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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ]

The aggregate market value of the common stock held by non-affiliates of the registrant (assuming only for purposes of this computation that the W.K. Kellogg Foundation Trust, directors and executive officers may be affiliates) was $8,490,635,459 as determined by the March 3, 2003, closing price of $30.01 for one share of common stock, as reported for the New York Stock Exchange — Composite Transactions.

As of March 3, 2003, 410,832,118 shares of the common stock of the registrant were issued and outstanding.

Portions of the registrant’s Annual Report to Share Owners for the fiscal year ended December 28, 2002, are incorporated by reference into Part I, II, and Part IV of this Report.

Portions of the registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission for the Annual Meeting of Share Owners to be held April 25, 2003, are incorporated by reference into Part III of this Report.

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 convenience foods.

The address of the principal business office of Kellogg Company is One Kellogg Square, P.O. Box 3599, Battle Creek, Michigan Creek 49016-3599. Unless otherwise specified or indicated by the context, the term “Company” as used in this report means Kellogg Company, its divisions and subsidiaries.

Information about the Keebler Foods Company acquisition is incorporated by reference from “Keebler acquisition” on page 25 of the Company’s Annual Report.

Financial Information About Segments. The information called for by this Item is incorporated herein by reference from Note 14 to the Consolidated Financial Statements on pages 46 and 47 of the Company’s Annual Report.

Principal Products. The principal products of the Company are ready-to-eat cereals and convenience foods, such as cookies, crackers, toaster pastries, cereal bars, frozen waffles, meat alternatives, pie crusts, and ice cream cones. These products were, as of December 28, 2002, manufactured by the Company in 19 countries and marketed in more than 180 countries. The Company’s cereal products are generally marketed under the Kellogg’s name and are sold principally to the grocery trade through direct sales forces for resale to consumers. The Company uses broker and distribution arrangements for certain products. It also generally uses these, or similar arrangements, in less-developed market areas or in those market areas outside of its focus.

The Company also markets cookies, crackers, and other convenience foods, under brands such as Kellogg’s, Keebler, Cheez-It, Murray, and Famous Amos, to supermarkets in the United States through a direct store door (DSD) delivery system, although other distribution methods are also used.

Additional information pertaining to the relative sales of the Company’s products for the years 2000 through 2002 is found in Note 14 to the Consolidated Financial Statements on pages 46 and 47 of the Company’s Annual Report.

Raw Materials. Agricultural commodities are the principal raw materials used in the Company’s products. Cartonboard, corrugated, and plastic are the principal packaging materials used by the Company. World supplies and prices of such commodities (which include such packaging materials) are constantly monitored, as are government trade policies. The cost of such commodities may fluctuate widely due to government policy and regulation, weather conditions, or other unforeseen circumstances. Continuous efforts are made to maintain and improve the quality and supply of such commodities 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, wheat and wheat derivatives, oats, rice, cocoa and chocolate, soybeans and soybean derivatives, various fruits, sweeteners, flour, shortening, dairy products, eggs, and other filling ingredients, which ingredients are obtained from various sources. Most of these commodities are purchased principally from sources in the United States.

The Company both enters into long-term contracts for the commodities described in this section and purchases these items on the open market, depending on the Company’s view of possible price fluctuations, supply levels, and the Company’s relative negotiating power. While the cost of some of these commodities has, and may continue to, increase over time, the Company believes that it will be able to purchase an adequate supply of these items as needed. The Company also uses commodity futures and options to hedge some of its costs.

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, commodities 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. Oil may also be used to fuel certain operations at various plants in the event of natural gas shortages or when its use presents economic advantages. In addition, considerable amounts of diesel fuel are used in connection with the distribution of the Company’s products.

Trademarks and Technology. Generally, the Company’s products are marketed under trademarks it owns. The Company’s principal trademarks are its housemarks, brand names, slogans, and designs related to cereals and convenience foods manufactured and marketed by the Company as well as licensed uses of these marks on various goods. These trademarks include Kellogg’s for cereals and convenience foods and other products of the Company, and the brand names of certain ready-to-eat cereals, including All-Bran, Apple Jacks, Bran Buds, Complete Bran Flakes, Complete Wheat Flakes, Cocoa Rice Krispies, Cinnamon Crunch Crispix, Common Sense, Corn Pops, Cruncheroos, Kellogg’s Corn Flakes, Cracklin’ Oat Bran, Crispix, Froot Loops, Kellogg’s Frosted Flakes, Frosted Mini-Wheats, Frosted Krispies, Just Right, Kellogg’s Low Fat Granola, Nut & Honey Crunch, Mueslix, Nutri-Grain, Product 19, Two Scoops Raisin Bran, Rice Krispies, Raisin Bran Crunch, Smacks, Smart Start, Special K, Special K Red Berries, and Kellogg’s Honey Crunch Corn Flakes in the United States and elsewhere; Zucaritas, Choco Zucaritas, Sucrilhos, Sucrilhos Chocolate, Sucrilhos Banana, Vector, Musli, and Choco Krispis for cereals in Latin America; Vive and Vector in Canada; Choco Pops, Chocos, Frosties, Muslix, Fruit ‘n’ Fibre, Kellogg’s Crunchy Nut Corn Flakes, Kellogg’s Crunchy Nut Red Corn Flakes, Honey Nut Loops, Kellogg’s Extra, Sustain, Mueslix, Country Store, Ricicles, Smacks, Start, Smacks Choco Tresor, Pops, and Optima for cereals in Europe; and Cerola, Sultana Bran, Supercharged, Chex, Frosties, Goldies, Rice Bubbles, Kellogg’s Iron Man Food, and Be Big for cereals in Asia and Australia. Additional Company trademarks are the names of certain combinations of Kellogg’s ready-to-eat cereals, including Handi-Pak, Snack-Pak, Snack-A-Longs, Fun Pak, Jumbo, and Variety Pak. Other Company brand names include Kellogg’s Corn Flake Crumbs; Croutettes for herb season stuffing mix; Kuadri Krispies, Zucaritas, Special K, and Crusli for cereal bars, Keloketas for cookies, Komplete for biscuits; and Kaos for snacks in Mexico and elsewhere in Latin America; Pop-Tarts Pastry Swirls for toaster danish; Pop-Tarts and Pop-Tarts Snak-Stix for toaster pastries; Eggo, Special K, Waf-fulls, and Nutri-Grain for frozen waffles and pancakes; Rice Krispies Treats for baked snacks and convenience foods; Rice Krispies Treats Krunch for popcorn; Nutri-Grain and Nutri-Grain Twists for convenience foods in the United States and elsewhere; K-Time, Rice Bubbles, Day Dawn, Be Natural, Sunibrite and LCMs for convenience foods in Asia and Australia; Nutri-Grain Squares, Nutri-Grain Elevenses, and Rice Krispies Squares for convenience foods in Europe; Winders for fruit snacks in the United Kingdom; Kellogg’s Krave for refueling snack bars; Kashi for certain cereals, nutrition bars, and mixes; Vector for meal replacement products; and Morningstar Farms, Loma Linda, Natural Touch, and Worthington for certain meat and dairy alternatives.

The Company also markets convenience foods under trademarks and tradenames which include Keebler, Cheez-It, E. L. Fudge, Murray, Famous Amos, Austin, Ready Crust, Chips Deluxe, Club, Fudge Shoppe, Hi-Ho, Hydrox, Sunshine, Munch’Ems, Sandies, Soft Batch, Toasteds, Town House, Vienna Fingers, Wheatables, and Zesta. One of its subsidiaries is also the exclusive licensee of the Carr’s brand name in the United States.

Company trademarks also include logos and depictions of certain animated characters in conjunction with the Company’s products, including Snap!Crackle!Pop! for Rice Krispies cereals and Rice Krispies Treats convenience foods; Tony the Tiger for Kellogg’s Frosted Flakes, Zucaritas, Sucrilhos and Frosties cereals and convenience foods; Ernie Elf for cookies; the Hollow Tree logo for certain convenience foods; Toucan Sam for Froot Loops; Dig ‘Em for Smacks; Coco Monkey for Cocoa Krispies; Cornelius for Kellogg’s Corn Flakes; Melvin the elephant for certain cereal and convenience foods; Chocos the Bear and Kobi the Bear for certain cereal products and Eet & Ern for an internet-based consumer promotional program.

The slogans The Best To You Each Morning, The Original and Best, They’re Gr-r-reat!, and Eat it For Breakfast, Eat it For Life, used in connection with the Company’s ready-to-eat cereals, along with L’ Eggo my Eggo, used in connection with the Company’s frozen waffles and pancakes, and Elfin Magic used by the Keebler Foods subsidiary in connection with convenience food products are also important Company trademarks.

The trademarks listed above, among others, when taken as a whole, are important to the Company’s business. Certain individual trademarks are also important to the Company’s business. Depending on the jurisdiction, trademarks are generally valid as long as they are in use and/or their registrations are properly maintained and they have not been found to have become generic. Registrations of trademarks can also generally be renewed indefinitely as long as the trademarks are in use.

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 on any single patent or group of related patents. The Company’s activities under licenses or other franchises or concessions which it holds are similarly a valuable asset, but are not believed to be material.

Seasonality. Demand for the Company’s products has generally been approximately level throughout the year, although some of the Company’s convenience foods have a bias for stronger demand in the second half of the year due to events and holidays. The Company also custom-bakes cookies for the Girl Scouts of the U.S.A., which are principally sold in the first quarter of the year.

Working Capital. Although terms vary around the world, in the United States the Company generally has required payment for goods sold 11 days subsequent to the date of invoice, generally with a 2% or 1% 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’s largest customer, Wal-Mart Stores, Inc. and its subsidiaries, accounted for approximately 12% of consolidated net sales during 2002, comprised principally of sales within the United States. Correspondingly, at December 28, 2002, approximately 9% of the Company’s consolidated receivables balance and 13% of the Company’s U.S. receivables balance was comprised of amounts owed by Wal-Mart Stores, Inc. and its subsidiaries. During 2002, the Company’s top five customers, collectively, accounted for approximately 30% of the Company’s consolidated net sales and approximately 40% of U.S. net sales. There has been significant worldwide consolidation in the grocery industry in recent years and the Company believes that this trend is likely to continue. Although the loss of any large customer for an extended length of time could negatively impact the Company’s sales and profits, the Company does not anticipate that this will occur to a significant extent due to the consumer demand for the Company’s products and the Company’s relationships with its customers. Products of the Company have been generally sold through its own sales forces and through broker and distributor arrangements and have been 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 December 28, 2002, and December 31, 2001, was not material to the Company.

Competition. The Company has experienced, and expects to continue to experience, intense competition for sales of all of its principal products in its major product categories, 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. 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

Regulation. The Company’s activities are subject to regulation by various government agencies, including the Food and Drug Administration, Department of Agriculture, Federal Trade Commission, and Department of Commerce in the United States, and various state and local agencies, as well as similar agencies outside of the United States.

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 materially affect the consolidated 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 28, 2002, the Company had approximately 25,700 employees.

Financial Information About Geographic Areas. The information called for by this Item is incorporated herein by reference from Note 14 to the Consolidated Financial Statements on page 46 of the Company’s Annual Report.

Availability of Reports; Website Access. Our internet address is http://www.kelloggcompany.com and “Investor — Why Invest — SEC Filings” on our home page has, since November, 2002, provided a hyperlink to the 10kWizard.com web site. Through that hyperlink, we make available free of charge our Board of Directors proxy statements, annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Forward-Looking Statements. This Report contains, or incorporates by reference, “forward-looking statements” with projections concerning, among other things, the Company’s strategy and plans; exit plans and costs related to the Keebler acquisition; growth, margins and profitability; products and promotions; the impact of accounting changes; our ability to meet interest and debt principal repayment obligations; working capital; future common stock purchases; effective income tax rate; cash flow; property addition expenditures; interest expense; commodity prices; health care and pension costs; and realizability of the carrying value of intangibles and other assets. Forward-looking statements include predictions of future results or activities and may contain the words “expect,” “believe,” “will,” “will deliver,” “anticipate,” “project,” “should,” or words or phrases of similar meaning. For example, forward-looking statements are found in this Item 1 and in several sections of Management’s Discussion and Analysis incorporated by reference. The Company’s actual results or activities may differ materially from these predictions. In particular, future results or activities could be affected by factors related to the Keebler acquisition, including integration problems, failures to achieve synergies, unanticipated liabilities, and the substantial amount of indebtedness incurred to finance the acquisition, which could, among other things, hinder the Company’s ability to adjust rapidly to changing market conditions, make the Company more vulnerable in the event of a downturn, and place the Company at a competitive disadvantage in relation to less-leveraged competitors. The Company’s future results could be affected by a variety of other factors, including competitive conditions in our markets and categories and their impact; pricing and promotional and marketing spending levels and/or incremental pricing actions by the Company or others and their effect on actual volumes and product mix; actual market performance of benefit plan trust investments; the effectiveness of advertising and marketing spending or programs; the success of innovations and new product introductions; the levels of spending on system initiatives, properties, business opportunities, integration of acquired businesses, and other general and administrative costs; the availability of and interest rates on short-term financing; changes in consumer behavior and preferences; commodity prices and labor costs; U.S. and foreign economic conditions, including currency conversion controls and rate fluctuations; business disruption from terrorist acts or political unrest or responses to them; changes in U.S. or foreign regulations affecting the food industry; the success of productivity improvements and business

transitions; legal factors; and other items. Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to publicly update them.

The Company’s corporate headquarters and principal research and development facilities are located in Battle Creek, Michigan.

The Company operated, as of December 28, 2002, manufacturing plants and warehouses totaling more than 18 million (18,000,000) 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 United States convenience foods plants are located in San Jose, California; Athens, Atlanta, Augusta, Columbus, Macon, and Rome, Georgia; Chicago and Des Plaines, Illinois; Kansas City, Kansas; Florence, Louisville, and Pikeville, Kentucky; Grand Rapids, Michigan; Blue Anchor, New Jersey; Cary and Charlotte, North Carolina; Cincinnati, Fremont, Worthington, and Zanesville, Ohio; Muncy, Pennsylvania; and Rossville, Tennessee.

Outside the United States, the Company had, as of December 28, 2002, 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, generally are owned by the Company, although some manufacturing facilities are leased, and no owned property is subject to any major lien or other encumbrance. Distribution facilities and offices of non-plant locations typically are leased. In general, the Company considers its facilities, taken as a whole, to be suitable, adequate, and of sufficient capacity for its current operations.

The Company is not a party to any pending legal proceedings which could reasonably be expected to have a material adverse effect on the Company on a consolidated basis, nor are any of the Company’s properties or subsidiaries subject to any such proceedings.

The names, ages, and positions of the executive officers of the Company (as of February 1, 2003) are listed below together with their business experience. Executive officers are generally elected annually by the Board of Directors at the meeting immediately prior to the Annual Meeting of Share Owners.

Mr. Gutierrez has been Chairman of the Board since April 2000, and President and Chief Executive Officer since April 1999. Mr. Gutierrez joined Kellogg de Mexico in 1975. He was appointed Executive Vice President — Business Development in 1996. In 1998, Mr. Gutierrez was named President and Chief Operating Officer.

Mr. Mackay joined Kellogg Australia in 1985 and held several positions with Kellogg USA and Kellogg Australia and New Zealand before leaving Kellogg in 1992. He rejoined Kellogg Australia in 1998 as managing director and was appointed managing director of Kellogg United Kingdom and Republic of Ireland late in 1998. He was named Senior Vice President and President, Kellogg USA in July 2000 and Executive Vice President in November 2000.

Mr. Harris joined Kellogg Company of Great Britain Limited in 1984. In 1994, he was promoted to Executive Vice President — Marketing and Sales, Kellogg USA. Mr. Harris was promoted to Executive Vice President and President, Kellogg Latin America in 1997. He was appointed Executive Vice President and President, Kellogg Europe in March 1999 and was named to his current position in October 2000.

Janet Langford Kelly
Executive Vice President —
Corporate Development and Administration, General Counsel and Secretary 45

Ms. Kelly joined Kellogg Company as Executive Vice President — Corporate Development, General Counsel and Secretary in September 1999, and became Executive Vice President — Corporate Development and Administration, General Counsel and Secretary in April 2001. Prior to joining Kellogg Company, Ms. Kelly served as Senior Vice President, Secretary and General Counsel for Sara Lee Corporation. Before joining Sara Lee, Ms. Kelly was a partner at the law firm of Sidley & Austin.

Mr. Pouw joined the Company in 1978. In 1995, he was appointed Director, Operations and Technology, Latin America and, in 1998, he was appointed Vice President, Global Supply Chain, Operations Effectiveness. In March 1999, he was promoted to Supply Chain Director, Europe and later to Vice President, Supply Chain, Europe. He was appointed Senior Vice President — Operations in November 2000 and was appointed to his current position in December 2001.

Mr. Bryant joined Kellogg Company in March 1998, working in support of the global strategic planning process. He served as Vice President — Kellogg North America Strategy Development/ Business Understanding and, in October 1998, was named Vice President — Financial Planning, Cereal. In 2000, Mr. Bryant also served as Vice President, Trade Marketing and as a member of the sales leadership team for Kellogg USA. He was appointed Senior Vice President and Chief Financial Officer, Kellogg USA, in August 2000, was appointed Chief Financial Officer in February 2002 and was appointed Executive Vice President later in 2002. Before joining Kellogg Company, Mr. Bryant held a leadership position with Lion Nathan Australia, Australia’s largest beverages company, where he was Planning Director from 1997 to 1998.

Mr. Pilon joined Kellogg Company in January 2003. Prior to his joining Kellogg Company, Mr. Pilon worked as a consultant and served as Senior Vice President — Administration and Senior Vice President — Human Resources at the Whitman Corporation, a conglomerate engaged in the beverage, commercial refrigeration and automotive service industries.

Mr. Boromisa joined Kellogg Company in 1981 as a senior auditor. He served in various financial positions until he was named Vice President — Purchasing of Kellogg North America in 1997. In November 1999, Mr. Boromisa was promoted to Vice President and Corporate Controller of Kellogg Company and in 2002, he was promoted to Senior Vice President.

The information called for by this Item is set forth below and on page 45 of the Company’s Annual Report in Note 13 to the Consolidated Financial Statements of the Company, which is incorporated by reference into Item 8 of this Report.

Approximately 14,000 shares of Kellogg Company common stock were sold to 5 members of senior management under the Kellogg Company Executive Stock Purchase Plan in February 2002 in a private placement. The Kellogg Company Executive Stock Purchase Plan allows selected senior level employees to elect to use all or part of their annual bonus, on an after-tax basis, to purchase shares of the Company’s common stock at fair market value (as determined over a thirty-day trading period). Kellogg Company received approximately $465,000 under this Plan in 2002, which it used for general corporate purposes.

The information called for by this Item is incorporated herein by reference from the chart entitled “Selected Financial Data” on page 29 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.

The information called for by this Item is incorporated herein by reference from pages 21 through 28 of the Company’s Annual Report.

The information called for by this Item is incorporated herein by reference from pages 50 through 52 of the Company’s Annual Report.

The information called for by this Item is incorporated herein by reference from pages 30 through 49 of the Company’s Annual Report. Supplementary quarterly financial data, also incorporated herein by reference, is set forth in Note 13 to the Consolidated Financial Statements on page 45 of the Company’s Annual Report.

Directors — Refer to the information in the Company’s Proxy Statement to be filed with the Securities and Exchange Commission for the Annual Meeting of Share Owners to be held on April 25, 2003 (the “Proxy Statement”), under the caption “Election of Directors,” which information is incorporated herein by reference.

Executive Officers of the Registrant — Refer to “Executive Officers of the Registrant” under Item 4A at pages 6 and 7 of this Report.

For information concerning Section 16(a) of the Securities Exchange Act of 1934, refer to the information under the caption “Security Ownership — Section 16(a) Beneficial Ownership Reporting Compliance” of the Proxy Statement, which information is incorporated herein by reference.

Refer to the information under the captions “Executive Compensation” and “About the Board of Directors — Non-Employee Director Compensation and Benefits” of the Proxy Statement, which is incorporated herein by reference. See also the information under the caption “Report of the Compensation Committee on Executive Compensation” of the Proxy Statement, which information is not incorporated by reference.

Refer to the information under the captions “Security Ownership — Five Percent Holders”, “Security Ownership — Officer and Director Stock Ownership” and “Securities Authorized for Issuance under Equity Compensation Plans” of the Proxy Statement, which information is incorporated herein by reference.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure based on management’s interpretation of the definition of “disclosure controls and procedures,” in Rule 13a-14(c). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, rather than absolute, assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Within 90 days prior to the date of this report, management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

There have been no significant changes in the Company’s internal controls or in the other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation. Therefore, no corrective actions were taken.

The following Consolidated Financial Statements and related Notes, together with the Report thereon of PricewaterhouseCoopers LLP dated January 29, 2003, appearing on pages 30 through 49 of the Company’s Annual Report to Share Owners for the fiscal year ended December 28, 2002, are incorporated herein by reference:


	Consolidated Statement of Earnings for the years ended December 28, 2002, and December 31, 2001, and 2000. Consolidated Statement of Shareholders’ Equity for the years ended December 28, 2002, and December 31, 2001, and 2000. Consolidated Balance Sheet at December 28, 2002 and December 31, 2001.


	Consolidated Statement of Cash Flows for the years ended December 28, 2002, and December 31, 2001, and 2000. Notes to Consolidated Financial Statements.

The Financial Schedule and related Report of Independent Accountants filed as part of this Report are as follows:

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 Share Owners for the fiscal year ended December 28, 2002.

All other financial statement schedules are omitted because they are not applicable.

The information called for by this Item is incorporated herein by reference from the Exhibit Index on pages 17 through 19 of this Report.

Our audits of the consolidated financial statements referred to in our report dated January 29, 2003, appearing in the 2002 Annual Report to Shareholders 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 15(a)(2) 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.

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 14th day of March, 2003.


	By:	/s/ CARLOS M. GUTIERREZ



	Carlos M. Gutierrez
	Chairman of the Board, President and
	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.

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:


	a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


	a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


	/s/ CARLOS M. GUTIERREZ

	Carlos M. Gutierrez
	Chairman of the Board, President and
	Chief Executive Officer of Kellogg Company


	a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


	/s/ JOHN A. BRYANT

	John A. Bryant
	Executive Vice President and
	Chief Financial Officer of Kellogg Company


*	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 share owners a copy of any of the above Exhibits not included herein upon the written request of such share owner and the payment to the Company of the reasonable expenses incurred by the Company in furnishing such copy or copies.

19 EX-3.02 3 k74347exv3w02.txt BYLAWS, AS AMENDED EXHIBIT 3.02 KELLOGG COMPANY BYLAWS (AS AMENDED UP TO AND INCLUDING FEBRUARY 21, 2003) ARTICLE 1 OFFICES SECTION 1. OFFICES. The registered office of the Corporation, and the registered agent of the Corporation in Delaware, shall be as described in the Corporation's Amended Restated Certificate of Incorporation, as amended or restated from time to time (the "Certificate of Incorporation"). The address of the registered office, and such registered agent, may be changed from time to time by the Board of Directors. The Corporation may also have an office in the City of Battle Creek, State of Michigan, and also offices at such other places as the Board of Directors may designate from time to time, or as the business of this Corporation may require. ARTICLE II SHARE OWNERS SECTION 1. ANNUAL MEETINGS. The Annual Meeting of Share Owners of this Corporation may be held either within or without the State of Delaware at a time, on a date and at a place (if any) to be designated by the Board of Directors. In lieu of holding an Annual Meeting of Share Owners at a designated place, the Board of Directors may, in its sole discretion, determine that any such Annual Meeting may be held solely by means of remote communication. SECTION 2. SPECIAL MEETINGS. Special meetings of the share owners may be held on such date, at such time, and at such place (if any) either within or without the State of Delaware and may be called (i) by such number of Directors constituting not less than two-thirds of the Full Board (as such term is defined in Article NINTH of the Certificate of Incorporation), or (ii) by the Chairman of the Board, or in such officer's absence or incapacity, by a Vice Chairman, or in such officer's absence or incapacity, by the Chairman of the Nominating and Governance Committee. In lieu of holding a special meeting of share owners at a designated place, the person calling such meeting may, in his or her sole discretion, determine that any such special meeting may be held solely by means of remote communication. SECTION 3. VOTES. Each share owner shall be entitled to one (1) vote for each share of common stock held on all matters to be voted upon. Each share owner entitled to vote shall be entitled to vote in person or by proxy (and may authorize another person to act as such proxy in such ways, such as electronic transmission, as are permitted under Delaware law), but no proxy shall be voted or acted on after three (3) years from its date unless said proxy provides for a longer period. Any copy, facsimile telecommunication, or other reliable reproduction of the writing or transmission created pursuant to this Section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original meeting or transmission could be used; provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. All voting, except where otherwise required by law, the Certificate of Incorporation, these Bylaws, or the Board of Directors, may be by a voice vote. SECTION 4. QUORUM. At any meeting at which the holders of common stock shall be entitled to vote, the holders of a majority of the outstanding shares of common stock entitled to vote at such meeting and present in person or by proxy, shall constitute a quorum. If a quorum is present, the affirmative act of a majority of the shares represented at the meeting and entitled to vote shall be the act of the share owners, except (i) Directors shall be elected by a plurality of the votes of the shares represented at the meeting and entitled to vote in the election of Directors or (ii) as may otherwise be provided by Delaware law, these Bylaws or the Certificate of Incorporation. In the absence of a quorum at any share owners meeting, the holders of common stock present at such meeting may adjourn the meeting from time to time without any notice other than an announcement at the meeting. The presiding chairman at the meeting may also adjourn the meeting from time to time, whether or not a quorum is present, without further notice and without providing notice of the time and place of the adjourned meeting, except to the extent required by law. At any such adjourned meeting at which a quorum shall be present, any business which may have been transacted at the originally notified meeting may be transacted. In no event shall any public announcement of any adjournments or postponements commence a new time period for the giving of share owner notice of nominations or proposals under Article II, Section 11 of these Bylaws. Any previously scheduled meeting of share owners may be postponed or cancelled by resolution of the Board upon public notice given prior to the previously scheduled time. SECTION 5. SHARE OWNER LIST; STOCK LEDGER. A complete list of the share owners entitled to vote at any meeting of share owners, arranged in alphabetical order, showing the address and the number of shares registered in the name of each share owner (but no electronic contact information), shall be prepared by the Secretary of the Corporation. Such list shall be open to the examination of any share owner, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to share owners of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any share owner who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any share owner during the whole time of the meeting on a reasonable accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. The stock ledger shall be the only (and conclusive) evidence as to who are the share owners entitled to examine the stock ledger, the list required by this Section, the books of the Corporation, to vote in person or by proxy at any meeting of share owners, or otherwise to exercise or possess the rights of share owners, and the Corporation shall not be bound to recognize any equitable or other claim to, or interest in, any share on the 2 part of any other person, whether or not it shall have notice thereof, except as expressly provided by Delaware law. SECTION 6. CONSENTS TO CORPORATE ACTION (DELETED) SECTION 7. ATTENDANCE TO CONSTITUTE WAIVER OF NOTICE. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 8. RECORD DATE. In order that the Corporation may determine the share owners entitled to vote at any meeting of share owners or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or for the purpose of any other lawful action, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted, and which shall be (i) not more than 60 nor less than 10 days before the date of a meeting, and (ii) not more than 60 days prior to the other action. If no record date is fixed the close of business on the date next preceding the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend or distribution is adopted, as applicable, shall be the record date for such determination of share owners. A determination of share owners of record entitled to notice of or to vote at a meeting of share owners shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for any adjourned meeting. SECTION 9. CHAIRMAN OF MEETING. The Chairman of the Board of Directors or, in such officer's absence or incapacity, a Vice Chairman, shall preside at all meetings of the share owners. In the absence or inability to act of the Chairman and the Vice-Chairman, the Chairman of the Nominating and Governance Committee shall preside. The Secretary shall act as secretary of each meeting of the share owners. In the event of his or her absence or inability to act, the chairman of the meeting shall appoint a person who need not be a share owner to act as secretary of the meeting. SECTION 10. CONDUCT OF MEETINGS. Meetings of share owners shall be presided over by the presiding chairman, whose rulings on procedural matters shall be final. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of share owners as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the presiding chairman shall have the exclusive right and authority to prescribe such rules, regulations, and procedures (including, but not limited to, determination of the order of business) and to do all such acts as in the judgment of such presiding chairman, are appropriate for the proper conduct of the meeting. No matter shall be considered at a meeting of share owners unless upon a motion duly made and seconded. SECTION 11. ADVANCE NOTICE OF SHARE OWNER NOMINATIONS AND PROPOSALS FOR OTHER BUSINESS. Nominations of persons for election to the Board of 3 Directors and the proposal of business to be transacted by the share owners may be made at an annual or special meeting of the share owners only (a) pursuant to the Corporation's notice with respect to such meeting, (b) by or at the direction of the Board of Directors or (c) by any share owner of the Corporation who was a share owner of record on the record date set with respect to such meeting who is entitled to vote at the meeting and who has complied with the notice procedures set forth in this Article II, Section 11. For nominations or proposals for other business to be properly brought before an annual or special meeting by a share owner pursuant to clause (c) above, the share owner must give timely notice thereof in writing to the Secretary of the Corporation and such business must be a proper matter for share owner action under the Delaware General Corporation Law and a proper matter for consideration at such meeting under the Certificate of Incorporation and these Bylaws. For such notice to be timely, it must be delivered to the Secretary at the principal business office of the Corporation not earlier than the 120th day prior to the date of such meeting and (1) in the case of an Annual Meeting of Share Owners, at least 45 days before the date on which the Corporation first mailed its proxy materials for the prior year's Annual Meeting of Share owners and (2) in the case of a special meeting, not later than the close of business on the later of (i) the 60th day prior to the date of such meeting or (ii) the 10th day following the day on which public announcement of the date of such meeting is first made. If such share owner notice relates to a proposal by such share owner to nominate one or more persons for election or re-election as a Director, it shall contain a representation that: (i) the share owner is, and will be, on the record date, a beneficial owner or a holder of record of stock of this Corporation entitled to vote at such meeting; (ii) the share owner has, and will have, on the record date, full voting power with respect to such shares; and (iii) the share owner intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice. Additionally, each such notice shall set forth: (a) the name and address of the share owner who intends to make the nomination or proposal and of the person or persons to be nominated; (b) a description of all arrangements or understandings between the share owner and each proposed nominee, and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are be made by the share owner; (c) the number and kinds of securities of this Corporation held beneficially or of record by each proposed nominee; and (d) all information relating to each such person that is required to be disclosed in solicitations or proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including, if and to the extent so required, such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected). If such share owner notice relates to any other business that the share owner proposes to bring before the meeting, it shall set forth a brief description of such business, the reasons for conducting such business at the meeting, and any material interest in such business of such share owner and the beneficial owner, if any, on whose behalf the proposal is made. Each such notice shall also set forth as to the share owner giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such share owner, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of capital stock of the Corporation which are owned beneficially and of record by such share owner and such beneficial owner. Persons nominated by share owners to serve as Directors of the Corporation who have not been nominated in accordance with this Article II, Section 11 shall not be eligible to serve as Directors. Only such business shall be conducted at an annual or special meeting of share owners as shall have been brought before the meeting by a share owner in accordance with this Article 11, Section 11. The chairman of the meeting may refuse to acknowledge the nomination 4 or proposal if any information supplied is false or misleading or if the requirements are not satisfied, shall determine whether a nomination or any business proposed to be transacted by the share owners has been properly brought before the meeting and, if any proposed nomination or business has not been properly brought before the meeting, the chairman shall declare that such proposed business or nomination shall not be presented for share owner action at the meeting. For purposes of this Article II, Section 11, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press, or a comparable national news service. Notwithstanding any provision in this Section 11 to the contrary, requests for inclusion of proposals in the Corporation's proxy statement made pursuant to Rule 14a-8 under the Exchange Act shall be deemed to have been delivered in a timely manner if delivered in accordance with such Rule. Notwithstanding compliance with the requirements of the Article II, Section 11, the chairman presiding at any meeting of the share owners may refuse to allow a share owner or share owner representative to present any proposal which the Corporation would not be required to include in a proxy statement under any rule promulgated by the Securities and Exchange Commission. SECTION 12. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The Board of Directors, by resolution, shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents, or representatives, to act at the meetings of share owners and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of share owners, the presiding officer of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by law. The presiding chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the share owners will vote at a meeting. SECTION 13. NOTICE OF MEETINGS AND RECORD DATE. The Corporation shall give notice of any annual or special meeting of share owners. Notices of meetings of the share owners shall state the place, if any, date, and hour of the meeting, and means of remote communication, if any, by which share owners and proxyholders may be deemed to be present in person and vote at such meeting. The business transacted at an Annual Meeting of Share Owners shall be limited to that which is brought: (i) pursuant to the Corporation's notice with respect to that meeting; (ii) by or at the direction of the Board of Directors; or (iii) by a share owner who complies with the applicable provisions of these Bylaws. In the case of a special meeting, the notice shall state the purpose of purposes for which the meeting is called. No business other than that specified in the notice thereof shall be transacted at any special meeting. Unless otherwise provided by applicable law or the Certificate of Incorporation, notice shall be given to each share owner entitled to vote at such meeting not fewer than ten days or more than sixty days before the date of the meeting. Notice to share owners may be given by writing in paper form or solely in the form of electronic transmission as permitted by this Section. If given by writing in paper form, notice may be delivered personally, may be delivered by mail, or with the consent of the share owner entitled to receive notice, may be delivered by facsimile telecommunication or any of the other means of electronic transmission. If mailed, such notice shall be delivered by postage-prepaid envelope directed to each share owner at such share 5 owner's address as it appears in the records of the Corporation. Any notice to share owners given by the Corporation shall be effective if delivered or given by a form of electronic transmission to which the share owner to whom the notice is given has consented. Notice given pursuant to this Section shall be deemed given: (i) if by facsimile telecommunication, when directed to a facsimile telecommunication number at which the share owner has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the share owner has consented to receive notice; (iii) if by posting on an electronic network together with separate notice to the share owner of such specific posting, upon the later of such posting or the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the share owner. An affidavit of the Secretary or an Assistant Secretary or of the Transfer Agent or other agent of the Corporation that the notice has been given by personal delivery, by mail, or by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein. Notice of any meeting of share owners need not be given to any share owner if waived by such share owner either in a writing signed by such share owner or by electronic transmission, whether such waiver is given before or after such meeting is held. If such a waiver is given by electronic transmission, the electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the share owner. SECTION 14. REMOTE COMMUNICATION. For purposes of these Bylaws, if authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, share owners and proxyholders may, by means of remote communication: (i) participate in a meeting of share owners; and (ii) be deemed present in person and vote at a meeting of share owners whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (a) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a share owner or proxyholder; (b) the Corporation shall implement reasonable measures to provide such share owners and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the share owners, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings; and (c) if any share owner or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation. ARTICLE III DIRECTORS SECTION 1. MEMBERSHIP. The number of Directors of this Corporation shall be not less than seven (7) nor more than fifteen (15), the exact number of Directors to be fixed from time-to-time by a resolution adopted by not less than two-thirds of the Full Board. Directors shall be divided into three classes, as nearly equal in number as possible, with a term of office of three years, one class to expire each year. At each Annual Meeting of Share Owners, the class of Directors whose terms of office shall expire at such time shall be elected as provided in these Bylaws to hold office for terms expiring at the third Annual Meeting of Share Owners following their election and until a successor shall be elected and shall qualify. Nominations for the election of Directors may be made by the Board of Directors or a committee appointed by 6 the Board of Directors or by any share owner who complies with Article II, Section 11 of these Bylaws, the Certificate of Incorporation and Delaware law. SECTION 2. VACANCIES. Subject to the rights of the holders of any particular class or series of equity securities of this Corporation, (i) newly created directorships resulting from any increase in the total number of authorized Directors may be filled by the affirmative vote of not less than two-thirds of the Directors then in office, although less than a quorum, or by a sole remaining Director, at any regular of special meeting of the Board of Directors, or by a plurality vote of the share owners at any meeting of share owners, and (ii) any vacancies on the Board of Directors resulting from death, resignation (by written or electronic transmission), retirement, disqualification, removal from office or other cause may be filled only by the affirmative vote of a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director, at any regular or special meeting of the Board of Directors. Any Director elected to fill a vacancy described in clause (ii) shall be of the same class as his or her predecessor. SECTION 3. PLACE OF MEETINGS. The Directors may hold their meetings at such place or places as they may, from time-to-time, determine. SECTION 4. REGULAR MEETINGS. Regular meetings may be called by the Chairman of the Board, or in such officer's absence or incapacity, by a Vice Chairman, or in such officer's absence or incapacity, by the Chairman of the Nominating and Governance Committee or not less than six (6) Directors. Notice may also be given at an earlier Board meeting (by approval of a resolution or otherwise), in which case no further notice shall be required. The Board of Directors may provide, by resolution, the time and place for the holding of different or additional regular meetings or the cancellation of a regular meeting(s), without notice other than such resolution. SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors, may be called by the Chairman of the Board, or in such officer's absence or in capacity, by a Vice Chairman, or in such officer's absence or incapacity, by the Chairman of the Nominating and Governance Committee or not less than six (6) Directors. SECTION 6. VOTES. Any member of the Board may require the ayes and noes to be taken on any questions and recorded on the minutes. SECTION 7. QUORUM. Except as herein otherwise specifically provided, a majority of the number of Directors constituting the Full Board, in the case of a meeting of the Board, and a majority of the number of Directors serving on a committee, in the case of a meeting of a committee, shall constitute a quorum for the transaction of business. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors or committee, unless by express provision of law, of the Certificate of Incorporation, or of these Bylaws, a different vote is required, in which case such express provision shall govern and control. In the absence of a quorum, a majority of the Directors present at any meeting may, without notice other than announcement at the meeting, adjourn such meeting from time to time until a quorum is present. A Director who is present at a regular or special meeting of the Board of Directors or a committee at which action on any corporate 7 matter is taken shall be presumed to have assented to the action taken unless his or her dissent is entered in the minutes of the meeting or unless he or she files his or her written dissent to such action with the person acting as the secretary of the meeting before the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. SECTION 8. COMPENSATION OF DIRECTORS. Compensation of Directors shall be as determined by the Board upon recommendation of the Nominating and Governance Committee. Each Director shall be entitled to reimbursement from the Corporation for his or her reasonable expenses incurred with respect to duties as a member of the Board of Directors or any committee thereof. Subject to the requirements of applicable committee charters or legal or regulatory requirements, nothing contained herein shall be construed to preclude any Director from serving this Corporation in any other capacity and receiving compensation therefor. SECTION 9. NOTICES. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need to be specified in the call or notice, or waiver of notice of such meeting, unless specifically required by law, the Certificate of Incorporation or these Bylaws. Notice of any regular (if required) or special meeting of the Board of Directors (or any committee thereof) may be given as provided in Article III, Section 4 or Article IV, Section 1 or verbally in person, verbally by telephone (including by leaving verbal notice on a message or recording device), or in writing. If in writing, notice shall be delivered personally, by mail, by facsimile transmission (directed to the facsimile transmission number for which the Director has consented to receive notice), by telegram, by electronic mail (directed to such electronic mail address to which the Director has consented to receive notice), or by other form of electronic transmission pursuant to which the Director has consented to receive notice. If notice is given verbally in person, verbally by telephone, or in writing by personal delivery, by facsimile transmission, by telegram, by electronic mail, or by other form of electronic transmission pursuant to which the Director has consented to receive notice, then such notice shall be given on not less than twenty-four hours' notice to each Director. If written notice is delivered by mail, then it shall be given on not less than three (3) calendar days' notice to each Director. Notice of any meeting of the Board of Directors, or any committee thereof, need not be given to any Director if waived by him or her in writing or by electronic transmission, whether before or after such meeting is held or if or she shall sign the minutes or attend the meeting, except that if such Director attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened, then such Director shall not be deemed to have waived notice of such meeting. If waiver of notice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the Director. SECTION 10. ACTIONS BY BOARD OR COMMITTEE. Unless otherwise provided by the Certificate of Incorporation or these Bylaws: (i) any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or any committee thereof, as the case may be, consent thereto (a) in writing, or (b) by electronic transmission, and the writing or writings or transmissions are filed with the minutes of proceedings of the Board of Directors or such committee (with such filing to be in paper form if the minutes are maintained in paper form or in electronic form if the minutes are maintained in electronic form); provided; however, that 8 such electronic transmission or transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission or transmission were authorized by the Director; and (ii) members of the Board of Directors, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting. ARTICLE IV COMMITTEES SECTION 1. EXECUTIVE COMMITTEE; ALL COMMITTEES. There may be an Executive Committee of two or more Directors, including the Chairman of the Board, designated by resolution of the Board of Directors. During the intervals between meetings of the Board, the members of such Committee, who shall be requested to do so, shall advise and aid the officers in all matters concerning its interests and the management of its business, and generally perform such duties and exercise such powers as may be directed or delegated by the Board of Directors from time-to-time, or as authorized by such Committee's charter. The Board may delegate to such Committee authority to exercise all powers of the Board, except those powers specifically excluded from committees by Section 141(c)(2) of the Delaware General Corporation Law and except the power to authorize the issuance of stock of this Corporation while the Board is not in session. The Executive Committee, and all other committees designated by the Board of Directors, may meet at stated times or as indicated in resolutions approved by the Board of Directors or the applicable committee or in a notice transmitted to all committee members by any member, and each such committee shall keep regular minutes of its proceedings and report the same to the Board of Directors as provided in its charter or when otherwise required. Except to the extent provided in the Certificate of Incorporation of these Bylaws, any member of any committee may be removed from such committee with or without cause, at any time, by the Board of Directors at any meeting thereof. The Board of Directors may designate one or more Directors as alternate members of any committee to replace any absent or disqualified member. Vacancies in the membership of any such committee shall be filled by the Board of Directors. In the absence or disqualification of a member of any such committee, the member or members of the committee present at a meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another Director to act at the meeting in place of each such absent or disqualified member. Each such committee shall also determine the other procedural rules for meeting and conducting its business. SECTION 2. AUDIT COMMITTEE. There shall be an Audit Committee of three or more Directors designated by resolution of the Board of Directors or provided in its charter, with each of such Directors to meet the requirements provided in the Audit Committee's charter. The Committee and its members shall generally perform such duties and exercise such powers as may be directed or delegated by the Board of Directors from time-to-time, including those described in its charter. SECTION 3. COMPENSATION COMMITTEE. There shall be a Compensation Committee of three or more Directors designated by resolution of the Board of 9 Directors or provided in its charter, with each of such Directors to meet the requirements provided in the Compensation Committee's charter. The Committee and its members shall generally perform such duties and exercise such power as may be directed or delegated by the Board of Directors from time-to-time, including those described in its charter. SECTION 4. FINANCE COMMITTEE. There may be a Finance Committee of two or more Directors designated by resolution of the Board of Directors or provided in its charter. The Committee and its members shall generally perform such duties and exercise such powers as may be directed or delegated by the Board of Directors from time-to-time, including those described in its charter. SECTION 5. NOMINATING AND GOVERNANCE COMMITTEE. There shall be a Nominating and Governance Committee of three or more Directors designated by resolution of the Board of Directors or provided in its charter, with each of such Directors to meet the requirements provided in the Nominating and Governance Committee's charter. The Committee and its members shall generally perform such duties and exercise such powers as may be directed or delegated by the Board of Directors from time-to-time, including those described in its charter. SECTION 6. SOCIAL RESPONSIBILITY COMMITTEE. There may be a Social Responsibility Committee of two or more Directors designated by resolution of the Board of Directors or provided in its charter. The Committee and its members shall generally perform such duties and exercise such powers as may be directed or delegated by the Board of directors from time-to-time, including those described in its charter. SECTION 7. OTHER COMMITTEES. The Board of Directors, by resolution, may dissolve existing committees and may designate additional committees, each of which shall consist of not less than one Director. Each such additional committee and its members shall generally perform such duties and exercise such powers as may be directed or delegated by the Board of Directors from time-to-time, including those described in its charter. ARTICLE V OFFICERS SECTION 1. OFFICERS. The officers of this Corporation shall be elected by the Board of Directors and shall consist of the Chairman of the Board, the Chief Executive Officer, the President, one or more Vice Presidents, a Secretary, a Controller, one or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, and such other officers (including but not limited to one or more Vice Chairmen of this Corporation) as shall, from time to time, be provided by the Board of Directors and who shall perform the usual duties pertaining to their respective offices, except as otherwise specifically provided in these Bylaws or by resolution of the Board of Directors. Unless the Board of Directors shall otherwise determine, the Chairman of the Board shall be the Chief Executive Officer of this corporation. One person may hold more than one office except that no person shall be both the President and a Vice President. 10 SECTION 2. QUALIFICATIONS. No person shall be eligible to be Chairman of the Board who is not a Director. Persons who are not Directors or who are not share owners shall be eligible for all other offices of this Corporation. SECTION 3. TERM OF OFFICE, RESIGNATIONS AND SALARIES. The officers shall be elected at the regular meeting of the Board of Directors on the day of, or the day immediately preceding, the Annual Meeting of Share Owners and shall hold office for one year and until their respective successors have been duly elected and qualified; provided, however, that any and all officers of this Corporation may resign at any time and shall be subject to removal at any time by an affirmative vote of Directors constituting not less than a majority of the Full Board or by action of the Chairman of the Board or Chief Executive Officer. Any officer of the Corporation may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or to the Chairman of the Board or Chief Executive Officer; provided, however, that if such notice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the officer. Such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. The salaries of the Chief Executive Officer and senior officers of the Corporation shall be fixed by, or at the direction of, the Board of Directors or the Compensation Committee from time to time, and no officer shall be prevented from receiving such salary by reason of the fact that he or she also is a Director. SECTION 4. BONDS. The Directors may, by resolution, require any or all of the officers or employees to give bond to this Corporation with good and sufficient surety conditioned upon the faithful performance of their respective duties and offices. SECTION 5. CHAIRMAN OF THE BOARD AND VICE CHAIRMEN. The Chairman of the Board, if one is elected, shall, in addition to his duties as a Director of this Corporation, preside as Chairman at all meetings of the share owners, of the Board of Directors, and of the Executive Committee. A Vice Chairman (if one or more is elected, in the order designated by the Board of Directors or the Chief Executive Officer) shall, in the absence of the Chairman of the Board, perform the duties of the Chairman of the Board provided for in this Section. SECTION 6. CHIEF EXECUTIVE OFFICER; PRESIDENT. The Chairman of the Board, unless otherwise designated by the Board of Directors, shall also be the Chief Executive Officer of this Corporation and shall have general supervision of the affairs of this Corporation, being responsible to the Board of Directors. The President shall have general supervision of the operations of this Corporation subject to the supervision of the Chairman of the Board, except that, if the Chairman of the Board shall not also have been designated Chief Executive Officer, or in the absence or incapacity of the Chairman of the Board who has been so designated, the President shall be the Chief Executive Officer of this Corporation and have general supervision of the affairs of this Corporation, being responsible to the Board of Directors. The President shall, in the absence or incapacity of the Chairman and Vice Chairmen of the Board, perform the functions of the Chairman of the Board set forth in Section 5 of this Article V. 11 SECTION 7. VICE PRESIDENTS. One or more of the Vice Presidents elected may be designated as Executive Vice Presidents. One or more of the Vice Presidents elected may be designated as Senior Vice Presidents. Each of the Vice Presidents, including the Executive Vice Presidents and the Senior Vice Presidents, shall perform such duties as may be prescribed by the Board of Directors or the Chief Executive Officer from time-to-time. In the absence or disability of the Chairman, Vice Chairman and President, any of the Executive Vice Presidents designated by the Chief Executive Officer or the Board of Directors shall possess all the powers and may perform any of the duties of the President. In the absence or disability of the President and all of the Executive Vice Presidents, such of the Vice Presidents designated by the Chief Executive Officer or the Board of Directors, or in the absence or incapacity of those designated Vice Presidents, any other person(s) designated by the Chief Executive Officer shall possess all of the powers and may perform all of the duties of the President. SECTION 8. SECRETARY. The Secretary, or in his or her absence or unavailability, any Assistant Secretary, shall issue notices for meetings, shall keep their minutes, shall have charge of the corporate seal and corporate Minute Books, and shall make such reports and perform such other duties as are incident to his or her office or as are properly required of him or her by the Chief Executive Officer or the Board of Directors. SECTION 9. TREASURER. The Treasurer shall have custody of all monies and securities of this Corporation. He or she shall deposit or cause to be deposited monies or other valuable effects in the name and to the credit of the Corporation, shall sign or countersign such instruments as require his or her signature and shall perform all duties incident to his or her office or that are properly required of him or her by the Board of Directors or the Chief Executive Officer. He or she shall give bond for the faithful performance of his or her duties in such sum and with such sureties, to the extent and as may be required of him or her by the Board of Directors or the Chief Executive Officer. Any Assistant Treasurer shall perform such duties and shall have such responsibilities as may be assigned to him or her by the Board of Directors, the Chief Executive Officer or the Treasurer. SECTION 10. CONTROLLER. The Controller shall have custody of all the accounting records of this Corporation and shall keep regular books of account. The Controller shall be responsible for maintaining the Corporation's accounting records and statements and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation. The Controller also shall maintain adequate records of all assets, liabilities, and transactions of the Corporation and shall assure that adequate audits thereof are currently and regularly made. He or she shall sign or countersign such instruments as require his or her signature and shall perform all duties incident to this office or that are properly required of him or her by the Board of Directors, or the Chief Executive Officer. SECTION 11. DELEGATION. In case of the absence of any officer of this Corporation or for any other reason which may seem sufficient to the Board of Directors, the Board of Directors or the Chief Executive Officer may delegate the powers and duties of any such officer to any Director, officer or employee for the time being. Any officer may also delegate his powers and duties to any other officer or employee, to the extent indicated in the document or transmission describing the delegation. 12 ARTICLE VI EXECUTION OF CHECKS AND OTHER INSTRUMENTS SECTION 1. The funds of this Corporation shall be deposited in such bank or banks of deposit as shall be designated or authorized by the Board of Directors or the Chief Financial Officer or Treasurer and in the name of Kellogg Company or such other name as the Board of Directors may designate. All checks, drafts or orders drawn against funds on deposit in any such bank shall be signed by such person or persons as may be authorized by the Board of Directors by a proper resolution or the Chief Financial Officer or Treasurer. SECTION 2. All other instruments or contracts in writing involving the payment of money or of credit or liability of this Corporation, such as deeds, bonds, contracts, etc., shall be signed in the name of this Corporation by the Chairman of the Board, a Vice Chairman, the Chief Executive Officer, a Vice President (including appointed Vice Presidents) or by such other person or persons as may be authorized by the Board of Directors or Chief Executive Officer and may be attested, and the corporate seal affixed thereto by either the Secretary or an Assistant Secretary. In the absence of the Secretary and Assistant Secretary, or their inability to act, the Treasurer or Assistant Treasurer may affix the seal. SECTION 3. The Board of Directors, the Executive Committee or the Chief Executive Officer may authorize the execution of other instruments or contracts by such other officers, agents and employees as may be selected by them from time-to-time and with such limitations and restrictions as the authorization may require. ARTICLE VII CERTIFICATES OF STOCK SECTION 1. CERTIFICATES OF STOCK. Certificates representing shares of stock of the Corporation shall be in such form as is determined by the Board of Directors or shall be uncertificated, to the extent provided by resolutions of the Board of Directors. Notwithstanding the adoption of any such resolutions by the Board of Directors providing for uncertificated shares, to the extent required by law, every holder of stock of the Corporation represented by certificates, and upon request, every holder of uncertificated shares, shall be entitled to a certificate representing such shares. Certificates for shares of stock shall be signed by the Chairman of the Board, the President or a Vice President, and by the Secretary or an Assistant Secretary of this Corporation, both of whose signatures may be a facsimile, and shall be numbered and entered in appropriate records of this Corporation (which may be held by a Transfer Agent and Registrar described below) as they are issued. Each certificate shall exhibit the holder's name and the number of shares evidenced thereby. They shall, in all respects, conform to the requirements of the law of the State of Delaware, and shall be otherwise in such form as may be prescribed by the Board of Directors. SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. If any person claims a certificate is lost, stolen or destroyed, a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost, stolen or destroyed, 13 upon compliance with any terms and conditions (such as a bond of indemnity) which this Corporation may prescribe. ARTICLE VII TRANSFER OF SHARES SECTION 1. TRANSFER OF SHARES. Shares of stock of this Corporation shall be transferred on the records of the Corporation (which may be held by a Transfer Agent and Registrar described below) by the owner thereof or his or her representative through the surrender and cancellation of a certificate or certificates for such share. Upon presentation and surrender of a certificate properly endorsed and payment of all taxes thereon, the transferee shall be entitled to a new certificate in place thereof if less than all shares represented by such surrendered certificate(s) were transferred. SECTION 2. REGISTRATION. One or more Transfer Agents and Registrars of the Company's stock may be appointed by resolution of the Board of Directors for the transfer and registration of any class or classes of stock of this Corporation, and upon such appointment, no certificate for any such class of stock shall be issued or be valid for any purpose until countersigned by one such Transfer Agent and registered and countersigned by one such Registrar; provided, however, that the countersignature of such Transfer Agent may be a facsimile if such certificate is countersigned manually by a Registrar who shall be other than this Corporation or its employee. ARTICLE IX CORPORATE SEAL SECTION 1. CORPORATE SEAL. The corporate seal shall have inscribed thereon in the center the words "Corporate Seal" and the number "1922", and in a circle around the margin the words "Kellogg Company" "Delaware". ARTICLE X DIVIDENDS SECTION 1. DIVIDENDS. Dividends upon the stock of this Corporation shall be payable from funds lawfully available therefor at such times and in such amounts as the Board of Directors, or a committee thereof expressly authorized by resolution of the Board of Directors, may from time-to-time, direct. ARTICLE XI FISCAL YEAR SECTION 1. FISCAL YEAR. Unless otherwise provided by the Board of Directors, the fiscal year of this Corporation shall begin on the 1st day of January and end on the 31st day of December of each year. 14 ARTICLE XII INSPECTION OF BOOKS SECTION 1. INSPECTION OF BOOKS. Except to the extent otherwise required by law, the Certificate of Incorporation or these Bylaws, the Board of Directors shall determine, from time-to-time whether, and if allowed, when, and under what conditions and regulations, the stock ledger, books, records and accounts of this Corporation, or any of them, shall be open to the inspection of the share owners, and the share owners' rights, if any, thereof. ARTICLE XIII MISCELLANEOUS SECTION 1. DESIGNATION OF ORDER. The Chief Executive Officer or the Board of Directors may designate any order of assignment of responsibility to apply within any specified group of officers where, as provided in these Bylaws, any such designation is to be made as to one or more of such officers. In the event that no such designation is made, the order of assignment within any specified group of officers will be according to the length of service of each particular officer in the specified office, with the officer serving the longest term within that particular office to be assigned first, and in his or her absence or incapacity, the officer serving the next longest term in that particular office to be assigned second, and so on. SECTION 2. VOTING SECURITIES OWNED BY THE CORPORATION. Notwithstanding anything to the contrary contained herein, powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President or Secretary or Assistant Secretary and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation or other entity in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. ARTICLE XIV AMENDMENT SECTION 1. AMENDMENT. Except to the extent otherwise provided in the Certificate of Incorporation, these Bylaws shall be subject to alteration, amendment of repeal, and new bylaws may be adopted (i) by the affirmative vote of the holders of not less than a majority of the voting power of all shares of the Voting Stock (as such term is defined in Article NINTH of the Certificate of Incorporation), voting together as a single class, at any regular or special meeting of the share owners (but only if notice of the proposed change be contained in the notice to the share owners of the proposed action), or (ii) by the affirmative vote of not less than a majority of the members of the Board of Directors at any meeting of the Board of Directors at which there is a quorum present and voting; provided that any alteration, 15 amendment of repeal made with respect to, or the adoption of, a new bylaw inconsistent with Article II, Section 2, or Article III, Section 1, Section 2, Section 5, or Section 7, or this Article XIV, Section 1 of these Bylaws, shall require, in the case of clause (i), the affirmative vote of the holders of not less than two-thirds of the voting power of all shares of the Voting Stock, or, in the case of clause (ii), the affirmative vote of Directors constituting not less than two-thirds of the Full Board. ARTICLE XV INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS; INSURANCE SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party, or is threatened to be made a party to, or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "Proceeding"), by reason of the fact that he or she is or was a Director or officer of the Corporation, where the basis of such Proceeding is an alleged action or omission in an official capacity as such, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes, or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith, and such indemnification shall continue as to an indemnitee who has ceased to be a Director or officer, and shall inure to the benefit of the indemnitee's heirs, executors and administrators; provided, however, that except as provided in Section 2 of this Article with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a Proceeding (or part thereof) initiated by such indemnitee only if such Proceeding (or part thereof) was authorized by the Board of Directors. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such Proceeding in advance of its final disposition (hereinafter an "Advancement of Expenses"); provided, however, that if the Delaware General Corporation Law requires, an Advancement of Expenses incurred by an indemnitee in his or her capacity as a Director or officer shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision, from which there is no further right to appeal, that such indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise (hereinafter an "Undertaking"). SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 1 of this Article is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an Advancement of Expenses, in which case the applicable period shall be twenty days, the indemnitee may, at any time thereafter, bring suit against the Corporation to recover the unpaid amount of the claim. If successful, in whole or in part, in any suit, or in a suit brought by the Corporation to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i), any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an Advancement of Expenses), it shall be a defense that, and (ii) any suit by the Corporation to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the Corporation shall be entitled to recover such 16 expenses upon a final adjudication that, the indemnitee has not met the applicable standard of conduct set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its share owners) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its share owners) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct, or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right hereunder, or by the Corporation to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the burden of proving that the indemnitee is not entitled to be indemnified or to such Advancement of Expenses under this Section or otherwise, shall be on the Corporation. SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to the Advancement of Expenses conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, these Bylaws, the Certificate of Incorporation, vote of share owners or disinterested Directors, or otherwise. SECTION 4. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any Director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. SECTION 5. OTHER INDEMNIFICATION. The Corporation may, to the extent authorized from time-to-time by the Board of Directors, grant rights to indemnification and to the Advancement of Expenses to any Director, officer, employee or agent of the Corporation, whether or not acting in his or her capacity as such, or at the request of the Corporation, to the fullest extent of the provisions of this Article with respect to the indemnification and Advancement of Expenses of Directors and officers of the Corporation. 17 EX-10.03 4 k74347exv10w03.txt SUPPLEMENTAL SAVINGS AND INVESTMENT PLAN EXHIBIT 10.03 KELLOGG COMPANY SUPPLEMENTAL SAVINGS AND INVESTMENT PLAN (RESTORATION PLAN) I. PURPOSE AND EFFECTIVE DATE 1.1. Purpose. The Kellogg Company Supplemental Savings and Investment Plan (Restoration Plan) was previously established by the Company to provide key employees a tax-deferred capital accumulation vehicle and to supplement such employees' contributions under the Kellogg Savings and Investment Plan, thereby encouraging savings for retirement. The Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation to a select group of management and highly compensated employees. The following provisions constitute an amendment, restatement and continuation of the Plan, as of the Effective Date. 1.2. Effective Date. The "Effective Date" of this amendment and restatement of the Plan shall be January 1, 2003, except to the extent an earlier or later effective date is specified herein. The Plan shall remain in effect until terminated in accordance with Article IX. The Keebler Company Deferred Compensation Plan was merged with and into the Plan on July 1, 2002. II. DEFINITIONS When used in the Plan and initially capitalized, the following words and phrases shall have the meanings indicated: 2.1. "Account" means the recordkeeping account established for each Participant in the Plan for purposes of accounting for the amount of Compensation deferred under Article 4 and Matching and Discretionary Credits, if any, to be credited under Article 5, adjusted periodically to reflect assumed investment return on such deferrals and credits, in accordance with Article 6. 2.2. "Affiliate" means (i) any corporation, partnership, joint venture, trust, association or other business enterprise which is a member of the same controlled group of corporations, trades or businesses as the Company within the meaning of Code Sections 414(b), (c), (m) and (o), and (ii) any other entity that is designated as an Affiliate by the Committee. 2.3. "Beneficiary" means the person or entity designated by the Participant to receive the Participant's Plan benefits in the event of the Participant's death. If the Participant does not designate a Beneficiary, or if the Participant's designated Beneficiary predeceases the Participant, the Participant's beneficiary under the S&I Plan shall be the Beneficiary under the Plan. 2.4. "Board" means the Board of Directors of the Company. 2.5. "Committee" means the ERISA Administration Committee or such other Committee as may be appointed by the Board to administer the S&I Plan. 2.6. "Compensation" shall have the same meaning as under the S&I Plan. 2.7. "Code" means the Internal Revenue Code of 1986, as amended. 2.8. "Company" means Kellogg Company and any successor thereto. 2.9. "Deferral Election" means the election made by an Eligible Employee to defer Compensation in accordance with Article 4. 2.10. "Disability" or "Disabled" shall have the same meaning as under the S&I Plan. 2.11. "Discretionary Credit" means an amount credited to a Participant's Account, as determined by the Company or applicable Employer in its sole discretion. 2.12. "Election Period" means the period specified by the Committee during which a Deferral Election may be made with respect to Compensation payable for a Plan Year. 2.13. "Eligible Employee" means, with respect to any Plan Year, unless determined otherwise by the Committee, an employee of the Company or an Employer whose job classification is Level 6 or above. 2.14. "Employer" means the Company and each Affiliate that, with the consent of the Company, has elected to participate in the Plan. 2.15. "Matching Credit" means the amount credited to a Participant's Account pursuant to Section 5.1. 2.16. "Participant" means an Eligible Employee who has elected to defer Compensation under the Plan or who has been credited with a Discretionary Credit. 2.17. "Plan" means the Kellogg Company Supplemental Savings and Investment Plan (Restoration Plan), as amended from time to time. 2.18. "Plan Year" means the calendar year. 2.19. "S&I Plan" means the Kellogg Company Savings and Investment Plan, as amended from time to time. 2.20. "Termination Date" means the date that a Participant ceases to be employed by any Employer or Affiliate. 2 2.21. "Valuation Date" means a date on which a Participant's Account is valued, which shall be each business day unless determined otherwise by the Committee. 2.22. "Year of Service" shall have the same meaning as under the S&I Plan. III. PARTICIPATION An Eligible Employee shall become a Participant in the Plan by filing a Deferral Election with the Committee in accordance with Article 4. An Eligible Employee who is not otherwise a Participant in the Plan shall become a Participant in the Plan on the date he or she is credited with a Discretionary Credit. If the Committee determines that participation by one or more Participants shall cause the Plan to be subject to Part 2, 3 or 4 of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the entire interest of such Participant or Participants under the Plan shall be paid immediately to such Participant or Participants or shall otherwise be segregated from the Plan in the discretion of the Committee, and such Participant or Participants shall cease to have any interest under the Plan. IV. DEFERRAL OF COMPENSATION 4.1. Deferral of Compensation . An Eligible Employee may elect to defer up to 50% of his or her Compensation for a Plan Year by filing a Deferral Election in accordance with Section 4.2. Deductions will be made pursuant to such Deferral Election once the first to occur of the following events: (1) such Eligible Employee's reaching the pre-tax limit under the S&I Plan or (2) such Eligible Employee's compensation exceeding $200,000.00. 4.2. Deferral Elections. A Participant's Deferral Election shall be in writing or electronic, and shall be filed with the Committee at such time and in such manner as the Committee shall provide, subject to the following: (a) Subject to paragraph (b) below, a Deferral Election shall be made during the election period established by the Committee which shall end no later than the day preceding the first day of the Plan Year in which such Compensation would otherwise be payable. For the Plan Year beginning January 1, 2003, such Deferral Election shall be made no later than December 18, 2002. (b) If an individual first becomes an Eligible Employee during a Plan Year, such individual may make a Deferral Election for such Plan Year within 60 days of first becoming an Eligible Employee. Such Deferral Election shall become effective as soon as administratively practical after the date such individual makes such Deferral Election. 3 All Deferral Elections shall become irrevocable as of the end of the Election Period; provided, however, if the Participant becomes Disabled or if the Committee, in its sole discretion, determines that a bona fide administrative mistake was made, the Committee may permit a Participant to revoke a Deferral Election. If a Deferral Election is revoked in accordance with the preceding sentence, the Participant may not make a new Deferral Election until the election period established by the Committee for making deferrals for the next Plan Year. 4.3. Crediting of Deferral Elections. The amount of Compensation that a Participant elects to defer under the Plan shall be credited by the Company to the Participant's Account as of the date such Compensation would have been payable to the Participant absent the Deferral Election. V. EMPLOYER CREDITS 5.1. Matching Credits. Subject to Section IV, a Participant who has made a Deferral Election for a Plan Year shall be credited with a "Matching Credit" equal to the 100% of his or her Plan deferrals that do not exceed 3% of the Participant's Compensation and 50% of Plan deferrals that exceed 3% of Compensation but do not exceed 5% of Compensation. To be eligible for Matching Credits under this Section 5.1, the Participant must have at least one Year of Service at the time the underlying Compensation deferral is credited to the Participant's Account. Such Matching Credits shall be credited to the Participant's Account at the same time that the underlying Compensation deferral is credited to the Participant's Account. If the Participant was previously employed by the Company, the Participant will be automatically eligible for Matching Credits if such Participant had completed at least one Year of Service during such prior employment. 5.2. Discretionary Credits. An Employer may award a Participant a Discretionary Credit in an amount determined by the Employer in its sole discretion. Any such Discretionary Credit shall be credited to the Participant's Account at the time determined by the Employer and shall be subject to such terms and conditions as the Employer may establish. 5.3. Vesting. Participants shall have a fully vested interest in the portion of their Account attributable to deferrals of Compensation and Matching Credits. Discretionary Credits, if any, shall vest in accordance with the terms established by the Employer at the time the Discretionary Credits are awarded. VI. PLAN ACCOUNTS 6.1. Valuation of Accounts. The Committee shall establish an Account for each Participant who has filed a Deferral Election to defer Compensation, who has been awarded a Discretionary Credit, or who has a benefit under the Plan on the Effective Date. Such Account shall be credited with a Participant's deferrals, Matching Credits and Discretionary Credits as set forth in Sections 4.4, 5.1 and 4 5.2, respectively, and with the Participant's benefit under the Plan as of the Effective Date, if any. As of each Valuation Date, the Participant's Account shall be adjusted upward or downward to reflect, (i) the amount of distributions, if any, to be debited as of that Valuation Date under Article 7, (ii) the amount of forfeitures, if any, to be debited under Sections 5.3 or 7.3(a), and (iii) the investment return to be credited as of such Valuation Date pursuant to Section 6.2. 6.2. Crediting of Investment Return. Subject to such rules and limitations as the Committee may determine, as of each Valuation Date, a Participant's Account balance (after subtracting any distributions or forfeitures to be made as of such Valuation Date) shall be adjusted upward or downward to reflect the gain or loss that would have been realized on such balance had it been invested in the S&I Plan's Stable Income Fund during the period since the immediately preceding Valuation Date or in any manner as determined by agreement between the Participant and the Company. VII. PAYMENT OF BENEFITS 7.1. Distribution Upon Termination of Employment . Following a Participant's Termination Date, distribution of the Participant's Account shall be made in accordance with one of the following options, as elected by the Participant: (a) A single lump sum payment, to be made as soon as practicable following the Participant's Termination Date; (b) A single lump sum payment, to be made January 31 following the Participant's Termination Date; (c) Annual installments over a period of 5, 10, 15 or 20 years, as elected by the Participant, with the first installment beginning as of January 31 of the Plan Year immediately following the Plan Year in which such Termination Date occurs. A Participant may make a distribution election under this Section 7.1 by filing a form with the Committee. A Participant may change the time and form of his or her distribution election under this Section 7.1 by filing a new election with the Committee; provided, however, that any election that has not been on file with the Committee at least 12 months prior to the Participant's Termination Date shall be void and disregarded and the Participant's most recent prior election with respect to the distribution shall govern. If the Participant does not have a valid election on file with the Committee at his or her Termination Date, the Participant's Account shall be paid in a single sum under paragraph (a) next above. Notwithstanding the foregoing, if a Participant's Termination Date occurs during the 2003 Plan Year, the Participant's Account shall be paid in accordance with the Participant's distribution election, if such election is filed by December 31, 2002. 5 7.2. Unscheduled Withdrawal. A Participant may request a withdrawal of all or a portion of his or her vested Account by filing an election with the Committee specifying the amount of the Account to be withdrawn. An amount equal to 10% of the withdrawal requested shall be debited to the Participant's Account and permanently forfeited. Payment of such withdrawal, adjusted by the amount forfeited, shall be made as of the first Valuation Date administratively practicable after such request is received. 7.3. Payments on Death. If a Participant dies prior to the time that his or her entire Account balance has been distributed, such Account balance, or remaining Account balance, shall be distributed to the Participant's Beneficiary in accordance with the distribution election made by the Participant. If the Participant does not have a valid distribution election on file, such Account shall be distributed to the Beneficiary in a single lump sum payment as soon as practicable after the Participant's death. 7.4. Time and Form of Elections. All distribution and withdrawal elections under this Article 7 shall be made at the time and in the form established by the Committee and shall be subject to such other rules and limitations that the Committee, in its sole discretion, may establish. 7.5. Form of Payment; Taxes. All payments under the Plan shall be made in cash. All benefits and payments under the Plan shall be subject to the withholding of all applicable taxes. The Employers shall have the right to withhold from any payments otherwise due a Participant all amounts of Federal and state taxes (including FICA taxes) required by law to be withheld under the Plan. The Employer may reduce amounts to be paid to the Participant under this Plan or may reduce any other forms of compensation payable to the Participant by an Employer to satisfy such tax withholding requirements. VIII. ADMINISTRATION 8.1. Authority of Committee. The Committee shall have full power and authority to carry out the terms of the Plan. The Committee's interpretation, construction and administration of the Plan, including any adjustment of the amount or recipient of the payments to be made, shall be binding and conclusive on all persons for all purposes. Neither the Employers, including their officers, employees or directors, nor the Committee or the Board or any member thereof, shall be liable to any person for any action taken or omitted in connection with the interpretation, construction and administration of the Plan. 8.2. Participant's Duty to Furnish Information. Each Participant shall furnish to the Committee such information as it may from time to time request for the purpose of the proper administration of this Plan. 6 8.3. Claims Procedure. Each Participant or Beneficiary (a "Claimant") may submit his or her claim for benefits to the Committee (or such other person or persons as may be designated by the Committee) in accordance with the following: (a) Initial Claim. Such claim shall be in writing in such form as is provided or approved by the Committee, and shall designate the date upon which the Claimant desires benefits to commence. A Claimant shall have no right to seek review of a denial of benefit, or to bring any action in any court to enforce a claim for benefits under the Plan, prior to filing a claim and exhausting his or her rights to review under this Section 8.3. When a claim for benefits has been filed properly, such claim shall be evaluated and the Claimant shall be notified of the approval or the denial within ninety (90) days after the receipt of such claim unless special circumstances require an extension of time for processing the claim. If such an extension of time is required, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial ninety (90) day period which shall specify the special circumstances requiring an extension and the date by which a final decision will be reached (which date shall not be later than one hundred and eighty (180) days after the date on which the claim was filed). A claimant shall be given a written or electronic notice in which the Claimant shall be advised as to whether the claim is granted or denied, in whole or in part. If a claim is denied, in whole or in part, such notice shall contain (1) the specific reasons for the denial, (2) references to the Plan provisions on which the denial is based, (3) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary, (4) the Claimant's right to seek review of the denial, and (5) the Claimant's right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review. (b) Review of Claim Denial. If a claim is denied, in whole or in part (if the Claimant has not received an approval or denial within the time periods specified in paragraph (a) above, the claim shall be deemed denied), the Claimant shall have the right to request that the Committee review the denial, provided that the Claimant files a written request for review with the Committee within sixty (60) days after the date on which the Claimant receives notification of the denial or the date the claim is deemed denied. A claimant (or his or her duly authorized representative ) may review pertinent documents and submit issues and comments in writing to the Committee. Within sixty (60) days after a request for review is received, the review shall be made and the Claimant shall be advised in writing or electronically of the decision on review, unless special circumstances require an extension of time for processing the review, in which case the Claimant shall be given written notification within such initial sixty (60) 7 day period specifying the reason for the extension and when such review shall be completed (provided that such review shall be completed within one hundred and twenty (120) days after the date on which the request for review was filed). The decision on review shall be forwarded to the Claimant in writing or electronically and shall include specific reasons for the decision, references to Plan provisions upon which the decision is based, a statement of the Claimant's right to receive free of charge copies of all documents relevant to the claim, and the Claimant's right to file a civil action under Section 502(a) of ERISA. A decision on review is final and binding for all purposes. If a Claimant fails to file a request for review in accordance with the procedures described in this Section 8.3, such Claimant shall have no right to review and shall have no right to bring action in any court and the denial of the claim shall become final and binding on all persons for all purposes. IX. AMENDMENT AND TERMINATION 9.1. Amendment and Termination of Plan. The Company, by action of the Chairman of the Board, or by resolution of the Board, reserves the right at any time to modify, amend or terminate the Plan; provided, however, no such amendment, termination or modification shall, without the written approval of a Participant, reduce the total benefit payable under this Plan to an amount that is less than the amount that would have been payable to the Participant under the Plan assuming that the Participant retired, died or otherwise terminated employment as of the date of such amendment, termination or modification. Such amount shall constitute an irrevocable obligation of the Company or other applicable Employer. Upon termination of the Plan, the Board or Chairman, as applicable, shall cause a lump-sum payment of all benefits for all Participants at substantially the same time. 9.2. Withdrawal from Plan by Employer. Any Employer shall have the right at any time, with the approval of and under such conditions as may be prescribed by the Committee, to withdraw from the Plan by delivering to the Committee written notice of its election to withdraw. The benefits of any Participant or Beneficiary who is an employee of the withdrawing Employer shall be paid, or continue to be paid, in accordance with the terms of the Plan and shall constitute an irrevocable obligation of the withdrawing Employer. X. MISCELLANEOUS 10.1. No Implied Rights; Rights on Termination of Service. Neither the establishment of the Plan nor any amendment thereof shall be construed as giving any Participant, Beneficiary or any other person, individually or as a member of a group, any legal or equitable right unless such right shall be specifically provided for in the Plan or conferred by specific action of the Board, its Chairman or the Committee in accordance with the terms and provisions of the Plan. Except as 8 expressly provided in this Plan, neither the Company nor any of its Affiliates shall be required or be liable to make any payment under the Plan. 10.2. No Employment Rights. Nothing herein shall constitute a contract of employment or of continuing service or in any manner obligate the Company or any Affiliate to continue the services of any Participant, or obligate any Participant to continue in the service of the Company or Affiliates, or as a limitation of the right of the Company or Affiliates to discharge any of their employees, with or without cause. 10.3. Unfunded Plan. No funds shall be segregated or earmarked for any current or former Participant, Beneficiary or other person under the Plan. However, the Company may establish one or more trusts to assist in meeting its obligations under the Plan, the assets of which shall be subject to the claims of the Company's general creditors. No current or former Participant, Beneficiary or other person, individually or as a member of a group, shall have any right, title or interest in any account, fund, grantor trust, or any asset that may be acquired by the Company or an Affiliate in respect of its obligations under the Plan (other than as a general creditor of the Company or such Affiliate with an unsecured claim against its general assets). 10.4. Offset. If, at the time payments are to be made hereunder, the Participant or the Beneficiary or both are indebted or obligated to the Company or an Affiliate, then the payments under the Plan remaining to be made to the Participant or the Beneficiary or both may, at the discretion of the Committee, be reduced by the amount of such indebtedness or obligation; provided, however, that an election by the Committee not to reduce any such payments shall not constitute a waiver of the Company's or Affiliate's claim for such indebtedness or obligation. 10.5. Nontransferability. Prior to payment thereof, no benefit under the Plan shall be assignable or subject to any manner of alienation, sale, transfer, claims of creditors, pledge, attachment or encumbrances of any kind. 10.6. Successors and Assigns. The rights, privileges, benefits and obligations under the Plan are intended to be, and shall be treated as legal obligations of and binding upon the Employers, their successors and assigns, including successors by merger, consolidation, reorganization or otherwise. 10.7. Applicable Law. This Plan is established under and will be construed according to the laws of the State of Michigan, to the extent not preempted by the laws of the United States. * * * 9 EX-10.11 5 k74347exv10w11.txt 2001 LONG-TERM INCENTIVE PLAN EXHIBIT 10.11 KELLOGG COMPANY 2001 LONG-TERM INCENTIVE PLAN 1. PURPOSE. The purpose of the 2001 Long-Term Incentive Plan (the "Plan") is to further and promote the interests of Kellogg Company, its Subsidiaries and its share owners by enabling the Company and its Subsidiaries to attract, retain and motivate employees and officers or those who will become employees or officers, and to align the interests of those individuals and the Company's share owners. To do this, the Plan offers performance-based incentive awards and equity-based opportunities providing such employees and officers with a proprietary interest in maximizing the growth, profitability and overall success of the Company and its Subsidiaries. 2. DEFINITIONS. Unless the context clearly indicates otherwise, for purposes of the Plan, the following terms shall have the following meanings: 2.1 "AWARD" means an award or grant made to a Participant under Sections 6, 7, 8 and/or 9 of the Plan. 2.2 "AWARD AGREEMENT" means the agreement executed by a Participant pursuant to Sections 3.2 and 16.7 of the Plan in connection with the granting of an Award. 2.3 "BOARD" means the Board of Directors of Kellogg Company, as constituted from time to time. 2.4 "CODE" means the Internal Revenue Code of 1986, as in effect and as amended from time to time, or any successor statute thereto, together with any rules, regulations and interpretations promulgated thereunder or with respect thereto. 2.5 "COMMITTEE" means the committee of the Board designated to administer the Plan, as described in Section 3 of the Plan. 2.6 "COMMON STOCK" means the Common Stock, par value $.25 per share, of the Company or any security of the Company issued by the Company in substitution or exchange therefor. 2.7 "COMPANY" means Kellogg Company, a Delaware corporation, or any successor corporation to Kellogg Company. 2.8 "DISABILITY" means disability as defined in the Participant's then effective employment agreement, or if the Participant is not then a party to an effective employment agreement with the Company which defines disability, "Disability" means disability as determined by the Committee in accordance with standards and procedures similar to those under the Company's long-term disability plan, if any. Subject to the first sentence of this Section 2.8, at any time that the Company does not maintain a long-term disability plan, "Disability" shall mean any physical or mental disability which is determined to be total and permanent by a physician selected in good faith by the Company. 2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as in effect and as amended from time to time, or any successor statute thereto, together with any rules, regulations and interpretations promulgated thereunder or with respect thereto. 2.10 "FAIR MARKET VALUE" means, with respect to any date, the average between the highest and lowest sale prices per share on the New York Stock Exchange Composite Transactions Tape on such date, provided that if there shall be no sales of shares reported on such date, the Fair Market Value of a share on such date shall be deemed to be equal to the average between the highest and lowest sale prices per share on such Composite Tape for the last preceding date on which sales of shares were reported. 2.11 "INCENTIVE STOCK OPTION" means any stock option granted pursuant to the provisions of Section 6 of the Plan (and the relevant Award Agreement) that is intended to be (and is specifically designated as) an "incentive stock option" within the meaning of Section 422 of the Code. 2.12 "NON-QUALIFIED STOCK OPTION" means any stock option granted pursuant to the provisions of Section 6 of the Plan (and the relevant Award Agreement) that is not an Incentive Stock Option. 2.13 "PARTICIPANT" means any individual who is selected from time to time under Section 5 to receive an Award under the Plan. 2.14 "PERFORMANCE UNITS" means the monetary units granted under Section 9 of the Plan and the relevant Award Agreement. 2.15 "PLAN" means the Kellogg Company 2001 Long-Term Incentive Plan, as set forth herein and as in effect and as amended from time to time (together with any rules and regulations promulgated by the Committee with respect thereto). 2.16 "RESTRICTED SHARES" means the restricted shares of Common Stock granted pursuant to the provisions of Section 8 of the Plan and the relevant Award Agreement. 2.17 "RETIREMENT" means the voluntary retirement by the Participant from active employment with the Company and its Subsidiaries on or after the attainment of normal retirement age under Company-sponsored pension or retirement plans, or any other age with the consent of the Board. 2.18 "STOCK APPRECIATION RIGHT" means an Award described in Section 7.2 of the Plan and granted pursuant to the provisions of Section 7 of the Plan. 2.19 "SUBSIDIARY(IES)" means any corporation (other than the Company) in an unbroken chain of corporations, including and beginning with the Company, if each of such corporations, other than the last corporation in the unbroken chain, owns, directly or indirectly, more than fifty percent (50%) of the voting stock in one of the other corporations in such chain. 3. ADMINISTRATION. 2 3.1 THE COMMITTEE. The Plan shall be administered by the Compensation Committee of the Board of Directors. 3.2 PLAN ADMINISTRATION AND PLAN RULES. The Committee is authorized to construe and interpret the Plan and to promulgate, amend and rescind rules and regulations relating to the implementation, administration and maintenance of the Plan. Subject to the terms and conditions of the Plan, the Committee shall make all determinations necessary or advisable for the implementation, administration and maintenance of the Plan including, without limitation, (a) selecting the Plan's Participants, (b) making Awards in such amounts and form as the Committee shall determine, (c) imposing such restrictions, terms and conditions upon such Awards as the Committee shall deem appropriate, and (d) correcting any technical defect(s) or technical omission(s), or reconciling any technical inconsistency(ies), in the Plan and/or any Award Agreement. The Committee may designate persons other than members of the Committee to carry out the day-to-day ministerial administration of the Plan under such conditions and limitations as it may prescribe, except that the Committee shall not delegate its authority with regard to the selection for participation in the Plan and/or the granting of any Awards to Participants who are subject to Section 16 of the Exchange Act. The Committee may, in its sole discretion, delegate its authority to one or more senior executive officers for the purpose of making Awards to Participants who are not subject to Section 16 of the Exchange Act. The Committee's determinations under the Plan need not be uniform and may be made selectively among Participants, whether or not such Participants are similarly situated. Any determination, decision or action of the Committee in connection with the construction, interpretation, administration, implementation or maintenance of the Plan shall be final, conclusive and binding upon all Participants and any person(s) claiming under or through any Participants. The Company shall effect the granting of Awards under the Plan, in accordance with the determinations made by the Committee, by execution of written agreements and/or other instruments in such form as is approved by the Committee. 3.3 LIABILITY LIMITATION. Neither the Board nor the Committee, nor any member of either, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan (or any Award Agreement), and the members of the Board and the Committee shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, attorneys' fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors and officers liability insurance coverage which may be in effect from time to time. 4. TERM OF PLAN/COMMON STOCK SUBJECT TO PLAN. 4.1 TERM. The Plan shall terminate on such date as is ten years from the date the first award is granted hereunder, except with respect to Awards then outstanding. After such date no further Awards shall be granted under the Plan. 4.2 COMMON STOCK. The maximum number of shares of Common Stock in respect of which Awards may be granted or paid out under the Plan, subject to adjustment as provided in Section 13.2 of the Plan, shall not exceed 26 million shares. In the event of a change in the Common Stock of the Company that is limited to a change in the designation thereof to "Capital Stock" or other similar designation, or to a change in the par value thereof, or from par value to no par value, 3 without increase or decrease in the number of issued shares, the shares resulting from any such change shall be deemed to be the Common Stock for purposes of the Plan. Common Stock which may be issued under the Plan may be either authorized and unissued shares or issued shares which have been reacquired by the Company (in the open-market or in private transactions) and which are being held as treasury shares. No fractional shares of Common Stock shall be issued under the Plan. 4.3 COMPUTATION OF AVAILABLE SHARES. For the purpose of computing the total number of shares of Common Stock available for Awards under the Plan, there shall be counted against the limitations set forth in Section 4.2 of the Plan the maximum number of shares of Common Stock potentially subject to issuance upon exercise or settlement of Awards granted under Sections 6 and 7 of the Plan, the number of shares of Common Stock issued under grants of Restricted Shares pursuant to Section 8 of the Plan and the maximum number of shares of Common Stock potentially issuable under grants or payments of Performance Units pursuant to Section 9 of the Plan, in each case determined as of the date on which such Awards are granted. If any Awards expire unexercised or are forfeited, surrendered, cancelled, terminated or settled in cash in lieu of Common Stock, the shares of Common Stock which were theretofore subject (or potentially subject) to such Awards shall again be available for Awards under the Plan to the extent of such expiration, forfeiture, surrender, cancellation, termination or settlement of such Awards. 5. ELIGIBILITY. Individuals eligible for Awards under the Plan shall consist of key employees and officers, or those who will become key employees or officers, of the Company and/or its Subsidiaries whose performance or contribution, in the sole discretion of the Committee, benefits or will benefit the Company or any Subsidiary. 6. STOCK OPTIONS. 6.1 TERMS AND CONDITIONS. Stock options granted under the Plan shall be in respect of Common Stock and may be in the form of Incentive Stock Options or Non-Qualified Stock Options (sometimes referred to collectively herein as the "Stock Option(s))". Such Stock Options shall be subject to the terms and conditions set forth in this Section 6 and any additional terms and conditions, not inconsistent with the express terms and provisions of the Plan, as the Committee shall set forth in the relevant Award Agreement. 6.2 GRANT. Stock Options may be granted under the Plan in such form as the Committee may from time to time approve. Stock Options may be granted alone or in addition to other Awards under the Plan or in tandem with Stock Appreciation Rights. Special provisions shall apply to Incentive Stock Options granted to any employee who owns (within the meaning of Section 422(b)(6) of the Code) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its parent corporation or any Subsidiary of the Company, within the meaning of Sections 424(e) and (f) of the Code (a "10% Share Owner"). 6.3 EXERCISE PRICE. The exercise price per share of Common Stock subject to a Stock Option shall be determined by the Committee, including, without limitation, a determination based on a formula determined by the Committee; provided, however, that the exercise price of an Incentive Stock Option shall not be less than one hundred percent (100%) of the Fair Market Value of the 4 Common Stock on the grant date of such Incentive Stock Option; provided, further, however, that, in the case of a 10% Share Owner, the exercise price of an Incentive Stock Option shall not be less than one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the grant date. 6.4 TERM. The term of each Stock Option shall be such period of time as is fixed by the Committee; provided, however, that the term of any Incentive Stock Option shall not exceed ten (10) years (five (5) years, in the case of a 10% Share Owner) after the date immediately preceding the date on which the Incentive Stock Option is granted. 6.5 METHOD OF EXERCISE. A Stock Option may be exercised, in whole or in part, by giving written notice of exercise to the Secretary of the Company, or the Secretary's designee, specifying the number of shares to be purchased. Such notice shall be accompanied by payment in full of the exercise price in cash, by certified check, bank draft, or money order payable to the order of the Company, if permitted by the Committee in its sole discretion, by surrendering (or attesting to the ownership of) shares of Common Stock already owned by the Participant for at least six (6) months, or, if permitted by the Committee (in its sole discretion) and applicable law, by delivery of, alone or in conjunction with a partial cash or instrument payment, (a) a fully-secured promissory note or notes, or (b) some other form of payment acceptable to the Committee. Payment instruments shall be received by the Company subject to collection. The proceeds received by the Company upon exercise of any Stock Option may be used by the Company for general corporate purposes. Any portion of a Stock Option that is exercised may not be exercised again. The shares issued to an optionee for the portion of any Stock Option exercised by attesting to the ownership of shares shall not exceed the number of shares issuable as a result of such exercise (determined as though payment in full therefor were being made in cash) less the number of shares for which attestation of ownership is submitted. The value of owned shares submitted (directly or by attestation) in full or partial payment for the shares purchased upon exercise of a Stock Option shall be equal to the aggregate Fair Market Value of such owned shares on the date of the exercise of such Stock Option. 6.6 EXERCISABILITY. Any Stock Option granted under the Plan shall become exercisable on such date or dates as determined by the Committee (in its sole discretion) at any time and from time to time in respect of such Stock Option. Notwithstanding anything to the contrary contained in this Section 6.6, such Stock Option shall become one hundred percent (100%) exercisable as to the aggregate number of shares of Common Stock underlying such Stock Option upon the death, Disability or Retirement of the Participant. 6.7 TANDEM GRANTS. If Non-Qualified Stock Options and Stock Appreciation Rights are granted in tandem, as designated in the relevant Award Agreements, the right of a Participant to exercise any such tandem Stock Option shall terminate to the extent that the shares of Common Stock subject to such Stock Option are used to calculate amounts or shares receivable upon the exercise of the related tandem Stock Appreciation Right. 6.8 RELOAD PROVISION. The Committee may provide in any Award Agreement that if the optionee exercises a Stock Option using shares held for at least six (6) months and/or elects to have shares withheld to satisfy the Company's withholding obligations, the optionee will then 5 receive a new option covering the number of shares used to exercise and/or satisfy withholding obligations. Such option will have a per share exercise price equal to the then Fair Market Value of the shares, and will be subject to such terms and conditions as the Committee, in its sole discretion, may determine. Nothing in this Section 6.8 will restrict the Committee's ability to fix or limit in an Award Agreement the maximum number of shares available under any new option granted pursuant to an Award Agreement. 7. STOCK APPRECIATION RIGHTS. 7.1 TERMS AND CONDITIONS. The grant of Stock Appreciation Rights under the Plan shall be subject to the terms and conditions set forth in this Section 7 and any additional terms and conditions, not inconsistent with the express terms and provisions of the Plan, as the Committee shall set forth in the relevant Award Agreement. 7.2 STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is an Award granted with respect to a specified number of shares of Common Stock entitling a Participant to receive an amount equal to the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the Fair Market Value of a share of Common Stock on the grant date of the Stock Appreciation Right, multiplied by the number of shares of Common Stock with respect to which the Stock Appreciation Right shall have been exercised. 7.3 GRANT. A Stock Appreciation Right may be granted in addition to any other Award under the Plan or in tandem with or independent of a Non-Qualified Stock Option. 7.4 DATE OF EXERCISABILITY. In respect of any Stock Appreciation Right granted under the Plan, unless otherwise (a) determined by the Committee (in its sole discretion) at any time and from time to time in respect of any such Stock Appreciation Right, or (b) provided in the Award Agreement, a Stock Appreciation Right may be exercised by a Participant, in accordance with and subject to all of the procedures established by the Committee, in whole or in part at any time and from time to time during its specified term. Notwithstanding the preceding sentence, in no event shall a Stock Appreciation Right be exercisable prior to the date which is six (6) months after the date on which the Stock Appreciation Right was granted or prior to the exercisability of any Non-Qualified Stock Option with which it is granted in tandem. The Committee may also provide, as set forth in the relevant Award Agreement and without limitation, that some Stock Appreciation Rights shall be automatically exercised and settled on one or more fixed dates specified therein by the Committee. 7.5 FORM OF PAYMENT. Upon exercise of a Stock Appreciation Right, payment may be made in cash, in Restricted Shares or in shares of unrestricted Common Stock, or in any combination thereof, as the Committee, in its sole discretion, shall determine and provide in the relevant Award Agreement. 7.6 TANDEM GRANT. The right of a Participant to exercise a tandem Stock Appreciation Right shall terminate to the extent such Participant exercises the Non-Qualified Stock Option to which such Stock Appreciation Right is related. 8. RESTRICTED SHARES. 6 8.1 TERMS AND CONDITIONS. Grants of Restricted Shares shall be subject to the terms and conditions set forth in this Section 8 and any additional terms and conditions, not inconsistent with the express terms and provisions of the Plan, as the Committee shall set forth in the relevant Award Agreement. Restricted Shares may be granted alone or in addition to any other Awards under the Plan. Subject to the terms of the Plan, the Committee shall determine the number of Restricted Shares to be granted to a Participant and the Committee may provide or impose different terms and conditions on any particular Restricted Share grant made to any Participant. With respect to each Participant receiving an Award of Restricted Shares, there shall be issued a stock certificate (or certificates) in respect of such Restricted Shares. Such stock certificate(s) shall be registered in the name of such Participant, shall be accompanied by a stock power duly executed by such Participant, and shall bear, among other required legends, the following legend: "The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including, without limitation, forfeiture events) contained in the Kellogg Company 2001 Long-Term Incentive Plan and an Award Agreement entered into between the registered owner hereof and Kellogg Company. Copies of such Plan and Award Agreement are on file in the office of the Secretary of Kellogg Company, One Kellogg Square, Battle Creek, MI 49016. Kellogg Company will furnish to the recordholder of the certificate, without charge and upon written request at its principal place of business, a copy of such Plan and Award Agreement. Kellogg Company reserves the right to refuse to record the transfer of this certificate until all such restrictions are satisfied, all such terms are complied with and all such conditions are satisfied." Such stock certificate evidencing such shares shall, in the sole discretion of the Committee, be deposited with and held in custody by the Company until the restrictions thereon shall have lapsed and all of the terms and conditions applicable to such grant shall have been satisfied. 8.2 RESTRICTED SHARE GRANTS. A grant of Restricted Shares is an Award of shares of Common Stock granted to a Participant, subject to such restrictions, terms and conditions as the Committee deems appropriate, including, without limitation, (a) restrictions on the sale, assignment, transfer, hypothecation or other disposition of such shares, (b) the requirement that the Participant deposit such shares with the Company while such shares are subject to such restrictions, and (c) the requirement that such shares be forfeited upon termination of employment for specified reasons within a specified period of time or for other reasons (including, without limitation, the failure to achieve designated performance goals). 7 8.3 RESTRICTION PERIOD. In accordance with Sections 8.1 and 8.2 of the Plan and unless otherwise determined by the Committee (in its sole discretion) at any time and from time to time, Restricted Shares shall only become unrestricted and vested in the Participant in accordance with such vesting schedule relating to such Restricted Shares, if any, as the Committee may establish in the relevant Award Agreement (the "Restriction Period"). During the Restriction Period, such stock shall be and remain unvested and a Participant may not sell, assign, transfer, pledge, encumber or otherwise dispose of or hypothecate such Award. Upon satisfaction of the vesting schedule and any other applicable restrictions, terms and conditions, the Participant shall be entitled to receive payment of the Restricted Shares or a portion thereof, as the case may be, as provided in Section 8.4 of the Plan. 8.4 PAYMENT OF RESTRICTED SHARE GRANTS. After the satisfaction and/or lapse of the restrictions, terms and conditions established by the Committee in respect of a grant of Restricted Shares, a new certificate, without the legend set forth in Section 8.1 of the Plan, for the number of shares of Common Stock which are no longer subject to such restrictions, terms and conditions shall, as soon as practicable thereafter, be delivered to the Participant. 8.5 SHARE OWNER RIGHTS. A Participant shall have, with respect to the shares of Common Stock underlying a grant of Restricted Shares, all of the rights of a share owner of such stock (except as such rights are limited or restricted under the Plan or in the relevant Award Agreement). Any stock dividends paid in respect of unvested Restricted Shares shall be treated as additional Restricted Shares and shall be subject to the same restrictions and other terms and conditions that apply to the unvested Restricted Shares in respect of which such stock dividends are issued. 9. PERFORMANCE UNITS. 9.1 TERMS AND CONDITIONS. Performance Units shall be subject to the terms and conditions set forth in this Section 9 and any additional terms and conditions, not inconsistent with the express provisions of the Plan, as the Committee shall set forth in the relevant Award Agreement. 9.2 PERFORMANCE UNIT GRANTS. A Performance Unit is an Award of units (with each unit representing such monetary amount as is designated by the Committee in the Award Agreement) granted to a Participant, subject to such terms and conditions as the Committee deems appropriate, including, without limitation, the requirement that the Participant forfeit such units (or a portion thereof) in the event certain performance criteria or other conditions are not met within a designated period of time. 9.3 GRANTS. Performance Units may be granted alone or in addition to any other Awards under the Plan. Subject to the terms of the Plan, the Committee shall determine the number of Performance Units to be granted to a Participant and the Committee may impose different terms and conditions on any particular Performance Units granted to any Participant. 9.4 PERFORMANCE GOALS AND PERFORMANCE PERIODS. Participants receiving a grant of Performance Units shall only earn into and be entitled to payment in respect of such Awards if the Company and/or the Participant achieves certain performance goals (the "Performance Goals") during and in respect of a designated performance period (the "Performance Period"). The 8 Performance Goals and the Performance Period shall be established by the Committee, in its sole discretion. The Committee shall establish Performance Goals for each Performance Period prior to, or as soon as practicable after, the commencement of such Performance Period. The Committee shall also establish a schedule or schedules for Performance Units setting forth the portion of the Award which will be earned or forfeited based on the degree of achievement, or lack thereof, of the Performance Goals at the end of the relevant Performance Period. In setting Performance Goals, the Committee may use, but shall not be limited to, such measures as total share owner return, return on equity, net earnings growth, sales or revenue growth, cash flow, comparisons to peer companies, individual or aggregate Participant performance or such other measure or measures of performance as the Committee, in its sole discretion, may deem appropriate. Such performance measures shall be defined as to their respective components and meaning by the Committee (in its sole discretion). During any Performance Period, the Committee shall have the authority to adjust the Performance Goals and/or the Performance Period in such manner as the Committee, in its sole discretion, deems appropriate at any time and from time to time. 9.5 PAYMENT OF UNITS. With respect to each Performance Unit, the Participant shall, if the applicable Performance Goals have been achieved, or partially achieved, as determined by the Committee in its sole discretion, by the Company and/or the Participant during the relevant Performance Period, be entitled to receive payment in an amount equal to the designated value of each Performance Unit times the number of such units so earned. Payment in settlement of earned Performance Units shall be made as soon as practicable following the conclusion of the respective Performance Period in cash, in unrestricted Common Stock, or in Restricted Shares, or in any combination thereof, as the Committee in its sole discretion, shall determine and provide in the relevant Award Agreement. 10. DEFERRAL ELECTIONS/TAX REIMBURSEMENTS/OTHER PROVISIONS. 10.1 DEFERRALS. The Committee may permit a Participant to elect to defer receipt of any payment of cash or any delivery of shares of Common Stock that would otherwise be due to such Participant by virtue of the exercise, earn out or settlement of any Award made under the Plan. If any such election is permitted, the Committee shall establish rules and procedures for such deferrals. The Committee may also provide in the relevant Award Agreement for a tax reimbursement cash payment to be made by the Company in favor of any Participant in connection with the tax consequences resulting from the grant, exercise, settlement, or earn out of any Award made under the Plan. 10.2 PERFORMANCE-BASED AWARDS. Performance Units, Restricted Shares, and other Awards subject to performance criteria that are intended to be "qualified performance-based compensation" within the meaning of Section 162(m) of the Code shall be paid solely on account of the attainment of one or more preestablished, objective performance goals within the meaning of Section 162(m) and the regulations thereunder. Until otherwise determined by the Committee, the performance goals shall be the attainment of preestablished levels of any of net income, market price per share, earnings per share, return on equity, return on capital employed and/or cash flow. The payout of any such Award to a Covered Employee may be reduced, but not increased, based on the degree of attainment of other performance criteria or otherwise at the 9 discretion of the Committee. For purposes of the Plan, "Covered Employee" has the same meaning as set forth in Section 162(m) of the Code. 10.3 MAXIMUM YEARLY AWARDS. The maximum annual Common Stock amounts in this Section 10.3 are subject to adjustment under Section 13.2 and are subject to the Plan maximum under Section 4.2. 10.3.1 PERFORMANCE-BASED AWARDS. The maximum amount payable in respect of Performance Units, performance-based Restricted Shares and other Awards in any calendar year may not exceed 2,600,000 shares of Common Stock (or the then equivalent Fair Market Value thereof) in the case of any individual Participant. Further, the aggregate number of Performance Units, performance-based Restricted Shares and other Awards (excluding Awards granted under Section 6 and Section 7) granted to Participants under this Plan shall not exceed 2,750,000. 10.3.2 STOCK OPTIONS AND SARS. Each individual Participant may not receive in any calendar year Awards of Options or Stock Appreciation Rights exceeding 2,600,000 underlying shares of Common Stock. 11. DIVIDEND EQUIVALENTS. In addition to the provisions of Section 8.5 of the Plan, Awards of Stock Options, and/or Stock Appreciation Rights, may, in the sole discretion of the Committee and if provided for in the relevant Award Agreement, earn dividend equivalents. In respect of any such Award which is outstanding on a dividend record date for Common Stock, the Participant shall be credited with an amount equal to the amount of cash or stock dividends that would have been paid on the shares of Common Stock covered by such Award had such covered shares been issued and outstanding on such dividend record date. The Committee shall establish such rules and procedures governing the crediting of such dividend equivalents, including, without limitation, the amount, the timing, form of payment and payment contingencies and/or restrictions of such dividend equivalents, as it deems appropriate or necessary. 12. NON-TRANSFERABILITY OF AWARDS. Unless otherwise provided in the Award Agreement, no Award under the Plan or any Award Agreement, and no rights or interests herein or therein, shall or may be assigned, transferred, sold, exchanged, encumbered, pledged, or otherwise hypothecated or disposed of by a Participant or any beneficiary(ies) of any Participant, except by testamentary disposition by the Participant or the laws of intestate succession. No such interest shall be subject to execution, attachment or similar legal process, including, without limitation, seizure for the payment of the Participant's debts, judgments, alimony, or separate maintenance. Unless otherwise provided in the Award Agreement, during the lifetime of a Participant, Stock Options and Stock Appreciation Rights are exercisable only by the Participant. 10 13. CHANGES IN CAPITALIZATION AND OTHER MATTERS. 13.1 NO CORPORATE ACTION RESTRICTION. The existence of the Plan, any Award Agreement and/or the Awards granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the share owners of the Company to make or authorize (a) any adjustment, recapitalization, reorganization or other change in the Company's or any Subsidiary's capital structure or its business, (b) any merger, consolidation or change in the ownership of the Company or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stocks ahead of or affecting the Company's or any Subsidiary's capital stock or the rights thereof, (d) any dissolution or liquidation of the Company or any Subsidiary, (e) any sale or transfer of all or any part of the Company's or any Subsidiary's assets or business, or (f) any other corporate act or proceeding by the Company or any Subsidiary. No Participant, beneficiary or any other person shall have any claim against any member of the Board or the Committee, the Company or any Subsidiary, or any employees, officers, share owners or agents of the Company or any Subsidiary, as a result of any such action. 13.2 RECAPITALIZATION ADJUSTMENTS. If the Board determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, Change of Control or exchange of Common Stock or other securities of the Company, or other corporate transaction or event affects the Common Stock such that an adjustment is determined by the Board, in its sole discretion, to be necessary or appropriate in order to prevent dilution or enlargement of benefits or potential benefits intended to be made available under the Plan, the Board may, in such manner as it in good faith deems equitable, adjust any or all of (i) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted, (ii) the maximum limitation upon Options, Performance Units and performance-based Restricted Shares that may be granted to any individual participant, (iii) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards, and (iv) the exercise price with respect to any Stock Option, or make provision for an immediate cash payment to the holder of an outstanding Award in consideration for the cancellation of such Award. 13.3 MERGERS. If the Company enters into or is involved in any merger, reorganization, Change of Control or other business combination with any person or entity (a "Merger Event"), the Board may, prior to such Merger Event and effective upon such Merger Event, take such action as it deems appropriate, including, but not limited to, replacing such Stock Options with substitute stock options and/or stock appreciation rights in respect of the shares, other securities or other property of the surviving corporation or any affiliate of the surviving corporation on such terms and conditions, as to the number of shares, pricing and otherwise, which shall substantially preserve the value, rights and benefits of any affected Stock Options or Stock Appreciation Rights granted hereunder as of the date of the consummation of the Merger Event. Notwithstanding anything to the contrary in the Plan, if any Merger Event or Change of Control occurs, the Company shall have the right, but not the obligation, to cancel each Participant's Stock Options and/or Stock Appreciation Rights and to pay to each affected Participant in connection with the cancellation of such Participant's Stock Options and/or Stock Appreciation Rights, an amount equal to the excess 11 of the Fair Market Value, as determined by the Board, of the Common Stock underlying any unexercised Stock Options or Stock Appreciation Rights (whether then exercisable or not) over the aggregate exercise price of such unexercised Stock Options and/or Stock Appreciation Rights. Upon receipt by any affected Participant of any such substitute stock options, stock appreciation rights (or payment) as a result of any such Merger Event, such Participant's affected Stock Options and/or Stock Appreciation Rights for which such substitute options and/or stock appreciation rights (or payment) were received shall be thereupon cancelled without the need for obtaining the consent of any such affected Participant. 14. CHANGE OF CONTROL PROVISIONS. 14.1 IMPACT OF EVENT. Notwithstanding any other provision of the Plan to the contrary, in the event of a Change in Control: (i) Any Stock Options and Stock Appreciation Rights outstanding as of the date such Change in Control is determined to have occurred, and which are not then exercisable and vested, shall become fully exercisable and vested; (ii) The restrictions and deferral limitations applicable to any Restricted Shares shall lapse, and such Restricted Shares shall become free of all restrictions and become fully vested and transferable; (iii) All Performance Units shall be considered to be earned and payable in full, and any deferral or other restriction shall lapse and such Performance Units shall be settled in cash as promptly as is practicable; and (iv) The Committee may also make additional adjustments and/or settlements of outstanding Awards as it deems appropriate and consistent with the Plan's purposes. 14.2 DEFINITION OF CHANGE IN CONTROL. For purposes of the Plan, a "Change in Control" shall mean the happening of any of the following events: (i) An acquisition after the date hereof by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (a) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); excluding, however, the following: (1) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company or approved by the Incumbent Board (as defined below), (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, (4) any acquisition by an underwriter temporarily holding Company securities pursuant to 12 an offering of such securities, or (5) any acquisition pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (iii) of this Section 14.2; or (ii) A change in the composition of the Board such that the individuals who, as of the effective date of the Plan, constitute the Board (such Board shall be hereinafter referred to as the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this Section, that any individual who becomes a member of the Board subsequent to the effective date of the Plan, whose election, or nomination for election by the Company's share owners, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso), either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or (iii) Consummation of a reorganization, merger or consolidation (or similar transaction), a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity ("Corporate Transaction"); in each case, unless immediately following such Corporate Transaction (1) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 60% of, respectively, the outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (other than the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) will beneficially own, directly or indirectly, 20% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors, except to the extent that such ownership existed prior to the Corporate Transaction, and (3) individuals who were members of the Incumbent Board at the time of the Board's approval of the execution of the initial agreement providing for such Corporate Transaction will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or 13 (iv) The approval by the share owners of the Company of a complete liquidation or dissolution of the Company. 14.3 CHANGE IN CONTROL CASH-OUT. Notwithstanding any other provision of the Plan, during the 60-day period from and after a Change in Control (the "Exercise Period"), if the Committee shall determine at the time of grant or thereafter, a Participant shall have the right, whether or not the Option is fully exercisable in lieu of the payment of the option price for the shares of Common Stock being purchased under the Option and by giving notice to the Company, to elect (within the Exercise Period) to surrender all or part of the Option to the Company and to receive cash, within 30 days of such election, in an amount equal to the amount by which the Change in Control Price (as defined below) per share of Common Stock on the date of such election shall exceed the exercise price per share of Common Stock under the Option (the "Spread") multiplied by the number of shares of Common Stock granted under the Option as to which the right granted under this Section 14.3 shall have been exercised. Notwithstanding the foregoing, if any right granted pursuant to this Section 14.3 would make a Change in Control transaction ineligible for pooling-of-interests accounting under APB No. 16 that but for the nature of such grant would otherwise be eligible for such accounting treatment, the Committee shall have the ability to substitute for the cash payable pursuant to such right Common Stock with a Fair Market Value (as of the date of delivery of such stock) equal to the cash that would otherwise be payable hereunder or, if necessary to preserve such accounting treatment, otherwise modify or eliminate such right. 14.4 CHANGE IN CONTROL PRICE. For purposes of the Plan, "Change in Control Price" means the higher of (i) the highest reported sales price, regular way, of a share of Common Stock in any transaction reported on the New York Stock Exchange Composite Tape or other national exchange on which such shares are listed during the 60-day period prior to and including the date of a Change in Control, or (ii) if the Change in Control is the result of a tender or exchange offer or a Corporate Transaction, the highest price per share of Common Stock paid in such tender or exchange offer or Corporate Transaction; provided, however, that in the case of Incentive Stock Options and Stock Appreciation Rights relating to Incentive Stock Options, the Change in Control Price shall be in all cases the Fair Market Value of the Common Stock on the date such Incentive Stock Option or Stock Appreciation Right is exercised. To the extent that the consideration paid in any such transaction described above consists all or in part of securities or other noncash consideration, the value of such securities or other noncash consideration shall be determined in the sole discretion of the Board. 15. AMENDMENT, SUSPENSION, AND TERMINATION. 15.1 IN GENERAL. The Board may suspend or terminate the Plan (or any portion thereof) at any time and may amend the Plan at any time and from time to time in such respects as the Board may deem advisable to insure that any and all Awards conform to or otherwise reflect any change in applicable laws or regulations, or to permit the Company or the Participants to benefit from any change in applicable laws or regulations, or in any other respect the Board may deem to be in the best interests of the Company or any Subsidiary. No such amendment, suspension or termination shall (a) materially adversely affect the rights of any Participant under any outstanding Stock Options, Stock Appreciation Rights, Performance Units, or Restricted Share grants, without the consent of such Participant, (b) make any change that would disqualify the Plan, or any other plan 14 of the Company or any Subsidiary intended to be so qualified, from the benefits provided under Section 422 of the Code, or any successor provisions thereto, or (c) revise the exercise price of any outstanding Stock Option or increase the number of shares available for Awards pursuant to Section 4.2 without share owner approval. 15.2 AWARD AGREEMENT MODIFICATIONS. The Committee may (in its sole discretion) amend or modify at any time and from time to time the terms and provisions of any outstanding Stock Options, Stock Appreciation Rights, Performance Units, or Restricted Share grants, in any manner to the extent that the Committee under the Plan or any Award Agreement could have initially determined the restrictions, terms and provisions of such Stock Options, Stock Appreciation Rights, Performance Units, and/or Restricted Share grants, including, without limitation, changing or accelerating (a) the date or dates as of which such Stock Options or Stock Appreciation Rights shall become exercisable, (b) the date or dates as of which such Restricted Share grants shall become vested, or (c) the performance period or goals in respect of any Performance Units. No such amendment or modification shall, however, materially adversely affect the rights of any Participant under any such Award without the consent of such Participant. 16. MISCELLANEOUS. 16.1 TAX WITHHOLDING. The Company shall have the right to deduct from any payment or settlement under the Plan, including, without limitation, the exercise of any Stock Option or Stock Appreciation Right, or the delivery, transfer or vesting of any Common Stock or Restricted Shares, any federal, state, local or other taxes of any kind which the Committee, in its sole discretion, deems necessary to be withheld to comply with the Code and/or any other applicable law, rule or regulation. Shares of Common Stock may be used to satisfy any such tax withholding. Such Common Stock shall be valued based on the market value of such stock as of the date the tax withholding is required to be made, such date to be determined by the Committee. In addition, the Company shall have the right to require payment from a Participant to cover any applicable withholding or other employment taxes due upon any payment or settlement under the Plan. 16.2 NO RIGHT TO EMPLOYMENT. Neither the adoption of the Plan, the granting of any Award, nor the execution of any Award Agreement, shall confer upon any employee of the Company or any Subsidiary any right to continued employment with the Company or any Subsidiary, as the case may be, nor shall it interfere in any way with the right, if any, of the Company or any Subsidiary to terminate the employment of any employee at any time for any reason. 16.3 UNFUNDED PLAN. The Plan shall be unfunded and the Company shall not be required to segregate any assets in connection with any Awards under the Plan. Any liability of the Company to any person with respect to any Award under the Plan or any Award Agreement shall be based solely upon the contractual obligations that may be created as a result of the Plan or any such Award Agreement. No such obligation of the Company shall be deemed to be secured by any pledge of, encumbrance on, or other interest in, any property or asset of the Company or any Subsidiary. Nothing contained in the Plan or any Award Agreement shall be construed as creating in respect of any Participant (or beneficiary thereof or any other person) any equity or other interest of any kind in any assets of the Company or any Subsidiary or creating a trust of any kind or a 15 fiduciary relationship of any kind between the Company, any Subsidiary and/or any such Participant, any beneficiary thereof or any other person. 16.4 PAYMENTS TO A TRUST. The Committee is authorized to cause to be established a trust agreement or several trust agreements or similar arrangements from which the Committee may make payments of amounts due or to become due to any Participants under the Plan. 16.5 OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS. Payments and other benefits received by a Participant under an Award made pursuant to the Plan shall not be deemed a part of a Participant's compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Company or any Subsidiary unless expressly provided in such other plans or arrangements, or except where the Board expressly determines in writing that inclusion of an Award or portion of an Award should be included to accurately reflect competitive compensation practices or to recognize that an Award has been made in lieu of a portion of competitive annual base salary or other cash compensation. Awards under the Plan may be made in addition to, in combination with, or as alternatives to, grants, awards or payments under any other plans or arrangements of the Company or its Subsidiaries. The existence of the Plan notwithstanding, the Company or any Subsidiary may adopt such other compensation plans or programs and additional compensation arrangements as it deems necessary to attract, retain and motivate employees. 16.6 LISTING, REGISTRATION AND OTHER LEGAL COMPLIANCE. No Awards or shares of the Common Stock shall be required to be issued or granted under the Plan unless legal counsel for the Company shall be satisfied that such issuance or grant will be in compliance with all applicable federal and state securities laws and regulations and any other applicable laws or regulations. The Committee may require, as a condition of any payment or share issuance, that certain agreements, undertakings, representations, certificates, and/or information, as the Committee may deem necessary or advisable, be executed or provided to the Company to assure compliance with all such applicable laws or regulations. Certificates for shares of the Restricted Shares and/or Common Stock delivered under the Plan may be subject to such stock-transfer orders and such other restrictions as the Committee may deem advisable under the rules, regulations, or other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed, and any applicable federal or state securities law. In addition, if, at any time specified herein (or in any Award Agreement or otherwise) for (a) the making of any Award, or the making of any determination, (b) the issuance or other distribution of Restricted Shares and/or Common Stock, or (c) the payment of amounts to or through a Participant with respect to any Award, any law, rule, regulation or other requirement of any governmental authority or agency shall require either the Company, any Subsidiary or any Participant (or any estate, designated beneficiary or other legal representative thereof) to take any action in connection with any such determination, any such shares to be issued or distributed, any such payment, or the making of any such determination, as the case may be, shall be deferred until such required action is taken. With respect to persons subject to Section 16 of the Exchange Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 promulgated under the Exchange Act. 16 16.7 AWARD AGREEMENTS. Each Participant receiving an Award under the Plan shall enter into an Award Agreement with the Company in a form specified by the Committee. Each such Participant shall agree to the restrictions, terms and conditions of the Award set forth therein and in the Plan. 16.8 DESIGNATION OF BENEFICIARY. Each Participant to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Stock Option or to receive any payment which under the terms of the Plan and the relevant Award Agreement may become exercisable or payable on or after the Participant's death. At any time, and from time to time, any such designation may be changed or cancelled by the Participant without the consent of any such beneficiary. Any such designation, change or cancellation must be on a form provided for that purpose by the Committee and shall not be effective until received by the Committee. If no beneficiary has been designated by a deceased Participant, or if the designated beneficiaries have predeceased the Participant, the beneficiary shall be the Participant's estate. If the Participant designates more than one beneficiary, any payments under the Plan to such beneficiaries shall be made in equal shares unless the Participant has expressly designated otherwise, in which case the payments shall be made in the shares designated by the Participant. 16.9 LEAVES OF ABSENCE/TRANSFERS. The Committee shall have the power to promulgate rules and regulations and to make determinations, as it deems appropriate, under the Plan in respect of any leave of absence from the Company or any Subsidiary granted to a Participant. Without limiting the generality of the foregoing, the Committee may determine whether any such leave of absence shall be treated as if the Participant has terminated employment with the Company or any such Subsidiary. If a Participant transfers within the Company, or to or from any Subsidiary, such Participant shall not be deemed to have terminated employment as a result of such transfers. 16.10 LOANS. Subject to applicable law, the Committee may provide, pursuant to Plan rules, for the Company or any Subsidiary to make loans to Participants to finance the exercise price of any Stock Options, as well as the withholding obligation under Section 16.1 of the Plan and/or the estimated or actual taxes payable by the Participant as a result of the exercise of such Stock Option and the Committee may prescribe the terms and conditions of any such loan. 16.11 GOVERNING LAW. The Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. Any titles and headings herein are for reference purposes only, and shall in no way limit, define or otherwise affect the meaning, construction or interpretation of any provisions of the Plan. 16.12 EFFECTIVE DATE. The Plan shall be effective upon its approval by the Board and adoption by the Company, subject to the approval of the Plan by the Company's share owners in accordance with Sections 162(m) and 422 of the Code. As adopted by the Board on February 18, 2000 and as amended by the Committee on February 20, 2003. 17 EX-10.19 6 k74347exv10w19.txt AGREEMENT BETWEEN LAWRENCE PILON EXHIBIT 10.19 January 10, 2003 Mr. Lawrence J. Pilon Dear Larry: I am extremely pleased to confirm our offer of employment for the position of Executive Vice President, Human Resources. You will be located at the headquarters office in Battle Creek, Michigan, and report directly to me. It is my hope that you will accept this offer and confirm your acceptance by signing below and returning one copy to me; the other copy is for your records. Your starting salary will be $324,000 per year. Your first annual merit review will be in the first quarter of 2004. You will participate in the annual incentive plan (AIP). The current target award for this position is 60% of base salary. Actual bonus awards range from 0 to 200% of target, depending upon achievement of corporate, business unit and individual goals. You are also eligible to participate in the executive stock option plan. Each year targets are updated and finalized prior to the date of the award to reflect changes in the competitive marketplace and the price of Kellogg Company stock. These options vest 50% after one year, with the balance vested after two years. The option program includes an accelerated ownership feature (reloads) which provides additional option awards when the option price is paid using shares of Kellogg Company stock. Stock options are typically awarded in the first quarter of the year. All stock option awards and features are subject to annual approval by the Kellogg Company Board of Directors. In special consideration for your acceptance of this offer, you will receive the following: 1. Participation in the 2003 AIP for a full 12 months. Annual bonus awards are based on achievement of corporate, business unit, and individual goals as described above. Awards earned under the 2003 AIP will be paid in the first quarter of 2004. Mr. Lawrence J. Pilon Page 2 January 10, 2003 2. Contingent upon the approval of the Board of Directors, a sign-on stock option award of 60,800 shares (equal to the 2003 target award for this position). This award gives you the right to purchase the stated number of shares over a 10-year period commencing on your first day of employment. The exercise price for these options will be the average of the high and low trading price on your first day of employment. The vesting and reload provisions of the options are the same as those described above. 3. Also contingent upon the approval of the Board of Directors, a sign-on restricted stock grant of 2,000 shares of Kellogg Company stock. These shares will vest three years from your date of hire. 4. In addition to reporting directly to me, you will be a member of the Executive Management Committee (EMC), where key corporate strategic and operational decisions are made. The pension plan is funded by the Kellogg Company and does not require employee contributions. You begin building service credits on a monthly basis the day you begin employment. You become vested in the plan upon completion of five years of vesting service. Pension benefits are related to the number of years that you work for the Company and your final average pay, which includes your cash bonus. Survivor options and disability benefits are provided under the plan. In addition to our pension plan, we have a savings and investment plan. Kellogg Company will contribute to your account at a rate of 100% for the first 3% of your contributions and 50% on the next 2% of your contributions. You will be eligible to start contributing to the savings and investment plan immediately; however, Company contributions will not begin until after you have completed one year of service. There are a number of additional benefits to which you are entitled. These include life insurance (1 1/2 times base pay), medical insurance, dental plan, salary continuation plan in the event of personal illness, holidays (11 plus 3 floating), and vacation. You will be immediately eligible for 5 weeks of vacation annually. In addition to the life insurance mentioned above, you will be eligible for our executive survivor income plan which provides an additional death benefit of three times your base and bonus. You will also be covered by our change of control policy, which provides for you to receive three years' salary and bonus in the event you are terminated in connection with a change in control of the Company. Mr. Lawrence J. Pilon Page 3 January 10, 2003 In addition, in the event your employment is terminated by the Company, you will generally be entitled to receive severance in an amount equal to two times your then-current base salary and target bonus; provided, however, that you qualify for severance benefits under the Kellogg Company severance benefit plan and that you sign a form of separation agreement furnished by the Company which would include, among other things, a release of claims and an agreement not to compete. Kellogg Company will pay the expenses involved in moving you and your family to your new location. The relocation guide is enclosed. As part of your relocation, you will receive a $7,500 miscellaneous moving allowance (less any appropriate withholding), which will be processed the first pay period following your official date of employment. You will also receive a lump sum payment, calculated based on the specifics of your situation, to cover temporary living, house-hunting trips, and your final moving expenses. Airfare is paid separately from the lump sum. The full relocation program will be available to you for one year following your start date. The packet of material mailed under separate cover provides detailed information on all of our benefit plans and all of the forms necessary to place you on the payroll. Should you require additional explanation on any of the plans, please feel free to contact Bill Greer, Senior Director-Benefits, at 616/961-6015. As a matter of policy, employment is contingent upon your successfully passing a drug screen and your references being favorable. Under Kellogg Company policy, all employment is at-will, and any exceptions must be in writing and approved by the Chief Executive Officer. Larry, I am excited about the prospect of your joining our team, and I am confident Kellogg Company will provide the professional opportunity and challenge you desire. Please feel free to call with any questions you may have. Sincerely, Carlos M. Gutierrez Chairman of the Board Chief Executive Officer /d AGREED AND ACCEPTED BY: - ------------------------ Lawrence J. Pilon - ------------------------ Date EX-10.21 7 k74347exv10w21.txt 2002 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.21 KELLOGG COMPANY 2002 EMPLOYEE STOCK PURCHASE PLAN 1. Purpose. Kellogg Company (the "Company") has established this Kellogg Company 2002 Employee Stock Purchase Plan, as amended (the "Plan") to encourage and enable its eligible employees and the eligible employees of its Subsidiaries to acquire the Company's Common Stock, and to align more closely the interests of those individuals and the Company's share owners. The Company intends that the Plan qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended. 2. Definitions. Unless the context clearly indicates otherwise, for purposes of the Plan, the following terms shall have the following meanings: (a) "Board" means the Board of Directors of Kellogg Company, as constituted from time to time. (b) "Beneficiary" means (i) the person designated by the Participant to receive benefits under a Company-sponsored and Company-paid life insurance program, if any, or (ii) the Participant's estate. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means the Compensation Committee of the Board. (e) "Common Stock" means the Common Stock, par value $0.25 per share, of the Company or any security of the Company issued by the Company in substitution or exchange therefor. (f) "Company" means Kellogg Company, a Delaware corporation, or any successor corporation to Kellogg Company. (g) "Compensation" means with respect to a Participant, the portion of the Participant's base salary, commissions or wages paid to the Participant during the applicable payroll period. (h) "Custodian" means the individual or organization appointed by the Plan Administrator to maintain custody of Participants' payroll deductions, purchase Common Stock under the Plan, and allocate Common Stock among Participants. (i) "Designated Subsidiary" means any Subsidiary that the Board has designated from time to time, in its sole discretion, as eligible to participate in the Plan. -1- (j) "Disability" means disability as determined by the Committee in accordance with standards and procedures similar to those under the long-term disability plan of the Company or Designated Subsidiary, if any, or if the Participant is then a party to an effective employment agreement with the Company or Designated Subsidiary that defines disability, "Disability" means disability as defined in the Participant's then effective employment agreement. Subject to the first sentence of this paragraph, at any time that the Company or Designated Subsidiary does not maintain a long-term disability plan, "Disability" shall mean any physical or mental disability that is determined to be total and permanent by a physician selected in good faith by the Company or Designated Subsidiary. (k) "Effective Date" means July 1, 2002. (l) "Eligible Employee" means each Employee of the Company or a Designated Subsidiary. Notwithstanding the foregoing, any Employee who is covered by a collective bargaining agreement and whose decision not to participate in the Plan was the subject of good faith negotiations between the Company or a Designated Subsidiary and a labor organization will not be eligible to participate in the Plan, unless the decision not to participate in the Plan is revoked by the labor organization upon reasonable notice to the Company. (m) "Employee" means each and every person employed by the Company or a Designated Subsidiary, and whom the Company or Designated Subsidiary classifies as a common law employee; provided that, only individuals who are paid as common law employees from the payroll of the Company or a Designated Subsidiary shall be deemed to be Employees for purposes of the Plan. For purposes of this definition of Employee, and notwithstanding any other provisions of the Plan to the contrary, individuals who are not classified by the Company or by a Designated Subsidiary, in its discretion, as employees under Code Section 3121(d) (including, but not limited to, individuals classified by the Company or a Designated Subsidiary as independent contractors and non-employee consultants) and individuals who are classified by the Company or by a Designated Subsidiary, in its discretion, as employees of any entity other than the Company or a Designated Subsidiary, do not meet the definition of Employee and are ineligible for benefits under the Plan, even if the classification by the Company or Designated Subsidiary is later determined to be erroneous, or is retroactively revised. In the event the classification of an individual who is excluded from the definition of Employee under the preceding sentence is determined to be erroneous or is retroactively revised, the individual shall nonetheless continue to be excluded from the definition of Employee and shall be ineligible for benefits for all periods prior to the date the Company or Designated Subsidiary determines its classification of the individual is erroneous or should be revised. -2- (n) "Exchange Act" means the Securities Exchange Act of 1934, as in effect and as amended from time to time, or any successor statute thereto, together with any rules, regulations and interpretations promulgated thereunder or with respect thereto. (o) "Fair Market Value" means, with respect to any date, the closing price per share on the New York Stock Exchange Composite Transactions Tape on such date, provided that if there shall be no sales of shares reported on such date, the Fair Market Value of a share on such date shall be deemed to be equal to the closing price per share on such Composite Tape for the last preceding date on which sales of shares were reported. (p) "Offering Date" means the first day of a Purchase Period, each January 1, April 1, July 1 and October 1. (q) "Option" means an option to purchase shares of Common Stock under the Plan, pursuant to the terms and conditions thereof. (r) "Participant" means an Eligible Employee who is participating in the Plan pursuant to Section 4. (s) "Plan" means the Kellogg Company 2002 Employee Stock Purchase Plan, as set forth herein, as in effect, and as amended from time to time (together with any rules and regulations promulgated by the Committee with respect thereto). (t) "Plan Account" means an account maintained by the Plan Administrator for each Participant to which the Participant's payroll deductions are credited, against which funds used to purchase shares of Common Stock are charged, and to which shares of Common Stock purchased are credited. (u) "Plan Administrator" means such other person or persons, including a committee, as the Committee may appoint to administer the Plan. (v) "Purchase Date" means, except as provided in Sections 13 and 18, the last day of a Purchase Period, each March 31, June 30, September 30 and December 31. (w) "Purchase Period" means each calendar quarter. (x) "Purchase Price" means, with respect to each Purchase Period, the lesser of 85% of the Fair Market Value of Common Stock on the Offering Date, and 85% of the Fair Market Value of a share of Common Stock on the Purchase Date. (y) "Retirement" means the voluntary retirement by the Participant from active employment with the Company and its Designated Subsidiaries on or after the attainment of early or normal retirement age under the pension or -3- retirement plan sponsored by the Company or Designated Subsidiary in which he or she participates, or any other age with the consent of the Company or Designated Subsidiary. (z) "Subsidiary" means any corporation, domestic or foreign, other than the Company, in an unbroken chain of corporations beginning with the Company if, at the time of the granting of the Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Notwithstanding the foregoing, the term "Subsidiary" shall include a limited liability company that is disregarded as an entity separate from a Subsidiary. 3. Stock Subject to the Plan. Subject to Section 14, the aggregate number of shares of Common Stock that may be sold under the Plan is 2,500,000. Shares of Common Stock to be issued under the Plan may be authorized and unissued shares, issued shares that have been reacquired by the Company (in the open-market or in private transactions) and that are being held as treasury shares, or a combination thereof. 4. Participation in the Plan. Each Eligible Employee may participate in the Plan effective as of any Offering Date, by completing and delivering a payroll deduction authorization to the Plan Administrator at least 10 days in advance of the applicable Offering Date in the manner specified by the Plan Administrator. The Offering Date as of which an Eligible Employee commences or recommences participation in the Plan, and each Offering Date as of which an Eligible Employee renews his or her authorization under paragraph (a), is an Offering Date with respect to that Eligible Employee. A Participant's payroll deductions under the Plan shall commence on his or her initial Offering Date, and shall continue, subject to paragraph (a), until the Eligible Employee terminates participation in the Plan, is no longer an Eligible Employee, or the Plan is terminated. (a) A Participant's payroll deduction authorization shall be automatically renewed effective on the Offering Date following the conclusion of his or her initial Purchase Period and each subsequent Purchase Period, unless the Participant otherwise notifies the Plan Administrator in the manner specified by the Plan Administrator at least 10 days in advance of such date. (b) Notwithstanding the foregoing, an Eligible Employee shall not be granted an Option on any Offering Date if such Eligible Employee, immediately after the Option is granted, owns stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or any Subsidiary. For purposes of this paragraph (b), the rules of Code Section 424(d) shall apply in determining the stock ownership of an individual, and stock that an Eligible Employee may purchase under outstanding options shall be treated as stock owned by the Eligible Employee. -4- (c) Notwithstanding the foregoing, an Eligible Employee shall not be permitted to elect participation in the Plan for the next two full Purchase Periods immediately following his or her sale, transfer (including transfer to a different brokerage account or withdrawal from the Participant's Plan Account), or other disposition of Common Stock that was acquired within one year of the Purchase Date applicable to that Common Stock. 5. Payroll Deductions. An Eligible Employee may participate in the Plan only through payroll deductions. After-tax payroll deductions shall be made from the Compensation paid to each Participant for each Purchase Period in such whole percentage from 1% to 10% as the Participant shall authorize in his or her election form. No Eligible Employee may be granted an Option that permits his or her rights to purchase Common Stock under the Plan, and any other stock purchase plan of the Company or any Subsidiary that is qualified under Code Section 423, to accrue at a rate that exceeds $25,000 of Fair Market Value of such stock (determined on the Offering Date of such Option) for each calendar year of the Company in which the Option is outstanding at any time. 6. Changes in Payroll Deductions. A Participant may not increase or decrease the amount of his or her payroll deductions during a Purchase Period. A Participant may change his or her payroll deductions effective as of a subsequent Purchase Period by notifying the Plan Administrator in the manner specified by the Plan Administrator at least 10 days in advance of the next Offering Date. 7. Termination of Participation in Plan. (a) A Participant may, for any reason and at any time prior to each Purchase Date, voluntarily terminate participation in the Plan by notifying the appropriate payroll office in the time and manner specified by the Plan Administrator. Such Participant's payroll deductions under the Plan shall cease as soon as practicable following delivery of such notice. If the former Participant remains employed by the Company or any Designated Subsidiary after termination of his or her participation in the Plan, any payroll deductions credited to such Participant's Plan Account may be used to purchase shares of Common Stock on the next Purchase Date or refunded, without interest, to the Participant, at the election of the Participant. An Eligible Employee whose participation in the Plan is terminated may rejoin the Plan no earlier than the beginning of the Purchase Period next following his or her withdrawal, by delivering a new payroll deduction authorization in accordance with Section 4. (b) A Participant's participation in the Plan shall terminate upon termination of his or her employment with the Company and its Designated Subsidiaries, or termination of status as an Eligible Employee, for any reason. If a former Participant is no longer employed by the Company or any Designated Subsidiary for any reason, including Disability or Retirement, any payroll deductions credited to his or her Plan Account may be used to purchase shares of Common Stock on the next Purchase Date, or refunded, without interest, to the -5- Participant, at the election of the Participant (or, in the event of the Participant's death or Disability, the Participant's Beneficiary), as soon as practicable following his or her termination of employment. 8. Purchase of Shares. (a) On each Offering Date, each Participant shall be deemed to have been granted an Option. In no event will a Participant be deemed to have been granted more than one Option during any Purchase Period. (b) On the Purchase Date of a Purchase Period, each Participant shall be deemed, without any further action, to have purchased that number of whole and fractional shares of Common Stock determined by dividing the balance in the Participant's Plan Account on the Purchase Date by the Purchase Price. (Fractional shares will be calculated to the third decimal place.) Any amount remaining in the Participant's Plan Account shall be carried forward to the next Purchase Date unless the Plan Account is closed. Except as provided in Sections 13 and 18, in no event may a Participant purchase shares of Common Stock prior to the Purchase Date of a Purchase Period. (c) As soon as practicable after each Purchase Date, a statement shall be delivered to each Participant that shall include the number of shares of Common Stock purchased on the Purchase Date on behalf of such Participant under the Plan. (d) As of the Purchase Date of each Purchase Period, the Common Stock purchased by each Participant shall be considered to be issued and outstanding to his or her credit as a bookkeeping entry maintained by the Custodian in the Participant's Plan Account. Subject to the restrictions of Section 4(c) above, a stock certificate for shares of Common Stock credited to a Participant's Plan Account shall be issued upon request of the Participant at any time. Stock certificates under the Plan shall be issued, at the election of the Participant, in the Participant's name or in his or her name and the name of another person as joint tenants with right of survivorship or as tenants in common. A cash payment shall be made for any fraction of a share in such Plan Account, if necessary to close the Plan Account. 9. Rights as a Share Owner. A Participant shall not be treated as the owner of Common Stock until the Purchase Date of such stock under the Plan. As of the Purchase Date a Participant shall be treated as the record owner of his or her shares purchased on such date pursuant to the Plan. Unless the Participant elects otherwise in the time and manner specified by the Plan Administrator, any dividends paid in respect of Common Stock purchased by a Participant under the Plan and credited to his or her Plan Account will be reinvested in Common Stock in accordance with procedures established by the Company. -6- 10. Rights Not Transferable. Rights under the Plan are not transferable by a Participant other than by will or the laws of descent and distribution, and are exercisable during the Participant's lifetime only by the Participant or by the Participant's guardian or legal representative. No rights or payroll deductions of a Participant shall be subject to execution, attachment, levy, garnishment or similar process. 11. Application of Funds. All funds of Participants received or held by the Company under the Plan before purchase of the shares of Common Stock shall be held by the Company without liability for interest or other increment. 12. Administration of the Plan. The Plan shall be administered by the Plan Administrator. The Plan Administrator shall have authority to make rules and regulations for the administration of the Plan, and its interpretations and decisions with regard to the Plan and such rules and regulations shall be final and conclusive. It is intended that the Plan shall at all times meet the requirements of Code Section 423, if applicable, and the Plan Administrator shall, to the extent possible, interpret the provision of the Plan so as to carry out such intent. 13. Change of Control Provisions. (a) Notwithstanding any other provision of the Plan to the contrary, in the event of a Change in Control, each Option outstanding under the Plan shall be assumed or an equivalent option shall be substituted by the successor corporation or a parent or subsidiary of such successor corporation. If the successor corporation refuses or is unable to assume or substitute for outstanding Options, each Purchase Period then in progress shall be shortened and a new Purchase Date shall be set (the "New Purchase Date"), as of which date any Purchase Period then in progress will terminate. The New Purchase Date shall be on or immediately before the effective time of the Change in Control, and the Plan Administrator shall notify each Participant in writing, at least 10 days before the New Purchase Date, that the Purchase Date for his or her Option has been changed to the New Purchase Date, and that the Participant's Option will be exercised automatically on the New Purchase Date unless the Participant has withdrawn from the Purchase Period before the New Purchase Date, as provided in Section 7. (b) For purposes of the Plan, a "Change in Control" shall mean the happening of any of the following events: (i) An acquisition after the Effective Date by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (a) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); excluding, however, the following: (1) any -7- acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company or approved by the Incumbent Board (as defined below), (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, (4) any acquisition by an underwriter temporarily holding Company securities pursuant to an offering of such securities, or (5) any acquisition pursuant to a transaction that complies with clauses (1), (2) and (3) of subsection (iii) of this Section 13; or (ii) A change in the composition of the Board such that the individuals who, as of the Effective Date, constitute the Board (such Board shall be hereinafter referred to as the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this Section 13, that any individual who becomes a member of the Board subsequent to the Effective Date, whose election, or nomination for election by the Company's share owners, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso), either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or -8- (iii) Consummation of a reorganization, merger or consolidation (or similar transaction), a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity ("Corporate Transaction"); in each case, unless immediately following such Corporate Transaction (1) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 60% of, respectively, the outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (other than the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) will beneficially own, directly or indirectly, 20% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors, except to the extent that such ownership existed prior to the Corporate Transaction, and (3) individuals who were members of the Incumbent Board at the time of the Board's approval of the execution of the initial agreement providing for such Corporate Transaction will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or (iv) The approval by the share owners of the Company of a complete liquidation or dissolution of the Company. 14. Adjustments in Case of Changes Affecting Shares. In the event of any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, Change in Control or exchange of Common Stock or other securities of the Company, or other corporate transaction or event that affects the Common Stock: (a) the number of shares of Common Stock approved for the Plan shall be increased or decreased proportionately, and (b) the Board may determine, in its sole discretion, that an adjustment is necessary or appropriate in order to prevent dilution or enlargement of benefits or potential benefits intended to be made available under the Plan. -9- 15. No Corporate Action Restriction. The existence of the Plan and/or the Options granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the Company's share owners to make or authorize (a) any adjustment, recapitalization, reorganization or other change in the Company's or any Subsidiary's capital structure or its business, (b) any merger, consolidation or change in the ownership of the Company or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stocks ahead of or affecting the Company's or any Subsidiary's capital stock or the rights thereof, (d) any dissolution or liquidation of the Company or any Subsidiary, (e) any sale or transfer of all or any part of the Company's or any Subsidiary's assets or business, or (f) any other corporate act or proceeding by the Company or any Subsidiary. No Participant, Employee, beneficiary or any other person shall have any claim against any member of the Board or the Committee, the Company or any Subsidiary, or any employees, officers, share owners or agents of the Company or any Subsidiary, as a result of any such action. 16. Notices. All notices or other communications by an Employee or Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 17. Amendments to the Plan. The Committee may, at any time, or from time to time, amend or modify the Plan; provided, however, that no amendment shall be made increasing or decreasing the number of shares authorized for the Plan (other than as provided in Section 14), and that, except to conform the Plan to the requirements of the Code, no amendment shall be made that would cause the Plan to fail to meet the applicable requirements of Code Section 423. 18. Termination of Plan. The Plan shall terminate upon the earlier of (a) the fifth anniversary of the Effective Date, (b) the date no more shares of Common Stock remain to be purchased under the Plan, or (c) the termination of the Plan by the Board as specified below. The Board may terminate the Plan as of any date. The date of termination of the Plan shall be deemed a Purchase Date. If on such Purchase Date Participants in the aggregate have Options to purchase more shares of Common Stock than are available for purchase under the Plan, each Participant shall be eligible to purchase a reduced number of shares of Common Stock on a pro rata basis, and any excess payroll deductions shall be returned to Participants, without interest, all as provided by rules and regulations adopted by the Plan Administrator. 19. Costs. All costs and expenses incurred in administering the Plan shall be paid by the Company. Any costs or expenses of selling shares of Company Stock acquired pursuant to the Plan shall be borne by the holder thereof. 20. Governmental Regulations. The Company's obligation to sell and deliver its Common Stock pursuant to the Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such stock. Shares shall not be issued with respect to an Option unless the exercise of such Option and the issuance and delivery of such shares pursuant thereto shall comply with all -10- applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, state securities laws, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares of Common Stock are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 21. Governing Law. The Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the United States of America and, to the extent not inconsistent therewith, by the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. This Plan is not to be subject to the Employee Retirement Income Security Act of 1974, as amended, but is intended to comply with Code Section 423. Accordingly, the provisions of the Plan shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. Any provisions required to be set forth in this Plan by such Code section are hereby included as fully as if set forth in the Plan in full. Any titles and headings herein are for reference purposes only, and shall in no way limit, define or otherwise affect the meaning, construction or interpretation of any provisions of the Plan. 22. Effect on Employment. The provisions of this Plan shall not affect the right of the Company or any Designated Subsidiary or any Participant to terminate the Participant's employment with the Company or any Designated Subsidiary. 23. Withholding. The Company reserves the right to withhold from stock or cash distributed to a Participant any amounts that it is required by law to withhold. 24. Other Company Benefit and Compensation Programs. For purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Company or any Designated Subsidiary (a) any amounts deducted from a Participant's Compensation pursuant to the Participant's payroll deduction election under Section 4 shall be deemed a part of a Participant's compensation, and (b) payments and other benefits received by a Participant under an Option shall not be deemed a part of a Participant's compensation, unless expressly provided in such other plans or arrangements, or except where the Board expressly determines in writing. The existence of the Plan notwithstanding, the Company or any Designated Subsidiary may adopt such other compensation plans or programs and additional compensation arrangements as it deems necessary to attract, retain and motivate employees. -11- 25. Effective Date. The Plan, as amended, shall be effective July 1, 2002, provided that the Company's share owners approve it within 12 months after the date the initial Plan was adopted by the Board. -12- EX-10.25 8 k74347exv10w25.txt SEVERANCE POLICY EXHIBIT 10.25 KELLOGG COMPANY SEVERANCE BENEFIT PLAN INTRODUCTION Kellogg Company ("Kellogg") has established this Kellogg Company Severance Benefit Plan (the "Plan") effective April 1, 2002. Kellogg established this Plan to ease the financial burden on eligible terminated employees as a result of sudden job loss. As is more fully detailed below, the Plan is designed to apply in situations where Kellogg or any of its Affiliates (as defined below) terminates the employment of an eligible employee due to 1. a reduction in the work force; 2. the relocation of a company facility or component within a company facility; 3. the closing or sale of a company facility; 4. lack of work; 5. elimination of position; or 6. any other reason approved in the sole discretion of the Kellogg ERISA Administrative Committee (the "Committee"). The Plan is intended to constitute an "employee welfare benefit plan" as that term is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). This document constitutes the summary plan description and plan document with respect to the Plan. This Plan supercedes and replaces all prior severance, workforce reduction or similar policies or programs that may have been applicable to eligible employees of Kellogg or any of its Affiliates. For purposes of this Plan, (a) "Affiliates" means any subsidiary of which Kellogg owns, directly or indirectly, at least 80% of the voting equity; provided, however, that the Committee may, from time to time in its sole discretion, exclude certain Affiliates from participation in the Plan and (b) "Company" means Kellogg together with its Affiliates. PARTICIPATION IN THE PLAN ELIGIBLE EMPLOYEES Each regular non-union U.S. employee (including non-union production employees) who works on a "full-time" or "part-time" basis for Kellogg or any of its Affiliates (an "Employee", and the entity which employs an Employee is referred to herein as such Employee's "Employer") may be eligible for severance pay benefits under the Plan if the Employee satisfies all of the conditions set forth in this Plan. For purposes of eligibility, "full-time basis" means the Employee is actively employed by Kellogg or an Affiliate, and classified as "full-time" based on Kellogg's or the Affiliate's as the case may be, definition of full-time. In circumstances where a full-time Employee's normal work schedule has been reduced to no less than 20 hours per week to accommodate the Employee's bona fide health condition or disability, the Employee will be considered to be employed on a "full-time basis" for purposes of Plan eligibility. For purposes of eligibility, "part-time basis" means the Employee is actively employed by Kellogg or an Affiliate to work on a part-time basis (minimum 20 hours per week) and not on a temporary or summer-only basis (e.g., co-op students, on-call special projects. Each Employee who works on a full-time or part-time basis must be specifically designated as such by the Employee's Employer to be eligible under the terms of this Plan. Only common-law employees who are paid from the regular payroll of Kellogg or an Affiliate are eligible for benefits under this Plan. 1 An Employee on Military Leave, Family Leave, or Disability Leave (as those terms are defined in the Employer's employment policies and procedures) at the time of a Company initiated action that would otherwise result in the termination of his or her employment, will be considered for the severance benefits under the Plan at the conclusion of the approved leave on or after April 1, 2002. At such time, the individual must meet all of the necessary prerequisites to return to active employment under the terms of the approved leave and must also satisfy the eligibility requirements of the Plan in order to be eligible to receive severance benefits. EXCLUDED EMPLOYEES The following individuals are specifically excluded from eligibility under this Plan: 1. employees whose terms and conditions of employment are governed by a collective bargaining agreement; 2. pilots who, on account of their termination of employment, are eligible to receive benefits under the "Kellogg Company Pilots Loss of License and Employment After Age 60" policy; 3. individuals who, as of the date of their employment termination, are receiving benefits under the Company's long term disability program or disability retirement benefits under any Company retirement plan; 4. temporary employees who have not been designated by the Company as regular full-time or part-time employees; 5. any individuals who have signed an agreement, or otherwise agreed, to provide services to the Company as an independent contractor; 6. leased employees compensated through a leasing entity; and 7. any individual who has contractually waived, directly or indirectly, his or her rights to receive benefits under the Plan. CONDITIONS FOR SEVERANCE BENEFITS Subject to the provisions set forth above, an Employee is eligible to begin receiving severance benefits if he or she meets the following conditions: 1. the Employee properly executes and submits to Kellogg a form of release of claims (a "Release of Claims")which is presented to him or her by the Company, within the time period specified, and does not thereafter revoke the Release of Claims. The Release of Claims shall include certain covenants and representations as determined by the Company in its sole discretion. Examples of these covenants include, but are not limited to, covenants not to compete, solicit the Company's employees, or disparage the Company. 2. the Employee remains an active employee of the Company until the ultimate date established by the Employer as the commencement date of the Employee's Severance Leave of Absence ("SLOA"); 3. if requested by the Employer, the Employee assists with the transition of his or her job duties and responsibilities to one or more individuals (which assistance may include the participation in telephonic or in-person conferences from time to time during the Employee's SLOA); 4. during the SLOA, the Employee continues to comply with all policies and procedures of the Employer (including policies related to the protection of confidential information and the return of Employer property); and 5. the Employee does not experience a Disqualifying Event, as described in the section below entitled "Early Termination of Benefits." 2 Severance benefits under this Plan are extra compensation to eligible Employees, not compensation that the Company is required to pay outside of this Plan. Therefore, the severance benefits will be provided as consideration for the Employee's execution of and compliance with the Release of Claims and any other agreement with the Company and for the Employee's cooperation in the Employer's transition efforts. EMPLOYEES NOT ELIGIBLE TO RECEIVE SEVERANCE BENEFITS The following individuals are not eligible to begin receiving severance benefits under the Plan: 1. an Employee who refuses to accept an offer of "reasonable alternative employment" from the Company; 2. an Employee who accepts any offer of employment with the Company (including a corporate relocation assignment), regardless of whether the offer is deemed to be an offer of "reasonable alternative employment"; 3. in the case of a sale or divesture by the Company(including, but not limited to, the sale or divestiture of a Company facility or business), an Employee who is offered employment by the buyer, regardless of whether (a) the Employee accepts or rejects the employment offer, or (b) the offer is deemed to be an offer of "reasonable alternative employment"; 4. an Employee who voluntarily terminates employment or retires; 5. an Employee who enters into a consultative arrangement with the Employer which provides for compensation during the consulting period; and 6. an Employee deemed ineligible for any other reason in the Committee's sole discretion. For purposes of this Plan, an offer of employment will be deemed to be an offer of "reasonable alternative employment" if, both (i) the new Market Reference Point, as that term is defined in Kellogg's employment policies and procedures, is equal to at least 85% of the Employee's then current Market Reference Point), and (ii) the distance between the employee's residence and the new place of employment is not more than 50 miles, or the distance of the employee's current commute, whichever is greater. EARLY TERMINATION OF BENEFITS An Employee's severance benefits (including severance pay and continuation of benefits under employee benefit plans) will end, and his or her SLOA will terminate, on the earliest of the following events ("Disqualifying Events"): 1. the date the Employee breaches any term contained in the Release of Claims described herein or in any other agreement with the Company; 2. the date the Employee enters into a consulting agreement or active employment with the Company; 3. the date the Employee elects to retire or otherwise terminate his or her SLOA; or 4. the end of the Employee's maximum period of severance pay. TERMINATION OF PARTICIPATION Except as specifically provided elsewhere in this Plan, an Employee's eligibility for severance benefits under this Plan will cease on the date the Employee terminates employment with the Company. 3 HOW THE PLAN WORKS SEVERANCE LEAVE OF ABSENCE/NATURE AND DURATION OF SEVERANCE PAYMENTS An eligible Employee will be placed on a SLOA that begins immediately upon the date the Employee would otherwise terminate employment. During the SLOA, the Employee will be entitled to receive severance pay based on the then-current payroll practice (which may change during the SLOA period), and in the same manner (such as by direct deposit) as he or she had previously received base pay or base salary, and the payments will continue for the length of time described in the section below called "Amount of Severance Pay." Although the severance pay will look similar to the Employee's former base pay or base salary, it will not be considered "compensation" or otherwise included for benefit calculation purposes under any retirement plan of Kellogg or any Affiliate. The eligible Employee will not accrue additional service during the SLOA for purposes of any such retirement plan; provided, however, an Employee who is within two years of retirement eligibility may, at the sole discretion of the Committee, be credited service under such retirement plan equal to their SLOA period, not to exceed two years of additional service. VACATION PAY, ACCRUED BONUS AND STOCK OPTIONS No additional vacation days will accrue during the SLOA. If the Employee is retirement-eligible at the time of his or her employment termination (or where required by state law), the Employee will be entitled to receive any accrued but unused vacation pay as of the commencement of the SLOA. The Employee may be eligible, at Kellogg's sole discretion, to receive a pro-rata distribution of his or her bonus for the year in which the employment termination occurs, if such bonus has accrued under the terms of the bonus program; provided, however, that any bonus paid pursuant to this Plan will be based on no more than target and prorated through the last day of the month in which the Employee's SLOA begins. No bonus accrual is possible during the SLOA. An eligible Employee will continue to vest in his or her stock options and other stock awards under any Kellogg stock incentive program or other equity incentive program sponsored by the Company throughout the SLOA. AMOUNT OF SEVERANCE PAY The amount of an eligible Employee's severance pay will be based on the Employee's then-current pay grade and total years of service, as set forth below: 1. LEVEL 1 - 3: one week of severance pay for each year of service (subject to a minimum of six weeks and a maximum of 26 weeks).(1) 2. LEVEL 4 - 5: 1.5 weeks of severance pay for each year of service (subject to a minimum of 16 weeks and a maximum of 39 weeks). 3. LEVEL 6+: two weeks of severance pay for each year of service (subject to a minimum of 26 weeks and a maximum of 52 weeks). 4. SENIOR EXECUTIVES (other than direct reports of the Chief Executive Officer): two years of Base Pay, less any change of control payments payable by Kellogg. 5. Senior Executives who are DIRECT REPORTS OF THE CHIEF EXECUTIVE OFFICER: two years of Base Pay plus two years of target bonus (unless the Employee is covered by an employment agreement, in which case the agreement will determine his or her severance pay). 6. CHIEF EXECUTIVE OFFICER: determined by Kellogg's Board of Directors. - -------- (1) Level 1-3 includes all non-union hourly employees who have not otherwise been specifically designated a level. 4 An eligible Employee may receive severance benefits in addition to those described herein only with the written approval of the Company's Executive Vice President and General Counsel. For purposes of calculating the severance pay set forth above, the following definitions will apply: WEEK'S PAY DEFINED A week's pay for exempt and nonexempt Employees is defined as follows: 1. EXEMPT EMPLOYEES: Current Bi-weekly Base Salary (or average of prior 26 bi-weekly equivalents for commissioned employees or commission plus base) x 26 (pay periods per year) divided by 52 (weeks). Base salary shall include contributions to Kellogg's or an Affiliate's 401(k) plan and nonqualified plans, and contributions to health care or dependent care spending accounts under any flexible benefit plan sponsored by Kellogg or an Affiliate. 2. NONEXEMPT EMPLOYEES: The current hourly base rate (or the equivalent hourly rate in the case of salaried employees) multiplied by the normally scheduled number of work hours per week or 40 hours, whichever is less. If a nonexempt Employee is paid at more than one hourly rate, the "current hourly base rate" is determined by calculating a weighted average of all hourly rates on which the Employee's earnings were based for the 30-day period immediately preceding the effective date of the termination. SERVICE DEFINED Service is the years and months credited to the Employee on the date of commencement of the SLOA, less any service for which severance pay or other type of severance/layoff benefit has been paid by the Company. SENIOR EXECUTIVE DEFINED A Senior Executive is an executive who has been expressly designated in writing as such for purposes of this Plan, from time to time, by the Chairman of Kellogg's Board of Directors. ADDITIONAL SEVERANCE BENEFITS CONTINUED PARTICIPATION IN CERTAIN EMPLOYEE BENEFIT PLANS Throughout the SLOA, an eligible Employee will be allowed to continue his or her participation in the following Employer-sponsored employee benefit programs to the extent they are provided to the employees of such Employer and otherwise in accordance with the terms of the respective plan: medical, dental, prescription drug, life insurance and voluntary programs (including supplemental life insurance and long-term care). The Employee will be able to continue such participation so long as such Employee (i) pays the monthly premium or contribution rate applicable to "active" employees, (ii) complies with the other terms of the respective plan, and (iii) complies with the terms of the Release of Claims. Thereafter, the Employee may be eligible for continuation coverage under any group health plan under the federal law known as "COBRA." If an eligible Employee is on a Disability Leave at the commencement of his or her SLOA, benefits under the short-term (and, if the employee later qualifies for such benefits, benefits under the long-term) disability programs of the Company will continue as long as the Employee remains eligible for such benefits pursuant to the terms of those programs. Employer-provided financial planning services will end at the commencement of the SLOA; however, if 5 the Employee was eligible for those services prior to the SLOA, his or her tax preparation benefits will extend throughout the calendar year during which he or she last worked. Under the Kellogg tuition reimbursement program, an Employee will be eligible for reimbursement for eligible courses that started prior to the commencement of the SLOA up to the maximum allowed under the program and otherwise in accordance with the terms of the program. Unless otherwise provided herein or with the written approval of the Company's Executive Vice President and General Counsel, all other coverage in policies, programs, plans and perquisites will end as of the commencement of the SLOA. OUTPLACEMENT Outplacement assistance will be provided to an eligible Employee if the Employee has at least one or more years of service. The duration of such assistance is based upon the Employee's then-current pay grade, as set forth below: 1. LEVEL 1 - 2: two days of outplacement assistance(2) 2. LEVEL 3: three months of outplacement assistance 3. LEVEL 4 - 5: six months of outplacement assistance 4. LEVEL 6+: nine months of outplacement assistance 5. SENIOR EXECUTIVES (other than direct reports of the Chief Executive Officer): 12 months of outplacement assistance 6. SENIOR EXECUTIVES WHO ARE DIRECT REPORTS OF THE CHIEF EXECUTIVE OFFICER : 12 months of outplacement assistance EMPLOYEE ASSISTANCE PROGRAM Employee will be eligible for Employee Assistance Program ("EAP") services during the SLOA, to the extent they are provided by the Employer and otherwise in accordance with the terms of the relevant EAP plan. SEVERANCE BENEFITS CONTINGENT UPON UNREVOKED RELEASE At or before the commencement of the SLOA, an eligible Employee will be given the Release of Claims that is described in the section above called "Conditions for Severance Benefits." The Employee will be informed of the deadline for signing and returning the form to Kellogg, and of any applicable revocation period. Although the Employee's severance pay may begin before the expiration of such deadline and revocation period, the entitlement to any severance benefits under this Plan is contingent upon the Employee's submission of an unrevoked form. Therefore, if an Employee fails to submit the signed form to Kellogg, or submits the signed form but later revokes it, no additional severance benefits will be paid to the Employee and Kellogg and/or the Employee's Employer may offset the amount of any severance payments already made from sums otherwise due to the Employee (such as non-qualified retirement plan payments), and if the full amount of said severance payments are not fully offset, Employee shall pay the balance to Kellogg upon demand. OTHER OBLIGATIONS Any obligations or duties of an eligible Employee pursuant to a non-competition or other agreement with the Company will be governed solely by the terms of that agreement, and will not be affected by the terms of this Plan. - -------- (2) Level 1-2 includes all non-union hourly employees who have not otherwise been specifically designated a level. 6 GENERAL PROVISIONS INTEGRATION AND TAXES Severance pay under this Plan will be offset against any severance, notice or termination pay required to be paid by the Company pursuant to federal, state or local law or ordinance or pursuant to any written employment agreement between the Employee and the Company. All amounts owed by the Employee to the Company for bridge loan repayments, personal charges on company-provided credit cards or any other debts may be deducted from the severance payments at the Company's sole discretion, subject to the limitations of any state wage deduction statute. Severance pay is subject to federal and state taxes at the applicable rate. PAYMENT OF BENEFITS IN CASE OF INCOMPETENCY If an Employee entitled to severance pay becomes physically or mentally incapable of receiving or acknowledging payment of such benefit, the Committee, upon receipt of satisfactory evidence of such legal incapacity may, in its sole discretion, cause such benefits to be paid to some other person, persons, or institution on behalf of the Employee. PAYMENT OF BENEFITS IN CASE OF DEATH In the event that an eligible Employee dies after signing a Release of Claims which has not been revoked by the Employee prior to death, but before receipt of all severance pay benefits to which he or she was entitled under the Plan, a lump sum payment of the severance pay will be distributed to the estate of the Employee. If, however, an otherwise eligible Employee dies prior to signing a Release of Claims, no severance pay benefits will be paid to the estate of the Employee or to anyone else. ASSIGNMENT OF BENEFITS Any assignment of all or part of an eligible Employee's severance pay is void under the terms of the Plan. For example, creditors cannot claim an Employee's severance pay to satisfy such his or her debts. In addition, an Employee cannot give, sell, assign, pledge or otherwise transfer his or her severance pay to someone else or use it as collateral for a loan. GOVERNING LAW Except to the extent superseded by ERISA, the laws of the State of Michigan, other than its laws regarding choice of law, will be controlling in all matters relating to the Plan. PLAN COSTS Kellogg and its Affiliates pay the cost of providing benefits under the Plan out of their general assets. There is no cost to the Plan participants. PLAN AMENDMENT AND TERMINATION Kellogg reserves the right to amend or terminate this Plan at any time, by written resolution of its Board of Directors or by any committee or officer to whom this authority has been expressly delegated by the Board of Directors. The Plan may be amended in any way, including, but not limited to, changing the amount of severance benefits that an Employee may receive, even if the amendment reduces, in whole or in part, or terminates an amount of severance benefits, or excludes one or more classes of individuals from coverage under the Plan. Except as expressly authorized by the Plan or the Committee, in any action causing the termination of any severance benefits or the entire Plan, no further severance benefits will be provided other than for terminations occurring before the date of such action. Notice of a Plan amendment or termination may, but need not, be given unless required by law. 7 At any given time, amendments to the Plan may have been adopted by Kellogg that have not yet been reflected in this written document. In addition, from time to time the Committee may evidence the exercise of discretion on Plan matters in the form of written "Administrative Rulings." Copies of any such ruling will also be sent to you if you send a written request for them addressed to the Committee. The Committee may assess a reasonable charge to provide any requested copies. HOW THE PLAN IS ADMINISTERED COMMITTEE The Plan is self-administered by the Committee. In its role as Plan administrator, the Committee must administer the Plan in a uniform and non-discriminatory manner, and in accordance with its terms. The Committee will have full power to administer the Plan in all of its details. From time to time as it deems necessary or advisable for effective plan administration, the Committee may appoint a sub-committee or individuals to act as its representatives in matters affecting the Plan. The Committee's powers will include, but will not be limited to, the following authority, in addition to all other powers provided by this Plan: 1. to make, enforce, amend or rescind such rules and regulations as the Committee deems necessary or proper for the efficient administration of the Plan; 2. to interpret the Plan, with the Committee's interpretations thereof to be final and conclusive on all persons claiming benefits under the Plan; 3. to decide all questions concerning the Plan and the eligibility of any person to participate in the Plan and to receive benefits provided under the Plan; 4. to authorize the payment of benefits; and 5. to appoint such agents, counsel, accountants, consultants, and actuaries as may be required to assist in administering the Plan. CLAIMS Claims for benefits under the Plan must be submitted in writing to the People Services Center or the Committee within 60 days of the effective date of claimant's last day worked (or, if later, the date on which the claim arose). The Committee will provide written notice to any claimant within 60 days of the date a claim is filed if such claim for benefits hereunder has been denied. The Committee's 60-day determination period may be extended under certain circumstances. Any notice of adverse benefit determination under the Plan will state the specific reason(s) for determination; reference specific Plan provision(s) on which the determination is based; describe additional material or information necessary to complete the claim and why such information is necessary, describe Plan procedures and time limits for appealing the determination, and your right to obtain information about those procedures and the right to sue in federal court; and disclose any internal rule, guidelines, protocol or similar criterion relied on in making the adverse determination (or state that such information will be provided free of charge upon request). If a claim is denied in whole or in part, the claimant may request a review of the claim by the Committee by filing with or mailing to the Committee a written request within 180 days after the claim has been denied. A claimant will have the opportunity to submit written comments, documents, or other information in support of his or her appeal. A claimant will have access to all relevant documents as defined by applicable U.S. Department of Labor regulations. The review of an adverse benefit determination will take into account all new information, whether or not presented and available at the initial determination. No deference will be afforded to the initial determination. The claimant will receive a fair review of the claim by the Committee and be advised in writing of the disposition of the claim within 60 days after the request for review. Under special circumstances, a 60-day extension may be requested by the Committee, in which case the claimant will be notified in writing. If an extension is necessary due to the claimant's failure to submit the information necessary to decide the appeal, the notice of extension will 8 specifically describe the required information, and the claimant will be afforded at least 60 days from receipt of the notice to provide the specified information. If the claimant delivers the requested information within the time frame specified, the 60-day extension of the appeal period will begin after the claimant has provided such information. If the claimant fails to provide the requested information within the time frame specified, the Committee may decide the claimant's appeal without that information. SEVERABILITY If any provision of the Plan is held invalid or unenforceable, its invalidity or unenforceability will not affect any other provisions of the Plan and will be construed and enforced as if such provision had not been included herein. NO RIGHT TO EMPLOYMENT Nothing in this Plan will be construed as giving any person the right to be retained in the employment of Kellogg or any of its Affiliates. IMPORTANT INFORMATION ABOUT YOUR SEVERANCE PAY PLAN NAME OF PLAN Kellogg Company Severance Benefit Plan TYPE OF PLAN The Plan is a welfare benefit plan providing specified severance benefits. EMPLOYER IDENTIFICATION NO. 38-3020060 PLAN NUMBER 701 PLAN SPONSOR Kellogg Company PLAN ADMINISTRATOR ERISA Administrative Committee Kellogg USA Inc. P.O. Box 3599 Battle Creek, Michigan 49016-3599 Phone (616) 961-2000 AGENT FOR SERVICE OF LEGAL PROCESS Service of legal process may be served upon the Committee. PLAN RECORDS The fiscal records of the Plan are kept on a plan year basis, January 1 - December 31. STATEMENT OF ERISA RIGHTS The U.S. Department of Labor issued regulations that require Kellogg to provide you with a statement of your rights under ERISA with respect to this Plan. The following statement was designed by the Department of Labor to satisfy this requirement and is presented accordingly: As a participant in the Plan, you are entitled to certain rights and protections under ERISA. ERISA provides that all Plan participants shall be entitled to: 1. examine, without charge, at the Committee's office, all Plan documents, and copies of all documents filed by the Plan with the U. S. Department of Labor, such as detailed annual reports and Plan descriptions, and 2. obtain copies of all Plan documents and other Plan information upon request to the Committee. The Committee may make a reasonable charge for the copies. 9 In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of an employee benefit plan. The people who operate your Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the best interest of Plan participants. No one, including your Employer or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a benefit or exercising your rights under ERISA. If your claim for a benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have your claim reviewed and reconsidered. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require the Committee to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Committee. If you have a claim for benefits that is denied or ignored, in whole or in part, you may file suit in a state or federal court. If you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees; for example, if it finds your claim is frivolous. If you have any questions about your plan, you should contact the Committee. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration. 10 EX-13.01 9 k74347exv13w01.txt ANNUAL REPORT TO SHARE OWNERS FOR FISCAL YEAR END EXHIBIT 13.01 MANAGEMENT'S DISCUSSION AND ANALYSIS KELLOGG COMPANY AND SUBSIDIARIES RESULTS OF OPERATIONS OVERVIEW Kellogg Company is the world's leading producer of cereal and a leading producer of convenience foods, including cookies, crackers, toaster pastries, cereal bars, frozen waffles, meat alternatives, pie crusts, and ice cream cones. Kellogg products are manufactured and marketed globally. Our Company is managed in two major divisions - the United States and International - with International further delineated into Europe, Latin America, Canada, Australia, and Asia. This organizational structure is the basis of the operating segment data presented in this report. Over the past three years, we have transformed our Company to align with key operating principles first adopted in late 2000. These principles emphasize a stricter prioritization for resource allocation to the United States and our other core markets, a stronger emphasis on cash flow, and a focus on net sales value over shipment volume. This focus drives gross margin expansion to fund marketing investment. We believe the progression of our financial performance over this three-year period reflects both the significant transition we have undertaken and, more importantly, the ultimate success of our growth strategy. During 2000, to facilitate resource prioritization, we reorganized our company from four operating areas into two divisions - U.S. and International. As a result, we initiated restructuring actions around the world to support our strategy and new organization, including staff reductions in our global organization, rationalization of international convenience foods capacity, and restructuring of various non-core markets to improve return on investment. In addition to the disruption of this significant restructuring, we faced many financial challenges in 2000 such as softness in our U.S. convenience foods business, higher energy prices and interest rates, weak foreign currencies, and inventory write-offs in Southeast Asia. Despite these challenges, we were able to deliver net earnings growth through manufacturing efficiencies, reduced advertising and overhead expenses, and recognition of benefits related to U.S. tax credits. During 2001, our Company experienced a significant transition related to the acquisition and integration of Keebler Foods Company (the "Keebler acquisition"), as well as the fundamental refocus of our business model. While net earnings were dampened by increased interest and tax expense, and other short-term financial impacts of this transition, we achieved three important goals during 2001: increased dollar share in the U.S. cereal category; pricing and mix-related improvements in gross profit margin; and the highest cash flow (net cash provided from operating activities less expenditures for property additions) to date in our Company's history. Building on the groundwork laid in 2000 and 2001, our Company in 2002 established a trend of solid performance in several key metrics: internal sales growth, expansion of gross profit margin, and continued strong cash flow. We believe improved execution, increased brand-building investment, and a focus on value over volume were important drivers of this performance. The following items affect the comparability of current and prior-year results: _ On January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets." Under the provisions of this standard, substantially all of our amortization expense was eliminated in periods subsequent to adoption. Management's measure of operating segment profitability has been restated for all prior years to conform to the current-year presentation. _ Sales and operating profit for 2001 were reduced by the financial impact of Keebler integration activities. _ Operating profit for 2001 and 2000 included restructuring charges related to implementing our operating principles and preparing Kellogg for the Keebler integration. _ During 2001, net earnings included an extraordinary loss related to extinguishment of long-term debt and a charge for the cumulative effect of an accounting change. Reported results are reconciled to adjusted results, as follows:

For 2002, the increase in adjusted net earnings per share of $.20 was comprised of $.16 of business growth, $.09 from a reduced effective income tax rate, $.02 from favorable legal settlements during the first Kellogg Company 21 quarter, and $.01 from favorable foreign currency movements, partially offset by $.06 from increased interest expense and $.02 related to an increase in diluted shares outstanding versus the prior year. For 2001, the decrease in adjusted earnings per share of $.08 was primarily the result of $.34 from incremental interest expense, $.17 from a higher effective tax rate, and $.07 from unfavorable foreign currency movements. This was offset by $.50 from business growth, including the results of the Keebler business. NET SALES AND OPERATING PROFIT 2002 COMPARED TO 2001 The following tables provide an analysis of net sales and operating profit performance for 2002 versus 2001:

(a) 2001 net sales restated for the retroactive application of EITF No. 01-09. Refer to Note 1 within Notes to Consolidated Financial Statements for further information. (b) Impact of Keebler integration activities during 2001. Refer to discussion of results of operations in paragraphs following these tables for further information. (c) Impact of results for the first twelve weeks of 2002 from Keebler Foods Company, acquired in March 2001; and impact of results for the comparable 2001 period subsequent to the April 29, 2002, divestiture of the Bake-Line private label business. (d) 2001 U.S. operating segment profitability restated for an internal reallocation of overhead between corporate and U.S. operations. (e) Refer to "Restructuring and other charges" section beginning on page 24 for further information. (f) Pro forma impact of amortization eliminated by SFAS No. 142. Refer to Note 1 within Notes to Consolidated Financial Statements for further information. (g) Includes Canada, Australia, and Asia. During 2002, we achieved strong internal sales growth of 4% on a consolidated basis, resulting primarily from pricing and mix improvements in all operating segments. U.S. net sales in the retail cereal business increased approximately 6% and total international sales increased over 3% in local currencies. Adjusting the prior period to a comparable basis for the impact of acquisitions, divestitures, and Keebler integration activities, U.S. net sales in the retail snacks business increased nearly 1%, as a double-digit increase in sales of our wholesome snack products offset a decline in cookie and cracker sales. We believe this decline was primarily a result of weak consumption in the cookie and cracker categories throughout the year and our decision to cancel an end-of-year sales force incentive in order to improve efficiencies in our direct store door (DSD) delivery system. During 2002, consolidated and U.S. internal operating profit increased approximately 6% and 11%, respectively. Total international local currency operating profit was approximately even with the prior year, held down by a double-digit increase in marketing investment to drive core market sales growth. During 2001, sales and operating profit were reduced by the financial impact of Keebler integration activities ("integration impact"). This integration impact consisted primarily of 1) the sales and gross profit effect of lowering trade inventories to transfer our snack foods to Keebler's DSD system during the second quarter, 2) direct costs for employee incentive and retention programs, employee separation and relocation benefits, and consulting contracts, and 3) impairment and accelerated depreciation of software assets being abandoned due to the conversion of our U.S. business to the SAP system. We estimate that these activities reduced net sales by $17.8 million, increased cost of goods sold by $5.6 million, and increased selling, general, and administrative expense by $51.0 million, for a total 2001 operating profit reduction of $74.4 million. 2001 COMPARED TO 2000 The following tables provide an analysis of net sales and operating profit performance for 2001 versus 2000:

22 Kellogg Company

(a) 2001 and 2000 net sales restated for the retroactive application of EITF No. 01-09. Refer to Note 1 within Notes to Consolidated Financial Statements for further information. (b) Impact of Keebler integration activities during 2001. Refer to page 22 for further information. (c) Impact of results for applicable portion of 2001 from Keebler Foods Company, acquired in March 2001; Kashi Company, acquired in June 2000, and The Healthy Snack People business, an Australian convenience foods operation, acquired in July 2000. (d) 2001 and 2000 U.S. operating segment profitability restated for an internal reallocation of overhead between corporate and U.S. operations. (e) Refer to "Restructuring and other charges" section beginning on page 24 for further information. (f) Proforma impact of amortization eliminated by SFAS No. 142. Refer to Note 1 within Notes to Consolidated Financial Statements for further information. (g) Includes Canada, Australia, and Asia. On an internal business basis, consolidated net sales for 2001 increased nearly 1%, as a 2% increase in U.S. cereal sales to the retail channel was offset by declines in U.S. snack sales and in all international segments except Latin America and Canada. The decline in U.S. snack sales was due primarily to our product rationalization initiative and postponed innovation and marketing support during the integration of this business into the Keebler DSD system. The decline in international sales was driven by the discontinuation of our private-label program in Germany and continued cereal category softness in the United Kingdom and Australia. On an internal business basis, consolidated operating profit for 2001 grew over 2%. Increased profitability in international businesses offset the impact of the internal sales declines discussed above, as well as the impact of increased marketing investment in the U.S. cereal business and additional sales force hiring and training costs in the United States. In Southeast Asia, operating profit for 2000 was reduced by approximately $14 million in aged inventory write-offs and related expenses as management initiated restructuring actions to refocus certain markets on sustainable growth. The inclusion of the Keebler business in consolidated results increased our net sales by approximately 25% and segment operating profit by approximately 27% versus the prior year. Assuming we had owned Keebler during the comparable prior-year period, 2001 consolidated net sales (excluding foreign currency and integration impacts) would have been approximately even with the prior year. Similarly, operating profit (excluding Keebler amortization expense, restructuring charges, foreign currency, and integration impacts) would have increased approximately 4%. Keebler's net sales for full-year 2001 (excluding Kellogg snacks integrated into the DSD system) decreased approximately 1% versus the prior year, primarily as a result of our product rationalization initiative, exit of various non-strategic custom manufacturing contracts, and postponement of new product introductions during the integration process. MARGIN PERFORMANCE Margin performance is presented in the following table. All results for 2001 and 2000 exclude the impact of restructuring charges and amortization expense that would have been eliminated if SFAS No. 142 had been applied in the prior year. Results for 2001 and 2000 also have been restated for the retroactive application of EITF Issue No. 01-09 (refer to Note 1 within Notes to Consolidated Financial Statements) related to the reclassification of certain promotional expenditures from selling, general, and administrative expense (SGA) to net sales and cost of goods sold.

(a) Selling, general, and administrative expense as a percentage of net sales. (b) Results adjusted for the impact of amortization eliminated by SFAS No. 142. Refer to Note 1 within Notes to Consolidated Financial Statements for further information. The 2002 gross margin improvement was attributable primarily to higher average pricing, improved mix, operating leverage, and cost savings related to the Keebler acquisition. Excluding the impact of premium inserts and other package-related promotional costs recorded in cost of goods sold, our 2002 gross margin would have been 110 basis points higher or 46.1% and our 2001 gross margin would have been 80 basis points higher or 45.1%. Our 2002 gross margin also was favorably impacted by recognition of a $16.9 million curtailment gain related to a change in certain retiree health care plans, largely offset by asset impairment losses, and costs and asset write-offs associated with various ongoing supply chain efficiency initiatives. For 2001, the gross margin improvement was attributable to sales of higher-margin Keebler products, cereal price increases in the United States and Europe, and efforts to improve our global sales mix. The gross margin improvement was offset by an increase in SGA%, resulting in an operating margin comparable to the prior year. The higher SGA% was attributable principally to expenditures for marketing programs, U.S. sales force expansion, and improved employee performance incentives. Kellogg Company 23 INTEREST EXPENSE For 2002, gross interest expense, prior to amounts capitalized, increased 11% versus the prior year, due to the extra quarterly period of interest on Keebler acquisition-related debt. The year-over-year increase was minimized due to continuous pay-down of debt balances throughout the year and lower short-term market rates of interest. For 2001, gross interest expense increased significantly versus the prior year, due primarily to interest expense on debt issued late in the first quarter to finance the Keebler acquisition. (Refer to the "Liquidity and capital resources" section beginning on page 25 for further information.)

We currently expect reported total year 2003 interest expense to be reduced to approximately $360 million, as we continue to pay down our debt balances. OTHER INCOME (EXPENSE), NET Other income (expense), net includes non-operating items such as interest income, foreign exchange gains and losses, charitable donations, and gains on asset sales. Other income (expense), net for 2002 consists primarily of a $24.7 million credit related to legal settlements, of which $16.5 million was received in the first quarter with the remainder received throughout subsequent quarters. Other income (expense), net for 2000 includes a credit of approximately $12 million related to the 1999 sale of the Lender's Bagels business. INCOME TAXES The effective income tax rate for 2001 of 40% reflected the impact of the Keebler acquisition on nondeductible goodwill and the level of U.S. tax on foreign subsidiary earnings. As a result of our adoption of SFAS No. 142 on January 1, 2002 (refer to Note 1 within Notes to Consolidated Financial Statements), goodwill amortization expense -and the resulting impact on the effective income tax rate - has been eliminated in periods subsequent to adoption. Accordingly, the 2002 effective income tax rate was reduced to 37%, which is consistent with pre-2000 historical levels. The 2000 effective income tax rate was unusually low, due to the recognition of $33 million in U.S. research and foreign tax credits.

(a) Results for 2001 and 2000 exclude the impact of restructuring charges. Results for 2001 also exclude the impact of extraordinary loss from debt extinguishment and accounting change. As a result of implementing various foreign and state tax planning initiatives, we currently expect our 2003 consolidated effective tax rate to be reduced to approximately 36%. RESTRUCTURING AND OTHER CHARGES Cost of goods sold for 2002 includes a charge of $5.7 million related to our planned divestiture of certain private-label operations in Australia. The charge is comprised principally of an impairment loss to reduce the carrying value of production assets held for sale to estimated fair value less cost to sell. During December 2002, we sold these assets for an amount in excess of the previously estimated fair value, and recorded a credit to cost of goods sold of $2.3 million. Cost of goods sold for 2002 includes an impairment loss of $5.0 million related to our manufacturing facility in China, representing a decline in real estate market value subsequent to an original impairment loss recognized for this property in 1997. We are now in the process of selling this facility and currently believe the carrying value reflects fair value less cost to sell. Net earnings for 2001 include an extraordinary loss of $7.4 million, net of tax benefit of $4.2 million $(.02 per share), related to the extinguishment of $400 million of long-term debt. In April 2002, the FASB issued SFAS No. 145, a technical corrections pronouncement which, in part, rescinds SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt." Under SFAS No. 145, generally, debt extinguishments will no longer be classified as extraordinary items. As a result of adopting this standard for our 2003 fiscal year, the extraordinary loss for 2001 will be reclassified to conform to the presentation for 2003 and subsequent years. On January 1, 2001, we adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." During 2001, we recorded a charge to earnings of $1.0 million, net of tax benefit of $.6 million, and a charge to other comprehensive income of $14.9 million, net of tax benefit of $8.6 million, in order to recognize the fair value of derivative instruments as either assets or liabilities on the balance sheet. As discussed in the "Overview" section on page 21, during 2000 and 2001 we undertook significant restructuring actions to align resources with our growth strategy. The incremental costs of these actions were reported as restructuring charges during these years. Operating profit for 2001 includes net restructuring charges of $33.3 million $(20.5 million after tax or $.05 per share), comprised of charges of $48.3 million and credits of $15.0 million. The charges are related to preparing Kellogg for the Keebler integration and continued actions supporting our growth strategy in the United States and Southeast Asia. Approximately 70% of these charges were comprised of asset write-offs, with the remainder consisting of employee severance and other cash costs. The credits result from adjustments to various restructuring and asset disposal reserves associated with the completion of numerous multi-year initiatives. Operating profit for 2000 includes restructuring charges of $86.5 million $(64.2 million after tax or $.16 per share), consisting of $65.2 million for actions in various locations supporting our growth strategy and $21.3 million for a supply chain efficiency initiative in Europe. 24 Kellogg Company Approximately one-half of the charges were comprised of asset write-offs with the remainder consisting principally of cash costs for involuntary employee separation benefits. Total cash outlays incurred for restructuring programs were approximately $8 million in 2002, $35 million in 2001, and $68 million in 2000. At the end of 2002, all restructuring programs were complete and remaining reserves of $1.4 million consisted solely of long-term contractual obligations for severance. Refer to Note 3 within Notes to Consolidated Financial Statements for further information. In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal," which is effective for exit or disposal activities initiated after December 31, 2002, with early application encouraged. We have adopted SFAS No. 146 for our 2003 fiscal year. This statement is intended to achieve consistency in timing of recognition between exit costs, such as one-time employee separation benefits and contract termination payments, and all other costs. Under pre-existing literature, certain costs associated with exit activities were recognized when management committed to a plan. Under SFAS No. 146, costs are recognized when a liability has been incurred under general concepts. For instance, under pre-existing literature, plant closure costs would be accrued at the plan commitment date. Under SFAS No. 146, these costs would be recognized as closure activities are performed. These provisions could be expected to have the general effect of delaying recognition of certain costs related to restructuring programs. However, we do not currently expect adoption of this standard to have a significant impact on our 2003 financial results. KEEBLER ACQUISITION On March 26, 2001, we acquired Keebler Foods Company in a cash transaction valued at $4.56 billion. The acquisition was accounted for under the purchase method and was financed through a combination of short-term and long-term debt. The final purchase price allocation includes $71.3 million of liabilities related to our plans, as of the acquisition date, to exit certain activities and operations of the acquired company. Cash outlays related to these exit plans were approximately $28 million in 2001 and approximately $24 million in 2002, with the remaining amounts to be spent principally during 2003. Our exit plans are being announced as individual initiatives are implemented. In August 2002, we announced plans to consolidate certain functions in Battle Creek, Michigan, primarily research, technology, and financial services. As a result, approximately 70 positions in Elmhurst, Illinois, were relocated or eliminated. During November 2002, we commenced the process of consolidating ice cream cone and pie crust manufacturing operations from several facilities to a single facility in Chicago, Illinois. Other major initiatives begun in 2002 included the reconfiguration of Keebler's DSD system in the southeastern United States to accommodate Kellogg snack product volume, which has resulted in early termination of leases on approximately 100 small vans and separation of approximately 85 sales representatives and support personnel. Exit plans implemented during 2001 included separation of approximately 90 Keebler administrative employees and the closing of a bakery in Denver, Colorado, eliminating approximately 440 employee positions. During June 2001, we communicated plans to transfer portions of Keebler's Grand Rapids, Michigan, bakery production to other plants in the United States during the next 12 months. As a result, approximately 150 employee positions were eliminated, partly through a voluntary retirement program. During April 2002, we sold certain assets of Keebler's Bake-Line private-label unit, including a bakery in Marietta, Oklahoma, to Atlantic Baking Group, Inc. for approximately $65 million in cash and a $10 million note to be paid at a later date. In January 2003, we sold additional private-label operations for approximately $14 million in cash. For both of these transactions, the carrying value of net assets sold, including allocated goodwill, approximated the net sales proceeds. LIQUIDITY AND CAPITAL RESOURCES For 2002, net cash provided by operating activities was $999.9 million, compared to $1.13 billion in the prior-year period. Operating cash flow for 2002 declined slightly versus the prior year, due to a significant year-over-year increase in employee benefit plan contributions. Excluding the after-tax impact of December 2002 voluntary contributions of approximately $254 million, our 2002 operating cash flow would have exceeded the 2001 level by approximately $121 million, buoyed by operating profit growth and strong "core working capital" (trade receivables and inventory, less trade payables) management. Core working capital as a percentage of sales continued to improve versus the prior year. For 2002, average core working capital represented 8.8% of net sales, versus 9.9% for 2001. Expenditures during 2002 for property additions were $253.5 million, which represented 3.1% of current-year net sales compared with 3.7% in 2001. For 2003, expenditures for property additions are currently expected to remain at approximately 3% of net sales. Our measure of full-year 2002 cash flow (defined as net cash provided by operating activities reduced by expenditures for property additions) was $746.4 million and, excluding the after-tax impact of aforementioned year-end voluntary benefit plan contributions, would have been approximately one billion dollars. As a result of this stronger-than-expected cash flow, in December 2002, we made voluntary contributions to several of our major U.S. and U.K. pension and health care plans, totaling $370 million on a pretax basis. Despite these contributions, several of our pension plans experienced shortfalls in market values of trust assets versus the year-end 2002 accounting measurement of accumulated obligation. As a result of this condition, we were required to record on our year-end 2002 balance Kellogg Company 25 sheet a reduction in equity of approximately $306 million. This adjustment had no effect on our earnings, nor our ability to meet current debt covenants and maintain current debt ratings, and is not expected to affect our liquidity or capital resources. Primarily to offset dilution from outstanding employee stock options, our Board of Directors authorized management to repurchase up to $150 million of Kellogg common stock during 2002. Under this authorization, we paid $101 million during 2002 to repurchase approximately 3.1 million shares. The Board has authorized management to repurchase up to $250 million of stock during 2003 to offset or partially offset issuances under employee benefit programs. Subsequent to the Keebler acquisition in March 2001, we have repaid over one billion dollars of debt incurred for this purpose, which reduced our commercial paper program to approximately 2% of our total debt balance by mid-2002. During September 2002, we issued $400 million of U.S. commercial paper and redeemed $300.7 million of fixed rate Notes due April 2003. As of December 28, 2002, we had entered into forward interest rate contracts to fix the Treasury component of the coupon rate on $200 million notional amount of long-term debt to be issued in 2003, as a replacement for other maturing debt. At year-end 2002, these contracts were unfavorable to market by approximately 25 basis points. We believe that we will be able to meet our interest and principal repayment obligations and maintain our debt covenants for the foreseeable future, while still meeting our operational needs through our strong cash flow, our program of issuing commercial paper, and maintaining credit facilities on a global basis. Our significant long-term debt issues do not contain acceleration of maturity clauses that are dependent on credit ratings. A change in our Company's credit ratings could limit its access to the U.S. commercial paper market and/or increase the cost of refinancing long-term debt in the future. However, even under these circumstances, we would continue to have access to our credit facilities, which are in amounts sufficient to cover the outstanding commercial paper balance and debt principal repayments through 2003. OFF-BALANCE SHEET ARRANGEMENTS AND OTHER OBLIGATIONS OFF-BALANCE SHEET ARRANGEMENTS Our off-balance sheet arrangements are generally limited to future payments under noncancelable operating leases totaling approximately $302 million at year-end 2002, residual value guarantees and secondary liabilities on operating leases of approximately $14 million, and third party loan guarantees as discussed in the following paragraph. Our Keebler subsidiary is guarantor on loans to independent contractors for the purchase of DSD route franchises. At year-end 2002, there were total loans outstanding of $14.1 million to 526 franchisees. Related to this arrangement, our Company has established a five-year renewable loan facility and servicing arrangement up to $15.0 million with a financial institution. We have the right to revoke and resell the route franchises in the event of default or any other breach of contract by franchisees. Revocations have been infrequent. Our maximum potential future payments under these guarantees are limited to the outstanding loan principal balance plus unpaid interest. At December 28, 2002, we had not recorded any liability related to this arrangement. During December 2002, the FASB issued Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." This interpretation clarifies the requirement for recognition of a liability by a guarantor at the inception of the guarantee, based on the fair value of the non-contingent obligation to perform. This interpretation must be applied prospectively to guarantees entered into or modified after December 31, 2002. Accordingly, we will recognize the fair value of guarantees associated with new loans to DSD route franchisees issued beginning in 2003. These amounts are expected to be insignificant. During January 2003, the FASB issued Interpretation No. 46 "Consolidation of Variable Interest Entities." Under previous practice, entities were included in consolidated financial statements based on controlling voting interests. Under this interpretation, previously unconsolidated entities (often referred to as "special purpose entities") will be included in the consolidated financial statements of the "primary beneficiary" as a result of non-voting financial interests which are established through contractual or other means. For variable interest entities created after January 31, 2003, this interpretation is effective immediately. For any pre-existing variable interest entities, this interpretation would be effective beginning with our Company's fiscal 2003 third quarter. We continue to examine this new literature, but do not currently believe it will be applicable to any existing financial arrangement of our Company. CONTRACTUAL OBLIGATIONS The following table summarizes future estimated cash payments to be made under existing long-term contractual obligations. Further information on debt obligations is contained in Note 7 of Notes to Consolidated Financial Statements. Further information on lease obligations is contained in Note 6.

(a) Includes interest payments on significant fixed rate debt issuances outstanding at December 28, 2002. (b) Consists principally of minimum annual payments under long-term co-marketing agreements. Certain of these agreements also define minimum activity levels of an unspecified dollar amount for packaging innovation, advertising, and promotion, for which we have estimated and included the fixed cost component in the amounts above. 26 Kellogg Company CONTINGENT OBLIGATIONS Our Company has provided various representations, warranties, and other standard indemnifications in agreements to sell business assets or lease facilities over the past several years. Additionally, our Company is involved in various claims, including environmental and employment matters, arising in the ordinary course of business. We do not believe that any of these commitments or contingencies represents material adverse exposures to our Company's financial position or future results. SIGNIFICANT ACCOUNTING POLICIES Our significant accounting policies are discussed in Note 1 of Notes to Consolidated Financial Statements. Our critical accounting policies, which require significant judgments and estimates, are generally limited to those governing the amount and timing of recognition of consumer promotional expenditures and the assessment of the carrying value of goodwill and other intangible assets. Our promotional activities are conducted either through the retail trade or directly with consumers and involve in-store displays; feature price discounts on our products; consumer coupons, contests, and loyalty programs; and similar activities. The costs of these activities are generally recognized at the time the related revenue is recorded, which normally precedes the actual cash expenditure. The recognition of these costs therefore requires management judgment regarding the volume of promotional offers that will be redeemed by either the retail trade or consumer. These estimates are made using various techniques including historical data on performance of similar promotional programs. Differences between estimated expense and actual redemptions are normally insignificant and recognized as a change in management estimate in a subsequent period. However, as our Company's total promotional expenditures represented nearly 30% of 2002 net sales, the likelihood exists of materially different reported results if different assumptions or conditions were to prevail. Beginning in 2002, we follow SFAS No. 142 in evaluating impairment of goodwill and other intangible assets. Under this standard, goodwill impairment testing first requires a comparison between the carrying value and fair value of a reporting unit with associated goodwill. Carrying value is based on the assets and liabilities associated with the operations of that reporting unit, which often requires allocation of shared or corporate items among reporting units. The fair value of a reporting unit is based primarily on our assessment of profitability multiples likely to be achieved in a theoretical sale transaction. Similarly, impairment testing of other intangible assets requires a comparison of carrying value to fair value of that particular asset. Fair values of non-goodwill intangible assets are based primarily on projections of future cash flows to be generated from that asset. For instance, cash flows related to a particular trademark would be based on a projected royalty stream attributable to branded product sales. These estimates are made using various inputs including historical data, current and anticipated market conditions, management plans, and market comparables. At December 28, 2002, intangible assets, net, were $5.1 billion, consisting primarily of goodwill, trademarks, and DSD delivery system associated with the Keebler acquisition. While we currently believe that the fair value of all of our intangibles exceeds carrying value, materially different assumptions regarding future performance of our snacks business could result in significant impairment losses. FUTURE OUTLOOK As we begin 2003, our Company faces several important challenges, including: _ higher employee benefits expense; _ significant increases in the prices of certain grains, cocoa, and packaging; _ increased cost and reduced availability of certain types of insurance such as product recall and tampering, and earthquake; _ economic volatility in Latin America; and _ a fundamental change in strategy for our snacks business as discussed further below. Despite these challenges, our Company should be able to generate high single-digit earnings per share growth for 2003, excluding the impact of favorable legal settlements in the first quarter of 2002. We believe these cost increases and risks can be largely offset with pricing and mix improvements, a series of supply chain productivity initiatives, and the momentum in operating performance and cash flow expansion we established in 2002. Regarding our snacks business, we are in the process of restructuring this business for the next phase of its life cycle. This restructuring entails a change from an "acquire-and-integrate strategy" followed successfully by Keebler prior to our acquisition of that company, to a strategy of sustainable, organic growth. Although we believe we are executing well, the success of this new strategy depends on our ability to enhance brand-building capabilities both in consumer marketing and innovation, requiring considerable changes in processes and personnel. As we accelerate this transition during 2003, we plan to make significant investments in this business. Despite significant benefit plan contributions in 2002, we expect to experience double-digit increases in employee pension and health care expense during 2003, attributable principally to rapidly rising U.S. health care costs, the impact of changes in several actuarial assumptions versus 2002, and amortization of experience losses. Based on recent and projected market conditions, we have decided to reduce our long-term rate of return on major plan assets from 10.5% to 9.3% for 2003. To review our long-term rate of return on an annual basis, we work with third party financial consultants to model expected returns over a 20-year investment horizon with respect to the investment mix of our major plans, which currently consist of approximately 70% equities, 15% investment grade bonds, and 15% high-yielding bonds and other investments. The return assumptions used reflect a Kellogg Company 27 combination of rigorous historical performance analysis and forward-looking views of the financial markets as indicated by yields on long-term bonds and price-earnings ratios of the major stock market indices. With respect to our investment mix, the simulations of this model during 2002 resulted in a mean return of 8.5% and a 75th percentile return of 10.4%. This model does not incorporate a premium for active management of trust investments which, according to our historical analysis, is expected to add at least 100 basis points to the long-term performance of our plan assets versus the mean return of the model. Taking into account this premium, we currently believe that 9.3% is an appropriate reflection of the expected long-term performance of our trust investments. Any future variance between the assumed and actual rates of return on our plan assets is currently expected to have an insignificant impact on our earnings for any particular year, due to our election to determine fair value of plan assets based on calculated value over a five-year period and the process of amortizing experience gains and losses using a declining-balance method over the average remaining service period of active employees. For instance, a 100 basis point shortfall in actual versus assumed performance of all of our plan assets in year one would result in an arising experience loss of approximately $20 million. The unfavorable impact on earnings in year two would be less than $2 million. Approximately 80% of this experience loss would be recovered through earnings at the end of year 20. In addition to reducing the asset return rate, we also addressed the health care cost trend rates and discount rates applicable to the year-end 2002 plan valuations. While our initial trend rate for 2003 of 8% is consistent with our recent experience, we have decided to increase our ultimate assumed cost trend rate for U.S. retiree health care benefits from 4.5% to 5%, based on current economic views on long-term health care cost inflation. Lastly, based on prevailing rates on high quality debt securities, we reduced the discount rate used to measure our year-end 2002 plan obligations by at least 25 basis points in most of our major jurisdictions, which include the United States, United Kingdom, and Canada. Our global weighted average discount rate at year-end 2002 was 6.6% versus 7% at year-end 2001. Due primarily to stock market declines over the past several years, we have experienced shortfalls in actual versus expected performance of trust investments. Combined with the unfavorable impact of falling interest rates on measurement of our benefit obligations during the same time period, we have accumulated significant experience losses, which must be amortized as a component of benefits expense in future years. For 2003, we currently expect incremental amortization of approximately $20 million. Assuming actual future experience is consistent with our current assumptions, incremental amortization of accumulated experience losses during each of the next several years would be approximately equivalent to the 2003 amount. FORWARD-LOOKING STATEMENTS Our Management's Discussion and Analysis, and other parts of this Annual Report contain "forward-looking statements" with projections concerning, among other things, our strategy and plans; growth, margins, and profitability; products and promotions; exit plans and costs related to the Keebler acquisition; the impact of accounting changes; our ability to meet interest and debt principal repayment obligations; future common stock repurchases; effective income tax rate; cash flow; working capital; property addition expenditures; interest expense, commodity prices, health care and pension costs; and realizability of the carrying value of intangibles and other assets. Forward-looking statements include predictions of future results or activities and may contain the words "expect," "believe," "will," "will deliver," "anticipate," "project," "should," or words or phrases of similar meaning. Our actual results or activities may differ materially from these predictions. In particular, future results or activities could be affected by factors related to the Keebler acquisition, including integration problems, failures to achieve savings, unanticipated liabilities, and the substantial amount of debt incurred to finance the acquisition, which could, among other things, hinder our ability to adjust rapidly to changing market conditions, make us more vulnerable in the event of a downturn, and place us at a competitive disadvantage relative to less-leveraged competitors. In addition, our future results could be affected by a variety of other factors, including: _ competitive conditions in our markets; _ marketing spending levels and pricing actions of competitors; _ the impact of competitive conditions, marketing spending, and/or incremental pricing actions on actual volumes and product mix; _ effectiveness of advertising and marketing spending or programs; _ the success of innovations and new product introductions; _ the availability of and interest rates on short-term financing; _ actual market performance of benefit plan trust investments; _ the levels of spending on systems initiatives, properties, business opportunities, integration of acquired businesses, and other general and administrative costs; _ commodity prices and labor costs; _ changes in consumer behavior and preferences; _ changes in U.S. or foreign regulations affecting the food industry; _ the success of productivity improvements; _ the success of business transitions; _ U.S. and foreign economic conditions, including currency conversion controls and rate fluctuations; _ legal factors; and, _ business disruption or other losses from terrorist acts or political unrest, or responses to them. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to publicly update them. 28 Kellogg Company KELLOGG COMPANY AND SUBSIDIARIES

(a) Operating profit for 2001 includes restructuring charges, net of credits, of $33.3 ($20.5 after tax or $.05 per share). Operating profit for 2000 includes restructuring charges of $86.5 ($64.2 after tax or $.16 per share). Operating profit for 1999 includes restructuring charges of $244.6 ($156.4 after tax or $.40 per share). Earnings before extraordinary loss and accounting change for 1999 include disposition-related charges of $168.5 ($111.5 after tax or $.27 per share). Operating profit for 1998 includes restructuring charges of $70.5 ($46.3 after tax or $.12 per share). Refer to Management's Discussion and Analysis beginning on page 24 and Note 3 within Notes to Consolidated Financial Statements for further explanation of charges for years 2000-2001. (b) Earnings before extraordinary loss and cumulative effect of accounting change for 2001 exclude the effect of a charge of $7.4 after tax ($.02 per share) for extinguishment of debt and a charge of $1.0 after tax to adopt SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". (c) Interest coverage ratio is calculated based on earnings before interest expense, income taxes, depreciation, and amortization, divided by interest expense. (d) 1998-2001 net sales restated for the retroactive application of EITF No. 01-09. Refer to Note 1 within Notes to Consolidated Financial Statements for further information. (e) Results for 2001 include $103.6 ($85.0 after tax or $.21 per share) of amortization which has been eliminated by SFAS No. 142 on a pro forma basis. Amortization in pre-2001 years was insignificant. Refer to Note 1 for further information. Kellogg Company 29 KELLOGG COMPANY AND SUBSIDIARIES

Refer to Notes to Consolidated Financial Statements. 30 Kellogg Company KELLOGG COMPANY AND SUBSIDIARIES

Refer to Notes to Consolidated Financial Statements. Kellogg Company 31 KELLOGG COMPANY AND SUBSIDIARIES

Refer to Notes to Consolidated Financial Statements. 32 Kellogg Company KELLOGG COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 AND OTHER LONG-LIVED ASSETS 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. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 144 "Accounting for Impairment or Disposal of Long-lived Assets" on January 1, 2002. This standard is generally effective for the Company on a prospective basis. SFAS No. 144 clarifies and revises existing guidance on accounting for impairment of plant, property, and equipment, amortized intangibles, and other long-lived assets not specifically addressed in other accounting literature. Significant changes include 1) establishing criteria beyond those previously specified in existing literature for determining when a long-lived asset is held for sale, and 2) requiring that the depreciable life of a long-lived asset to be abandoned is revised. SFAS No. 144 also broadens the presentation of discontinued operations to include a component of an entity (rather than only a segment of a business). GOODWILL AND OTHER INTANGIBLE ASSETS The Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets" on January 1, 2002. This standard provides accounting and disclosure guidance for acquired intangibles. Under this standard, goodwill and "indefinite-lived" intangibles are no longer amortized, but are tested at least annually for impairment. Goodwill impairment testing first requires a comparison between the carrying value and fair value of a reporting unit, including goodwill allocated to it. If carrying value exceeds fair value, goodwill is considered impaired. The amount of impairment loss is measured as the difference between carrying value and implied fair value of goodwill, which is determined in the same manner as the amount of goodwill recognized in a business combination. Impairment testing for non-amortized intangibles requires a comparison between the fair value and carrying value of the intangible asset. If carrying value exceeds fair value, the intangible is considered impaired and is reduced to fair value. The Company uses various market valuation techniques to determine fair value of goodwill and other intangible assets, primarily discounted cash flow models and profitability-based multiples. Transitional impairment tests of goodwill and non-amortized intangibles were required to be performed upon adoption of SFAS No. 142, with any recognized impairment loss reported as the cumulative effect of an accounting change in the first period of adoption. The Company was not required to recognize any impairment losses under these transitional tests. SFAS No. 142 also provides separability criteria for recognizing intangible assets apart from goodwill. Under these provisions, assembled workforce is no longer considered a separate intangible. Accordingly, effective January 1, 2002, the Company reclassified approximately $46 million from other intangibles to goodwill. Refer to Note 15 for further information on the Company's goodwill and other intangible assets. For periods prior to 2002, intangible assets were amortized on a straight-line basis over the estimated periods benefited, generally 40 years for goodwill and periods ranging from 5 to 40 years for other intangible assets. The realizability of goodwill and other intangibles was evaluated periodically when events or circumstances indicated a possible inability to recover the carrying amount. Evaluation was based on undiscounted cash flow projections over the remaining life of the asset. An excess of carrying value over cash flows resulted in recognition of an impairment loss. The amount of the loss was based on the difference between carrying value and fair value of the asset, as measured by market comparables or discounted cash flows in the absence of market data. REVENUE RECOGNITION AND MEASUREMENT The Company recognizes sales upon delivery of its products to customers net of applicable provisions for discounts, returns, and allowances. Beginning January 1, 2002, the Company has applied the consensus reached by the Emerging Issues Task Force (EITF) of the FASB in Issue No. 01-09 "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products." Under this consensus, generally, cash consideration is classified as a reduction of revenue, unless specific criteria are met regarding goods or services that the vendor may receive in return for this consideration. Non-cash consideration is classified as a cost of sales. Kellogg Company 33 As a result of applying this consensus, the Company has reclassified promotional payments to its customers and the cost of consumer coupons and other cash redemption offers from selling, general, and administrative expense (SGA) to net sales. The Company has reclassified the cost of promotional package inserts and other non-cash consideration from SGA to cost of goods sold. Prior-period financial statements have been reclassified to comply with this guidance. ADVERTISING The costs of advertising are generally expensed as incurred and are classified within SGA. STOCK COMPENSATION The Company follows Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," in accounting for its employee stock options and other stock-based compensation. Under APB No. 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 SFAS No. 123 "Accounting for Stock-Based Compensation" and SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure." Refer to Note 8 for further information. DERIVATIVES AND HEDGING TRANSACTIONS The Company adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" on January 1, 2001. This statement requires all derivative instruments to be recorded on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. Upon adoption, the Company reported a charge to earnings of $1.0 million (net of tax benefit of $.6 million) and a charge to other comprehensive income of $14.9 million (net of tax benefit of $8.6 million) in order to recognize the fair value of derivative instruments as either assets or liabilities on the balance sheet. The charge to earnings relates to the component of the derivative instruments' net loss that has been excluded from the assessment of hedge effectiveness. Refer to Note 12 for further information. For periods prior to 2001, the Company accounted for derivatives and hedging transactions in a manner similar to the provisions of SFAS No. 133, except that 1) unrealized gains and losses related to hedges of forecasted transactions were deferred as assets or liabilities rather than included in other comprehensive income, and 2) the fair values of certain financial derivatives such as interest rate swaps were carried off-balance sheet. RECENTLY ISSUED PRONOUNCEMENTS Accounting for exit costs The Company has adopted SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal," with respect to exit or disposal activities initiated after December 31, 2002. This statement is intended to achieve consistency in timing of recognition between exit costs, such as one-time employee separation benefits and contract termination payments, and all other costs. Under pre-existing literature, certain costs associated with exit activities were recognized when management committed to a plan. Under SFAS No. 146, costs are recognized when a liability has been incurred under general concepts. For instance, under pre-existing literature, plant closure costs would be accrued at the plan commitment date. Under SFAS No. 146, these costs would be recognized as closure activities are performed. These provisions could be expected to have the general effect of delaying recognition of certain costs related to restructuring programs. However, management does not currently expect adoption of this standard to have a significant impact on the Company's 2003 financial results. Guarantees With respect to guarantees entered into or modified after December 31, 2002, the Company has applied guidance contained in FASB Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." This interpretation clarifies the requirement for recognition of a liability by a guarantor at the inception of the guarantee, based on the fair value of the non-contingent obligation to perform. Management does not currently expect application of this guidance to have a significant impact on the Company's 2003 financial results. Extinguishment of debt Net earnings for 2001 include an extraordinary loss of $7.4 million, net of tax benefit of $4.2 million ($.02 per share), related to the extinguishment of $400 million of long-term debt. Effective with its 2003 fiscal year, the Company adopted SFAS No. 145, a technical corrections pronouncement which, in part, rescinds SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt." Under SFAS No. 145, generally, debt extinguishments will no longer be classified as extraordinary items. Accordingly, the extraordinary loss for 2001 will be reclassified to conform to the presentation for 2003 and subsequent years. Variable interest entities During January 2003, the FASB issued Interpretation No. 46 "Consolidation of Variable Interest Entities." Under previous practice, entities were included in consolidated financial statements based on controlling voting interests. Under this interpretation, previously un-consolidated entities (often referred to as "special purpose entities") will be included in the consolidated financial statements of the "primary beneficiary" as a result of non-voting financial interests which are established through contractual or other means. For variable interest entities created after January 31, 2003, this interpretation is effective immediately. For any pre-existing variable interest entities, this interpretation would be effective beginning with the Company's fiscal 2003 third quarter. Management continues to examine this new literature, but does not currently believe it will be applicable to any existing financial arrangement of the Company. 34 Kellogg Company 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 ACQUISITIONS AND DISPOSITIONS KEEBLER ACQUISITION On March 26, 2001, the Company acquired Keebler Foods Company in a cash transaction valued at $4.56 billion. The acquisition was accounted for under the purchase method and was financed through a combination of short-term and long-term debt. The components of intangible assets included in the final allocation of purchase price are presented in the following table. During 2001, these intangibles were amortized based on an estimated useful life of 40 years. As a result of the Company's adoption of SFAS No. 142 on January 1, 2002 (refer to Note 1), these intangibles are no longer amortized after 2001, but are subject to annual impairment reviews.

The final purchase price allocation includes $71.3 million of liabilities related to management's plans, as of the acquisition date, to exit certain activities and operations of the acquired company, as presented in the table below. Cash outlays related to these exit plans were approximately $28 million in 2001 and approximately $24 million in 2002, with the remaining amounts to be spent principally during 2003.

Exit plans are being announced as individual initiatives are implemented. In August 2002, management announced plans to consolidate certain functions in Battle Creek, Michigan, primarily research, technology, and financial services. As a result, approximately 70 positions in Elmhurst, Illinois, were relocated or eliminated. During November 2002, the Company commenced the process of consolidating ice cream cone and pie crust manufacturing operations from several facilities to a single facility in Chicago, Illinois. Other major initiatives begun in 2002 included the reconfiguration of Keebler's DSD system in the southeastern United States to accommodate Kellogg snack product volume, which has resulted in early termination of leases on approximately 100 small vans and separation of approximately 85 sales representatives and support personnel. Exit plans implemented during 2001 included separation of approximately 90 Keebler administrative employees and the closing of a bakery in Denver, Colorado, eliminating approximately 440 employee positions. During June 2001, the Company communicated plans to transfer portions of Keebler's Grand Rapids, Michigan, bakery production to other plants in the United States during the next 12 months. As a result, approximately 150 employee positions were eliminated, partly through a voluntary retirement program. During April 2002, the Company sold certain assets of Keebler's Bake-Line private-label unit, including a bakery in Marietta, Oklahoma, to Atlantic Baking Group, Inc. for approximately $65 million in cash and a $10 million note to be paid at a later date. In January 2003, the Company sold additional private-label operations for approximately $14 million in cash. For both of these transactions, the carrying value of net assets sold, including allocated goodwill, approximated the net sales proceeds. The following table includes the unaudited pro forma combined results as if Kellogg Company had acquired Keebler Foods Company as of the beginning of either 2001 or 2000, instead of March 26, 2001. Net sales have been restated for the retroactive application of EITF Issue No. 01-09 (refer to Note 1) effective January 1, 2002.

The pro forma results include amortization of the intangibles presented above and interest expense on debt assumed 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. OTHER ACQUISITIONS During 2000, the Company paid cash for several business acquisitions. In January, the Company purchased certain assets and liabilities of the Mondo Baking Company Division of Southeastern Mills, Inc., a convenience foods manufacturing operation, for approximately $93 million, including related acquisition costs. In July, the Company purchased certain assets and liabilities of The Healthy Snack People business, an Australian convenience foods operation, for approximately $12 million, including related acquisition costs. In June, the Company acquired the outstanding stock of Kashi Company, a U.S. natural foods company. In May 2002, the Company paid additional contingent purchase price of $2 million, bringing the total purchase price, including related acquisition costs, to approximately $35 million. Kellogg Company 35 NOTE 3 RESTRUCTURING AND OTHER CHARGES Cost of goods sold for 2002 includes an impairment loss of $5.0 million related to the Company's manufacturing facility in China, representing a decline in real estate market value subsequent to an original impairment loss recognized for this property in 1997. Management is now in the process of selling this facility and currently believes the carrying value reflects fair value less cost to sell. During the past several years, management has commenced major productivity and operational streamlining initiatives in an effort to optimize the Company's cost structure and align resources with the Company's growth strategy. The incremental costs of these programs have been reported during these years as restructuring charges. Specifically, during 2000, management adopted key operating principles that emphasize a stricter prioritization for resource allocation to the United States and the Company's other core markets. In conjunction with this strategy, the Company was reorganized from four operating areas into two divisions - U.S. and International. As a result, management initiated restructuring actions around the world to support this strategy and organization, including staff reductions in its global supply chain and innovation organization, rationalization of international convenience foods capacity, and restructuring of various non-core markets to improve return on investment. These initiatives resulted in restructuring charges during both 2000 and 2001, as follows:

The 2001 charges of $48.3 million are related to preparing Kellogg for the Keebler integration and continued actions supporting the Company's growth strategy. Specific initiatives included a headcount reduction of about 30 in U.S. and global Company management, rationalization of product offerings and other actions to combine the Kellogg and Keebler logistics systems, and further reductions in convenience foods capacity in Southeast Asia. Approximately two-thirds of the charges were comprised of asset write-offs with the remainder consisting of employee separation benefits and other cash costs. The 2001 credits of $15.0 million result from adjustments to various restructuring and asset disposal reserves. With numerous multi-year streamlining initiatives nearing completion in late 2001, management conducted an assessment of post-2001 reserve needs, which resulted in net reductions of $8.8 million for cash outlays and $6.2 million for asset disposals. (Asset disposal reserves are reported within Property, net, on the Consolidated Balance Sheet.) The reduction in cash outlays relates primarily to lower-than-anticipated employee severance and asset removal expenditures, and higher-than-anticipated asset sale proceeds. The 2000 charges of $86.5 million consist of $65.2 million for actions supporting the Company's growth strategy and $21.3 million for a supply chain efficiency initiative in Europe. Approximately one-half of the charges for the growth strategy program were comprised of asset write-offs with the remainder consisting primarily of cash costs associated with involuntary employee separation programs. Approximately 500 salaried and hourly positions were eliminated, primarily during the fourth quarter of 2000. The charges for the European supply chain program were comprised principally of voluntary employee retirement and separation benefits. This program resulted in hourly and salaried headcount reductions totaling 190 during 2000. Total cash outlays incurred for restructuring programs were approximately $8 million in 2002, $35 million in 2001, and $68 million in 2000. At the end of 2002, all restructuring programs were complete and remaining reserves of $1.4 million consisted solely of long-term contractual obligations for employee severance. As a result of the Keebler acquisition in March 2001, the Company assumed $14.9 million of reserves for severance and facility closures related to Keebler's ongoing restructuring and acquisition-related synergy initiatives. Approximately $5 million of those reserves were utilized in 2001, with the remainder being attributable primarily to noncancelable lease obligations extending through 2006. The components of the restructuring charges by initiative, as well as reserve balances remaining at year-end 2002, 2001, and 2000, were:

36 Kellogg Company

(a) Includes net (gains) or losses from pension and postretirement health care curtailment and special termination benefits as follows (refer to Notes 9 and 10):

(b) Negative removal reserves in Europe result from netting of anticipated proceeds from asset sales with removal costs. (c) Consist primarily of program-related non-exit costs incurred during the period of the reported charge. (d) Includes initiatives related to preparing Kellogg for the Keebler integration. NOTE 4 OTHER INCOME (EXPENSE), NET Other income (expense), net includes non-operating items such as interest income, foreign exchange gains and losses, charitable donations, and gains on asset sales. Other income (expense), net for 2002 consists primarily of a $24.7 million credit related to legal settlements. Other income (expense), net for 2000 includes a credit of approximately $12 million related to the 1999 sale of the Lender's Bagels business to Aurora Foods Inc. The total amount consists of approximately $9 million for disposal of assets associated with the business which were not purchased by Aurora and approximately $3 million for final working capital settlement with Aurora. NOTE 5 EQUITY 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. 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. Kellogg Company 37 Dilutive potential common shares are comprised principally of employee stock options issued by the Company. Basic net earnings per share is reconciled to diluted net earnings per share as follows:

COMPREHENSIVE INCOME Comprehensive income includes all changes in equity during a period except those resulting from investments by or distributions to shareholders. Comprehensive income for the periods presented consists of net earnings, minimum pension liability adjustments (refer to Note 9), unrealized gains and losses on cash flow hedges pursuant to SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities", and foreign currency translation adjustments pursuant to SFAS No. 52 "Foreign Currency Translation" as follows:

Accumulated other comprehensive income (loss) at year-end consisted of the following:

NOTE 6 LEASES AND OTHER COMMITMENTS The Company's leases are generally for equipment and warehouse space. Rent expense on all operating leases was $89.5 million in 2002, $100.0 million in 2001, and $36.7 million in 2000. The increase in 2001 rent expense as compared to 2000 relates primarily to operating leases held by Keebler Foods Company, acquired by the Company in March 2001 (refer to Note 2 for further information). Additionally, the Company is subject to residual value guarantees and secondary liabilities on operating leases totaling approximately $14 million, for which liabilities of $.6 million had been recorded at December 28, 2002. 38 Kellogg Company At December 28, 2002, future minimum annual lease commitments under noncancelable capital and operating leases were as follows:

The Company's Keebler subsidiary is guarantor on loans to independent contractors for the purchase of DSD route franchises. At year-end 2002, there were total loans outstanding of $14.1 million to 526 franchisees. All loans are variable rate with a term of 10 years. Related to this arrangement, the Company has established a five-year renewable loan facility and servicing arrangement up to $15.0 million with a financial institution. The Company has the right to revoke and resell the route franchises in the event of default or any other breach of contract by franchisees. Revocations have been infrequent. The Company's maximum potential future payments under these guarantees are limited to the outstanding loan principal balance plus unpaid interest. At December 28, 2002, the Company had not recorded any liability related to this arrangement. In accordance with FASB Interpretation No. 45 (refer to Note 1), the Company will recognize the fair value of guarantees associated with new loans to DSD route franchisees issued beginning in 2003. These amounts are expected to be insignificant. The Company has provided various standard indemnifications in agreements to sell business assets and lease facilities over the past several years, related primarily to pre-existing tax, environmental, and employee benefit obligations. Certain of these indemnifications are limited by agreement in either amount and/or term and others are unlimited. Because the Company is not currently aware of any actual exposures associated with these indemnifications, management is unable to estimate the maximum potential future payments to be made. At December 28, 2002, the Company had not recorded any liability related to these indemnifications. NOTE 7 DEBT Notes payable at year-end consisted of commercial paper borrowings in the United States and, to a lesser extent, bank loans of foreign subsidiaries at competitive market rates, as follows:

Long-term debt at year-end consisted primarily of fixed rate issuances of U.S. and Euro Dollar Notes, as follows:

(a) In October 1998, the Company issued $200 of seven-year 4.875% fixed rate U.S. Dollar Notes to replace maturing long-term debt. In conjunction with this issuance, the Company settled $200 notional amount of interest rate forward swap agreements, which, when combined with original issue discount, effectively fixed the interest rate on the debt at 6.07%. (b) 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%. (c) In March 2001, the Company issued $4,600 of long-term debt instruments, further described in the table below, primarily to finance the acquisition of Keebler Foods Company (refer to Note 2). Initially, these instruments were privately placed, or sold outside the United States, in reliance on exemptions from registration under the Securities Act of 1933, as amended (the "1933 Act"). The Company then exchanged new debt securities for these initial debt instruments, with the new debt securities being substantially identical in all respects to the initial debt instruments, except for being registered under the 1933 Act. These debt securities contain standard events of default and covenants. The Notes due 2006 and 2011, and the Debentures due 2031 may be redeemed in whole or part by the Company at any time at prices determined under a formula (but not less than 100% of the principal amount plus unpaid interest to the redemption date). In conjunction with this issuance, the Company settled $1,900 notional amount of forward-starting interest rate swaps for approximately $88 in cash. The swaps effectively fixed a portion of the interest rate on an equivalent amount of debt prior to issuance. The swaps were designated as cash flow hedges pursuant to SFAS No. 133 (refer to Note 12). As a result, the loss on settlement (net of tax benefit) of $56 was recorded in other comprehensive income, and is being amortized to interest expense over periods of 5 to 30 years. The pretax loss of $88 is presented in the "Other" caption within the Consolidated Statement of Cash Flows for 2001. The effective interest rates presented in the following table reflect this amortization expense, as well as discount on the debt.

In September 2002, the Company redeemed $300.7 of the Notes due 2003 and a subsidiary of the Company issued $400 of U.S. commercial paper. (d) In November 2001, a subsidiary of the Company issued $375 of five-year 4.49% fixed rate U.S. Dollar Notes to replace other maturing debt. These Notes are guaranteed by the Company and mature $75 per year over the five-year term. These Notes, which were privately placed, contain standard warranties, events of default, and covenants. They also require the maintenance of a specified consolidated interest expense coverage ratio, and limit capital lease obligations and subsidiary debt. In conjunction with this issuance, the subsidiary of the Company entered into a $375 notional US$/ Pound Sterling currency swap, which effectively converted this debt into a 5.302% fixed rate Pound Sterling obligation for the duration of the five-year term. During 2001, the Company entered into a 364-Day Credit Agreement, which was renewed in January 2002 and 2003, and a Five-Year Credit Agreement, expiring in January 2006. The current 364-day agreement permits the Company or certain subsidiaries to borrow up to $850 million. The five-year agreement permits the Company or certain subsidiaries to borrow up to $1.15 billion (or certain amounts in foreign currencies). These two credit agreements contain standard warranties, events of default, and covenants. They also require the maintenance of a specified amount of consolidated net worth and a specified consolidated interest expense coverage ratio, and limit capital lease obligations and subsidiary debt. These credit facilities were unused at December 28, 2002. At December 28, 2002, the Company had $2.2 billion of short-term lines of credit, virtually all of which were unused and available for borrowing on an unsecured basis. Kellogg Company 39 At December 28, 2002, the Company had entered into forward interest rate contracts to fix the Treasury component of the coupon rate on $200 million notional amount of long-term debt expected to be issued in 2003, as a replacement for other maturing debt. Scheduled principal repayments on long-term debt are (in millions): 2003-$776.4; 2004-$583.3; 2005-$279.6; 2006-$1,077.3; 2007-$2.4; 2008 and beyond-$2,603.8. Interest paid was (in millions): 2002-$386; 2001-$303; 2000-$141. Interest expense capitalized as part of the construction cost of fixed assets was (in millions): 2002-$1.0; 2001-$2.9; 2000-$5.6. NOTE 8 STOCK COMPENSATION The Company uses various equity-based compensation programs to provide long-term performance incentives for its global workforce. Currently, these incentives are administered through several plans, as described below. The 2002 Employee Stock Purchase Plan (the "Plan") was approved by shareholders in 2002 and permits eligible employees to purchase Company stock at a discounted price. The Plan allows for a maximum of 2,500,000 shares of Company stock to be issued at a purchase price equal to the lesser of 85% of the fair market value of the stock on the first or last day of the quarterly purchase period. Total purchases through the Plan for any employee are limited to a fair market value of $25,000 during any calendar year. Under this plan, approximately 119,000 shares were purchased during 2002. Additionally, a subsidiary of the Company maintains a stock purchase plan for its employees. Subject to limitations, employee contributions to this plan are matched 1:1 by the Company. Under this plan, approximately 82,000 shares were granted by the Company during 2002 to match an approximately equal number of shares purchased by employees. The Executive Stock Purchase Plan was established in 2002 to encourage and enable certain eligible employees of the Company to acquire Company stock, and to align more closely the interests of those individuals and the Company's shareholders. This plan allows for a maximum of 500,000 shares of Company stock to be issued. Under this plan, approximately 14,000 shares were granted to executives during 2002 in lieu of cash bonuses. The 2001 Long-Term Incentive Plan ("2001 Plan") provides for benefits to be awarded to key employees and officers in the form of incentive and non-qualified stock options, performance shares, performance units, restricted stock grants, and other stock-based awards. The 2001 Plan was approved by shareholders in 2000 and authorizes the issuance of up to 26 million shares, with no more than 2.75 million shares to be issued in satisfaction of performance units, performance-based restricted shares and other awards (excluding stock options and stock appreciation rights). Options granted under this plan generally vest over two years, subject to earlier vesting if a change of control occurs. Restricted stock grants under this plan generally vest in three years. Under this plan, the Company made restricted stock grants to eligible employees of approximately 132,000 shares in 2002 and approximately 300,000 shares in 2001. Also under this plan, performance units were awarded during 2002 to a limited number of senior executive-level employees for the achievement of cumulative cash flow targets for a three-year period through year-end 2003 and net sales growth targets for a three-year period through year-end 2004. If the performance targets are met, the award of units represents the right to receive shares of common stock equal to the dollar award valued on the vesting date. The awards are earned and vest in February 2004 and February 2005. No awards are earned unless a minimum threshold is attained. The maximum dollar award that could be attained under the programs is $25 million. The 2001 Plan and the Non-Employee Director Stock Plan described below contain an accelerated ownership feature ("AOF"). An AOF option is generally granted when Company stock is used to pay the exercise price of a stock option or any taxes owed. The holder of the option is generally granted an AOF option for the number of shares so used with the exercise price equal to the then fair market value of the Company's stock. For all AOF options, the original expiration date is not changed but the options vest immediately. Prior to approval by shareholders during 2000 of the 2001 Plan, the Key Employee Long-Term Incentive Plan provided substantially similar stock-based benefits to executive-level employees. Under this plan, approximately 100,000 restricted shares of common stock were granted during 2000 to eligible employees. The Kellogg Employee Stock Ownership Plan was designed to offer stock and other incentive awards based on Company performance to employees who were not eligible to participate in the Key Employee Long Term Incentive Plan. Options which have been awarded under this plan generally vest over five years. Options under all plans described above are granted with exercise prices equal to the fair market value of the Company's common stock at the time of the grant and have a term of no more than 10 years, if they are incentive stock options, or no more than 10 years and one day, if they are non-qualified stock options. The Non-Employee Director Stock Plan was approved by shareholders in 2000 and allows each eligible non-employee director to receive 1,700 shares of the Company's common stock annually and annual grants of options to purchase 5,000 shares of the Company's common stock. Shares other than options are placed in the Kellogg Company Grantor Trust for Non-Employee Directors (the "Grantor Trust"). Under the terms of the Grantor Trust, shares are available to a director only upon termination of service on the Board. During 2002, 50,850 options and 18,700 shares of common stock were granted under this plan. During 2001, 55,000 options and 17,000 shares were granted. As permitted by SFAS No. 123 "Accounting for Stock-Based Compensation," the Company has elected to account for employee and director stock option grants under APB No. 25 "Accounting for Stock Issued to Employees." Accordingly, no compensation cost has been recognized for these grants. 40 Kellogg Company 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 No. 123, the Company's reported results are reconciled to pro forma results as follows:

The fair value of each option grant was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

Transactions under these plans were:

(a) All shares are available for stock options and stock appreciation rights with no more than 2.0 million shares remaining to be issued in satisfaction of performance units, performance-based restricted shares, and other awards.

Employee stock options outstanding and exercisable under these plans as of December 28, 2002, were:

NOTE 9 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 2.0% and 1.7% of consolidated plan assets at December 28, 2002, and December 31, 2001, respectively. The components of pension expense were:

The worldwide weighted average actuarial assumptions at year-end were:

Kellogg Company 41 The aggregate change in projected benefit obligation, change in plan assets, and funded status were:

The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were:

All gains and losses, other than those related to curtailment or special termination benefits, are recognized over the average remaining service period of active plan participants. Net gains or losses from curtailment and special termination benefits recognized in 2001 and 2000 were recorded as a component of restructuring charges. Refer to Note 3 for further information. At December 28, 2002, a cumulative after-tax charge of $319.5 million ($473.3 million pretax) was recorded in other comprehensive income to recognize the additional minimum pension liability in excess of unrecognized prior service cost. Certain of the Company's subsidiaries sponsor 401(k) or similar savings plans for active employees. Expense related to these plans was (in millions): 2002-$26; 2001-$25; 2000-$16. NOTE 10 NONPENSION POSTRETIREMENT BENEFITS Certain of the Company's U.S. and Canadian employees are currently eligible to participate in benefit plans which cover a portion of their life insurance and retiree health care costs. Benefits for union employees are contractually bargained. Eligibility for qualified employees is generally based on attainment of certain age and service requirements. Plan assets consist primarily of equity securities with smaller holdings of bonds, real estate, and other investments. Components of postretirement benefit expense were:

The weighted average actuarial assumptions at year-end were:

The aggregate change in accumulated postretirement benefit obligation, change in plan assets, and funded status were:

The assumed health care cost trend rate is 8% for 2003, decreasing gradually to 5% by the year 2006 and remaining at that level thereafter. These trend rates reflect the Company's prior experience and management's expectation that future rates will decline. A one percentage point change in assumed health care cost trend rates would have the following effects: 42 Kellogg Company

The difference between the U.S. federal statutory tax rate and the Company's effective rate was:

Generally, the changes in valuation allowances on deferred tax assets and corresponding impacts on the effective income tax rate, as presented above, result from management's assessment of the Company's ability to utilize certain operating loss and tax credit carry-forwards. For 2000, the change in valuation allowance relates primarily to utilization of U.S. foreign tax credit carryforwards. As a result, the effective income tax rate was significantly lower in 2000 as compared to either 2001 or 2002. For 2001, the significant increase in the income tax rate impact of non-deductible goodwill relates to the Company's acquisition of Keebler Foods Company (refer to Note 2). As a result of the Company's adoption of SFAS No. 142 on January 1, 2002 (refer to Note 1), goodwill amortization expense - and the resulting impact on the effective income tax rate - has been eliminated in post-2001 years. Total tax benefits of carryforwards at year-end 2002 and 2001 were $21.1 million and $23.9 million, respectively. Of the total carryforwards at year-end 2002, $4.8 million expire during 2003 and another $9.6 million expire within five years. Based on management's assessment of the Company's ability to utilize these benefits prior to expiration, the carrying value of deferred tax assets associated with carry-forwards was reduced by valuation allowances to approximately $6.4 million at December 28, 2002. The deferred tax assets and liabilities included in the balance sheet at year-end were:

At December 28, 2002, foreign subsidiary earnings of approximately $857 million were considered permanently invested in those businesses. Accordingly, U.S. income taxes have not been provided on these earnings. Kellogg Company 43 Cash paid for income taxes was (in millions): 2002-$250; 2001-$196; 2000-$246. The 2001 amount is net of a tax refund of approximately $73 million related to the cash-out of Keebler employee and director stock options upon acquisition of Keebler Foods Company (refer to Note 2 for further information). NOTE 12 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, and notes payable approximate fair value. The fair value of the Company's long-term debt at December 28, 2002, exceeded its carrying value by approximately $565 million. 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. In accordance with SFAS No. 133 (refer to Note 1), the Company designates derivatives as either cash flow hedges, fair value hedges, net investment hedges, or other contracts used to reduce volatility in the translation of foreign currency earnings to U.S. Dollars. The fair values of all hedges are recorded in accounts receivable or other current liabilities. Gains and losses representing either hedge ineffectiveness, hedge components excluded from the assessment of effectiveness, or hedges of translational exposure are recorded in other income (expense), net. These amounts were insignificant during 2002. CASH FLOW HEDGES Qualifying derivatives are accounted for as cash flow hedges when the hedged item is a forecasted transaction. Gains and losses on these instruments are recorded in other comprehensive income until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from accumulated other comprehensive income to the Statement of Earnings on the same line item as the underlying transaction. The total net loss attributable to cash flow hedges recorded in accumulated other comprehensive income at December 28, 2002, was $46.3 million, related primarily to forward-starting interest rate swaps settled during 2001 (refer to Note 7). This loss is being reclassified into interest expense over periods of 5 to 30 years. Other insignificant amounts related to foreign currency and commodity price cash flow hedges will be reclassified into earnings during the next 18 months. FAIR VALUE HEDGES Qualifying derivatives are accounted for as fair value hedges when the hedged item is a recognized asset, liability, or firm commitment. Gains and losses on these instruments are recorded in earnings, offsetting gains and losses on the hedged item. NET INVESTMENT HEDGES Qualifying derivative and non-derivative financial instruments are accounted for as net investment hedges when the hedged item is a foreign currency investment in a subsidiary. Gains and losses on these instruments are recorded as a foreign currency translation adjustment in other comprehensive income. OTHER CONTRACTS The Company also enters into foreign currency forward contracts and options to reduce volatility in the translation of foreign currency earnings to U.S. Dollars. Gains and losses on these instruments are recorded in other income (expense), net, generally reducing the exposure to translation volatility during a full-year period. FOREIGN EXCHANGE RISK The Company is exposed to fluctuations in foreign currency cash flows related primarily to third-party purchases, intercompany loans and product shipments, and non-functional currency denominated third-party debt. 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 primarily on transactional cash flows and enters into forward contracts, options, and currency swaps to reduce fluctuations in net long or short currency positions. Forward contracts and options are generally less than 18 months duration. Currency swap agreements are established in conjunction with the term of underlying debt issues. For foreign currency cash flow and fair value hedges, the assessment of effectiveness is generally based on changes in spot rates. Changes in time value are reported in other income (expense), net. 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 currently uses interest rate swaps and forward interest rate contracts 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. Variable-to-fixed interest rate swaps are accounted for as cash flow hedges and the assessment of effectiveness is based on changes in the present value of interest payments on the underlying debt. Fixed-to-variable interest rate swaps are accounted for as fair value hedges and the assessment of effectiveness is based on changes in the fair value of the underlying debt, using incremental borrowing rates currently available on loans with similar terms and maturities. 44 Kellogg Company 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 suppliers, 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 18 months. Commodity contracts are accounted for as cash flow hedges. The assessment of effectiveness is based on changes in futures prices. 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 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. Historically, concentrations of credit risk with respect to accounts receivable have been limited due to the large number of customers, generally short payment terms, and their dispersion across geographic areas. However, there has been significant worldwide consolidation in the grocery industry in recent years. At December 28, 2002, the Company's five largest customers globally comprised approximately 20% of consolidated accounts receivable. NOTE 13 QUARTERLY FINANCIAL DATA (UNAUDITED) Historically, the Company has reported interim periods on a calendar-quarter basis. Certain business units within the Company have followed a thirteen week quarter convention, commonly referred to as "4-4-5" because of the number of weeks in each sub-period of the quarter. In order to facilitate conversion to SAP software and to achieve greater consistency and efficiency, all business units of the Company began reporting interim results on a "4-4-5" basis in 2002. Because prior-year results have not been restated, year-over-year comparability of quarterly results was significantly impacted, due principally to the change in reporting dates for the Keebler business. Keebler's 2001 interim results were reported for the periods ended March 24, June 16, October 6, and December 29; whereas, 2002 interim results were reported for the periods ended March 30, June 29, September 28, and December 28. However, the impact of this change on comparability of full-year results was insignificant.

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 2002, the closing price (on the NYSE) was $34.42 and there were 41,965 shareholders of record. Dividends paid per share and the quarterly price ranges on the NYSE during the last two years were:

Kellogg Company 45 NOTE 14 OPERATING SEGMENTS Kellogg Company is the world's leading producer of ready-to-eat cereal and a leading producer of convenience foods, including cookies, crackers, toaster pastries, cereal bars, frozen waffles, meat alternatives, pie crusts, and ice cream cones. Principal markets for these products include the United States and United Kingdom. The Company is managed in two major divisions - the United States and International - with International further delineated into Europe, Latin America, Canada, Australia, and Asia. Thus, the Company's reportable operating segments under SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" consist of the United States, Europe, and Latin America. All other geographic areas have been combined under the quantitative threshold guidelines of SFAS No. 131 for purposes of the information presented below. The measurement of operating segment results is generally consistent with the presentation of the Consolidated Statement of Earnings and Balance Sheet. Intercompany transactions between reportable operating segments were insignificant in all periods presented.

(a) 2001 and 2000 net sales restated for the retroactive application of EITF No. 01-09. Refer to Note 1 for further information. (b) Refer to Note 3 for further information on restructuring charges. (c) Charges include those described in (b) plus extraordinary loss and cumulative effect of accounting change in 2001, reported net of tax. Refer to Note 1 for further information. (d) 2001 and 2000 operating segment profitability has been restated to reflect the pro forma impact of SFAS No. 142. Refer to Note 1 for further information. (e) 2001 and 2000 U.S. operating segment profitability and income taxes have been restated for an internal reallocation of overhead between Corporate and U.S. operations. The Company's largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 12% of consolidated net sales during 2002 and 11% in 2001, comprised principally of sales within the United States. Sales to any single customer during 2000 were less than 10%. Supplemental geographic information is provided below for net sales to external customers and long-lived assets:

46 Kellogg Company Supplemental product information is provided below for net sales to external customers:

NOTE 15 SUPPLEMENTAL FINANCIAL STATEMENT DATA

(a) Prior-year amounts presented in accordance with current-year classification under SFAS No. 142 - refer to Note 1 for further information. (b) The estimated aggregate amortization expense for each of the 5 succeeding fiscal years is approximately $1.5 per year.

(a) Prior-year amounts presented in accordance with current-year classification under SFAS No. 142 - refer to Note 1 for further information. (b) Total carrying amount is net of accumulated amortization through December 31, 2001.

(a) Total carrying amount is net of accumulated amortization through December 31, 2001. (b) Assembled workforce intangible no longer meets separability criteria under SFAS No. 142 and has been reclassified to goodwill, effective January 1, 2002. (c) Other operating segments include Australia, Asia, and Canada. Kellogg Company 47 As discussed in Note 1, the Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets" on January 1, 2002. The provisions of SFAS No. 142 are adopted prospectively and prior-period financial statements are not restated. Comparative earnings information for prior periods is presented in the following tables:

48 Kellogg Company MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of Kellogg Company is responsible for the reliability of the consolidated financial statements and related notes. The financial statements were prepared in conformity with accounting principles that are generally accepted in the United States, using our best estimates and judgements as required. We maintain a system of internal controls designed to provide reasonable assurance of the reliability of the financial statements, as well as to safeguard assets from unauthorized use or disposition. Formal policies and procedures, including an active Ethics and Business Conduct program, support the internal controls, and are designed to ensure employees adhere to the highest standards of personal and professional integrity. We have established a vigorous internal audit program that independently evaluates the adequacy and effectiveness of these internal controls. The Audit Committee of the Board of Directors meets regularly with management, internal auditors, and independent auditors to review internal control, auditing, and financial reporting matters. Both our independent auditors and internal auditors have free access to the Audit Committee. We believe these consolidated financial statements do not misstate or omit any material facts. Our formal certification to the Securities and Exchange Commission is made with our Annual Report on Form 10-K. The independent auditing firm of PricewaterhouseCoopers was retained to audit our consolidated financial statements and their report follows. /s/ C. M. Gutierrez - ------------------------ C. M. Gutierrez Chairman of the Board Chief Executive Officer /s/ J. A. Bryant - ------------------------ J. A. Bryant Executive Vice President Chief Financial Officer /s/ J. M. Boromisa - ------------------------ J. M. Boromisa Senior Vice President Chief Accounting Officer REPORT OF INDEPENDENT ACCOUNTANTS PRICEWATERHOUSECOOPERS 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 28, 2002 and December 31, 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 2002, in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America, 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 our opinion. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets in conformity with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" which was adopted as of January 1, 2002. /s/ PRICEWATERHOUSECOOPERS LLP Battle Creek, Michigan January 29, 2003 Kellogg Company 49 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 12 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 loans and product shipments, and non-functional currency denominated third-party debt. 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 the British Pound, Euro, Australian Dollar, Canadian Dollar, and Mexican Peso, and in the case of inter-subsidiary transactions, the British Pound versus the Euro. The Company assesses foreign currency risk based primarily on transactional cash flows and enters into forward contracts, options, and currency swaps to reduce fluctuations in net long or short currency positions. Forward contracts and options are generally less than 18 months duration. Currency swap agreements are established in conjunction with the term of underlying debt issuances. The tables below summarize forward contracts, options, and currency swaps held at year-end 2002 and 2001. All of these derivatives are valued in U.S. Dollars using year-end exchange rates, are hedges of anticipated transactions, translational exposure, or existing assets or liabilities, and mature within 18 months.

(a) hedge of existing assets or liabilities (b) hedge of translation exposure (c) hedge of anticipated transactions CONTRACTS TO PURCHASE FOREIGN CURRENCY

(a) hedge of existing assets or liabilities. (c) hedge of anticipated transactions

(a) hedge of existing assets or liabilities (c) hedge of anticipated transactions

50 Kellogg Company INTEREST RATE RISK The Company is exposed to interest rate volatility with regard to future issuances of fixed rate debt and existing and future 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 currently uses interest rate swaps and forward interest rate contracts 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 following tables provide information on the Company's significant debt issues and related hedging instruments at year-end 2002 and 2001 (refer to the table on page 50 for currency swaps related to debt issues). 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 2002. Refer to Note 7 within Notes to Consolidated Financial Statements for further information.

(a) Effective fixed interest rate paid, as a result of debt discount and settlement of forward interest rate swap at date of debt issuance. (b) Effective fixed interest rate paid, as a result of related US$/Pound Sterling currency swap. Kellogg Company 51 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, cocoa, and paperboard. The Company uses the combination of long cash positions with suppliers, 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 18 months. The table below summarizes futures positions held at year-end 2002. The fair values of commodity contracts held at year-end 2001 were insignificant, and did not have a material impact on the Company's earnings or cash flows during 2002.

For all derivative financial and commodity instruments presented in the tables on pages 50-52, changes in fair values of these instruments and the resulting 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 these tables may be a limitation in assessing the net market risk of the Company. 52 Kellogg Company EX-21.01 10 k74347exv21w01.txt DOMESTIC AND FOREIGN SUBSIDIARIES OF THE COMPANY EXHIBIT 21.01 KELLOGG COMPANY SUBSIDIARIES (as of November 25, 2002) NORTH AMERICA Argkel, Inc. - Battle Creek, MI Ensemble Functional Food Company - Battle Creek, MI Liquidating Gollek Inc. - Battle Creek, MI K-One Inc. - Battle Creek, MI K-Two Inc. - Battle Creek, MI K (China) Limited - Battle Creek, MI K India Private Limited - Battle Creek, MI Kashi Company - LaJolla, California Keeb Canada Inc. - Rexdale, Ontario, Canada Keebler Foods Company, Elmhurst, Illinois Keebler USA, Inc. - Battle Creek, MI Kelarg, Inc. - Battle Creek, MI Kellogg Asia Inc. - Battle Creek, MI Kellogg Asia Marketing Inc. - Battle Creek, MI Kellogg Brasil, Inc. - Battle Creek, MI Kellogg Caribbean Inc. - Battle Creek, MI Kellogg Caribbean Services Company, Inc. - Guayabo, Puerto Rico Kellogg Chile Inc. - Battle Creek, MI Kellogg Fearn, Inc. - Battle Creek, MI Kellogg Italia S.p.A. - Battle Creek, MI Kellogg Latvia, Inc. - Battle Creek, MI Kellogg (Thailand) Limited - Battle Creek, MI Kellogg USA Inc. - Battle Creek, MI KFSC, Inc. -- Barbados McCamly Plaza Hotel Inc. - Battle Creek, MI Mountaintop Baking Company - Battle Creek, MI The Eggo Company - Battle Creek, MI Trafford Park Insurance Limited - Bermuda Kellogg Canada Inc. - Rexdale, Ontario, Canada Gollek Interamericas, S. de R. L. de C.V., Queretaro, Mexico (subsidiary of Kellogg Canada) Kellogg's Malaysia Manufacturing SDN. BHD, Kuala Lumpur, Malaysia (subsidiary of Kellogg Canada) Worthington Foods, Inc., Worthington, Ohio Specialty Foods Investment Company (subsidiary of Worthington Foods, Inc.) ASIA-PACIFIC Kellogg Asia Pacific Limited, Hong Kong Kellogg (Aust.) Pty. Ltd. - Sydney, Australia Kellogg Australia Holdings Pty Ltd, Pagewood, Australia Day Dawn (Aust.) Pty. Ltd. - Pagewood, Australia (subsidiary of Kellogg Australia) Kellogg (N.Z.) Limited - Auckland, New Zealand (subsidiary of Kellogg Australia) Kellogg Superannuation Pty. Ltd. - Sydney, Australia (subsidiary of Kellogg Australia) Kellogg (China) Limited - Guangzhou, China Kellogg Company of South Africa (Pty.) Ltd. - Springs, South Africa Kellogg Project 1995 (Pty.) Ltd. - Springs, South Africa (subsidiary of Kellogg South Africa) Kellogg India Private Limited - Mumbai, India Kellogg (Japan) K.K. - Tokyo, Japan Kellogg (Thailand) Limited - Bangkok,Thailand Nhong Shim Kellogg Co. Ltd. - Seoul, South Korea The Kellogg Healthy Snak People Pty Limited -- Carmahaven, NSW, Australia 2 Worthington Australia (subsidiary of Worthington Foods, Inc.) Liquidating Kellogg South East Asia Sdn. Bhd., Malaysia Liquidating Kellogg Asia Marketing (Shanghai) Trading Co. Ltd., Shanghai Liquidating EUROPE Gollek B.V. - Amsterdam, The Netherlands Kellogg Company of Great Britain Limited - Manchester, England Favorite Food Products Limited - Manchester, England (subsidiary of Kellogg Great Britain) Garden City Bakery Limited - Manchester, England (subsidiary of Lender's Bakery Limited) Liquidating Kelcone Limited - Aylesbury, England (subsidiary of Kellogg Great Britain) Kelcorn Limited - Manchester, England (subsidiary of Kellogg Great Britain) Kellogg Company of Ireland, Limited - Dublin, Ireland (subsidiary of Kellogg Great Britain) Kellogg Management Services (Europe) Limited - Manchester, England (subsidiary of Kellogg UK Holding) Kellogg Marketing and Sales Company (UK) Limited - Manchester, England (subsidiary of Kellogg UK Holding) Kellogg Supply Services (Europe) Limited - Manchester, England (subsidiary of Kellogg UK Holding Co) Kellogg Talbot Limited - Manchester, England Kellogg Manchester Limited - Manchester, England Kelf Limited - Manchester, England Kellogg U.K. Holding Company Limited - Manchester, England Kellogg Espana, S.A. - Valls, Spain (subsidiary of Kellogg Great Britain) Kelmill Limited - Liverpool, England (subsidiary of Kellogg Great Britain) Kelpac Limited - Manchester, England (subsidiary of Kellogg Great Britain) Lender's Bakery Limited - Manchester, England (subsidiary of Kellogg UK Holding) Liquidating Portable Foods Manufacturing Company Limited - Manchester, England Saragusa Frozen Foods Limited - Manchester, England (subsidiary of Kellogg Great Britain) Kellogg (Deutschland) GmbH - Bremen, Germany Gebrueder Nielsen Reismuehlen und Staerke-Fabrik mit Beschraenkter Haftung - Bremen, Germany (subsidiary of Kellogg Deutschland) Reis- und Handels AG Unterstuetzungskasse GmbH - Bremen, Germany (subsidiary of Kellogg Deutschland) Kellogg (Hungary) Trading Limited Liability Company, Budapest, Hungary Kellogg Italia S.p.A. - Milan, Italy Kellogg Latvia, Inc. - Riga, Latvia Liquidating Kellogg (Poland) Sp. zo.o., Warsaw, Poland Liquidating Kellogg's Produits Alimentaires, S.A. - Rosny, France Nordisk Kellogg's A/S - Svendborg, Denmark NK Leasing, Svendborg, Denmark (subsidiary of Nordisk Kellogg's A/S) Kellogg (Schweiz) AG, Kanton, Zug, Switzerland (subsidiary of Kellogg Deutschland) Kellogg (Osterreich) GmbH, Vienna, Austria (subsidiary of Kellogg Deutschland) LATIN AMERICA Alimentos Kellogg, S.A. - Caracas, Venezuela Gollek Interamericas, S. de R.L., de C.V. Gollek, S.A. - Caracas, Venezuela (subsidiary of Alimentos Kellogg) Gollek Servicios, S.C., Queretaro, Mexico Gollek Argkel, Queretaro, Mexico Kellogg Argentina S.A. - Buenos Aires, Argentina Kellogg Brasil & Cia. - Sao Paulo, Brasil Kellogg Chile Limited - Santiago, Chile Kellogg de Centro America, S.A. - Guatemala, Centro America Kellogg de Colombia, S.A. - Bogota, Colombia Kellogg de Mexico, S.A. de C.V. - Queretaro, Mexico Kellogg El Salvador Ltda. de D.V., El Salvador CELNASA (La Compania de Cereales Nacionales S.A.), Ecuador Kellogg de Peru, S.A.C., Lima, Peru EX-23.01 11 k74347exv23w01.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.01 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-72312) and the Registration Statements on Form S-8 (Nos. 2-77316, 33-27293, 33-27294, 33-40651, 33-53403, 333-56536, 333-56542, 333-88162) of Kellogg Company of our report dated January 29, 2003 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated January 29, 2003 relating to the financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Battle Creek, Michigan March 14, 2003 EX-24.01 12 k74347exv24w01.txt POWERS OF ATTORNEY - JANET LANGFORD KELLY 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 Janet Langford Kelly, Executive Vice President - Corporate Development and Administration, 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, 2002, 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 Janet Langford Kelly 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 her substitute, may lawfully do, or cause to be done, by virtue hereof. s/ Benjamin S. Carson ------------------------------------- Director Dated: February 21, 2003. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of Kellogg Company, a Delaware corporation, hereby appoint Janet Langford Kelly, Executive Vice President - Corporate Development and Administration, 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, 2002, 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 Janet Langford Kelly 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 her substitute, may lawfully do, or cause to be done, by virtue hereof. s/ John T. Dillon ------------------------------------- Director Dated: February 21, 2003. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of Kellogg Company, a Delaware corporation, hereby appoint Janet Langford Kelly, Executive Vice President - Corporate Development and Administration, 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, 2002, 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 Janet Langford Kelly 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 her substitute, may lawfully do, or cause to be done, by virtue hereof. s/ Claudio X. Gonzalez ------------------------------------- Director Dated: February 21, 2003. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of Kellogg Company, a Delaware corporation, hereby appoint Janet Langford Kelly, Executive Vice President - Corporate Development and Administration, 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, 2002, 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 Janet Langford Kelly 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 her substitute, may lawfully do, or cause to be done, by virtue hereof. s/ Gordon Gund ------------------------------------- Director Dated: February 21, 2003. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of Kellogg Company, a Delaware corporation, hereby appoint Janet Langford Kelly, Executive Vice President - Corporate Development and Administration, 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, 2002, 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 Janet Langford Kelly 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 her substitute, may lawfully do, or cause to be done, by virtue hereof. s/ James M. Jenness ------------------------------------- Director Dated: February 21, 2003. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of Kellogg Company, a Delaware corporation, hereby appoint Janet Langford Kelly, Executive Vice President - Corporate Development and Administration, 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, 2002, 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 Janet Langford Kelly 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 her substitute, may lawfully do, or cause to be done, by virtue hereof. s/ Dorothy A. Johnson ------------------------------------- Director Dated: February 21, 2003. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of Kellogg Company, a Delaware corporation, hereby appoint Janet Langford Kelly, Executive Vice President - Corporate Development and Administration, 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, 2002, 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 Janet Langford Kelly 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 her substitute, may lawfully do, or cause to be done, by virtue hereof. s/ L. Daniel Jorndt ------------------------------------- Director Dated: February 21, 2003. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of Kellogg Company, a Delaware corporation, hereby appoint Janet Langford Kelly, Executive Vice President - Corporate Development and Administration, 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, 2002, 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 Janet Langford Kelly 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 her substitute, may lawfully do, or cause to be done, by virtue hereof. s/ Ann McLaughlin Korologos ------------------------------------- Director Dated: February 21, 2003. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of Kellogg Company, a Delaware corporation, hereby appoint Janet Langford Kelly, Executive Vice President - Corporate Development and Administration, 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, 2002, 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 Janet Langford Kelly 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 her substitute, may lawfully do, or cause to be done, by virtue hereof. s/ William D. Perez ------------------------------------- Director Dated: February 21, 2003. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of Kellogg Company, a Delaware corporation, hereby appoint Janet Langford Kelly, Executive Vice President - Corporate Development and Administration, 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, 2002, 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 Janet Langford Kelly 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 her substitute, may lawfully do, or cause to be done, by virtue hereof. s/ William C. Richardson ------------------------------------- Director Dated: February 21, 2003. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned Director of Kellogg Company, a Delaware corporation, hereby appoint Janet Langford Kelly, Executive Vice President - Corporate Development and Administration, 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, 2002, 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 Janet Langford Kelly 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 her substitute, may lawfully do, or cause to be done, by virtue hereof. s/ John L. Zabriskie ------------------------------------- Director Dated: February 21, 2003. EX-99.1 13 k74347exv99w1.txt AMENDMENTS TO 364-DAY/FIVE-YEAR CREDIT AGREEMENT EXHIBIT 99.1 Section 906 Certification I, John A. Bryant, Executive Vice President and Chief Financial Officer of Kellogg Company herby certify that the accompanying Annual Report on Form 10-K of Kellogg Company for the fiscal year ended December 28, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Kellogg Company. /S/ JOHN A BRYANT ----------------------------- Name: John A. Bryant Title: Executive Vice President and Chief Financial Officer Date: March 14, 2003 EX-99.2 14 k74347exv99w2.txt 906 CERTIFICATIONS BY CARLOS GUTIERREZ/JOHN BRYANT EXHIBIT 99.2 SECTION 906 CERTIFICATION I, Carlos M. Gutierrez, Chairman of the Board, President and Chief Executive Officer of Kellogg Company herby certify that the accompanying Annual Report on Form 10-K of Kellogg Company for the fiscal year ended December 28, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Kellogg Company. /s/ CARLOS M. GUTIERREZ ----------------------------- Name: Carlos M. Gutierrez Title: Chairman of the Board, President and Chief Executive Officer Date: March 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----


PART I
PART II
PART III
PART IV
SCHEDULE II -- VALUATION RESERVES (IN MILLIONS)
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
SIGNATURES
CERTIFICATIONS
EXHIBIT INDEX
Bylaws, as Amended
Supplemental Savings and Investment Plan
2001 Long-Term Incentive Plan
Agreement Between Lawrence Pilon
2002 Employee Stock Purchase Plan
Severance Policy
Annual Report to Share Owners for Fiscal Year End
Domestic and Foreign Subsidiaries of the Company
Consent of PricewaterhouseCoopers LLP
Powers of Attorney - Janet Langford Kelly
Amendments to 364-Day/Five-Year Credit Agreement
906 Certifications by Carlos Gutierrez/John Bryant


		2002			2001			2000

Accounts Receivable — Allowance for Doubtful Accounts:
	Balance at January 1.	$	15.5		$	8.6		$	8.6
	Acquisition adjustment		—			5.9			—
	Additions charged to expense		2.7			4.1			1.8
	Doubtful accounts charged to reserve		(2.7	)		(2.8	)		(1.5	)
	Currency translation adjustments		0.5			(0.3	)		(0.3	)

	Balance at December 28, 2002 and December 31, 2001 and 2000	$	16.0		$	15.5		$	8.6

Deferred Income Tax Asset Valuation Allowance:
	Balance at January 1.	$	36.7		$	36.1		$	61.8
	Additions charged to income tax expense		3.4			5.2			3.3
	Deductions credited to income tax expense		(5.4	)		(4.6	)		(29.0	)

	Balance at December 28, 2002 and December 31, 2001 and 2000	$	34.7		$	36.7		$	36.1



Name	Capacity	Date


/s/ CARLOS M. GUTIERREZ Carlos M. Gutierrez	Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer)	March 14, 2003

/s/ JOHN A. BRYANT John A. Bryant	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	March 14, 2003

/s/ JEFFREY M. BOROMISA Jeffrey M. Boromisa	Senior Vice President and Corporate Controller (Principal Accounting Officer)	March 14, 2003

* Benjamin S. Carson Sr.	Director

* John T. Dillon	Director

* Claudio X. Gonzalez	Director

* Gordon Gund	Director

* James M. Jenness	Director

* Dorothy A. Johnson	Director

* L. Daniel Jorndt	Director



Name		Capacity	Date


* Ann McLaughlin Korologos		Director

* William D. Perez		Director

* William C. Richardson		Director

* John L. Zabriskie		Director

*By:	/s/ JANET LANGFORD KELLY Janet Langford Kelly As Attorney-in-Fact		March 14, 2003


			Electronic(E),
			Paper(P) or
			Incorp. By
Exhibit No.		Description	Ref.(IBRF)

	2.01	Agreement and Plan of Restructuring and Merger dated as of October 26, 2000 between Flowers Industries, Inc., Kellogg Company and Kansas Merger Subsidiary, Inc., incorporated by reference to Exhibit 2.02 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2000, Commission file number 1-4171.		IBRF
	2.02	Agreement and Plan of Merger dated as of October 26, 2000 between Keebler Foods Company, Kellogg Company and FK Acquisition Corporation, incorporated by reference to Exhibit 2.03 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2000, Commission file number 1-4171.		IBRF
	3.01	Amended Restated Certificate of Incorporation of Kellogg Company, incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8, file number 333-56536.		IBRF
	3.02	Bylaws of Kellogg Company, as amended.		E
	4.01	Fiscal Agency Agreement dated as of January 29, 1997, between the Company and Citibank, N.A., Fiscal Agent, incorporated by reference to Exhibit 4.01 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997, Commission file number 1-4171.		IBRF
	4.02	Form of 6 5/8% Note due 2004 related to the Fiscal Agency Agreement described in Exhibit 4.01 above, incorporated by reference to Exhibit 4.02 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997, Commission file number 1-4171.		IBRF
	4.03	Indenture dated August 1, 1993, between the Company and Harris Trust and Savings Bank, incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3, Commission file number 33-49875.		IBRF
	4.04	Form of Kellogg Company 4 7/8% Note Due 2005, incorporated by reference to Exhibit 4.06 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999, Commission file number 1-4171.		IBRF
	4.05	Indenture and Supplemental Indenture dated March 15 and March 29, 2001, respectively, between Kellogg Company and BNY Midwest Trust Company, including the forms of 5.50% note due 2003, 6.00% note due 2006, 6.60% note due 2011 and 7.45% Debenture due 2031, incorporated by reference to Exhibit 4.01 and 4.02 to the Company’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2001, Commission file number 1-4171.		IBRF
	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, as amended and restated as of January 1, 2002.*		E
	10.04	Kellogg Company International 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, 1997, Commission file number 1-4171.*		IBRF
	10.05	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

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Delaware (State of Incorporation)		38-0710690 (I.R.S. Employer Identification No.)


Title of each class: Common Stock, $0.25 par value per share		Name of each exchange on which registered: New York Stock Exchange


Item 5.	*Market for the Registrant’s Common Stock and Related Stockholder Matters*


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*


Item 7A.	*Quantitative and Qualitative Disclosures About Market Risk.*


Item 8.	*Financial Statements and Supplementary Data*


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*


Item 10.	*Directors and Executive Officers of the Registrant*


Item 12.	*Security Ownership of Certain Beneficial Owners and Management*


Item 15.	*Exhibits, Consolidated Financial Statements and Schedules, and Reports on Form 8-K*


Item 11.	*Executive Compensation*


	Page

Schedule II — Valuation Reserves		11
Report of Independent Accountants		12