================================================================================================================================
Refer to Notes to Consolidated Financial Statements. 23 8 Kellogg Company and Subsidiaries CONSOLIDATED BALANCE SHEET At December 31,
======================================================================================= (millions, except share data) 1997 1996 - --------------------------------------------------------------------------------------- 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 =======================================================================================
Refer to Notes to Consolidated Financial Statements. 24 9 Kellogg Company and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS Year ended December 31,
========================================================================================================== (millions) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------- 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 ==========================================================================================================
Refer to Notes to Consolidated Financial Statements. 25 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:
================================================================================ Amount Amortization (millions) period (yrs.) - -------------------------------------------------------------------------------- Trademarks and tradenames $ 150.0 40 Non-compete covenants 20.0 5 Goodwill 179.0 40 - -------------------------------------------------------------------------------- Total $ 349.0 ================================================================================
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:
================================================================================== (millions, except per share data) 1996 1995 - ---------------------------------------------------------------------------------- Net sales $ 6,873.1 $ 7,219.4 Net earnings $ 524.3 $ 489.3 Net earnings per share $ 1.23 $ 1.12 ==================================================================================
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 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:
=============================================================================================================================== Employee retirement & severance Asset Asset Other (millions) benefits (a) write-offs removal costs Total - ------------------------------------------------------------------------------------------------------------------------------- 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 ===============================================================================================================================
(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:
========================================================================================== (millions) 1997 1996 - ------------------------------------------------------------------------------------------ (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 =========================================================================================
(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 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:
- ----------------------------------------------------------------------------------------------------------------------------------- (millions, except per share data) 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- 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 - -----------------------------------------------------------------------------------------------------------------------------------
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:
- ----------------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- 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 - -----------------------------------------------------------------------------------------------------------------------------------
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:
=================================================================================================================================== (millions, except per share data) 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------------------------------------------------- Average prices per share ------------------------ 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 ===================================================================================================================================
Employee stock options outstanding and exercisable under these plans as of December 31, 1997, were: ================================================================================= (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 - ----------------------------------------------------- -------------------------- $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 =================================================================================
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:
================================================================================================ (millions) 1997 1996 1995 - ------------------------------------------------------------------------------------------------ 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 ================================================================================================
28 13 The worldwide weighted average actuarial assumptions were:
=============================================================================================================== 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------- 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% ===============================================================================================================
Reconciliation of funded status of the plans at year-end was:
============================================================================================================== Underfunded Overfunded (millions) 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------------------------- 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 ==============================================================================================================
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:
============================================================================================================================ (millions) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- 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% ============================================================================================================================
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:
============================================================================================================ (millions) 1997 1996 - ------------------------------------------------------------------------------------------------------------ Accumulated benefit obligation: 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 ============================================================================================================
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:
================================================================================================================= (millions) 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------- Earnings before income taxes and cumulative effect of accounting change: 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 =================================================================================================================
The difference between the U.S. federal statutory tax rate and the Company's effective rate was:
============================================================================================================== 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------- 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% ==============================================================================================================
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 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:
==================================================================================================================================== Deferred tax assets Deferred tax liabilities (millions) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ 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 ====================================================================================================================================
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 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)
==================================================================================================================================== (millions, except Net sales Gross profit per share data) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ 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 ==================================================================================================================================== Earnings before Earnings per share cumulative effect of before cumulative effect accounting change (a) of accounting change (a)(b) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ 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 ==================================================================================================================================== Net earnings (a) Net earnings per share (a)(b) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ 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 ====================================================================================================================================
(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.)
==================================================================================================================================== Earnings Earnings per share 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ 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) ====================================================================================================================================
(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:
==================================================================================================================================== Stock Price ----------- 1997 - QUARTER Dividend High Low - ------------------------------------------------------------------------------------------------------------------------------------ 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 ==================================================================================================================================== 1996 - Quarter - ------------------------------------------------------------------------------------------------------------------------------------ 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 ====================================================================================================================================
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.
==================================================================================================================================== % % % (millions) 1997 change 1996 change 1995 change ==================================================================================================================================== NET SALES ==================================================================================================================================== 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 ====================================================================================================================================
(a) Operating profit includes the following non-recurring charges, by geographic area. (Refer to Note 3 for further information.)
==================================================================================================================================== 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ 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) ====================================================================================================================================
31 16 NOTE 14 SUPPLEMENTAL FINANCIAL STATEMENT DATA
(millions) =============================================================================================================================== Consolidated Statement of Earnings 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- Research and development expense $106.1 $ 84.3 $ 72.2 Advertising expense $780.4 $778.9 $891.5 =============================================================================================================================== =============================================================================================================================== Consolidated Statement of Cash Flows 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- 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 =============================================================================================================================== =============================================================================================================================== Consolidated Balance Sheet 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------------------------------------------------------- ===============================================================================================================================
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 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.
================================================================================================= CONTRACTS TO SELL FOREIGN CURRENCY - ------------------------------------------------------------------------------------------------- CURRENCY CURRENCY NOTIONAL VALUE EXCHANGE RATE FAIR VALUE SOLD RECEIVED (MILLIONS) [FC/1US$] (MILLIONS) - ------------------------------------------------------------------------------------------------- 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 $4.9 ================================================================================================= ======================================================================================================= CONTRACTS TO PURCHASE FOREIGN CURRENCY - ------------------------------------------------------------------------------------------------------- CURRENCY CURRENCY NOTIONAL VALUE EXCHANGE RATE FAIR VALUE PURCHASED EXCHANGED (MILLIONS) [FC/1US$] (MILLIONS) - ------------------------------------------------------------------------------------------------------- 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) =======================================================================================================
(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.
======================================================================================================================== SIGNIFICANT DEBT ISSUES - ------------------------------------------------------------------------------------------------------------------------ PRINCIPAL BY YEAR OF MATURITY (MILLIONS) DEBT --------------------------------------------------- FAIR VALUE CHARACTERISTICS 1998 2001 2004 (MILLIONS) - ------------------------------------------------------------------------------------------------------------------------ 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% ========================================================================================================================
(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.
================================================================================================================================== INTEREST & CURRENCY SWAPS & CAPS - ---------------------------------------------------------------------------------------------------------------------------------- YEAR OF MATURITY (MILLIONS) INSTRUMENT ------------------------------------------- FAIR VALUE CHARACTERISTICS 1998 2001 2002 (MILLIONS) - ---------------------------------------------------------------------------------------------------------------------------------- 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% ==================================================================================================================================
(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 EX-21.01 12 EXHIBIT 21.01 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 EX-23.01 13 EXHIBIT 23.01 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 EX-23.02 14 EXHIBIT 23.02 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 EX-24.01 15 EXHIBIT 24.01 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 ---------- 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 ---------- 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 ---------- 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 ---------- 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 ---------- 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 ---------- 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 ---------- 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 ---------- 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 ---------- 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 ---------- 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 ---------- 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 ---------- 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 ---------- EX-27 16 EXHIBIT 27
5 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. 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 173,200 0 595,000 (7,500) 434,300 1,467,700 4,980,600 (2,207,300) 4,877,600 1,657,300 1,415,400 0 0 103,700 893,800 4,877,600 6,830,100 6,830,100 3,270,100 3,270,100 2,547,200 0 108,300 904,500 340,500 564,000 0 0 (18,000) 546,000 1.32 1.32
EX-99.01 17 EXHIBIT 99.01 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) 2 KELLOGG COMPANY AMERICAN FEDERATION OF GRAIN MILLERS SAVINGS AND INVESTMENT PLAN FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION OCTOBER 31, 1997 3 KELLOGG COMPANY AMERICAN FEDERATION OF GRAIN MILLERS 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 12-20 Item 27d - Schedule of reportable transactions - year ended October 31, 1997 21
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 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
LOAN BOND TOTAL FUND FUND ASSETS: 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 ================= ================ ================ FIXED COMPANY INCOME EQUITY STOCK FUND FUND FUND ASSETS: 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 ================= ================= ================
See accompanying notes to financial statements 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
LOAN BOND TOTAL FUND FUND ASSETS: 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 ================= ================ ================ FIXED COMPANY INCOME EQUITY STOCK FUND FUND FUND ASSETS: 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 ================= ================= ================
See accompanying notes to financial statements 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
LOAN BOND TOTAL FUND FUND 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 ================= ================ ================ FIXED COMPANY INCOME EQUITY STOCK FUND FUND FUND 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 ================= ================= ================
See accompanying notes to financial statements 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
LOAN BOND TOTAL FUND FUND 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 ================= ================ ================ FIXED COMPANY INCOME EQUITY STOCK FUND FUND FUND 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 ================= ================= ================
See accompanying notes to financial statements 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:
INTEREST OCTOBER 31, DESCRIPTION RATE 1997 1996 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
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. 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. 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: 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
PENSION PLANS SAVINGS & INVESTMENT PLANS 10/31/96 10/31/97 10/31/96 10/31/97 ------------------------------- ------------------------------- 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% TOTAL 10/31/96 10/31/97 --------------------------------- 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%
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
PENSION PLANS SAVINGS & INVESTMENT PLANS 10/31/96 10/31/97 10/31/96 10/31/97 ------------------------------------- -------------------------------------- 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 ================================= ================================= TOTAL 10/31/96 10/31/97 -------------------------------------- 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 ==================================
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
MARKET UNREALIZED SECURITY DESCRIPTION COST PRICE VALUE GAIN/LOSS 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 $ - ================= ================= =====
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
AMOUNT RECEIVED DURING REPORTING ORIGINAL YEAR UNPAID IDENTITY AND ADDRESS AMOUNT --------------------- BALANCE AT OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END 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 TERMS AMOUNT OVERDUE IDENTITY AND ADDRESS ----------------------------------------- -------------------- OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST 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
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
AMOUNT RECEIVED DURING REPORTING ORIGINAL YEAR UNPAID IDENTITY AND ADDRESS AMOUNT ---------------------- BALANCE AT OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END 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 TERMS AMOUNT OVERDUE IDENTITY AND ADDRESS -------------------------------------------- -------------------- OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST 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
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
AMOUNT RECEIVED DURING REPORTING ORIGINAL YEAR UNPAID IDENTITY AND ADDRESS AMOUNT ----------------------- BALANCE AT OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END 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 TERMS AMOUNT OVERDUE IDENTITY AND ADDRESS ----------------------------------------- -------------------- OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST 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
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
AMOUNT RECEIVED DURING REPORTING ORIGINAL YEAR UNPAID IDENTITY AND ADDRESS AMOUNT ---------------------- BALANCE AT OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END 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 TERMS AMOUNT OVERDUE IDENTITY AND ADDRESS ----------------------------------------- -------------------- OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST 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
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
AMOUNT RECEIVED DURING REPORTING ORIGINAL YEAR UNPAID IDENTITY AND ADDRESS AMOUNT --------------------- BALANCE AT OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END 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 TERMS AMOUNT OVERDUE IDENTITY AND ADDRESS ------------------------------------------ -------------------- OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST 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
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
AMOUNT RECEIVED DURING REPORTING ORIGINAL YEAR UNPAID IDENTITY AND ADDRESS AMOUNT --------------------- BALANCE AT OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END 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 TERMS AMOUNT OVERDUE IDENTITY AND ADDRESS ------------------------------------------ -------------------- OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST 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
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
AMOUNT RECEIVED DURING REPORTING ORIGINAL YEAR UNPAID IDENTITY AND ADDRESS AMOUNT --------------------- BALANCE AT OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END 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 TERMS AMOUNT OVERDUE IDENTITY AND ADDRESS ------------------------------------------ -------------------- OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST 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
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
AMOUNT RECEIVED DURING REPORTING ORIGINAL YEAR UNPAID IDENTITY AND ADDRESS AMOUNT --------------------- BALANCE AT OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END 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 TERMS AMOUNT OVERDUE IDENTITY AND ADDRESS ------------------------------------------ -------------------- OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST 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
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
AMOUNT RECEIVED DURING REPORTING ORIGINAL YEAR UNPAID IDENTITY AND ADDRESS AMOUNT --------------------- BALANCE AT OF OBLIGOR OF LOAN PRINCIPAL INTEREST YEAR END 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 TERMS AMOUNT OVERDUE IDENTITY AND ADDRESS ------------------------------------------ -------------------- OF OBLIGOR LOAN DATE INTEREST RATE MATURITY PRINCIPAL INTEREST 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
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)
CURRENT VALUE AT TRANSACTION DATE ---------------------------------------- COST OF NET NET NET SECURITIES REALIZED IDENTITY OF ISSUE PURCHASE PRICE SALES PRICE SOLD GAIN 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
(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. EX-99.02 18 EXHIBIT 99.02 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) 2 KELLOGG COMPANY SALARIED SAVINGS AND INVESTMENT PLAN FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION OCTOBER 31, 1997 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 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 5 KELLOGG COMPANY SALARIED 2 SAVINGS AND INVESTMENT PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION OCTOBER 31, 1997
FIXED COMPANY LOAN BOND INCOME EQUITY STOCK TOTAL FUND FUND FUND FUND FUND 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 ============ ========== =========== ============ ============ ===========
See accompanying notes to financial statements 6 KELLOGG COMPANY SALARIED 3 SAVINGS AND INVESTMENT PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION OCTOBER 31, 1996
FIXED COMPANY LOAN BOND INCOME EQUITY STOCK TOTAL FUND FUND FUND FUND FUND 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 ============ ========== ========== ============ =========== ===========
See accompanying notes to financial statements 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
FIXED COMPANY LOAN BOND INCOME EQUITY STOCK TOTAL FUND FUND FUND FUND FUND 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 ============ =========== =========== ============ ============ ===========
See accompanying notes to financial statements 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
FIXED COMPANY LOAN BOND INCOME EQUITY STOCK TOTAL FUND FUND FUND FUND FUND 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 ============ =========== ========== ============ =========== ===========
See accompanying notes to financial statements 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:
INTEREST OCTOBER 31, DESCRIPTION RATE 1997 1996 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
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. 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. 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: 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
PENSION PLANS SAVINGS & INVESTMENT PLANS TOTAL 10/31/96 10/31/97 10/31/96 10/31/97 10/31/96 10/31/97 ---------------------------- --------------------------- ---------------------------- 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%
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
PENSION PLANS SAVINGS & INVESTMENT PLANS TOTAL 10/31/96 10/31/97 10/31/96 10/31/97 10/31/96 10/31/97 ---------------------------- ----------------------------- ----------------------------- 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 ============================ ============================= =============================
14 KELLOGG COMPANY SALARIED 11 SAVINGS AND INVESTMENT PLAN ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES - OCTOBER 31, 1997
MARKET UNREALIZED SECURITY DESCRIPTION COST PRICE VALUE GAIN/LOSS 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 $ - ============ ============ ========
15 KELLOGG COMPANY SALARIED 12 SAVINGS AND INVESTMENT PLAN ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
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 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
16 KELLOGG COMPANY SALARIED 13 SAVINGS AND INVESTMENT PLAN ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
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 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
17 KELLOGG COMPANY SALARIED 14 SAVINGS AND INVESTMENT PLAN ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
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 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
18 KELLOGG COMPANY SALARIED 15 SAVINGS AND INVESTMENT PLAN ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
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 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
19 KELLOGG COMPANY SALARIED 16 SAVINGS AND INVESTMENT PLAN ITEM 27b - SCHEUDLE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
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 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
20 KELLOGG COMPANY SALARIED 17 SAVINGS AND INVESTMENT PLAN ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS - OCTOBER 31, 1997
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 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
21 KELLOGG COMPANY SALARIED 18 SAVINGS AND INVESTMENT PLAN ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS - YEAR ENDED OCTOBER 31, 1997 (1)
CURRENT VALUE AT TRANSACTION DATE --------------------------------- COST OF NET NET NET SECURITIES REALIZED IDENTITY OF ISSUE PURCHASE PRICE SALES PRICE SOLD GAIN 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
(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. -----END PRIVACY-ENHANCED MESSAGE-----