UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the quarterly period ended June 30, 2000 |
OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the transition period from _______ to _______ |
Commission file number 1-4171
KELLOGG COMPANY
| State of Incorporation—Delaware | IRS Employer Identification No.38-0710690 |
One Kellogg Square, P.O. Box 3599, Battle Creek, MI 49016-3599
Registrant’s telephone number: 616-961-2000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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
Common Stock outstanding July 31, 2000 - 405,638,938 shares
KELLOGG COMPANY
INDEX
| PART I - Financial Information | Page | ||||
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| Item 1: | |||||
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Consolidated Balance Sheet - June 30, 2000, and
December 31, 1999 |
2 | ||||
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Consolidated Statement of Earnings - three and six months
ended June 30, 2000 and 1999 |
3 | ||||
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Consolidated Statement of Cash Flows — six months
ended June 30, 2000 and 1999 |
4 | ||||
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| Notes to Consolidated Financial Statements | 5-9 | ||||
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| Item 2: | |||||
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Management’s Discussion and Analysis of Financial Condition
and Results of Operations |
10-18 | ||||
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| PART II — Other Information | |||||
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| Item 4: | |||||
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| Submission of Matters to a Vote of Security Holders | 19-20 | ||||
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| Item 6: | |||||
| Exhibits and Reports on Form 8-K | 20 | ||||
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| Signatures | 21 | ||||
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| Exhibit Index | 22 | ||||
Kellogg Company and Subsidiaries
2
Kellogg Company and Subsidiaries
3
Kellogg Company and Subsidiaries
4
Notes to Consolidated Financial Statements
1. Accounting policies
The results of operations for the three and six months ended June 30, 2000, are not necessarily indicative of the results to be
expected for other interim periods or the full year.
On May 18, 2000, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board reached consensus on Issue No.
00-14 “Accounting for Certain Sales Incentives.” This Issue addresses the recognition, measurement, and income statement
classification of sales incentives offered by vendors (including manufacturers) that have the effect of reducing the price of a
product or service to a customer at the point of sale. For cash sales incentives within the scope of this Issue, costs are generally
recognized at the date on which the related revenue is recorded by the vendor and are to be classified as a reduction of revenue. For
non-cash sales incentives, such as package inserts, costs are to be classified within cost of sales. This Issue is effective for the
fourth quarter of fiscal years beginning after December 15, 1999. The effect of adoption resulting from changes in recognition and
measurement is reported either prospectively or as a cumulative effect of a change in accounting principle. The effect of adoption
resulting from changes in classification is reflected retroactively via restatement of comparative financial statements. EITF No.
00-14 is expected to impact how the Company classifies costs related to consumer coupons, package inserts and other non-cash
promotional offers, and certain marketing programs conducted with the retail trade. Management is currently assessing the impact of
this guidance and believes adoption could result in a material reduction in net sales, with a corresponding reduction in selling,
general, and administrative expense. Net earnings would not be affected.
2. Earnings per share
5
3. Comprehensive Income
6
4. Debt
Associated with the debt due in 2001, the Company has entered into $600 million notional in fixed-to-floating interest rate swaps,
which will expire in conjunction with the debt issues. These swaps are indexed to either three-month LIBOR or the Federal Reserve AA
Composite Rate on 30-day commercial paper.
5. Restructuring charges
Operating profit for the quarter ended June 30, 2000, includes restructuring charges of $21.3 million ($14.7 million after tax or
$.04 per share) for a supply chain efficiency initiative in Europe. The charges were comprised principally of voluntary employee
retirement and separation benefits. This program is expected to result in hourly and salaried headcount reductions of 190 by the end
of 2000 and to generate approximately $13 million in annual pre-tax savings beginning in 2001.
Operating profit for the year-to-date period ended June 30, 1999, includes restructuring charges of $36.8 million ($25.6 million
after tax or $.07 per share) for workforce reduction initiatives. The charges were comprised principally of employee retirement and
separation benefits in all four of the Company’s operating segments and in corporate operations. These initiatives eliminated
approximately 325 employee positions in Europe, Asia-Pacific, and Latin America and generated approximately $15 million of pre-tax
savings during 1999. These initiatives are expected to generate a further $10 million in pre-tax savings in 2000 for a total ongoing
annual benefit of $25 million.
Total cash outlays during the June year-to-date period for ongoing streamlining initiatives were approximately $34 million. Expected
cash outlays are approximately $36 million for the remainder of 2000 and $6 million in 2001. Total incremental pre-tax savings
expected from streamlining initiatives is approximately $50 million in 2000 and $25 million in 2001.
The components of restructuring charges, as well as reserve balance changes, during the six months ended June 30, 2000, are (in
millions):
7
6. Acquisitions and investments
During June 2000, the Company acquired the outstanding stock of Kashi Company for approximately $33 million in cash. Kashi is a
leading natural cereal company located in La Jolla, California. Also during June, the Company committed to invest $7 million of cash
in Transora, a new global business-to-business e-marketplace for the consumer products industry. To date, the Company has actually
paid $1.4 million under this commitment. The investment in Transora will be accounted for under the cost method. In July 2000, the
Company acquired certain assets and liabilities of a convenience foods operation located in its Asia-Pacific region for approximately
$12 million in cash.
7. Operating Segments
8
The measurement of operating segment results is generally consistent with the presentation of the Consolidated Statement of Earnings.
Intercompany transactions between reportable operating segments were insignificant in the periods presented. Operating segment data
is presented below (in millions):
9
KELLOGG COMPANY
PART I — FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of operations
Kellogg Company is the world’s leading producer of ready-to-eat cereal and a leading producer of convenience foods, including toaster
pastries, cereal bars, frozen waffles, wholesome snacks, and meat alternatives. Principal markets for these products include the
United States and United Kingdom. During the periods presented, operations were managed via four major geographic areas - North
America, Europe, Asia-Pacific, and Latin America - which are the basis of the Company’s reportable operating segment information.
In the second quarter of 2000, Kellogg Company recorded its fifth consecutive quarterly year-over-year increases in operating profit,
net earnings, and earnings per share, excluding charges. These results were driven by cereal volume growth in the U.S. and Mexico,
and strong operating profit delivery in Europe.
For the quarter ended June 30, 2000, Kellogg Company reported net earnings and earnings per share of $150.9 million and $.37,
respectively, compared to 1999 net earnings of $154.2 million and earnings per share of $.38. June 2000 year-to-date net earnings and
earnings per share were $312.6 million and $.77, respectively, versus prior-year amounts of $273.0 million and $.67. (All earnings
per share presented represent both basic and diluted earnings per share.)
During the second quarter of 2000, the Company reported restructuring charges of $21.3 million ($14.7 million after tax or $.04 per
share) for a supply chain efficiency initiative in Europe. During the first quarter of 1999, the Company reported restructuring
charges of $36.8 million ($25.6 million after tax or $.07 per share) for workforce reduction initiatives around the world. These
charges have been excluded from all applicable amounts presented below for purposes of comparison between years. Refer to the
separate section below for more information on restructuring charges.
Excluding charges, net earnings (in millions) and earnings per share were:
10
The year-to-date increase in earnings per share of 9.5% or $.07 consisted of $.06 in business growth and $.01 in favorable tax-rate
movements. Foreign currency impacts were insignificant.
The Company realized the following volume results during the three and six months ended June 30, 2000:
During the fourth quarter of 1999, the Company divested the Lender’s Bagels business and acquired the Worthington Foods Company.
While the net impact of these events on net sales and net earnings was insignificant during the first half of 2000, volume results
were negatively affected, due to the difference in density of Worthington’s products versus Lender’s products. Excluding volume from
the Worthington and Lender’s businesses, the Company’s volume results would have been:
Adjusted for Worthington and Lender’s volume, the North American area exhibited solid volume growth during the quarter, with both the
cereal and convenience foods businesses contributing to the volume increase. U.S. retail cereal volume increased 4.7%. U.S.
convenience foods volume growth remained at a mid single-digit rate, consistent with the past two quarters.
The volume shortfall in Europe during the quarter was attributable to decreased cereal sales, partially offset by a solid gain in
convenience foods volume. Following strong shipments in the first quarter (which had been aided by extra billing days in the period),
European cereal volume declined in the second quarter as the Company reduced trade spending in the United Kingdom and harmonized
prices across Europe. A price increase was implemented in Spain in April, resulting in a volume decline in this market during the
quarter. However, management believes that this price increase has been implemented
11
without major impact to the Company’s trade relationships in Spain, and that volume growth will resume in the second half of the year.
Volume growth in Asia-Pacific was attributable primarily to the convenience foods business, as cereal volume softness persisted in
the established markets of Australia and Japan. Management believes that cereal volume in Australia was impacted by heavy competitive
activity during the quarter.
Latin America continued to achieve solid growth in both cereal and convenience foods, particularly in the Mexican market, where
all-time monthly cereal volume records were achieved in both May and June.
Net sales by major product group were (in millions):
On an operating segment basis, net sales versus the prior year were:
12
Operating profit on an operating segment basis was:
For the quarter, comparable business sales growth in North America
was 3.7% (favorable volume of 4.6% less unfavorable pricing/mix
impact of .9%) versus a comparable business operating profit decline of .8%. The operating profit decline was attributable primarily
to increased production and distribution costs and promotional expenditures for products in the convenience foods business. In Europe, operating
efficiencies and a timing-related decline in marketing expense resulted in comparable business growth in operating profit of 23.8%,
mitigating a sales decline of 1.0% (unfavorable volume of 3.0% offset by favorable pricing/mix of 2.0%). Despite comparable business
sales growth of 1.7% (favorable volume of 3.6% less unfavorable pricing/mix impact of 1.9%), Asia-Pacific comparable business
operating profit declined 47.0%, due primarily to planned investment in new-business development. In Latin America, comparable
business sales growth of 9.8% (favorable
13
volume of 3.4% plus favorable pricing/mix of 6.4%), combined with operating efficiencies,
resulted in comparable business operating profit growth of 17.4%.
Consolidated margin performance for the second quarter and June year-to-date period was:
The gross margin was relatively flat versus the prior year, as higher costs of production for Worthington and other new products
offset productivity gains. The decrease in SGA% versus the prior year was due to reduced advertising and overhead expenses, partially
offset by increased promotional and research and development expense. The reduced overhead expense resulted, in part, from prior-year
streamlining initiatives and reduced consulting fees related to cost-saving programs. Management currently believes year-to-date
margin results are reflective of full-year expectations. Full-year advertising expense is expected to be comparable to the prior
year.
Gross interest expense, prior to amounts capitalized, was up slightly versus the prior-year quarter and year-to-date periods, due
primarily to an increase in short-term interest rates. Management expects full-year interest expense (net of capitalization) to be
approximately $130 million.
Other income (expense), net includes non-operating items such as interest income, foreign exchange gains and losses, and charitable
donations. For the quarter, other income (expense), net was favorable by $11.9 million versus the prior year. Transactional foreign
exchange gains contributed significantly to this favorable variance.
The effective income tax rate was down slightly from the prior year, due primarily to the impact of country mix and lower statutory
rates in the United Kingdom and Australia. Management has recently reduced the full-year outlook for the effective income tax rate
from approximately 36% to a range of 35%-36% due to the expected impacts of country mix and anticipated final enactment of a rate
reduction in Germany during the second half of the year.
14
Restructuring charges
During the past several years, management has commenced major productivity and operational streamlining initiatives in an effort to
optimize the Company’s cost structure. The incremental costs of these programs have been reported during these years as restructuring
charges. Refer to pages 26-28 of the Company’s 1999 Annual Report for more information on these initiatives.
Operating profit for the quarter ended June 30, 2000, includes restructuring charges of $21.3 million ($14.7 million after tax or
$.04 per share) for a supply chain efficiency initiative in Europe. The charges were comprised principally of voluntary employee
retirement and separation benefits. This program is expected to result in hourly and salary headcount reductions of 190 by the end of
2000 and to generate approximately $13 million in annual pre-tax savings beginning in 2001.
Operating profit for the year-to-date period ended June 30, 1999, includes restructuring charges of $36.8 million ($25.6 million
after tax or $.07 per share) for workforce reduction initiatives. The charges were comprised principally of employee retirement and
separation benefits in all four of the Company’s operating segments and in corporate operations. These initiatives eliminated
approximately 325 employee positions in Europe, Asia-Pacific, and Latin America and generated approximately $15 million of pre-tax
savings during 1999. These initiatives are expected to generate a further $10 million in pre-tax savings in 2000 for a total ongoing
annual benefit of $25 million.
Total cash outlays during the June year-to-date period for ongoing streamlining initiatives were approximately $34 million. Expected
cash outlays are approximately $36 million for the remainder of 2000 and $6 million in 2001. Total incremental pre-tax savings
expected from streamlining initiatives is approximately $50 million in 2000 and $25 million in 2001.
Acquisitions and investments
On January 20, 2000, the Company purchased certain assets and liabilities of the Mondo Baking Company Division of Southeastern Mills,
Inc. for approximately $93 million in cash, including related acquisition costs. Mondo Baking Company, located in Rome, Georgia, has
manufactured convenience foods for Kellogg since 1993. The acquisition was accounted for as a purchase and was financed through
commercial paper borrowings. Assets acquired consist primarily of a manufacturing facility and assembled workforce.
During June 2000, the Company acquired the outstanding stock of Kashi Company for approximately $33 million in cash. Kashi is a
leading natural cereal company located in La Jolla, California. Also during June, the Company committed to invest $7 million of cash
in Transora, a new global business-to-business e-marketplace for the consumer products industry. To date, the Company has actually
paid $1.4 million under this commitment. The investment in Transora will be accounted for under the cost method. In July 2000, the
Company acquired certain assets and liabilities of a convenience foods operation located in its Asia-Pacific region for approximately
$12 million in cash.
15
Liquidity and capital resources
The Company’s financial condition remained strong during the first half of 2000. A strong cash flow, combined with a program of
issuing commercial paper and maintaining worldwide credit facilities, provides adequate liquidity to meet the Company’s operational
needs. The Company continues to maintain a Prime-1 rating on its commercial paper.
For the six months ended June 30, 2000, net cash provided by operating activities was $391.9 million, up 30.8% from $299.6 million in
1999. The increase was due primarily to higher earnings (excluding charges) and favorable working capital movements. The favorable
working capital movements were attributable principally to inventory and trade payables. At June 30, 2000, the ratio of current
assets to current liabilities was .8, down from 1.0 at December 31, 1999. This decrease was due primarily to a reclassification of
$400 million in long-term debt to current maturities during the first quarter of 2000.
Net cash used in investing activities was $255.5 million, up from $106.9 million in 1999. The increase was due primarily to the
acquisition of the Mondo Baking and Kashi companies, as discussed above. Management expects total spending for property additions
during the year to be approximately $270 million.
Net cash used in financing activities was $107.1 million, related primarily to dividend payments of $198.8 million, partially offset
by a net increase in total debt of $87.5 million. The Company’s year-to-date per share dividend payment was $.49, a 4.3% increase
over the prior-year payment of $.47.
For 2000, the Company’s Board of Directors has authorized management to repurchase up to $150.0 million in common shares. There were
no repurchases during the first half of 2000.
During the second quarter, the Company’s shareholders approved a resolution by the Board of Directors to increase the Company’s
authorized number of shares from 500 million to one billion. This increase is to provide sufficient shares for such corporate
purposes as may be determined by the Board, including acquiring other businesses, entering into collaborative arrangements with other
companies, stock splits or dividends, stock-based compensation, and future financings. Other than for the possibility of issuing new
shares pursuant to the Company’s option plans, the Company at present has no commitments, agreements, or undertakings to issue any
such additional shares.
Notes payable at June 30, 2000, consist primarily of commercial paper borrowings in the United States in the amount of $560.4 million
with an effective interest rate of 6.6%. Long-term debt consists primarily of fixed rate issuances of U.S. and Euro Dollar Notes,
including $900 million due in 2001, $500 million due in 2004, and $200 million due in 2005. The amount due in 2001 includes $400
million in Notes which provide an option to holders to extend the obligation for an additional four years at a predetermined interest
rate of 5.63% plus the Company’s then-current credit spread. Based on current interest rate levels, management does not believe the
Notes will be extended and is currently examining refinancing strategies.
16
Associated with the debt due in 2001, the Company has entered into $600 million notional in fixed-to-floating interest rate swaps,
which will expire in conjunction with the debt issues. These swaps are indexed to either three-month LIBOR or the Federal Reserve AA
Composite Rate on 30-day commercial paper.
The percentage of total debt to market capitalization at June 30, 2000, was 19%, up from 17% at December 31, 1999, due primarily to a
lower stock price since year-end 1999.
Full-year outlook
Despite marketplace challenges in both cereal and convenience foods, management believes the Company is improving performance quarter
by quarter as it executes its growth strategies. Management has
recently reduced forecasted 2000 net sales growth from 4-6% to 2-4%,
based on year-to-date volume and foreign currency movements during
the year. Management expects the Company to achieve operating profit
growth and growth in earnings per share of 8-10% in 2000.
Upcoming accounting and disclosure changes
Through June 2000, operations were managed via four major geographic areas - North America, Europe, Asia-Pacific, and Latin America -
which are the basis of the Company’s reportable operating segment information disclosed below. Beginning in July 2000, the
17
Company
changed its organizational structure, such that the Canadian business unit is included in the European Area and U.S. operations are
managed separately. Thus, beginning with results for the three and nine months ending September 30, 2000 (including comparable
prior-year periods), the Company’s reportable operating segments will consist of the United States, Europe/Canada, Asia-Pacific, and
Latin America.
Forward-looking statements
18
KELLOGG COMPANY
PART II — OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
19
Item 6. Exhibits and Reports on Form 8-K
20
KELLOGG COMPANY
SIGNATURES
Pursuant to the requirements 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.
Date: August 11, 2000
21
KELLOGG COMPANY
EXHIBIT INDEX
22
CONSOLIDATED BALANCE SHEET
(millions, except per share data)
June 30,
December 31,
2000
1999
(unaudited)
*
Current assets
Cash and cash equivalents
$
172.3
$
150.6
Accounts receivable, net
785.1
678.5
Inventories:
Raw materials and supplies
145.0
141.2
Finished goods and materials in process
342.0
362.6
Other current assets
243.3
236.3
Total current assets
1,687.7
1,569.2
Property,
net of accumulated depreciation
of $2,561.9 and $2,515.8
2,593.7
2,640.9
Other assets
743.3
598.6
Total assets
$
5,024.7
$
4,808.7
Current liabilities
Current maturities of long-term debt
$
404.5
$
2.9
Notes payable
611.7
518.6
Accounts payable
410.3
305.3
Income taxes
76.6
83.5
Other current liabilities
659.5
677.5
Total current liabilities
2,162.6
1,587.8
Long-term debt
1,212.2
1,612.8
Nonpension postretirement benefits
415.8
424.9
Deferred income taxes and other liabilities
369.2
370.0
Shareholders’ equity
Common stock, $.25 par value
103.8
103.8
Capital in excess of par value
101.9
104.5
Retained earnings
1,431.0
1,317.2
Treasury stock, at cost
(374.1
)
(380.9
)
Accumulated other comprehensive income
(397.7
)
(331.4
)
Total shareholders’ equity
864.9
813.2
Total liabilities and shareholders’ equity
$
5,024.7
$
4,808.7
*Condensed from audited financial statements.
Refer to Notes to Consolidated Financial Statements
CONSOLIDATED EARNINGS
(millions, except per share data)
Three months ended
Six months ended
June 30,
June 30,
(Results are unaudited)
2000
1999
Change
2000
1999
Change
Ready-to-eat cereal net sales
$
1,347.1
$
1,362.4
$
2,651.7
$
2,692.7
Convenience foods net sales
454.0
422.0
901.3
837.0
Consolidated
1,801.1
1,784.4
0.9
%
3,553.0
3,529.7
0.7
%
Cost of goods sold
849.5
838.3
1,686.4
1,674.7
Selling and administrative expense
671.7
674.8
1,301.5
1,324.2
Restructuring charges
21.3
—
21.3
36.8
Operating profit
258.6
271.3
-4.7
%
543.8
494.0
10.1
%
Interest expense
34.2
29.0
66.0
58.0
Other income (expense), net
8.4
(3.5
)
7.6
(6.2
)
Earnings before income taxes
232.8
238.8
-2.5
%
485.4
429.8
12.9
%
Income taxes
81.9
84.6
172.8
156.8
Net earnings
$
150.9
$
154.2
-2.1
%
$
312.6
$
273.0
14.5
%
Net earnings per share (basic and diluted)
$
.37
$
.38
-2.6
%
$
.77
$
.67
14.9
%
Dividends per share
$
.245
$
.235
4.3
%
$
.490
$
.470
4.3
%
Average shares outstanding
405.6
405.2
405.5
405.1
Actual shares outstanding at period end
405.6
405.2
Refer to Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions)
Six months ended
June 30,
(Results are unaudited)
2000
1999
Operating activities
Net earnings
$
312.6
$
273.0
Items in net earnings not requiring cash:
Depreciation and amortization
143.2
140.6
Deferred income taxes
9.0
10.7
Restructuring charges, net of cash paid
19.3
25.8
Other
14.3
16.9
Postretirement benefit plan contributions
(51.9
)
(40.6
)
Changes in operating assets and liabilities
(54.6
)
(126.8
)
Net cash provided by operating activities
391.9
299.6
Investing activities
Additions to properties
(127.4
)
(115.3
)
Acquisitions of businesses
(124.7
)
—
Other
(3.4
)
8.4
Net cash used in investing activities
(255.5
)
(106.9
)
Financing activities
Net issuances of notes payable
85.9
8.4
Issuances of long-term debt
1.6
—
Reductions of long-term debt
—
(2.3
)
Net issuances of common stock
4.2
4.4
Cash dividends
(198.8
)
(190.8
)
Net cash used in financing activities
(107.1
)
(180.3
)
Effect of exchange rate changes on cash
(7.6
)
(8.6
)
Increase in cash and cash equivalents
21.7
3.8
Cash and cash equivalents at beginning of period
150.6
136.4
Cash and cash equivalents at end of period
$
172.3
$
140.2
Refer to Notes to Consolidated Financial Statements
for the three and six months ended June 30, 2000 (unaudited)
The unaudited interim financial information included herein reflects the adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair presentation of the results of operations, financial
position, and cash flows for the periods presented. Such interim information should be read in conjunction with the financial
statements and notes thereto contained on pages 22 to 34 of the Company’s 1999 Annual Report. The accounting policies used in
preparing these financial statements are the same as those summarized in the Company’s 1999 Annual Report. Certain amounts for 1999
have been reclassified to conform to current period classifications.
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.
Dilutive potential common shares are comprised principally of employee stock options issued by the Company and had an insignificant
impact on earnings per share during the periods presented. Basic net earnings per share is reconciled to diluted net earnings per
share as follows (in millions, except per share data):
Average
Net
Net
shares
earnings
earnings
outstanding
per share
Quarter
2000
Basic
$
150.9
405.6
$
.37
Dilutive employee stock options
—
.5
—
Diluted
$
150.9
406.1
$
.37
1999
Basic
$
154.2
405.2
$
.38
Dilutive employee stock options
—
.4
—
Diluted
$
154.2
405.6
$
.38
Year-to-date
2000
Basic
$
312.6
405.5
$
.77
Dilutive employee stock options
—
.2
—
Diluted
$
312.6
405.7
$
.77
1999
Basic
$
273.0
405.1
$
.67
Dilutive employee stock options
—
.5
—
Diluted
$
273.0
405.6
$
.67
Comprehensive income includes all changes in equity during a period except those resulting from investments by or distributions to
shareholders. For the Company, comprehensive income for the periods presented consists solely of net earnings and foreign currency
translation adjustments pursuant to SFAS No. 52 “Foreign Currency Translation” as follows (in millions):
Three months ended June 30,
Six months ended June 30,
2000
1999
2000
1999
Net earnings
$
150.9
$
154.2
$
312.6
$
273.0
Other comprehensive income (loss):
Foreign currency translation adjustment
(43.3)
(4.2)
(66.3)
(36.4)
Related tax effect
—
—
—
—
(43.3
)
(4.2
)
(66.3
)
(36.4
)
Total comprehensive income
$
107.6
$
150.0
$
246.3
$
236.6
Notes payable at June 30, 2000, consist primarily of commercial paper borrowings in the United States in the amount of $560.4 million
with an effective interest rate of 6.6%. Long-term debt consists primarily of fixed rate issuances of U.S. and Euro Dollar Notes,
including $900 million due in 2001, $500 million due in 2004, and $200 million due in 2005. The amount due in 2001 includes $400
million in Notes which provide an option to holders to extend the obligation for an additional four years at a predetermined interest
rate of 5.63% plus the Company’s then-current credit spread. Based on current interest rate levels, management does not believe the
Notes will be extended and is currently examining refinancing strategies.
During the past several years, management has commenced major productivity and operational streamlining initiatives in an effort to
optimize the Company’s cost structure. The incremental costs of these programs have been reported during these years as restructuring
charges. Refer to pages 26-28 of the Company’s 1999 Annual Report for more information on these initiatives.
Employee
retirement &
severance
Asset
Asset
Other
benefits (a)
write-offs
removal
costs
Total
Remaining reserve at
December 31, 1999
$
31.4
$
—
$
28.5
$
—
$
59.9
2000 restructuring charges
19.5
1.8
21.3
Amounts utilized during 2000
(28.9
)
—
(8.6
)
(1.8
)
(39.3
)
Remaining reserve at
June 30, 2000
$
22.0
$
—
$
19.9
$
—
$
41.9
On January 20, 2000, the Company purchased certain assets and liabilities of the Mondo Baking Company Division of Southeastern Mills,
Inc. for approximately $93 million in cash, including related acquisition costs. Mondo Baking Company, located in Rome, Georgia, has
manufactured convenience foods for Kellogg since 1993. The acquisition was accounted for as a purchase and was financed through
commercial paper borrowings. Assets acquired consist primarily of a manufacturing facility and assembled workforce.
Kellogg Company is the world’s leading producer of ready-to-eat cereal and a leading producer of convenience foods, including toaster
pastries, cereal bars, frozen waffles, wholesome snacks, and meat alternatives. Principal markets for these products include the
United States and United Kingdom. Through June 2000, operations were managed via four major geographic areas-North America, Europe,
Asia-Pacific, and Latin America - which are the basis of the Company’s reportable operating segment information disclosed below.
Beginning in July 2000, the Company changed its organizational structure, such that the Canadian business unit is included in the
European Area and U.S. operations are managed separately. Thus, beginning with results for the three and nine months ending September
30, 2000 (including comparable prior-year periods), the Company’s reportable operating segments will consist of the United States,
Europe/Canada, Asia-Pacific, and Latin America.
Three months ended June 30,
Six months ended June 30,
2000
1999
2000
1999
Net sales
North America
$
1,149.3
$
1,106.7
$
2,261.9
$
2,235.1
Europe
373.3
411.7
756.6
800.5
Asia-Pacific
113.0
115.1
220.3
212.7
Latin America
160.1
151.3
307.2
279.7
Corporate and other
5.4
(0.4
)
7.0
1.7
Consolidated
$
1,801.1
$
1,784.4
$
3,553.0
$
3,529.7
Operating profit excluding restructuring charges
North America
$
209.5
$
217.1
$
431.9
$
449.1
Europe
67.6
58.5
120.5
99.8
Asia-Pacific
6.4
12.6
18.6
25.4
Latin America
41.0
36.2
76.0
66.9
Corporate and other
(44.6
)
(53.1
)
(81.9
)
(110.4
)
Consolidated
279.9
271.3
565.1
530.8
Restructuring charges
(21.3
)
—
(21.3
)
(36.8
)
Operating profit as reported
$
258.6
$
271.3
$
543.8
$
494.0
Quarter
Year-to-date
change
change
Global convenience foods
+6.2
%
+7.0
%
Consolidated
+2.2
%
+2.0
%
North America
+4.6
%
+1.8
%
Comparable
Total
business
Year-to-date
2000
1999
change
change(a)
Global cereal
$
2,651.7
$
2,692.7
-1.5
%
+.9
%
Global convenience foods
$
901.3
837.0
+7.7
%
+8.3
%
Consolidated
$
3,553.0
$
3,529.7
+.7
%
+2.5
%
North
Asia-
Latin
Year-to-date
America
Europe
Pacific
America
Consolidated
Volume
+1.8
%
+1.2
%
+3.9
%
+5.4
%
+2.0
%
Pricing/Mix
-.6
%
+1.1
%
+.8
%
+7.0
%
+.5
%
Acquisitions & dispositions
-.1
%
—
Foreign currency impact
+.1
%
-7.8
%
-1.1
%
-2.5
%
-1.8
%
Total change
+1.2
%
-5.5
%
+3.6
%
+9.9
%
+.7
%
North
Asia-
Latin
Corporate
Consoli-
Year-to-date
(millions)
America
Europe
Pacific
America
and other
dated
2000 operating profit
$
431.9
$
99.2
$
18.6
$
76.0
($81.9
)
$
543.8
2000 restructuring charges (c)
21.3
21.3
2000 operating profit excluding
restructuring charges
$
431.9
$
120.5
$
18.6
$
76.0
($81.9
)
$
565.1
1999 operating profit
$
444.4
$
84.1
$
19.4
$
65.2
($119.1
)
$
494.0
1999 restructuring charges (c)
4.7
15.7
6.0
1.7
8.7
36.8
1999 operating profit excluding
restructuring charges
$
449.1
$
99.8
$
25.4
$
66.9
($110.4
)
$
530.8
% change — 2000 vs. 1999:
Comparable business
-2.5
%
+28.1
%
-26.2
%
+16.7
%
+20.3
%
+8.4
%
Acquisitions & dispositions
-1.4
%
-1.4
%
Foreign currency impact
+.1
%
-7.3
%
-.4
%
-3.2
%
+5.6
%
-.5
%
Total change
-3.8
%
+20.8
%
-26.6
%
+13.5
%
+25.9
%
+6.5
%
Quarter
Year-to-date
(millions)
2000
1999
Change
2000
1999
Change
Gross interest expense
$
35.6
$
31.0
+$4.6
$
70.0
$
62.4
+$7.6
Quarter
Year-to-date
Effective Income Tax Rate:
2000
1999
Change
2000
1999
Change
Excluding charges (c)
34.8
%
35.4
%
-.6
%
35.4
%
36.0
%
-.6
%
As reported
35.2
%
35.4
%
-.2
%
35.6
%
36.5
%
-.9
%
Management is not aware of any adverse trends that would materially affect the Company’s strong financial position. Should suitable
investment opportunities or working capital needs arise that would require additional financing, management believes that the
Company’s strong credit rating, balance sheet, and earnings history provide a base for obtaining additional financial resources at
competitive rates and terms.
On May 18, 2000, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board reached consensus on Issue No.
00-14 “Accounting for Certain Sales Incentives.” This Issue addresses the recognition, measurement, and income statement
classification of sales incentives offered by vendors (including manufacturers) that have the effect of reducing the price of a
product or service to a customer at the point of sale. For cash sales incentives within the scope of this Issue, costs are generally
recognized at the date on which the related revenue is recorded by the vendor and are to be classified as a reduction of revenue. For
non-cash sales incentives, such as package inserts, costs are to be classified within cost of sales. This Issue is effective for the
fourth quarter of fiscal years beginning after December 15, 1999. The effect of adoption resulting from changes in recognition and
measurement is reported either prospectively or as a cumulative effect of a change in accounting principle. The effect of adoption
resulting from changes in classification is reflected retroactively via restatement of comparative financial statements. EITF No.
00-14 is expected to impact how the Company classifies costs related to consumer coupons, package inserts and other non-cash
promotional offers, and certain marketing programs conducted with the retail trade. Management is currently assessing the impact of
this guidance and believes adoption could result in a material reduction in net sales, with a corresponding reduction in selling,
general, and administrative expense. Net earnings would not be affected.
From time to time, in written reports and oral statements, the Company makes “forward-looking statements” discussing, among other
things, projections concerning volume, sales, operating profit growth, gross profit margin, SGA%, effective income tax rate, capital
spending, the impact of acquisitions and dispositions, and savings, headcount reductions, and future cash outlays related to
streamlining initiatives. Forward-looking statements include predictions of future results and may contain the words “expects,”
“believes,” “will,” “will deliver,” “anticipates,” “projects,” or words or phrases of similar meaning. For example, forward-looking
statements are found in several sections of Management’s Discussion and Analysis above. Actual results may differ materially due to
the impact of competitive conditions, marketing spending, and/or incremental pricing actions on actual volumes and product mix; the
success of new product introductions; the levels of spending on system initiatives, properties, business opportunities, integration
of acquired businesses, and other general and administrative costs; raw material price and labor cost fluctuations; expenditures
necessary to carry out streamlining initiatives and savings derived therefrom; foreign currency exchange rate fluctuations; changes
in statutory tax law; interest rates available on short-term financing; 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.
(a)
The Company’s Annual Meeting of Stockholders was held on April 28, 2000.
Represented at the Meeting, either in person or by proxy, were
375,142,531 voting shares, of a total 405,459,024 voting shares
outstanding. The matters voted upon at the Meeting are described in
(c) below.
(c)(i)
To elect three (3) directors to serve for three-year (3) terms
expiring at the 2003 Annual Meeting of Stockholders or until their
respective successors are elected and qualified, namely:
Carleton S. Fiorina
Votes for Election -
344,843,439
Votes Withheld -
30,299,092
J. Richard Munro
Votes for Election -
372,267,033
Votes Withheld -
2,875,498
William D. Perez
Votes for Election -
371,069,760
Votes Withheld -
4,072,771
There were no votes against, abstentions, or broker non-votes with
respect to the election of any nominee named above.
(c)(ii)
To approve adoption of the Kellogg Company 2000 Non-Employee
Director Stock Plan.
Votes for Approval -
353,260,562
Votes Against -
19,950,752
Abstentions -
1,931,217
There were no broker non-votes with respect to the matter described
above.
(c)(iii)
To approve adoption of the Kellogg Company 2001 Long-Term Incentive
Plan.
Votes for Approval -
319,666,709
Votes Against -
53,595,223
Abstentions -
1,880,599
There were no broker non-votes with respect to the matter described
above.
(c)(iv)
To approve an increase in the number of authorized shares of common
stock.
Votes for Approval -
362,223,155
Votes Against -
11,401,431
Abstentions -
1,517,945
There were no broker non-votes with respect to the matter described
above.
(c)(v)
To approve a Share Owner proposal for Kellogg to remove genetically
engineered crops, organisms, or products thereof from all products sold or
manufactured by the company.
Votes for Approval -
8,384,482
Votes Against -
332,815,533
Abstentions -
10,766,353
There were no broker non-votes with respect to the matter described
above.
(a)
Exhibits:
10.01 – Agreement between the Company and Carlos M. Gutierrez
10.02 – Agreement between the Company and Alan F. Harris
10.03 – Agreement between the Company and Jacobus K. Groot
10.04 – Agreement between the Company and Michael J. Teale
10.05 – Agreement between the Company and other Executives
10.06 – Agreement between the Company and John D. Cook
27.01 – Financial Data Schedule
(b)
Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which this
report is filed.
KELLOGG COMPANY
/s/ T. J. Webb
_______________________________
T. J. Webb
Principal Financial Officer;
Executive Vice President – Chief Financial Officer
/s/ J. M. Boromisa
_______________________________
J. M. Boromisa
Principal Accounting Officer;
Vice President – Corporate Controller
Electronic (E)
Paper (P)
Incorp. By
Exhibit No.
Description
Ref. (IBRF)
10.01
Agreement between the Company and Carlos
M. Gutierrez
E
10.02
Agreement between the Company and Alan
F. Harris
E
10.03
Agreement between the Company and Jacobus
K. Groot
E
10.04
Agreement between the Company and Michael
J. Teale
E
10.05
Agreement between the Company and other
Executives
E
10.06
Agreement between the Company and John
D. Cook
E
27.01
Financial Data Schedule
E
EXHIBIT 10.01
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the day of , 2000 (this "Agreement"), by and between Kellogg Company, a Delaware corporation (the "Company"), and Carlos M. Gutierrez (the "Executive").
WHEREAS, the Board of Directors of the Company (the "BOARD"), has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined herein). The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the current Company and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control that ensure that the compensation and benefits expectations of the Executive will be satisfied and that are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
SECTION 1. CERTAIN DEFINITIONS. (a) "Effective Date" means the first date during the Change of Control Period (as defined herein) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control, then "Effective Date" means the date immediately prior to the date of such termination of employment.
(b) "Change of Control Period" means the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that, commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof, the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless, at least 60 days prior to the Renewal Date, the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.
(c) "affiliated company" means any company controlled by, controlling or under common control with the Company.
(d) "Change of Control" means:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of (A) 20% or more
of either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) 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"), if
immediately following such acquisition the W.K. Kellogg Foundation Trust and
George Gund III together with the Gund family trusts that have a common trustee
(collectively, the "Trusts") do not own, in the aggregate, more than 35% of the
Outstanding Company Common Stock or Outstanding Company Voting Securities or (B)
30% or more of either (i) the Outstanding Company Common Stock or (ii) the
Outstanding Company Voting Securities, if immediately following such acquisition
the Trusts own, in the aggregate, more than 35% of the Outstanding Company
Common Stock or Outstanding Company Voting Securities; provided, however, that,
for purposes of this Section 1(d)(1), the following acquisitions shall not
constitute a Change of Control: (a) any acquisition directly from the Company,
(b) any acquisition by the Company, (c) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any affiliated
company, (d) any acquisition by the Trusts or (e) any acquisition by any
corporation pursuant to a transaction that complies with Sections 1(d)(3)(A),
1(d)(3)(B) and 1(d)(3)(C); or
(2) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of 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; or
(3) Consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-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 Business Combination (including, without limitation, a corporation that, 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 Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or
(4) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
SECTION 2. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the "Employment Period").
SECTION 3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (1) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the office where the Executive was employed immediately preceding the Effective Date or at any other location less than 35 miles from such office.
(2) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company.
(b) COMPENSATION. (1) BASE SALARY. During the Employment Period, the Executive shall receive an annual base salary (the "Annual Base Salary"), which Annual Base Salary shall be paid in 12 equal monthly installments at an annual rate at least equal to 12 times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, to the Executive by the Company and the affiliated companies in respect of the 12-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually, beginning no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. The Annual Base Salary shall not be reduced after any such increase and the term "Annual Base Salary" shall refer to the Annual Base Salary as so increased.
(2) ANNUAL BONUS. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest bonus under the Company's or an affiliated company's annual incentive plans, or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized, in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus.
(3) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies, and programs applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and the affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies.
(4) WELFARE BENEFIT PLANS. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and the affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits that are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies.
(5) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and the affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
(6) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and the affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
(7) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and the affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
(8) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and the affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
SECTION 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically if the Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of the Executive has occurred during the Employment Period (pursuant to the definition of "Disability"), it may give to the Executive written notice in accordance with Section 11(b) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. "Disability" means the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment during the Employment Period for Cause. "Cause" means:
(1) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or any affiliated company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company that specifically identifies the manner in which the Board or the Chief Executive Officer of the Company believes that the Executive has not substantially performed the Executive's duties, or
(2) the willful engaging by the Executive in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company.
For purposes of this Section 4(b), no act, or failure to act, on the part of the
Executive shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer of
the Company or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel for
the Executive, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
Section 4(b)(1) or 4(b)(2), and specifying the particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be terminated by the Executive for Good Reason. "Good Reason" means:
(1) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a), or any other action by the Company that results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(2) any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(3) the Company's requiring the Executive to be based at any office or location other than as provided in Section 3(a)(1)(B) or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;
(4) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or
(5) any failure by the Company to comply with and satisfy Section 10(c).
For purposes of this Section 4(c), any good faith determination of Good Reason made by the Executive shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b). "Notice of Termination" means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (3) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's respective rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (1) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Notice of Termination, as the case may be, (2) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (3) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.
SECTION 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause or Disability or the Executive terminates employment for Good Reason:
(1) the Company shall pay to the Executive, in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the following amounts:
(A) the sum of (i) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid, (ii)
the product of (x) the highest of (I) the Annual Bonus equal to
the product of (1) the Executive's Annual Base Salary and (2) the
Executive's target Annual Bonus percentage in effect for the year
in which the Effective Date occurs, or if higher, the year in
which the Date of Termination occurs, (II) the Recent Annual Bonus
and (III) the Annual Bonus paid or payable, including any bonus or
portion thereof that has been earned but deferred (and annualized
for any fiscal year consisting of less than 12 full months or
during which the Executive was employed for less than 12 full
months), for the most recently completed fiscal year during the
Employment Period, if any and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the
Date of Termination and the denominator of which is 365, and (iii)
any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case, to the extent not theretofore paid
(the sum of the amounts described in subclauses (i), (ii) and
(iii), the "Accrued Obligations"); and
(B) the amount equal to the product of (i) three and (ii) the sum of (x) the Executive's Annual Base Salary and (y) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof that has been earned but deferred (and annualized for any fiscal year consisting of less than 12 full months or during which the Executive was employed for less than 12 full months), for the most recently completed fiscal year during the Employment Period, if any; and
(C) an amount equal to the excess of (i) the actuarial equivalent of the benefit under the Company's or an affiliated company's qualified defined benefit retirement plan or plans, including any plan or arrangement maintained or sponsored in a jurisdiction other than the United States pursuant to statute or otherwise, in which the Executive participates (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the Effective Date) and any excess or supplemental retirement plan or plans in which the Executive participates, including any individual contract, agreement, letter or other arrangement to which the Executive is a party (taking into account, without limitation, any additional age and/or service credit that would have been earned
thereunder) (collectively, the "SERP") that the Executive would
receive if the Executive's employment continued for three years
after the Date of Termination (and using the additional three
years of age and service for purposes of determining actuarial
equivalency), assuming for this purpose that all accrued benefits
are fully vested and assuming that the Executive's compensation in
each of the three years is that required by Sections 3(b)(1) and
3(b)(2), over (ii) the actuarial equivalent of the Executive's
actual benefit (paid or payable), if any, under the Retirement
Plan and the SERP as of the Date of Termination (for purposes of
this Section 5(a)(1)(C), actuarial equivalent shall mean the
approximate basis at which insured annuities could be purchased in
the open market on the Date of Termination or, in the case of
plans where such equivalency is explicitly defined, actuarial
equivalency shall be calculated on the basis specified in the
applicable plan document; furthermore, all currency translations
shall be made based on the rate in effect on the Date of
Termination, and such rate shall apply to both the benefit accrued
on the Date of Termination, as well as to the value of the benefit
calculated that includes the additional three years of age and
service; furthermore, for purposes of calculating actuarial
equivalence of a pension benefit (with or without the additional
three years of age and service), the Executive's eligibility to
receive, and the amount of, an immediately commencing early
retirement benefit shall be reflected in the calculation of the
actuarial equivalent benefit);
(2) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Executive shall be deemed to be on a leave of absence from the Company and the Company shall continue to provide welfare benefits to the Executive and/or the Executive's family at least equal to those that would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(4) if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies and their families, provided, however, that, if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period;
(3) for all purposes of the vesting and exercisability of equity-based awards granted under the Company's stock incentive plans and the award agreements thereunder, the Executive shall be deemed to be on a leave of absence from the
Company for three years after the Date of Termination and the Executive's termination of employment from the Company shall be deemed to occur on the third anniversary of the Date of Termination;
(4) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in the Executive's sole discretion; and
(5) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or that the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and the affiliated companies (such other amounts and benefits, the "Other Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of the Other Benefits. The Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other Benefits, the term "Other Benefits" as utilized in this Section 5(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and the affiliated companies to the estates and beneficiaries of peer executives of the Company and the affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and the affiliated companies and their beneficiaries.
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
the Other Benefits. The Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect to the
provision of the Other Benefits, the term "Other Benefits" as utilized in this
Section 5(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and the
affiliated companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if
any, as in effect generally with respect to other peer executives and their
families at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter generally with
respect to other peer executives of the Company and the affiliated companies and their families.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (1) the Executive's Annual Base Salary through the Date of Termination, (2) the amount of any compensation previously deferred by the Executive, and (3) the Other Benefits, in each case, to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for the Accrued Obligations and the timely payment or provision of the Other Benefits. In such case, all the Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.
SECTION 6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or the affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or the
affiliated companies. Amounts or benefits that are vested or that the Executive
is otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or the affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement, except as explicitly
modified by this Agreement.
SECTION 7. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus, in each case, interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
SECTION 8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) (1) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company or the affiliated companies to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise but
determined without regard to any additional payments required under this Section
8) (the "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code, or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, collectively, the "Excise Tax"), then the Executive shall be entitled
to receive an additional payment (the "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 8(a)(1), if it shall be
determined that the Executive is entitled to the Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount that could be paid to the
Executive such that the receipt of the Payments would not give rise to any
Excise Tax (the "Reduced Amount"), then no Gross-Up Payment shall be made to the
Executive and the Payments, in the aggregate, shall be reduced to the Reduced
Amount.
(2) Notwithstanding the provisions of Section 8(a)(1), if the
payment of the Gross-Up Payment as provided in Section 8(a)(1) would make a
transaction entered into in connection with a Change of Control that would
otherwise be eligible for pooling-of-interests accounting treatment under APB
No. 16 ineligible for such treatment, then the following conditions shall apply:
(A) no Gross-Up Payment shall be made unless it shall be determined that a
Gross-Up Payment would have been payable pursuant to the preceding sentence
(without regard to this sentence) if the Executive had not received any Payments
that are considered to be "parachute payments" as defined in Section 280G of the
Code that consist of, or relate to, common stock or other equity interest in the
Company or any of its affiliated companies ("Equity Payments"); and (B) if a
Gross-Up Payment is permitted to be made after application of clause (A) of this
sentence, the amount of such Gross-Up Payment shall be only that amount
necessary so that after payment of all taxes (including any interest or
penalties imposed with respect to such taxes), by the Executive with respect to
Payments other than the Equity Payments, including without limitation, any
income taxes (and any interest and penalties imposed with respect thereto) and
Excise Tax imposed upon the Gross-Up Payment (as computed in accordance with
this clause (B)), the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments other than the Equity Payments. In
determining the Gross-Up Payment pursuant to clause (B) of the preceding
sentence, the rules for allocation of the "base amount" set forth in Question
and Answer 38 of Proposed Treasury Regulation 1.280G-1, or any successor
provision in any proposed, temporary or final regulations that may hereinafter
be promulgated, shall be applied.
(b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young LLP or such other nationally recognized certified public accounting firm as may be designated by the Executive (the "Accounting Firm") that shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the "Underpayment"), consistent with the calculations required to be made hereunder. In the event the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall:
(1) give the Company any information reasonably requested by the Company relating to such claim,
(2) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order effectively to contest such claim, and
(4) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
SECTION 9. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or the affiliated companies, and their respective businesses, which information, knowledge or data shall have been obtained by the Executive during the Executive's employment by the Company or the affiliated companies and which information, knowledge or data shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those persons designated by the Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.
SECTION 10. SUCCESSORS. (a) This Agreement is personal to the Executive, and, without the prior written consent of the Company, shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. "Company" means the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise.
SECTION 11. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
if to the Executive: At the last address on file on the Company's records.
if to the Company: Kellogg Company
One Kellogg Square
Battle Creek, MI 49016-3599
Attention: General Counsel
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or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such United States federal, state or local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a), prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement; provided that this Agreement may not be terminated by the Company if it is reasonably demonstrated by the Executive that such termination (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof, provided that, this Agreement shall not supersede any provisions in such other agreement to the extent such provisions provide for rights or benefits in addition to those provided herein (but in no event shall the Executive be entitled to duplicate severance benefits upon termination of employment).
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.
KELLOGG COMPANY
EXHIBIT 10.02
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the day of , 2000 (this "Agreement"), by and between Kellogg Company, a Delaware corporation (the "Company"), and Alan F. Harris (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined herein). The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the current Company and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control that ensure that the compensation and benefits expectations of the Executive will be satisfied and that are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
SECTION 1. CERTAIN DEFINITIONS. (a) "Effective Date" means the first date during the Change of Control Period (as defined herein) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control, then "Effective Date" means the date immediately prior to the date of such termination of employment.
(b) "Change of Control Period" means the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that, commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof, the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless, at least 60 days prior to the Renewal Date, the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.
(c) "affiliated company" means any company controlled by, controlling or under common control with the Company.
(d) "Change of Control" means:
(1) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of (A) 20%
or more of either (i) the then-outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) 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"), if
immediately following such acquisition the W.K. Kellogg Foundation Trust and
George Gund III together with the Gund family trusts that have a common trustee
(collectively, the "Trusts") do not own, in the aggregate, more than 35% of the
Outstanding Company Common Stock or Outstanding Company Voting Securities or (B)
30% or more of either (i) the Outstanding Company Common Stock or (ii) the
Outstanding Company Voting Securities, if immediately following such acquisition
the Trusts own, in the aggregate, more than 35% of the Outstanding Company
Common Stock or Outstanding Company Voting Securities; provided, however, that,
for purposes of this Section 1(d)(1), the following acquisitions shall not
constitute a Change of Control: (a) any acquisition directly from the Company,
(b) any acquisition by the Company, (c) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any affiliated
company, (d) any acquisition by the Trusts or (e) any acquisition by any
corporation pursuant to a transaction that complies with Sections 1(d)(3)(A),
1(d)(3)(B) and 1(d)(3)(C); or
(2) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of 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; or
(3) Consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-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 Business Combination (including, without limitation, a corporation that, 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 Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or
(4) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
SECTION 2. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the "Employment Period").
SECTION 3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (1) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the office where the Executive was employed immediately preceding the Effective Date or at any other location less than 35 miles from such office.
(2) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company.
(b) COMPENSATION. (1) BASE SALARY. During the Employment Period, the Executive shall receive an annual base salary (the "Annual Base Salary"), which Annual Base Salary shall be paid in 12 equal monthly installments at an annual rate at least equal to 12 times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, to the Executive by the Company and the affiliated companies in respect of the 12-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually, beginning no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. The Annual Base Salary shall not be reduced after any such increase and the term "Annual Base Salary" shall refer to the Annual Base Salary as so increased.
(2) ANNUAL BONUS. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest bonus under the Company's or an affiliated company's annual incentive plans, or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized, in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus.
(3) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies, and programs applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and the affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies.
(4) WELFARE BENEFIT PLANS. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and the affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits that are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies.
(5) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and the affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
(6) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and the affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
(7) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and the affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
(8) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and the affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
SECTION 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically if the Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of the Executive has occurred during the Employment Period (pursuant to the definition of "Disability"), it may give to the Executive written notice in accordance with Section 11(b) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. "Disability" means the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment during the Employment Period for Cause. "Cause" means:
(1) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or any affiliated company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company that specifically identifies the manner in which the Board or the Chief Executive Officer of the Company believes that the Executive has not substantially performed the Executive's duties, or
(2) the willful engaging by the Executive in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company.
For purposes of this Section 4(b), no act, or failure to act, on the part of the
Executive shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer of
the Company or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel for
the Executive, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
Section 4(b)(1) or 4(b)(2), and specifying the particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be terminated by the Executive for Good Reason. "Good Reason" means:
(1) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a), or any other action by the Company that results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(2) any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(3) the Company's requiring the Executive to be based at any office or location other than as provided in Section 3(a)(1)(B) or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;
(4) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or
(5) any failure by the Company to comply with and satisfy
Section 10(c).
For purposes of this Section 4(c), any good faith determination of Good Reason made by the Executive shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b). "Notice of Termination" means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (3) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's respective rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (1) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Notice of Termination, as the case may be, (2) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (3) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.
SECTION 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause or Disability or the Executive terminates employment for Good Reason:
(1) the Company shall pay to the Executive, in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the following amounts:
(A) the sum of (i) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid, (ii) the product of (x) the highest of (I) the Annual
Bonus equal to the product of (1) the Executive's Annual Base
Salary and (2) the Executive's target Annual Bonus percentage
in effect for the year in which the Effective Date occurs, or
if higher, the year in which the Date of Termination occurs,
(II) the Recent Annual Bonus and (III) the Annual Bonus paid
or payable, including any bonus or portion thereof that has
been earned but deferred (and annualized for any fiscal year
consisting of less than 12 full months or during which the
Executive was employed for less than 12 full months), for the
most recently completed fiscal year during the Employment
Period, if any and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the Date
of Termination and the denominator of which is 365, and (iii)
any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case, to the extent not
theretofore paid (the sum of the amounts described in
subclauses (i), (ii) and (iii), the "Accrued Obligations");
and
(B) the amount equal to the product of (i) three and (ii)
the sum of (x) the Executive's Annual Base Salary and (y) the
higher of (I) the Recent Annual Bonus and (II) the Annual
Bonus paid or payable, including any bonus or portion thereof
that has been earned but deferred (and annualized for any
fiscal year consisting of less than 12 full months or during
which the Executive was employed for less than 12 full
months), for the most recently completed fiscal year during
the Employment Period, if any; and
(C) an amount equal to the excess of (i) the actuarial equivalent of the benefit under the Company's or an affiliated company's qualified defined benefit retirement plan or plans, including any plan or arrangement maintained or sponsored in a jurisdiction other than the United States pursuant to statute or otherwise, in which the Executive participates (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the Effective Date) and any excess or supplemental retirement plan or plans in which the Executive participates, including any individual contract, agreement, letter or other arrangement to which the Executive is a party (taking into account, without limitation, any additional age and/or service credit that would have been earned
thereunder) (collectively, the "SERP") that the Executive
would receive if the Executive's employment continued for
three years after the Date of Termination (and using the
additional three years of age and service for purposes of
determining actuarial equivalency), assuming for this
purpose that all accrued benefits are fully vested and
assuming that the Executive's compensation in each of the
three years is that required by Sections 3(b)(1) and
3(b)(2), over (ii) the actuarial equivalent of the
Executive's actual benefit (paid or payable), if any, under
the Retirement Plan and the SERP as of the Date of
Termination (for purposes of this Section 5(a)(1)(C),
actuarial equivalent shall mean the approximate basis at
which insured annuities could be purchased in the open
market on the Date of Termination or, in the case of plans
where such equivalency is explicitly defined, actuarial
equivalency shall be calculated on the basis specified in
the applicable plan document; furthermore, all currency
translations shall be made based on the rate in effect on
the Date of Termination, and such rate shall apply to both
the benefit accrued on the Date of Termination, as well as
to the value of the benefit calculated that includes the
additional three years of age and service; furthermore, for
purposes of calculating actuarial equivalence of a pension
benefit (with or without the additional three years of age
and service), the Executive's eligibility to receive, and
the amount of, an immediately commencing early retirement
benefit shall be reflected in the calculation of the
actuarial equivalent benefit);
(2) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Executive shall be deemed to be on a leave of absence from the Company and the Company shall continue to provide welfare benefits to the Executive and/or the Executive's family at least equal to those that would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(4) if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies and their families, provided, however, that, if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period;
(3) for all purposes of the vesting and exercisability of equity-based awards granted under the Company's stock incentive plans and the award agreements thereunder, the Executive shall be deemed to be on a leave of absence from the
Company for three years after the Date of Termination and the Executive's termination of employment from the Company shall be deemed to occur on the third anniversary of the Date of Termination;
(4) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in the Executive's sole discretion; and
(5) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or that the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and the affiliated companies (such other amounts and benefits, the "Other Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of the Other Benefits. The Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other Benefits, the term "Other Benefits" as utilized in this Section 5(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and the affiliated companies to the estates and beneficiaries of peer executives of the Company and the affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and the affiliated companies and their beneficiaries.
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
the Other Benefits. The Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect to the
provision of the Other Benefits, the term "Other Benefits" as utilized in this
Section 5(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and the
affiliated companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if
any, as in effect generally with respect to other peer executives and their
families at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter generally with
respect to other peer executives of the Company and the affiliated companies and their families.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (1) the Executive's Annual Base Salary through the Date of Termination, (2) the amount of any compensation previously deferred by the Executive, and (3) the Other Benefits, in each case, to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for the Accrued Obligations and the timely payment or provision of the Other Benefits. In such case, all the Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.
SECTION 6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or the affiliated companies and for which the Executive may qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or the affiliated companies. Amounts or benefits that are vested or that the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or the affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement.
SECTION 7. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus, in each case, interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
SECTION 8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) (1) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company or the affiliated companies to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise but determined without regard to any additional payments required under this Section 8) (the "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively, the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (the "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a)(1), if it shall be determined that the Executive is entitled to the Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount that could be paid to the Executive such that the receipt of the Payments would not give rise to any Excise Tax (the "Reduced Amount"), then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(2) Notwithstanding the provisions of Section 8(a)(1), if the
payment of the Gross-Up Payment as provided in Section 8(a)(1) would make a
transaction entered into in connection with a Change of Control that would
otherwise be eligible for pooling-of-interests accounting treatment under APB
No. 16 ineligible for such treatment, then the following conditions shall apply:
(A) no Gross-Up Payment shall be made unless it shall be determined that a
Gross-Up Payment would have been payable pursuant to the preceding sentence
(without regard to this sentence) if the Executive had not received any Payments
that are considered to be "parachute payments" as defined in Section 280G of the
Code that consist of, or relate to, common stock or other equity interest in the
Company or any of its affiliated companies ("Equity Payments"); and (B) if a
Gross-Up Payment is permitted to be made after application of clause (A) of this
sentence, the amount of such Gross-Up Payment shall be only that amount
necessary so that after payment of all taxes (including any interest or
penalties imposed with respect to such taxes), by the Executive with respect to
Payments other than the Equity Payments, including without limitation, any
income taxes (and any interest and penalties imposed with respect thereto) and
Excise Tax imposed upon the Gross-Up Payment (as computed in accordance with
this clause (B)), the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments other than the Equity Payments. In
determining the Gross-Up Payment pursuant to clause (B) of the preceding
sentence, the rules for allocation of the "base amount" set forth in Question
and Answer 38 of Proposed Treasury Regulation 1.280G-1, or any successor
provision in any proposed, temporary or final regulations that may hereinafter
be promulgated, shall be applied.
(b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young LLP or such other nationally recognized certified public accounting firm as may be designated by the Executive (the "Accounting Firm") that shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the "Underpayment"), consistent with the calculations required to be made hereunder. In the event the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall:
(1) give the Company any information reasonably requested by the Company relating to such claim,
(2) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order effectively to contest such claim, and
(4) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
SECTION 9. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or the affiliated companies, and their respective businesses, which information, knowledge or data shall have been obtained by the Executive during the Executive's employment by the Company or the affiliated companies and which information, knowledge or data shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those persons designated by the Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.
SECTION 10. SUCCESSORS. (a) This Agreement is personal to the Executive, and, without the prior written consent of the Company, shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. "Company" means the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise.
SECTION 11. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
if to the Executive: At the last address on file on the Company's records.
if to the Company: Kellogg Company
One Kellogg Square
Battle Creek, MI 49016-3599
|
Attention: General Counsel
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such United States federal, state or local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a), prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement; provided that this Agreement may not be terminated by the Company if it is reasonably demonstrated by the Executive that such termination (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof, provided that, this Agreement shall not supersede any provisions in such other agreement to the extent such provisions provide for rights or benefits in addition to those provided herein (but in no event shall the Executive be entitled to duplicate severance benefits upon termination of employment).
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.
KELLOGG COMPANY
EXHIBIT 10.03
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the day of , 2000 (this "Agreement"), by and between Kellogg Company, a Delaware corporation (the "Company"), and Jacobus K. Groot (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined herein). The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the current Company and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control that ensure that the compensation and benefits expectations of the Executive will be satisfied and that are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
SECTION 1. CERTAIN DEFINITIONS. (a) "Effective Date" means the first date during the Change of Control Period (as defined herein) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control, then "Effective Date" means the date immediately prior to the date of such termination of employment.
(b) "Change of Control Period" means the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that, commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof, the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless, at least 60 days prior to the Renewal Date, the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.
(c) "affiliated company" means any company controlled by, controlling or under common control with the Company.
(d) "Change of Control" means:
(1) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of (A) 20%
or more of either (i) the then-outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) 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"), if
immediately following such acquisition the W.K. Kellogg Foundation Trust and
George Gund III together with the Gund family trusts that have a common trustee
(collectively, the "Trusts") do not own, in the aggregate, more than 35% of the
Outstanding Company Common Stock or Outstanding Company Voting Securities or (B)
30% or more of either (i) the Outstanding Company Common Stock or (ii) the
Outstanding Company Voting Securities, if immediately following such acquisition
the Trusts own, in the aggregate, more than 35% of the Outstanding Company
Common Stock or Outstanding Company Voting Securities; provided, however, that,
for purposes of this Section 1(d)(1), the following acquisitions shall not
constitute a Change of Control: (a) any acquisition directly from the Company,
(b) any acquisition by the Company, (c) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any affiliated
company, (d) any acquisition by the Trusts or (e) any acquisition by any
corporation pursuant to a transaction that complies with Sections 1(d)(3)(A),
1(d)(3)(B) and 1(d)(3)(C); or
(2) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of 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; or
(3) Consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-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 Business Combination (including, without limitation, a corporation that, 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 Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or
(4) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
SECTION 2. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the "Employment Period").
SECTION 3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (1) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the office where the Executive was employed immediately preceding the Effective Date or at any other location less than 35 miles from such office.
(2) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company.
(b) COMPENSATION. (1) BASE SALARY. During the Employment Period, the Executive shall receive an annual base salary (the "Annual Base Salary"), which Annual Base Salary shall be paid in 12 equal monthly installments at an annual rate at least equal to 12 times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, to the Executive by the Company and the affiliated companies in respect of the 12-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually, beginning no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. The Annual Base Salary shall not be reduced after any such increase and the term "Annual Base Salary" shall refer to the Annual Base Salary as so increased.
(2) ANNUAL BONUS. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest bonus under the Company's or an affiliated company's annual incentive plans, or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized, in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus.
(3) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies, and programs applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and the affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies.
(4) WELFARE BENEFIT PLANS. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and the affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits that are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies.
(5) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and the affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
(6) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and the affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
(7) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and the affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
(8) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and the affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
SECTION 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically if the Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of the Executive has occurred during the Employment Period (pursuant to the definition of "Disability"), it may give to the Executive written notice in accordance with Section 11(b) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. "Disability" means the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment during the Employment Period for Cause. "Cause" means:
(1) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or any affiliated company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company that specifically identifies the manner in which the Board or the Chief Executive Officer of the Company believes that the Executive has not substantially performed the Executive's duties, or
(2) the willful engaging by the Executive in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company.
For purposes of this Section 4(b), no act, or failure to act, on the part of the
Executive shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer of
the Company or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel for
the Executive, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
Section 4(b)(1) or 4(b)(2), and specifying the particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be terminated by the Executive for Good Reason. "Good Reason" means:
(1) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a), or any other action by the Company that results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(2) any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(3) the Company's requiring the Executive to be based at any office or location other than as provided in Section 3(a)(1)(B) or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;
(4) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or
(5) any failure by the Company to comply with and satisfy Section 10(c).
For purposes of this Section 4(c), any good faith determination of Good Reason made by the Executive shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b). "Notice of Termination" means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (3) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's respective rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (1) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Notice of Termination, as the case may be, (2) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (3) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.
SECTION 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause or Disability or the Executive terminates employment for Good Reason:
(1) the Company shall pay to the Executive, in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the following amounts:
(A) the sum of (i) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (ii) the product of (x) the highest of (I) the Annual Bonus equal to the product of (1) the Executive's Annual Base Salary and (2) the Executive's target Annual Bonus percentage in effect for the year in which the Effective Date occurs, or if higher, the year in which the Date of Termination occurs, (II) the Recent Annual Bonus and (III) the Annual Bonus paid or payable, including any bonus or portion thereof that has been earned but deferred (and annualized for any fiscal year consisting of less than 12 full months or during which the Executive was employed for less than 12 full months), for the most recently completed fiscal year during the Employment Period, if any and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination and the denominator of which is 365, and (iii) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case, to the extent not theretofore paid (the sum of the amounts described in subclauses (i), (ii) and (iii), the "Accrued Obligations"); and
(B) the amount equal to the product of (i) three and (ii)
the sum of (x) the Executive's Annual Base Salary and (y) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus
paid or payable, including any bonus or portion thereof that has
been earned but deferred (and annualized for any fiscal year
consisting of less than 12 full months or during which the
Executive was employed for less than 12 full months), for the
most recently completed fiscal year during the Employment Period,
if any; and
(C) an amount equal to the excess of (i) the actuarial equivalent of the benefit under the Company's or an affiliated company's qualified defined benefit retirement plan or plans, including any plan or arrangement maintained or sponsored in a jurisdiction other than the United States pursuant to statute or otherwise, in which the Executive participates (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the Effective Date) and any excess or supplemental retirement plan or plans in which the Executive participates, including any individual contract, agreement, letter or other arrangement to which the Executive is a party (taking into account, without limitation, any additional age and/or service credit that would have been earned
thereunder) (collectively, the "SERP") that the Executive would receive if the Executive's employment continued for three years after the Date of Termination (and using the additional three years of age and service for purposes of determining actuarial equivalency), assuming for this purpose that all accrued benefits are fully vested and assuming that the Executive's compensation in each of the three years is that required by Sections 3(b)(1) and 3(b)(2), over (ii) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination (for purposes of this Section 5(a)(1)(C), actuarial equivalent shall mean the approximate basis at which insured annuities could be purchased in the open market on the Date of Termination or, in the case of plans where such equivalency is explicitly defined, actuarial equivalency shall be calculated on the basis specified in the applicable plan document; furthermore, all currency translations shall be made based on the rate in effect on the Date of Termination, and such rate shall apply to both the benefit accrued on the Date of Termination, as well as to the value of the benefit calculated that includes the additional three years of age and service; furthermore, for purposes of calculating actuarial equivalence of a pension benefit (with or without the additional three years of age and service), the Executive's eligibility to receive, and the amount of, an immediately commencing early retirement benefit shall be reflected in the calculation of the actuarial equivalent benefit);
(2) for three years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Executive shall be deemed to be on
a leave of absence from the Company and the Company shall continue to
provide welfare benefits to the Executive and/or the Executive's family
at least equal to those that would have been provided to them in
accordance with the plans, programs, practices and policies described in
Section 3(b)(4) if the Executive's employment had not been terminated or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and the
affiliated companies and their families, provided, however, that, if the
Executive becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility (but not
the time of commencement of benefits) of the Executive for retiree
benefits pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until three years
after the Date of Termination and to have retired on the last day of such
period;
(3) for all purposes of the vesting and exercisability of equity-based awards granted under the Company's stock incentive plans and the award agreements thereunder, the Executive shall be deemed to be on a leave of absence from the
Company for three years after the Date of Termination and the Executive's termination of employment from the Company shall be deemed to occur on the third anniversary of the Date of Termination;
(4) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in the Executive's sole discretion; and
(5) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or that the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and the affiliated companies (such other amounts and benefits, the "Other Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of the Other Benefits. The Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other Benefits, the term "Other Benefits" as utilized in this Section 5(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and the affiliated companies to the estates and beneficiaries of peer executives of the Company and the affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and the affiliated companies and their beneficiaries.
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
the Other Benefits. The Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect to the
provision of the Other Benefits, the term "Other Benefits" as utilized in this
Section 5(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and the
affiliated companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if
any, as in effect generally with respect to other peer executives and their
families at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter generally with
respect to other peer executives of the Company and the affiliated companies and their families.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (1) the Executive's Annual Base Salary through the Date of Termination, (2) the amount of any compensation previously deferred by the Executive, and (3) the Other Benefits, in each case, to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for the Accrued Obligations and the timely payment or provision of the Other Benefits. In such case, all the Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.
SECTION 6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or the affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or the
affiliated companies. Amounts or benefits that are vested or that the Executive
is otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or the affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement, except as explicitly
modified by this Agreement.
SECTION 7. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus, in each case, interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
SECTION 8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) (1) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company or the affiliated companies to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise but determined without regard to any additional payments required under this Section 8) (the "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively, the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (the "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a)(1), if it shall be determined that the Executive is entitled to the Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount that could be paid to the Executive such that the receipt of the Payments would not give rise to any Excise Tax (the "Reduced Amount"), then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(2) Notwithstanding the provisions of Section 8(a)(1), if the
payment of the Gross-Up Payment as provided in Section 8(a)(1) would make a
transaction entered into in connection with a Change of Control that would
otherwise be eligible for pooling-of-interests accounting treatment under APB
No. 16 ineligible for such treatment, then the following conditions shall apply:
(A) no Gross-Up Payment shall be made unless it shall be determined that a
Gross-Up Payment would have been payable pursuant to the preceding sentence
(without regard to this sentence) if the Executive had not received any Payments
that are considered to be "parachute payments" as defined in Section 280G of the
Code that consist of, or relate to, common stock or other equity interest in the
Company or any of its affiliated companies ("Equity Payments"); and (B) if a
Gross-Up Payment is permitted to be made after application of clause (A) of this
sentence, the amount of such Gross-Up Payment shall be only that amount
necessary so that after payment of all taxes (including any interest or
penalties imposed with respect to such taxes), by the Executive with respect to
Payments other than the Equity Payments, including without limitation, any
income taxes (and any interest and penalties imposed with respect thereto) and
Excise Tax imposed upon the Gross-Up Payment (as computed in accordance with
this clause (B)), the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments other than the Equity Payments. In
determining the Gross-Up Payment pursuant to clause (B) of the preceding
sentence, the rules for allocation of the "base amount" set forth in Question
and Answer 38 of Proposed Treasury Regulation 1.280G-1, or any successor
provision in any proposed, temporary or final regulations that may hereinafter
be promulgated, shall be applied.
(b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young LLP or such other nationally recognized certified public accounting firm as may be designated by the Executive (the "Accounting Firm") that shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the "Underpayment"), consistent with the calculations required to be made hereunder. In the event the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall:
(1) give the Company any information reasonably requested by the Company relating to such claim,
(2) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order effectively to contest such claim, and
(4) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
SECTION 9. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or the affiliated companies, and their respective businesses, which information, knowledge or data shall have been obtained by the Executive during the Executive's employment by the Company or the affiliated companies and which information, knowledge or data shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those persons designated by the Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.
SECTION 10. SUCCESSORS. (a) This Agreement is personal to the Executive, and, without the prior written consent of the Company, shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. "Company" means the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise.
SECTION 11. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
if to the Executive: At the last address on file on the Company's records.
if to the Company: Kellogg Company
One Kellogg Square
Battle Creek, MI 49016-3599
|
Attention: General Counsel
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such United States federal, state or local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a), prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement; provided that this Agreement may not be terminated by the Company if it is reasonably demonstrated by the Executive that such termination (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof, provided that, this Agreement shall not supersede any provisions in such other agreement to the extent such provisions provide for rights or benefits in addition to those provided herein (but in no event shall the Executive be entitled to duplicate severance benefits upon termination of employment).
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.
KELLOGG COMPANY
EXHIBIT 10.04
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the day of , 2000 (this "Agreement"), by and between Kellogg Company, a Delaware corporation (the "Company"), and Michael J. Teale (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined herein). The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the current Company and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control that ensure that the compensation and benefits expectations of the Executive will be satisfied and that are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
SECTION 1. CERTAIN DEFINITIONS. (a) "Effective Date" means the first date during the Change of Control Period (as defined herein) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control, then "Effective Date" means the date immediately prior to the date of such termination of employment.
(b) "Change of Control Period" means the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that, commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof, the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless, at least 60 days prior to the Renewal Date, the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.
(c) "affiliated company" means any company controlled by, controlling or under common control with the Company.
(d) "Change of Control" means:
(1) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of (A) 20%
or more of either (i) the then-outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) 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"), if
immediately following such acquisition the W.K. Kellogg Foundation Trust and
George Gund III together with the Gund family trusts that have a common trustee
(collectively, the "Trusts") do not own, in the aggregate, more than 35% of the
Outstanding Company Common Stock or Outstanding Company Voting Securities or (B)
30% or more of either (i) the Outstanding Company Common Stock or (ii) the
Outstanding Company Voting Securities, if immediately following such acquisition
the Trusts own, in the aggregate, more than 35% of the Outstanding Company
Common Stock or Outstanding Company Voting Securities; provided, however, that,
for purposes of this Section 1(d)(1), the following acquisitions shall not
constitute a Change of Control: (a) any acquisition directly from the Company,
(b) any acquisition by the Company, (c) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any affiliated
company, (d) any acquisition by the Trusts or (e) any acquisition by any
corporation pursuant to a transaction that complies with Sections 1(d)(3)(A),
1(d)(3)(B) and 1(d)(3)(C); or
(2) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of 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; or
(3) Consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-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 Business Combination (including, without limitation, a corporation that, 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 Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or
(4) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
SECTION 2. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the "Employment Period").
SECTION 3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (1) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the office where the Executive was employed immediately preceding the Effective Date or at any other location less than 35 miles from such office.
(2) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company.
(b) COMPENSATION. (1) BASE SALARY. During the Employment Period, the Executive shall receive an annual base salary (the "Annual Base Salary"), which Annual Base Salary shall be paid in 12 equal monthly installments at an annual rate at least equal to 12 times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, to the Executive by the Company and the affiliated companies in respect of the 12-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually, beginning no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. The Annual Base Salary shall not be reduced after any such increase and the term "Annual Base Salary" shall refer to the Annual Base Salary as so increased.
(2) ANNUAL BONUS. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest bonus under the Company's or an affiliated company's annual incentive plans, or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized, in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus.
(3) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies, and programs applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and the affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies.
(4) WELFARE BENEFIT PLANS. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and the affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits that are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies.
(5) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and the affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
(6) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and the affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
(7) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and the affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
(8) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and the affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
SECTION 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically if the Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of the Executive has occurred during the Employment Period (pursuant to the definition of "Disability"), it may give to the Executive written notice in accordance with Section 11(b) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. "Disability" means the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment during the Employment Period for Cause. "Cause" means:
(1) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or any affiliated company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company that specifically identifies the manner in which the Board or the Chief Executive Officer of the Company believes that the Executive has not substantially performed the Executive's duties, or
(2) the willful engaging by the Executive in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company.
For purposes of this Section 4(b), no act, or failure to act, on the part of the
Executive shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer of
the Company or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel for
the Executive, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
Section 4(b)(1) or 4(b)(2), and specifying the particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be terminated by the Executive for Good Reason. "Good Reason" means:
(1) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a), or any other action by the Company that results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(2) any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(3) the Company's requiring the Executive to be based at any office or location other than as provided in Section 3(a)(1)(B) or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;
(4) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or
(5) any failure by the Company to comply with and satisfy Section 10(c).
For purposes of this Section 4(c), any good faith determination of Good Reason made by the Executive shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b). "Notice of Termination" means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (3) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's respective rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (1) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Notice of Termination, as the case may be, (2) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (3) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.
SECTION 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause or Disability or the Executive terminates employment for Good Reason:
(1) the Company shall pay to the Executive, in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the following amounts:
(A) the sum of (i) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid, (ii) the product of (x) the highest of (I) the Annual Bonus
equal to the product of (1) the Executive's Annual Base Salary and
(2) the Executive's target Annual Bonus percentage in effect for
the year in which the Effective Date occurs, or if higher, the
year in which the Date of Termination occurs, (II) the Recent
Annual Bonus and (III) the Annual Bonus paid or payable, including
any bonus or portion thereof that has been earned but deferred
(and annualized for any fiscal year consisting of less than 12
full months or during which the Executive was employed for less
than 12 full months), for the most recently completed fiscal year
during the Employment Period, if any and (y) a fraction, the
numerator of which is the number of days in the current fiscal
year through the Date of Termination and the denominator of which
is 365, and (iii) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon)
and any accrued vacation pay, in each case, to the extent not
theretofore paid (the sum of the amounts described in subclauses
(i), (ii) and (iii), the "Accrued Obligations"); and
(B) the amount equal to the product of (i) three and (ii)
the sum of (x) the Executive's Annual Base Salary and (y) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus
paid or payable, including any bonus or portion thereof that has
been earned but deferred (and annualized for any fiscal year
consisting of less than 12 full months or during which the
Executive was employed for less than 12 full months), for the most
recently completed fiscal year during the Employment Period, if
any; and
(C) an amount equal to the excess of (i) the actuarial equivalent of the benefit under the Company's or an affiliated company's qualified defined benefit retirement plan or plans, including any plan or arrangement maintained or sponsored in a jurisdiction other than the United States pursuant to statute or otherwise, in which the Executive participates (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the Effective Date) and any excess or supplemental retirement plan or plans in which the Executive participates, including any individual contract, agreement, letter or other arrangement to which the Executive is a party (taking into account, without limitation, any additional age and/or service credit that would have been earned
thereunder) (collectively, the "SERP") that the Executive would
receive if the Executive's employment continued for three years
after the Date of Termination (and using the additional three
years of age and service for purposes of determining actuarial
equivalency), assuming for this purpose that all accrued benefits
are fully vested and assuming that the Executive's compensation in
each of the three years is that required by Sections 3(b)(1) and
3(b)(2), over (ii) the actuarial equivalent of the Executive's
actual benefit (paid or payable), if any, under the Retirement
Plan and the SERP as of the Date of Termination (for purposes of
this Section 5(a)(1)(C), actuarial equivalent shall mean the
approximate basis at which insured annuities could be purchased in
the open market on the Date of Termination or, in the case of
plans where such equivalency is explicitly defined, actuarial
equivalency shall be calculated on the basis specified in the
applicable plan document; furthermore, all currency translations
shall be made based on the rate in effect on the Date of
Termination, and such rate shall apply to both the benefit accrued
on the Date of Termination, as well as to the value of the benefit
calculated that includes the additional three years of age and
service; furthermore, for purposes of calculating actuarial
equivalence of a pension benefit (with or without the additional
three years of age and service), the Executive's eligibility to
receive, and the amount of, an immediately commencing early
retirement benefit shall be reflected in the calculation of the
actuarial equivalent benefit);
(2) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Executive shall be deemed to be on a leave of absence from the Company and the Company shall continue to provide welfare benefits to the Executive and/or the Executive's family at least equal to those that would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(4) if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies and their families, provided, however, that, if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period;
(3) for all purposes of the vesting and exercisability of equity-based awards granted under the Company's stock incentive plans and the award agreements thereunder, the Executive shall be deemed to be on a leave of absence from the
Company for three years after the Date of Termination and the Executive's termination of employment from the Company shall be deemed to occur on the third anniversary of the Date of Termination;
(4) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in the Executive's sole discretion; and
(5) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or that the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and the affiliated companies (such other amounts and benefits, the "Other Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of the Other Benefits. The Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other Benefits, the term "Other Benefits" as utilized in this Section 5(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and the affiliated companies to the estates and beneficiaries of peer executives of the Company and the affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and the affiliated companies and their beneficiaries.
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
the Other Benefits. The Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect to the
provision of the Other Benefits, the term "Other Benefits" as utilized in this
Section 5(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and the
affiliated companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if
any, as in effect generally with respect to other peer executives and their
families at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter generally with
respect to other peer executives of the Company and the affiliated companies and their families.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (1) the Executive's Annual Base Salary through the Date of Termination, (2) the amount of any compensation previously deferred by the Executive, and (3) the Other Benefits, in each case, to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for the Accrued Obligations and the timely payment or provision of the Other Benefits. In such case, all the Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.
SECTION 6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or the affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or the
affiliated companies. Amounts or benefits that are vested or that the Executive
is otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or the affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement, except as explicitly
modified by this Agreement.
SECTION 7. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus, in each case, interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
SECTION 8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) (1) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company or the affiliated companies to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise but determined without regard to any additional payments required under this Section 8) (the "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively, the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (the "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a)(1), if it shall be determined that the Executive is entitled to the Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount that could be paid to the Executive such that the receipt of the Payments would not give rise to any Excise Tax (the "Reduced Amount"), then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(2) Notwithstanding the provisions of Section 8(a)(1), if the
payment of the Gross-Up Payment as provided in Section 8(a)(1) would make a
transaction entered into in connection with a Change of Control that would
otherwise be eligible for pooling-of-interests accounting treatment under APB
No. 16 ineligible for such treatment, then the following conditions shall apply:
(A) no Gross-Up Payment shall be made unless it shall be determined that a
Gross-Up Payment would have been payable pursuant to the preceding sentence
(without regard to this sentence) if the Executive had not received any Payments
that are considered to be "parachute payments" as defined in Section 280G of the
Code that consist of, or relate to, common stock or other equity interest in the
Company or any of its affiliated companies ("Equity Payments"); and (B) if a
Gross-Up Payment is permitted to be made after application of clause (A) of this
sentence, the amount of such Gross-Up Payment shall be only that amount
necessary so that after payment of all taxes (including any interest or
penalties imposed with respect to such taxes), by the Executive with respect to
Payments other than the Equity Payments, including without limitation, any
income taxes (and any interest and penalties imposed with respect thereto) and
Excise Tax imposed upon the Gross-Up Payment (as computed in accordance with
this clause (B)), the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments other than the Equity Payments. In
determining the Gross-Up Payment pursuant to clause (B) of the preceding
sentence, the rules for allocation of the "base amount" set forth in Question
and Answer 38 of Proposed Treasury Regulation 1.280G-1, or any successor
provision in any proposed, temporary or final regulations that may hereinafter
be promulgated, shall be applied.
(b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young LLP or such other nationally recognized certified public accounting firm as may be designated by the Executive (the "Accounting Firm") that shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the "Underpayment"), consistent with the calculations required to be made hereunder. In the event the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall:
(1) give the Company any information reasonably requested by the Company relating to such claim,
(2) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order effectively to contest such claim, and
(4) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 8(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section
8(c)) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 8(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30
days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required
to be paid.
SECTION 9. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or the affiliated companies, and their respective businesses, which information, knowledge or data shall have been obtained by the Executive during the Executive's employment by the Company or the affiliated companies and which information, knowledge or data shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those persons designated by the Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.
SECTION 10. SUCCESSORS. (a) This Agreement is personal to the Executive, and, without the prior written consent of the Company, shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. "Company" means the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise.
SECTION 11. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
if to the Executive: At the last address on file on the Company's records.
if to the Company: Kellogg Company
One Kellogg Square
Battle Creek, MI 49016-3599
|
Attention: General Counsel
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such United States federal, state or local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a), prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement; provided that this Agreement may not be terminated by the Company if it is reasonably demonstrated by the Executive that such termination (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof, provided that, this Agreement shall not supersede any provisions in such other agreement to the extent such provisions provide for rights or benefits in addition to those provided herein (but in no event shall the Executive be entitled to duplicate severance benefits upon termination of employment).
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.
KELLOGG COMPANY
EXHIBIT 10.05
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the day of , 2000 (this "Agreement"), by and between Kellogg Company, a Delaware corporation (the "Company"), and (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined herein). The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the current Company and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control that ensure that the compensation and benefits expectations of the Executive will be satisfied and that are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
SECTION 1. CERTAIN DEFINITIONS. (a) "Effective Date" means the first date during the Change of Control Period (as defined herein) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control, then "Effective Date" means the date immediately prior to the date of such termination of employment.
(b) "Change of Control Period" means the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that, commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof, the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless, at least 60 days prior to the Renewal Date, the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.
(c) "affiliated company" means any company controlled by, controlling or under common control with the Company.
(d) "Change of Control" means:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of (A) 20% or more
of either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) 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"), if
immediately following such acquisition the W.K. Kellogg Foundation Trust and
George Gund III together with the Gund family trusts that have a common trustee
(collectively, the "Trusts") do not own, in the aggregate, more than 35% of the
Outstanding Company Common Stock or Outstanding Company Voting Securities or (B)
30% or more of either (i) the Outstanding Company Common Stock or (ii) the
Outstanding Company Voting Securities, if immediately following such acquisition
the Trusts own, in the aggregate, more than 35% of the Outstanding Company
Common Stock or Outstanding Company Voting Securities; provided, however, that,
for purposes of this Section 1(d)(1), the following acquisitions shall not
constitute a Change of Control: (a) any acquisition directly from the Company,
(b) any acquisition by the Company, (c) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any affiliated
company, (d) any acquisition by the Trusts or (e) any acquisition by any
corporation pursuant to a transaction that complies with Sections 1(d)(3)(A),
1(d)(3)(B) and 1(d)(3)(C); or
(2) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of 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; or
(3) Consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-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 Business Combination (including, without limitation, a corporation that, 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 Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or
(4) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
SECTION 2. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the "Employment Period").
SECTION 3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (1) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the office where the Executive was employed immediately preceding the Effective Date or at any other location less than 35 miles from such office.
(2) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company.
(b) COMPENSATION. (1) BASE SALARY. During the Employment Period, the Executive shall receive an annual base salary (the "Annual Base Salary"), which Annual Base Salary shall be paid in 12 equal monthly installments at an annual rate at least equal to 12 times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, to the Executive by the Company and the affiliated companies in respect of the 12-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually, beginning no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. The Annual Base Salary shall not be reduced after any such increase and the term "Annual Base Salary" shall refer to the Annual Base Salary as so increased.
(2) ANNUAL BONUS. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest bonus under the Company's or an affiliated company's annual incentive plans, or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized, in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus.
(3) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies, and programs applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and the affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies.
(4) WELFARE BENEFIT PLANS. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and the affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and the affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits that are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the affiliated companies.
(5) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and the affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
(6) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and the affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
(7) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and the affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
(8) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and the affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies.
SECTION 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically if the Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of the Executive has occurred during the Employment Period (pursuant to the definition of "Disability"), it may give to the Executive written notice in accordance with Section 11(b) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. "Disability" means the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment during the Employment Period for Cause. "Cause" means:
(1) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or any affiliated company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company that specifically identifies the manner in which the Board or the Chief Executive Officer of the Company believes that the Executive has not substantially performed the Executive's duties, or
(2) the willful engaging by the Executive in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company.
For purposes of this Section 4(b), no act, or failure to act, on the part of the
Executive shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer of
the Company or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel for
the Executive, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
Section 4(b)(1) or 4(b)(2), and specifying the particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be terminated by the Executive for Good Reason. "Good Reason" means:
(1) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a), or any other action by the Company that results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(2) any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;
(3) the Company's requiring the Executive to be based at any office or location other than as provided in Section 3(a)(1)(B) or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;
(4) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or
(5) any failure by the Company to comply with and satisfy Section 10(c).
For purposes of this Section 4(c), any good faith determination of Good Reason made by the Executive shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b). "Notice of Termination" means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (3) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's respective rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (1) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Notice of Termination, as the case may be, (2) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (3) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.
SECTION 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause or Disability or the Executive terminates employment for Good Reason:
(1) the Company shall pay to the Executive, in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the following amounts:
(A) the sum of (i) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid, (ii)
the product of (x) the highest of (I) the Annual Bonus equal to
the product of (1) the Executive's Annual Base Salary and (2) the
Executive's target Annual Bonus percentage in effect for the year
in which the Effective Date occurs, or if higher, the year in
which the Date of Termination occurs, (II) the Recent Annual Bonus
and (III) the Annual Bonus paid or payable, including any bonus or
portion thereof that has been earned but deferred (and annualized
for any fiscal year consisting of less than 12 full months or
during which the Executive was employed for less than 12 full
months), for the most recently completed fiscal year during the
Employment Period, if any and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the
Date of Termination and the denominator of which is 365, and (iii)
any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case, to the extent not theretofore paid
(the sum of the amounts described in subclauses (i), (ii) and
(iii), the "Accrued Obligations"); and
(B) the amount equal to the product of (i) three and (ii) the sum of (x) the Executive's Annual Base Salary and (y) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof that has been earned but deferred (and annualized for any fiscal year consisting of less than 12 full months or during which the Executive was employed for less than 12 full months), for the most recently completed fiscal year during the Employment Period, if any; and
(C) an amount equal to the excess of (i) the actuarial equivalent of the benefit under the Company's or an affiliated company's qualified defined benefit retirement plan or plans, including any plan or arrangement maintained or sponsored in a jurisdiction other than the United States pursuant to statute or otherwise, in which the Executive participates (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the Effective Date) and any excess or supplemental retirement plan or plans in which the Executive participates, including any individual contract, agreement, letter or other arrangement to which the Executive is a party (taking into account, without limitation, any additional age and/or service credit that would have been earned
thereunder) (collectively, the "SERP") that the Executive would
receive if the Executive's employment continued for three years
after the Date of Termination (and using the additional three
years of age and service for purposes of determining actuarial
equivalency), assuming for this purpose that all accrued benefits
are fully vested and assuming that the Executive's compensation in
each of the three years is that required by Sections 3(b)(1) and
3(b)(2), over (ii) the actuarial equivalent of the Executive's
actual benefit (paid or payable), if any, under the Retirement
Plan and the SERP as of the Date of Termination (for purposes of
this Section 5(a)(1)(C), actuarial equivalent shall mean the
approximate basis at which insured annuities could be purchased in
the open market on the Date of Termination or, in the case of
plans where such equivalency is explicitly defined, actuarial
equivalency shall be calculated on the basis specified in the
applicable plan document; furthermore, all currency translations
shall be made based on the rate in effect on the Date of
Termination, and such rate shall apply to both the benefit accrued
on the Date of Termination, as well as to the value of the benefit
calculated that includes the additional three years of age and
service; furthermore, for purposes of calculating actuarial
equivalence of a pension benefit (with or without the additional
three years of age and service), the Executive's eligibility to
receive, and the amount of, an immediately commencing early
retirement benefit shall be reflected in the calculation of the
actuarial equivalent benefit);
(2) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Executive shall be deemed to be on a leave of absence from the Company and the Company shall continue to provide welfare benefits to the Executive and/or the Executive's family at least equal to those that would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(4) if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the affiliated companies and their families, provided, however, that, if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period;
(3) for all purposes of the vesting and exercisability of equity-based awards granted under the Company's stock incentive plans and the award agreements thereunder, the Executive shall be deemed to be on a leave of absence from the
Company for three years after the Date of Termination and the Executive's termination of employment from the Company shall be deemed to occur on the third anniversary of the Date of Termination;
(4) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in the Executive's sole discretion; and
(5) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or that the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and the affiliated companies (such other amounts and benefits, the "Other Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of the Other Benefits. The Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other Benefits, the term "Other Benefits" as utilized in this Section 5(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and the affiliated companies to the estates and beneficiaries of peer executives of the Company and the affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and the affiliated companies and their beneficiaries.
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
the Other Benefits. The Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect to the
provision of the Other Benefits, the term "Other Benefits" as utilized in this
Section 5(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and the
affiliated companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if
any, as in effect generally with respect to other peer executives and their
families at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter generally with
respect to other peer executives of the Company and the affiliated companies and their families.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment is terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (1) the Executive's Annual Base Salary through the Date of Termination, (2) the amount of any compensation previously deferred by the Executive, and (3) the Other Benefits, in each case, to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for the Accrued Obligations and the timely payment or provision of the Other Benefits. In such case, all the Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.
SECTION 6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or the affiliated
companies and for which the Executive may qualify, nor, subject to Section
11(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or the
affiliated companies. Amounts or benefits that are vested or that the Executive
is otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or the affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement, except as explicitly
modified by this Agreement.
SECTION 7. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus, in each case, interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
SECTION 8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) (1) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company or the affiliated companies to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise but
determined without regard to any additional payments required under this Section
8) (the "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code, or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, collectively, the "Excise Tax"), then the Executive shall be entitled
to receive an additional payment (the "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 8(a)(1), if it shall be
determined that the Executive is entitled to the Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount that could be paid to the
Executive such that the receipt of the Payments would not give rise to any
Excise Tax (the "Reduced Amount"), then no Gross-Up Payment shall be made to the
Executive and the Payments, in the aggregate, shall be reduced to the Reduced
Amount.
(2) Notwithstanding the provisions of Section 8(a)(1), if the
payment of the Gross-Up Payment as provided in Section 8(a)(1) would make a
transaction entered into in connection with a Change of Control that would
otherwise be eligible for pooling-of-interests accounting treatment under APB
No. 16 ineligible for such treatment, then the following conditions shall apply:
(A) no Gross-Up Payment shall be made unless it shall be determined that a
Gross-Up Payment would have been payable pursuant to the preceding sentence
(without regard to this sentence) if the Executive had not received any Payments
that are considered to be "parachute payments" as defined in Section 280G of the
Code that consist of, or relate to, common stock or other equity interest in the
Company or any of its affiliated companies ("Equity Payments"); and (B) if a
Gross-Up Payment is permitted to be made after application of clause (A) of this
sentence, the amount of such Gross-Up Payment shall be only that amount
necessary so that after payment of all taxes (including any interest or
penalties imposed with respect to such taxes), by the Executive with respect to
Payments other than the Equity Payments, including without limitation, any
income taxes (and any interest and penalties imposed with respect thereto) and
Excise Tax imposed upon the Gross-Up Payment (as computed in accordance with
this clause (B)), the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments other than the Equity Payments. In
determining the Gross-Up Payment pursuant to clause (B) of the preceding
sentence, the rules for allocation of the "base amount" set forth in Question
and Answer 38 of Proposed Treasury Regulation 1.280G-1, or any successor
provision in any proposed, temporary or final regulations that may hereinafter
be promulgated, shall be applied.
(b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young LLP or such other nationally recognized certified public accounting firm as may be designated by the Executive (the "Accounting Firm") that shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the "Underpayment"), consistent with the calculations required to be made hereunder. In the event the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall:
(1) give the Company any information reasonably requested by the Company relating to such claim,
(2) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order effectively to contest such claim, and
(4) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
SECTION 9. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or the affiliated companies, and their respective businesses, which information, knowledge or data shall have been obtained by the Executive during the Executive's employment by the Company or the affiliated companies and which information, knowledge or data shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those persons designated by the Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.
SECTION 10. SUCCESSORS. (a) This Agreement is personal to the Executive, and, without the prior written consent of the Company, shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. "Company" means the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise.
SECTION 11. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
if to the Executive: At the last address on file on the Company's records.
if to the Company: Kellogg Company
One Kellogg Square
Battle Creek, MI 49016-3599
|
Attention: General Counsel
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such United States federal, state or local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a), prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement; provided that this Agreement may not be terminated by the Company if it is reasonably demonstrated by the Executive that such termination (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof, provided that, this Agreement shall not supersede any provisions in such other agreement to the extent such provisions provide for rights or benefits in addition to those provided herein (but in no event shall the Executive be entitled to duplicate severance benefits upon termination of employment).
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.
KELLOGG COMPANY
EXHIBIT 10.06
LEAVE OF ABSENCE AND SEVERANCE AGREEMENT
(PRESENTED: JULY 13, 2000)
This Leave of Absence and Severance Agreement hereafter, (the "Agreement") made and entered into as of July 13, 2000, by and between Kellogg Company, a Delaware corporation ("the Company") and John D. Cook, an individual ("Employee").
PURPOSE
The purpose of this Leave of Absence and Severance Agreement is to set forth the arrangements with respect to Employee's resignation as an officer of the Company, and its subsidiaries, divisions and affiliates, and related matters, effective July 21, 2000. As of that date, Employee is relieved of all his titles, duties, responsibilities, and authority as an officer and otherwise with respect to the Company. This date shall be considered the Employee's "last day worked."
TERMS AND CONDITIONS
A. Except as otherwise provided in this Agreement, for the period beginning July 21, 2000, through August 31, 2000, Employee will be an "employee" ON A PAID LEAVE OF ABSENCE. During this paid leave of absence, Employee shall receive his regularly scheduled salary payments. Except as otherwise provided herein, benefits for Employee and his eligible dependents (as outlined in "A Guide To Your Medical/Mental/Prescription Drug Benefits", as amended, and under the Executive Income Survivor Plan, subject to the respective terms and provisions thereof, including any amendment or alteration thereof after the date of this Agreement) shall be continued during the paid leave of absence period ending August 31, 2000.
For the period beginning September 1, 2000 and continuing through July 20, 2003, Employee will be an "employee" on an UNPAID LEAVE OF ABSENCE for the sole purpose of stock option and stock grant vesting, as more particularly described in Paragraph D. During Employee's paid and unpaid leaves of absence, Employee shall not hold any title or position with the Company, and Employee shall have no titles, duties, responsibilities or authority with respect to the Company, its business and/or operations.
B. As more fully provided herein below, the lump sum payment described herein is in consideration of Employee's release of any and all cause or causes of action he has, has had, or may have against the Company.
Within thirty (30) days of September 1, 2000 Employee shall be paid a lump sum payment equal to $2,121,600 (two million, one hundred twenty-one thousand, six hundred dollars), less applicable deductions, upon execution of this Agreement. The amount payable to Employee under this Agreement is consistent with the severance
terms of Employee's January 26, 1999 (revised from original January 20, 1999) Employment Agreement.
All tax liability, with respect to any and all payments or services received by Employee under this Agreement (other than employer withholding and employer payroll taxes), will be Employee's responsibility.
Upon payment of the lump sum amounts in this Agreement, Employee's right to all other benefits including, but not limited to, medical, dental, short- and long-term disability life/AD&D insurances, eligibility for pension credited service, EAP assistance, eligibility to participate in the Matching Grants Program, eligibility to contribute and/or receive matching for the savings and investment plan, except as specifically provided in this Agreement, shall terminate at the end of the PAID leave of absence period (i.e., August 31, 2000).
Continued insurance coverage pursuant to COBRA regulations and conversion privileges, if any, will be available to Employee at the end of the paid leave of absence period. Employee shall be responsible for the payment of all premiums for any continuation period. Additional information will be sent at a later date.
C. Within sixty (60) days of the last day worked, the Company will pay to Employee that sum which is equivalent to all unused, earned, accrued prorated vacation of Employee as of the last day worked. Employee shall not be entitled to any future vacation pay accruals from and after the last day worked.
D. Employee's right to exercise all nonqualified stock options and stock grants pursuant to the Company the 1991 Key Employee Long-Term Incentive Plan ("the Plans"), shall continue only through July 20, 2003 of the unpaid leave of absence period, subject to and administered in accordance with the respective option grants and Plan provisions.
This includes employee's right to exercise the 200,000 (two hundred thousand) stock option grants awarded as part of Employee's sign-on bonus and Employment Agreement terms and conditions dated January 26, 1999. The ability to utilize the accelerated ownership feature of the Plans shall continue for eligible stock options, throughout the unpaid leave of absence period, unless this feature is altered, modified and/or otherwise terminated earlier. Any stock option grants and/or stock grants not exercised in accordance with and subject to "the Plans", by July 20, 2003, shall expire.
E. The Company will pay Employee for financial planning and/or tax advice for 2000 only, up to $10,000.
F. Employee will be eligible, at the Company's expense, for secretarial assistance from a designated Kellogg employee during the consulting period as outlined in this Paragraph H of this Agreement.
G. The Company shall pay a one-time lump sum of $150,000 (one hundred fifty thousand dollars) for any and all moving expenses incurred post-termination. Applicable taxes and withholding shall be deducted from this lump sum amount. This lump sum relocation payment shall be paid within thirty (30) days of the end of the paid leave of absence period.
H. Employee agrees to make himself available at mutually convenient times for consulting to the Company until December 31, 2000 or until he secures full-time employment, whichever is earlier. Employee agrees that no further consideration shall be paid for such consulting services.
I. Employee will be eligible for outplacement assistance at the Company's expense, by a mutually agreeable agency.
J. In further consideration of the following noncompete provisions, Employee agrees that monetary consideration and benefits provided under this Agreement includes separate consideration for agreeing to the following non-competition restrictions. Employee agrees that, for the respective Restricted Periods (as hereinafter defined), Employee shall not:
(i) accept full-time employment, for or on behalf of the following
companies that compete in the cereal, meat alternative and/or
convenience foods business: Gardenburger, General Mills, Post, Quaker
(foods), Nabisco, Frito Lay, Pillsbury, Malto Meal, Ralcorp Cereal,
and/or other private label cereal companies and/or
(ii) provide consulting services to, for or with any person, firm, partnership, corporation or other business relating directly or indirectly to the manufacture, production, distribution, selling and/or marketing of any of the products (as defined below) in the geographic areas (as defined herein), including specifically, but not limited to, the following competing companies: Gardenburger, Post, General Mills, Quaker, Nabisco, Frito Lay, Pillsbury, Malto Meal, Ralcorp Cereal and/or other private label cereal company. However, nothing in this paragraph shall prohibit Employee from providing consulting services to food and/or beverage companies and/or their respective divisions with respect to products other than the Products.
(iii) directly or indirectly, permit any business firm which Employee, individually or jointly with others may own, manage, operate, or control, to engage in the manufacture, production, distribution, sale or marketing of any of the Products in the Geographic Area excluding ownership of publicly traded securities, and/or
(iv) directly or indirectly participate with any person, firm, partnership, corporation, or other business whose efforts and/or intentions include purchasing and/or considering or evaluating for purchase, acquisition, or takeover the Company and/or any of its divisions, subsidiaries, affiliates, or related entities during the Restricted Period within the Geographic Area, as defined under this Agreement and/or
(v) directly or indirectly solicit or attempt to solicit for employment any employee, manager, director, officer of Kellogg Company or its affiliates or related businesses and/or
(vi) call upon, solicit, divert or take away or attempt to take away the business or patronage of any customer of the Company.
For purposes of this non-compete provision, the term "Products" shall mean any ready-to-eat cereal products, any meat alternative product, toaster pastries, cereal bars, granola bars, frozen waffles, crispy marshmallow squares, and/or any other similar grain-based convenience food. For purposes of this non-compete provision, the term "Geographic Area" shall mean any country in the world where the Company (including any subsidiary, division or affiliate thereof) manufactures, produces, distributes, sells or markets any of the Products at any time during the applicable Restricted Period (as defined below). For purposes of this paragraph, the Restricted Period with respect to the Products shall be two (2) years from the date of this Agreement.
To prevent any misunderstanding and conflicts regarding activities that may violate these promises Employee has made in this noncompetition agreement, Employee may, at his option, consult with the Company (specifically, the Executive Vice President, Corporate Development, General Counsel and Secretary, Janet L. Kelly) to discuss proposed actions to determine whether or not they may be violative from the Company's point of view.
Employee acknowledges that a violation of the terms of this Noncompete provision may give rise to irreparable injury to the Company inadequately compensable in damages, and accordingly, Employee agrees that the Company may seek injunctive relief against such breach or threatened breach, in addition to any other legal remedies which may be available, including recovery of monetary damages. In any action successfully brought by the Company against Employee to enforce the rights of the Company under this Noncompete provision, the Company shall also be entitled to recover cost of the action, (exclusive of attorney's fees) and the period of the restrictions stated above shall be deemed to commence upon the entry of the Court's Order for relief.
K. As a result of these lump sum payments, the Company, its subsidiaries, divisions and affiliates (including the directors, officers and employees of any of them) shall have no further obligations of any kind or nature to Employee, including, without limitation,
obligations for any other termination, severance, bonus, etc., except as specifically provided herein, and except as may be provided under the applicable eligible Company benefit plans in accordance with their terms.
L. Employee further agrees to and shall return to the Company no later than his last day worked, without limitation, all files, documents, correspondence, memoranda, customer and client lists, prospect lists, subscription lists, contracts, pricing policies, operational methods, marketing plans or strategies, product development techniques or plans, business acquisition plans, employee records, technical processes, designs and design projects, inventions, research project presentations, proposals, quotations, data, notes, records, photographic slides, photographs, posters, manuals, brochures, internal publications, books, films, drawings, videos, sketches, plans, outlines, computer disks, computer files, work plans, specifications, credit cards, keys (including elevator, pass, building and door keys), identification cards, and any other documents, writings and materials that Employee came to possess or otherwise acquire as a result of and/or in connection with the Company. Should Employee later find any Company property in his possession, Employee agrees to immediately return it. Except for key/pass for access to temporary office/secretary and any materials used while consulting to Kellogg as per paragraph H.
M. Employee agrees that he will not divulge any/all proprietary and/or confidential business information, except to the extent required pursuant to a legal subpoena or a legal proceeding. Employee agrees that any and all information regarding the terms and conditions of this Agreement shall be kept confidential and not disclosed to anyone, except Employee's spouse, tax accountant and/or attorney.
N. Employee agrees not to take any wrongful action with the intention of damaging the Company. Employee agrees to cooperate with the Company in connection with any and all existing or future investigations or litigation of any nature brought against it or its affiliates involving events which occurred during his employment with the Company. The Company will consider the convenience to the Employee and his other commitments in the timing and nature of its request for his cooperation hereunder and he shall not be considered in breach of his obligations hereunder if these commitments preclude his availability to the Company at any time or place. Employee agrees to notify the Company immediately if subpoenaed or asked to appear as a witness in any matter related to the Company or its affiliates. Nothing herein shall prevent Employee from communicating with or participating in any government investigation.
O. Employee has carefully read this Leave of Absence and Severance Agreement and understands its contents. Employee recognizes that he will have no further job responsibilities at the Company.
P. Subject to the Company's performance of its obligations under this Agreement, on behalf of Employee, his heirs, executors and administrators, Employee irrevocably and
unconditionally releases, waives and forever discharges the Company,
its owners, stockholders, affiliates, subsidiaries, agents, directors,
officers, employees, attorneys, representatives, insurance carriers,
attorneys, advisors, and their predecessors, successors, heirs,
executors, administrators and assigns from any and all claims, demands
and causes of action he now has or may claim to now have arising from
or relating in any way to his employment, leave of absence, or
separation of employment. This includes, but is not limited to, all
claims under the Age Discrimination in Employment Act of 1967 (as
amended), Title VII of the Civil Rights Act of 1964, as amended,
Section 1981 of the Civil Rights Act of 1986, as amended, the Civil
Rights Act of 1991, the Elliott-Larsen Civil Rights Act and any other
employment discrimination laws, the Family Medical Leave Act of 1993,
the Rehabilitation Act of 1993, the Equal Pay Act of 1963, the Uniform
Services Employment and Reemployment Rights Act of 1964, Americans with
Disabilities Act, the Workers Adjustment and Retraining Notification
Act (WARN), claims for attorney fees, and any common law or other
federal, state or local law or ordinance.
Employee agrees that this Leave of Absence and Severance Agreement is intended to and shall preclude any claim that his separation was in retaliation for exercising any right to which Employee is entitled under the provisions of an employee benefit plan, or for the purpose of interfering with the attainment of any right to which Employee may become entitled under such a plan or under the Employee Retirement Income Security Act of 1974, as amended, in violation of Section 510 of ERISA, 29 USC Sec. 1140, except as specifically altered and/or modified by the Leave of Absence and Severance Agreement. Nothing in the Agreement shall be construed as barring any other claims under Section 502 ERISA.
Employee agrees he has not filed any charges, claims, or lawsuits against the Company involving any aspect of his employment that have not been terminated as of the date of this Agreement. If Employee has filed any charges, claims, or lawsuits against the Company, Employee agrees to seek immediate dismissal with prejudice and provide written confirmation immediately (i.e., court order, and/or agency determination) as a condition to receiving any benefits under this Agreement. Employee additionally waives and releases any right he may have to recover in any lawsuit or proceeding brought by him, an administrative agency, or any other person on his behalf or which includes him in any class involving any aspect of his employment. If Employee intentionally breaches any portion of this Paragraph, Employee acknowledges that he will be liable for all expenses, including costs and reasonable attorney's fees incurred by any entity released in defending the lawsuit or claim, regardless of the outcome.
Q. Employee has been advised to seek legal counsel to understand its full force and effect. Employee has been given the opportunity to consult with a lawyer.
R. Employee agrees and acknowledges that the consideration (severance pay and benefits) described in this Agreement is in full settlement of any and all such aforementioned claims, demands and causes of action he has or may have.
S. The Company agrees to indemnify, hold and save harmless Employee from and against any and all claims, liens, demands, damages, liability, actions, causes of action, cooperation with future investigations, settlement costs, and approved attorney's fees and expenses sustained or asserted against Employee arising out of, resulting from, or attributable to any acts or omissions or alleged acts or omissions of Employee during his employment with the Company or in connection with the Employee's fulfillment of his obligations under Paragraph H of this Agreement; provided however, that the Company shall not be liable hereunder to indemnify or hold and save harmless Employee against liability for damages arising during the term of his employment involving willful misconduct, theft, malfeasance, unlawful activity, and/or immorality. The Company hereby releases Employee from any and all claims, liens, demands, damages, liability, actions, causes of action it may have against Employee as a result of Employee's employment, or any services rendered by him in the performance of his duties for the Company.
T. Employee has disclosed to the Company any information in his possession concerning any conduct involving the Company that Employee has any reason to believe involves any false claims to the United States or is or may be unlawful or violates Company Policy in any respect.
U. Employee signs this Leave of Absence and Severance Agreement knowingly and voluntarily and without coercion with full intent to release the Company, its subsidiaries, affiliates, agents, employees, directors, shareholders and any other parties acting on behalf of the Company, to the extent provided in this Agreement.
V. Employee understands and agrees that signing this Leave of Absence and Severance Agreement and accepting the consideration for it shall not be deemed or construed as an admission of liability or responsibility at any time for any purpose. Liability for any and all claims is expressly denied by Kellogg Company.
W. Employee also understands that the Company is not obligated to offer employment to him now or in the future.
X. Employee understands that the Nondisclosure Confidentiality Agreement that he signed on his date of hire shall remain in full force and effect indefinitely.
Y. Employee and Company agree, subject to any obligations under applicable law, that neither will make or cause to be made any statements that disparage each other and/or damage the reputation of the Company or any of its affiliates, agents, officers, directors, managers, or employees.
Z. Employee agrees that if any provision of this Leaves of Absence and Severance Agreement is invalid or unenforceable, it will not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect.
AA Employee agrees that the construction, interpretation, and performance of this Agreement shall be governed by the laws of Michigan, including conflict of laws. It is agreed that any controversy, claim or dispute between the parties, directly or indirectly, concerning this Agreement or the breach thereof shall only be resolved in the Circuit Court of Calhoun County, or the United States District Court for the Western District of Michigan, whichever court has jurisdiction over the subject matter thereof, and the parties hereby submit to the jurisdiction of said courts.
BB For purposes of any construction or interpretation of this Leave of Absence and Severance Agreement, all terms and provisions thereof shall be deemed to have been mutually drafted by both of the parties.
CC Employee acknowledges and agrees that this is the entire Leave of Absence and Severance Agreement and the only promises made to him are those contained within this document.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and date first above written in Battle Creek, Michigan.
KELLOGG COMPANY
By:
--------------------------------- -------------------------------
Carlos M. Gutierrez John D. Cook
Chairman of the Board,
President and Chief Executive Officer
------------------- --------------------
Date Date
|
| ARTICLE 5 |
| This schedule contains summary financial information extracted from Kellogg Company and subsidiaries' Consolidated Financial Statements for the six months ended June 30, 2000, and is qualified in its entirety by reference to such Financial Statements. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 6 MOS |
| FISCAL YEAR END | DEC 31 2000 |
| PERIOD START | JAN 01 2000 |
| PERIOD END | JUN 30 2000 |
| CASH | 172,300 |
| SECURITIES | 0 |
| RECEIVABLES | 793,705 |
| ALLOWANCES | (8,609) |
| INVENTORY | 487,000 |
| CURRENT ASSETS | 1,687,700 |
| PP&E | 5,155,600 |
| DEPRECIATION | (2,561,900) |
| TOTAL ASSETS | 5,024,700 |
| CURRENT LIABILITIES | 2,162,600 |
| BONDS | 1,212,200 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 103,800 |
| OTHER SE | 761,100 |
| TOTAL LIABILITY AND EQUITY | 5,024,700 |
| SALES | 3,553,000 |
| TOTAL REVENUES | 3,553,000 |
| CGS | 1,686,400 |
| TOTAL COSTS | 1,686,400 |
| OTHER EXPENSES | 1,322,800 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 66,000 |
| INCOME PRETAX | 485,400 |
| INCOME TAX | 172,800 |
| INCOME CONTINUING | 312,600 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 312,600 |
| EPS BASIC | 0.77 |
| EPS DILUTED | 0.77 |