As filed with the Securities and Exchange Commission on December 3, 2012
Registration No. 333-184314
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
KRAFT FOODS GROUP, INC.
(Exact name of registrant as specified in its charter)
2000 | Virginia | 36-3083135 | ||
(Primary Standard Industrial Classification Code Number) |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
Three Lakes Drive
Northfield, Illinois 60093
(847) 646-2000
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Kim K. W. Rucker
Executive Vice President, Corporate & Legal Affairs, General Counsel and Corporate Secretary
Kraft Foods Group, Inc.
Three Lakes Drive
Northfield, Illinois 60093
(847) 646-2000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With a copy to:
Andrew L. Fabens
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166-0193
(212) 351-4000
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x | Smaller reporting company | ¨ |
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issue Tender Offer) ¨
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ¨
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not complete the exchange offer and issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities nor an offer to buy these securities in any jurisdiction where such offer or sale is not permitted.
Subject to Completion, dated December 3, 2012
PRELIMINARY PROSPECTUS
$9,600,000,000
Kraft Foods Group, Inc.
Exchange Offer:
New $1,000,000,000 1.625% Notes due 2015 |
for | $1,000,000,000 1.625% Notes due 2015 | ||||
New $1,000,000,000 2.250% Notes due 2017 |
for | $1,000,000,000 2.250% Notes due 2017 | ||||
New $1,034,657,000 6.125% Notes due 2018 |
for | $1,034,657,000 6.125% Notes due 2018 | ||||
New $900,000,000 5.375% Notes due 2020 |
for | $900,000,000 5.375% Notes due 2020 | ||||
New $2,000,000,000 3.500% Notes due 2022 |
for | $2,000,000,000 3.500% Notes due 2022 | ||||
New $877,860,000 6.875% Notes due 2039 |
for | $877,860,000 6.875% Notes due 2039 | ||||
New $787,483,000 6.500% Notes due 2040 |
for | $787,483,000 6.500% Notes due 2040 | ||||
New $2,000,000,000 5.000% Notes due 2042 |
for | $2,000,000,000 5.000% Notes due 2042 |
The Exchange Offer will expire at 5:00 p.m., New York City time,
on , 2013, unless extended.
Material Terms of the Exchange Offer:
We are offering to exchange:
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New $1,000,000,000 1.625% Notes due 2015 (CUSIP No. 50076Q AK2) that have been registered under the Securities Act of 1933, as amended (the Securities Act) for outstanding $1,000,000,000 1.625% Notes due 2015 (the Outstanding 2015 Notes) (CUSIP Nos. 50076Q AH9, U5009CAD2, 50076Q AJ5). |
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New $1,000,000,000 2.250% Notes due 2017 (CUSIP No. 50076Q AY2) that have been registered under the Securities Act for outstanding $1,000,000,000 2.250% Notes due 2017 (the Outstanding 2017 Notes) (CUSIP Nos. 50076Q AA4, U5009C AA8, 50076Q AB2). |
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New $1,034,657,000 6.125% Notes due 2018 (CUSIP No. 50076Q AX4) that have been registered under the Securities Act for outstanding $1,034,657,000 6.125% Notes due 2018 (the Outstanding 2018 Notes) (CUSIP Nos. 50076Q AV8, U5009C AH3, 50076Q AW6). |
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New $900,000,000 5.375% Notes due 2020 (CUSIP No. 50076Q AU0) that have been registered under the Securities Act for outstanding $900,000,000 5.375% Notes due 2020 (the Outstanding 2020 Notes) (CUSIP Nos. 50076Q AS5, U5009C AG5, 50076Q AT3). |
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New $2,000,000,000 3.500% Notes due 2022 (CUSIP No. 50076Q AZ9) that have been registered under the Securities Act for outstanding $2,000,000,000 3.500% Notes due 2022 (the Outstanding 2022 Notes) (CUSIP Nos. 50076Q AF3, U5009C AC4, 50076Q AG1). |
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New $877,860,000 6.875% Notes due 2039 (CUSIP No. 50076Q AR7) that have been registered under the Securities Act for outstanding $877,860,000 6.875% Notes due 2039 (the Outstanding 2039 Notes) (CUSIP Nos. 50076Q AP1, U5009C AF7, 50076Q AQ9). |
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New $787,483,000 6.500% Notes due 2040 (CUSIP No. 50076Q AN6) that have been registered under the Securities Act for outstanding $787,483,000 6.500% Notes due 2040 (the Outstanding 2040 Notes) (CUSIP Nos. 50076Q AL0, U5009C AE0, 50076Q AM8). |
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New $2,000,000,000 5.000% Notes due 2042 (CUSIP No. 50076Q AE6) that have been registered under the Securities Act for outstanding $2,000,000,000 5.000% Notes due 2042 (the Outstanding 2042 Notes) (CUSIP Nos. 50076QAC0, U5009C AB6, 50076Q AD8). |
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The exchange offer expires at 5:00 p.m., New York City time, on , 2013, unless extended. |
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Upon expiration of the exchange offer, all outstanding notes that are validly tendered and not withdrawn will be exchanged for an equal principal amount of the New Notes (as defined below). |
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You may withdraw tendered Outstanding Notes (as defined below) at any time prior to the expiration of the exchange offer. |
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The exchange offer is not subject to any minimum tender condition, but is subject to customary conditions. |
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The exchange of the New Notes for Outstanding Notes will not be a taxable exchange for U.S. federal income tax purposes. |
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Each broker-dealer that receives New Notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act, in connection with any resale of such New Notes. The letter of transmittal accompanying this prospectus states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Outstanding Notes where such New Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that for a period of 180 days after the expiration of the exchange offer, we will make this prospectus available to any broker-dealer for use in any such resale. See Plan of Distribution. |
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There is no existing public market for the Outstanding Notes or the New Notes. We do not intend to list the New Notes on any securities exchange or quotation system. |
In this prospectus, we refer to the (i) new $1,000,000,000 1.625% Notes due 2015 as the New 2015 Notes, (ii) new $1,000,000,000 2.250% Notes due 2017 as the New 2017 Notes, (iii) new $1,034,657,000 6.125% Notes due 2018 as the New 2018 Notes, (iv) new $900,000,000 5.375% Notes due 2020 as the New 2020 Notes, (v) new $2,000,000,000 3.500% Notes due 2022 as the New 2022 Notes, (vi) new $877,860,000 6.875% Notes due 2039 as the New 2039 Notes, (vii) new $787,483,000 6.500% Notes due 2040 as the New 2040 Notes, and (viii) new $2,000,000,000 5.000% Notes due 2042 as the New 2042 Notes. We refer to these eight series of new notes collectively as the New Notes. Similarly, we refer to the outstanding notes, by series, as the (i) Outstanding 2015 Notes, (ii) Outstanding 2017 Notes, (iii) Outstanding 2018 Notes, (iv) Outstanding 2020 Notes, (v) Outstanding 2022 Notes, (vi) Outstanding 2039 Notes, (vii) Outstanding 2040 Notes, and (viii) Outstanding 2042 Notes, and collectively as the Outstanding Notes. See Description of the New Notes for more information about the New Notes.
Investing in the New Notes involves risks. See Risk Factors beginning on page 10.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or the accuracy of this prospectus. Any representation to the contrary is a criminal offense.
Prospectus dated , 2012
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
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F-1 |
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus . You must not rely on any unauthorized information or representations. This prospectus does not offer to sell or ask for offers to buy any securities other than those to which this prospectus relates and it does not constitute an offer to sell or ask for offers to buy any of the securities in any jurisdiction where it is unlawful, where the person making the offer is not qualified to do so, or to any person who cannot legally be offered the securities. The information contained in this prospectus is current only as of its date.
This exchange offer is not being made to, nor will we accept surrenders for exchange from, holders of outstanding notes in any jurisdiction in which this exchange offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction.
We have filed with the Securities and Exchange Commission (SEC) a registration statement on Form S-4 with respect to the New Notes. This prospectus, which forms part of the registration statement, does not contain all the information included in the registration statement, including its exhibits and schedules. For further information about us and the notes described in this prospectus, you should refer to the registration statement and its exhibits and schedules. Statements we make in this prospectus about certain contracts or other documents are not necessarily complete. When we make such statements, we refer you to the copies of the contracts or
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documents that are filed as exhibits to the registration statement, because those statements are qualified in all respects by reference to those exhibits. The registration statement, including the exhibits and schedules, is available at the SECs website at www.sec.gov.
You may also obtain this information without charge by writing or telephoning us at the following address and telephone number:
Kraft Foods Group, Inc.
Three Lakes Drive
Northfield, IL 60093
Attention: Investor Relations
Phone: (847) 646-2000
In order to ensure timely delivery, you must request the information no later than , 2012, which is five business days before the expiration of the exchange offer.
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We obtained the market and competitive position data used in this registration statement from our own research, surveys or studies conducted by third parties and industry or general publications.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act) and, in accordance with these requirements, we file reports and other information relating to our business, financial condition and other matters with the SEC. We are required to disclose in such reports certain information, as of particular dates, concerning our operating results and financial condition, officers and directors, principal holders of securities, any material interests of such persons in transactions with us and other matters. Our filed reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549.
The SEC also maintains a website that contains reports and other information regarding registrants like us that file electronically with the SEC. The address of this site is: www.sec.gov.
Our Internet website is www.kraftfoodsgroup.com. We make available free of charge on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, reports filed pursuant to Section 16 and amendments to those reports as soon as reasonably practicable after we electronically file or furnish these materials to the SEC. In addition, we have posted the charters for our Audit Committee, Compensation Committee and Governance Committee, as well as our Corporate Governance Guidelines and Code of Business Conduct and Ethics for Non-Employee Directors, under the heading Corporate Governance in the Investor Relations section of our website.
This prospectus contains forward-looking statements. Words such as anticipates, estimates, expects, projects, forecasts, intends, plans, continues, believes, may, will, goals and variations of such words and similar expressions are intended to identify our forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements, beliefs and expectations regarding the Spin-Off (as defined below) and our business strategies, market potential, future financial performance, dividends, the impact of new accounting standards, costs incurred in connection with the Spin-Off, the Restructuring Program (as described below in Unaudited Pro Forma Combined Financial Statements), unrealized losses on hedging activities, results of pending legal matters, our goodwill and other intangible assets, price volatility and cost environment, our liquidity, our funding sources, expected pension contributions, capital expenditures and funding, our financial covenants, repayments of debt, off-balance sheet arrangements and contractual obligations, our accounting policies, general views about future operating results and other events or developments that we expect or anticipate will occur in the future. These forward-looking statements are subject to a number of important factors, including those factors discussed in detail under Risk Factors in this prospectus, that could cause our actual results to differ materially from those indicated in any such forward-looking statements. These factors include, but are not limited to, increased competition; our ability to differentiate our products from retailer and economy brands; our ability to maintain our reputation and brand image; increasing consolidation of retail customers; changes in relationships with our significant customers and suppliers; continued volatility of, and sharp increases in, commodity and other input costs; pricing actions; increased costs of sales; regulatory or legal changes, restrictions or actions; unanticipated expenses such as litigation or legal settlement expenses; product recalls and product liability claims; unanticipated business disruptions; unexpected safety or manufacturing issues; our ability to predict, identify and interpret changes in consumer preferences and demand; a shift in our product mix to lower margin offerings; our ability to complete
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proposed divestitures or acquisitions; our ability to realize the expected benefits of acquisitions if they are completed; our indebtedness and our ability to pay our indebtedness; disruptions in our information technology networks and systems; our inability to protect our intellectual property rights; continued consumer weakness; weakness in economic conditions; tax law changes; the qualification of the Contribution, Internal Distribution or Distribution (each as defined below) for non-recognition treatment for U.S. federal income tax purposes (as well as any related indemnification obligation to Mondelēz International, Inc. (Mondelēz International) in case such transactions do not so qualify); the qualification of the Canadian aspects of the Internal Reorganization (as defined below) for tax-deferred treatment for Canadian federal and provincial income tax purposes; our ability to achieve the benefits we expect to achieve from the Spin-Off and to do so in a timely and cost-effective manner; our lack of operating history as an independent, publicly traded company; future competition from Mondelēz International; potential conflicts of interest for certain of our directors and officers due to their equity ownership of or former service to Mondelēz International; and the incurrence of substantial indebtedness in connection with the Spin-Off and any potential related reductions in spending on our business activities. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this prospectus, except as required by applicable law or regulation.
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This summary highlights selected information from this prospectus and provides an overview of our company, our separation from Mondelēz International and Mondelēz Internationals distribution of our common stock to Mondelēz Internationals shareholders. For a more complete understanding of our business and the Spin-Off, you should read the entire prospectus carefully, particularly the discussion set forth under Risk Factors in this prospectus, and our audited and unaudited condensed historical combined financial statements and unaudited pro forma combined financial statements and the notes to those statements appearing elsewhere in this prospectus.
Unless otherwise indicated, references in this prospectus to fiscal years are to our fiscal years ended December 31.
In this prospectus, unless the context otherwise requires:
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Kraft Foods Group, we, our, us and the issuer refer to Kraft Foods Group, Inc. and its combined subsidiaries, and |
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Mondelēz International refers to Mondelēz International, Inc. (formerly known as Kraft Foods Inc.) and its consolidated subsidiaries. |
Our Company
We are one of the largest consumer packaged food and beverage companies in North America and one of the largest worldwide among publicly traded consumer packaged food and beverage companies, based on our 2011 combined net revenues of $18.7 billion. We manufacture and market food and beverage products, including refrigerated meals, refreshment beverages and coffee, cheese and other grocery products, primarily in the United States and Canada, under a host of iconic brands. Our product categories span breakfast, lunch and dinner meal occasions, both at home and in foodservice locations.
Our diverse brand portfolio consists of many of the most popular food brands in North America, including three brands with annual net revenues exceeding $1 billion each Kraft cheeses, dinners and dressings; Oscar Mayer meats; and Maxwell House coffeesplus over 20 brands with annual net revenues of between $100 million and $1 billion each. In the United States, based on dollar share in 2011, we hold the number one branded share position in a majority of our 50 product categories, as well as in 18 of our top 20 product categories. These 18 product categories contributed approximately 75% of our 2011 U.S. retail net revenues. We hold the number two branded share position in the other two product categories.
We believe our competitive strengths include our:
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superior brand portfolio, |
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significant scale in North America, |
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diverse category profile, |
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reputation for high quality products, |
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strong innovation culture and pipeline, |
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deep consumer knowledge, |
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long-standing relationships with major retailers, and |
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experienced management team. |
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As a result of these strengths, combined with our ongoing focus on productivity and operating efficiency, we believe we have achieved category-leading profit margins in almost all of our key product categories. Our business has generated significant cash flow, which we believe will enable us to continue to invest in the development and continual rejuvenation of our brands and return value to our shareholders. Our goal as an independent public company is to deliver superior operating income, strong cash flows and a highly competitive dividend payout while driving revenue growth in our key product categories. To achieve this goal, we intend to build on our leading market positions, remain sharply focused on cost structure and superior execution and invest in employee and organization excellence.
Separation from Mondelēz International Inc. and Related Transactions
On August 4, 2011, Mondelēz International announced plans to create two independent public companies: the Global Snacks Business and the North American Grocery Business. On October 1, 2012, we and Mondelēz International effected the Spin-Off to complete this plan. To effect this separation, Mondelēz International distributed all of Kraft Foods Groups common stock to Mondelēz Internationals shareholders on October 1, 2012. Kraft Foods Group, holding the North American Grocery Business, is now an independent, publicly traded company.
Prior to Mondelēz Internationals distribution of the shares of our common stock to its shareholders, Mondelēz International undertook a series of internal transactions, following which:
(i) | Mondelēz International now holds: |
(a) | its U.S. and Canadian snacks and confectionery business, including the related foodservice operations, but excluding the Planters and Corn Nuts businesses, which we refer to collectively as the Snacks Business Lines, and |
(b) | all of its businesses conducted outside of the United States and Canada, except for the North American Grocery Export Business described below (we refer to these businesses and the Snacks Business Lines collectively as the Global Snacks Business), and |
(ii) | we now hold: |
(a) | Mondelēz Internationals former U.S. and Canadian grocery, beverages, cheese, refrigerated meals, Planters and Corn Nuts businesses, including the related foodservice operations and the grocery business operations in Puerto Rico (excluding the powdered and liquid concentrate beverages businesses in Puerto Rico), which we refer to collectively as the Grocery Business Lines, and |
(b) | Mondelēz Internationals former export operations related to the Grocery Business Lines in the United States and Canada, except for the Philadelphia cream cheese and certain powdered and liquid concentrate beverage businesses in a number of jurisdictions and the businesses related to certain branded products that Mondelēz International will market and sell in a limited number of countries outside of the United States and Canada (we refer to these export operations collectively as the North American Grocery Export Business and to the Grocery Business Lines and the North American Grocery Export Business collectively as the North American Grocery Business). |
The Snacks Business Lines products are generally consistent with those types of products sold by the businesses conducted within Mondelēz Internationals U.S. Snacks segment, excluding the Planters and Corn Nuts businesses, as reported in Mondelēz Internationals annual report on Form 10-K for the year ended December 31, 2011, or Mondelēz Internationals Form 10-K. The Grocery Business Lines products are generally consistent with those types of products sold by (i) the businesses conducted within Mondelēz
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Internationals U.S. Beverages, U.S. Cheese, U.S. Convenient Meals and U.S. Grocery segments, in each case, as reported in Mondelēz Internationals Form 10-K, and (ii) the Planters and Corn Nuts businesses. In addition, certain specified net liabilities were allocated between Mondelēz International and us as described under Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalSeparation and Distribution Agreement.
On September 27, 2012, we entered into a Separation and Distribution Agreement with Mondelēz International (the Separation and Distribution Agreement) and several other agreements with Mondelēz International related to the Spin-Off. These agreements govern the relationship between Mondelēz International and us prior to and after completion of the Spin-Off and allocate between Mondelēz International and us various assets, liabilities and obligations, including employee benefits, intellectual property and tax-related assets and liabilities. See Certain Relationships and Related Party TransactionsAgreements with Mondelēz International for more detail.
To complete the Spin-Off, Mondelēz International, following the Internal Reorganization, distributed to its shareholders all of the shares of our common stock. The Distribution occurred on October 1, 2012. Each holder of Mondelēz International common stock received one share of our common stock for every three shares of Mondelēz International common stock it held on September 19, 2012 (the Record Date). Each holder of Mondelēz International common stock continued to hold its shares in Mondelēz International.
We refer to:
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the series of internal transactions described under Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalSeparation and Distribution Agreement that resulted in this division of businesses as the Internal Reorganization, |
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Mondelēz Internationals distribution of the shares of our common stock to its shareholders as the Distribution and October 1, 2012, the date on which the Distribution took place, as the Distribution Date, and |
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the Internal Reorganization and the Distribution collectively as the Spin-Off, which was consummated on October 1, 2012. Coincident with the Spin-Off, Kraft Foods Inc. changed its name to Mondelēz International, Inc. |
On October 29, 2012, our Board of Directors approved a $650 million restructuring program consisting of restructuring costs, implementation costs and Spin-Off transition costs (Restructuring Program). Approximately one-half of the total Restructuring Program costs are expected to result in cash expenditures. The Restructuring Program is part of, and its costs are consistent with, a restructuring program previously announced by Mondelēz International prior to the Spin-Off. The primary objective of the Restructuring Program activities is to ensure that we are set up to operate efficiently and execute our business strategy as a stand-alone company. We expect to complete the program by the end of 2014. See Managements Discussion and AnalysisOverviewBasis of Presentation for more detail.
We were initially organized as a Delaware corporation in 1980. In March 2012, we redomesticated to Virginia and changed our name from Kraft Foods Global, Inc. to Kraft Foods Group, Inc. Our principal executive offices are located at Three Lakes Drive, Northfield, IL 60093. Our telephone number is (847) 646-2000.
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The Exchange Offer
A brief description of the material terms of the exchange offer follows. We are offering to exchange the New Notes for the Outstanding Notes. The terms of the New Notes offered in the exchange offer are substantially identical to the terms of the Outstanding Notes, except that the New Notes will be registered under the Securities Act and certain transfer restrictions, registration rights and additional interest provisions relating to the Outstanding Notes do not apply to the New Notes. For a more complete description, see Description of the New Notes.
Issuer |
Kraft Foods Group, Inc. |
New Notes offered |
New $1,000,000,000 1.625% Notes due 2015 |
New $1,000,000,000 2.250% Notes due 2017
New $1,034,657,000 6.125% Notes due 2018
New $900,000,000 5.375% Notes due 2020
New $2,000,000,000 3.500% Notes due 2022
New $877,860,000 6.875% Notes due 2039
New $787,483,000 6.500% Notes due 2040
New $2,000,000,000 5.000% Notes due 2042
Outstanding Notes |
$1,000,000,000 1.625% Notes due 2015 |
$1,000,000,000 2.250% Notes due 2017
$1,034,657,000 6.125% Notes due 2018
$900,000,000 5.375% Notes due 2020
$2,000,000,000 3.500% Notes due 2022
$877,860,000 6.875% Notes due 2039
$787,483,000 6.500% Notes due 2040
$2,000,000,000 5.000% Notes due 2042
The exchange offer |
We are offering to issue registered New Notes in exchange for a like principal amount and like denomination of our Outstanding Notes of the same series. We are offering to issue these registered New Notes to satisfy our obligations under (i) a registration rights agreement that we entered into with the initial purchasers of the Outstanding 2015 Notes, Outstanding 2017 Notes, Outstanding 2022 Notes and Outstanding 2042 Notes and (ii) a registration rights agreement that we entered into with the dealer managers for the Outstanding 2018 Notes, Outstanding 2020 Notes, Outstanding 2039 Notes and Outstanding 2040 Notes, in each case, when we sold or offered to exchange, as applicable, the Outstanding Notes in transactions that were exempt from the registration requirements of the Securities Act. You may tender your Outstanding Notes for exchange by following the procedures described in the section entitled The Exchange Offer elsewhere in this prospectus. |
Tenders; expiration date; withdrawal |
The exchange offer will expire at 5:00 p.m., New York City time, on , 2013, which is 21 business days after the exchange offer is commenced, unless we extend it. If you decide to exchange your Outstanding Notes for New Notes, you must acknowledge that you are not engaging in, and do not intend to engage in, a distribution |
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of the New Notes. You may withdraw any Outstanding Notes that you tender for exchange at any time prior to the expiration of the exchange offer. If we decide for any reason not to accept any Outstanding Notes you have tendered for exchange, those Outstanding Notes will be returned to you without cost promptly after the expiration or termination of the exchange offer. See The Exchange OfferTerms of the Exchange Offer for a more complete description of the tender and withdrawal provisions. |
Conditions to the exchange offer |
The exchange offer is subject to customary conditions, some of which we may waive. See The Exchange OfferConditions to the Exchange Offer for a description of the conditions. The exchange offer is not conditioned upon any minimum principal amount of Outstanding Notes being tendered for exchange. |
U.S. federal income tax considerations |
Your exchange of Outstanding Notes for New Notes to be issued in the exchange offer will not result in any gain or loss to you for U.S. federal income tax purposes. For additional information, see Certain U.S. Federal Income Tax Considerations. You should consult your own tax advisor as to the tax consequences to you of the exchange offer, as well as tax consequences of the ownership and disposition of the New Notes. |
Use of proceeds |
We will not receive any cash proceeds from the exchange offer. |
Exchange agent |
Deutsche Bank Trust Company Americas |
Consequences of failure to exchange your Outstanding Notes |
Outstanding Notes that are not tendered or that are tendered but not accepted will continue to be subject to the restrictions on transfer that are described in the legend on those notes. In general, you may offer or sell your Outstanding Notes only if they are registered under, or offered or sold under an exemption from, the Securities Act and applicable state securities laws. Except in limited circumstances with respect to specific types of holders of Outstanding Notes, we will have no further obligation to register the Outstanding Notes. If you do not participate in the exchange offer, the liquidity of your Outstanding Notes could be adversely affected. See The Exchange OfferConsequences of Failure to Exchange Outstanding Notes. |
Consequences of exchanging your Outstanding Notes |
Based on interpretations of the staff of the SEC, we believe that you may offer for resale, resell or otherwise transfer the New Notes that we issue in the exchange offer without complying with the registration and prospectus delivery requirements of the Securities Act if you: |
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acquire the New Notes issued in the exchange offer in the ordinary course of your business; |
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are not participating, do not intend to participate, and have no arrangement or undertaking with anyone to participate, in the |
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distribution of the New Notes issued to you in the exchange offer; and |
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are not an affiliate of Kraft Foods Group as defined in Rule 405 of the Securities Act. |
If any of these conditions is not satisfied and you transfer any New Notes issued to you in the exchange offer without delivering a proper prospectus or without qualifying for a registration exemption, you may incur liability under the Securities Act. We will not be responsible for or indemnify you against any liability you may incur. |
Any broker-dealer that acquires New Notes in the exchange offer for its own account in exchange for Outstanding Notes which it acquired through market-making or other trading activities must acknowledge that it will deliver a prospectus when it resells or transfers any New Notes issued in the exchange offer. See Plan of Distribution for a description of the prospectus delivery obligations of broker-dealers in the exchange offer.
Interest on Outstanding Notes exchanged in the exchange offer |
On the record date for the first interest payment date for each series of New Notes offered hereby following the consummation of the exchange offer, holders of such New Notes will receive interest accruing from the issue date of the applicable Outstanding Notes or, if interest has been paid, the most recent date to which interest has been paid. |
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The New Notes
A brief description of the material terms of the New Notes follows. For a more complete description, see Description of the New Notes.
Issuer |
Kraft Foods Group, Inc. |
No guarantee |
The New Notes are not guaranteed by Mondelēz International. Prior to the Distribution, the Outstanding Notes were initially guaranteed by Mondelēz International, and upon the Distribution, the guarantee terminated in accordance with the provisions of the Indentures (defined below). Mondelēz International no longer has an obligation with respect to the Outstanding Notes or the New Notes. |
New Notes offered |
New $1,000,000,000 1.625% Notes due 2015. |
New $1,000,000,000 2.250% Notes due 2017.
New $1,034,657,000 6.125% Notes due 2018.
New $900,000,000 5.375% Notes due 2020.
New $2,000,000,000 3.500% Notes due 2022.
New $877,860,000 6.875% Notes due 2039.
New $787,483,000 6.500% Notes due 2040.
New $2,000,000,000 5.000% Notes due 2042.
Interest |
The New 2015 Notes will bear interest at a rate per annum equal to 1.625%. |
The New 2017 Notes will bear interest at a rate per annum equal to 2.250%.
The New 2018 Notes will bear interest at a rate per annum equal to 6.125%.
The New 2020 Notes will bear interest at a rate per annum equal to 5.375%.
The New 2022 Notes will bear interest at a rate per annum equal to 3.500%.
The New 2039 Notes will bear interest at a rate per annum equal to 6.875%.
The New 2040 Notes will bear interest at a rate per annum equal to 6.500%.
The New 2042 Notes will bear interest at a rate per annum equal to 5.000%.
Interest payment dates |
Interest on the New 2015 Notes is payable semi-annually on June 4 and December 4 of each year. |
Interest on the New 2017 Notes is payable semi-annually on June 5 and December 5 of each year.
Interest on the New 2018 Notes is payable semi-annually on February 23 and August 23 of each year.
Interest on the New 2020 Notes is payable semi-annually on February 10 and August 10 of each year.
Interest on the New 2022 Notes is payable semi-annually on June 6 and December 6 of each year.
Interest on the New 2039 Notes is payable semi-annually on January 26 and July 26 of each year.
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Interest on the New 2040 Notes is payable semi-annually on February 9 and August 9 of each year.
Interest on the New 2042 Notes is payable semi-annually on June 4 and December 4 of each year.
Maturity dates |
The New 2015 Notes will mature on June 4, 2015. |
The New 2017 Notes will mature on June 5, 2017.
The New 2018 Notes will mature on August 23, 2018.
The New 2020 Notes will mature on February 10, 2020.
The New 2022 Notes will mature on June 6, 2022.
The New 2039 Notes will mature on January 26, 2039.
The New 2040 Notes will mature on February 9, 2040.
The New 2042 Notes will mature on June 4, 2042.
Ranking |
The New Notes will be senior obligations of Kraft Foods Group and will rank: |
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senior in right of payment to all of our existing and future senior subordinated and subordinated indebtedness; |
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equally in right of payment with all of our existing and future senior unsecured indebtedness, respectively; |
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effectively subordinated to all of our existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, respectively; and |
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effectively subordinated to all creditors, including trade creditors, of our subsidiaries. |
Certain covenants |
The Indentures (as defined below) contain covenants that restrict our ability, with significant exceptions, to: |
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incur debt secured by liens above a certain threshold; |
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engage in certain sale and leaseback transactions above a certain threshold; and |
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consolidate, merge, convey or transfer our assets substantially as an entirety. |
See the section entitled Description of the New NotesRestrictive Covenants. |
Redemption of New Notes for tax reasons |
We may redeem all, but not part, of a series of New Notes upon the occurrence of specified tax events described under Description of the New NotesRedemption for Tax Reasons. |
Change of control |
Upon the occurrence of a Change of Control Triggering Event (as defined under Description of New Notes), Kraft Foods Group will be required to make an offer to purchase the New Notes. The purchase price will equal 101% of the principal amount of the New Notes, plus accrued interest to the date of purchase. |
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No established trading market |
The New Notes are new issues of securities with no established trading market. The New Notes will not be listed on any securities exchange or on any automated dealer quotation system. We cannot assure you that an active or liquid trading market for the New Notes will develop. If an active or liquid trading market for the New Notes does not develop, the market price and liquidity of the New Notes may be adversely affected. |
Form and denomination |
The New Notes will be issued in minimum denominations of $2,000 and higher integral multiples of $1,000. The New Notes will be book entry only and registered in the name of a nominee of DTC. |
Governing law |
New York. |
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An investment in the New Notes represents a high degree of risk. You should carefully consider all of the information in this prospectus and each of the risks described below, which we believe are the principal risks that we face. Some of the risks relate to our business and others to the Spin-Off. Any of the following risks could materially and adversely affect our business, financial condition and results of operations and the actual outcome of matters as to which forward-looking statements are made in this prospectus. While we believe we have identified and discussed below the material risks affecting our business, there may be additional risks and uncertainties that we do not presently know or that we do not currently believe to be material that may adversely affect our business, financial condition and results of operations in the future.
Risks Relating to the Notes
You may be adversely affected if you fail to exchange Outstanding Notes.
We will issue New Notes to you only if your Outstanding Notes are timely received by the exchange agent, together with all required documents, including a properly completed and signed letter of transmittal. Therefore, you should allow sufficient time to ensure timely delivery of the Outstanding Notes, and you should carefully follow the instructions on how to tender your Outstanding Notes. Neither we nor the exchange agent are required to tell you of any defects or irregularities with respect to your tender of the Outstanding Notes. If you are eligible to participate in the exchange offer and do not tender your Outstanding Notes or if we do not accept your Outstanding Notes because you did not tender your Outstanding Notes properly, then, after we consummate the exchange offer, you will continue to hold Outstanding Notes that are subject to the existing transfer restrictions and will no longer have any registration rights or be entitled to any additional interest with respect to the Outstanding Notes. In addition:
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If you tender your Outstanding Notes for the purpose of participating in a distribution of the New Notes, you will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the New Notes; and |
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If you are a broker-dealer that receives New Notes for your own account in exchange for Outstanding Notes that you acquired as a result of market-making activities or other trading activities, you will be required to acknowledge that you will deliver a prospectus in connection with any resale of those New Notes. |
After the exchange offer is consummated, if you continue to hold any Outstanding Notes, you may have difficulty selling them because there will be fewer Outstanding Notes outstanding.
Our substantial debt exposes us to certain risks.
As of October 1, 2012, our total debt was approximately $10.0 billion, and we had an additional $3.0 billion of borrowings available under our five-year senior unsecured revolving credit facility. Despite our current level of debt, we and our subsidiaries may be able to incur significant additional debt, including secured debt, in the future.
Our high degree of debt could have important consequences, including:
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making it more difficult for us to satisfy our obligations with respect to the New Notes; |
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increasing our vulnerability to adverse economic or industry conditions; |
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requiring us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; |
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increasing our vulnerability to, and limiting our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate; |
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exposing us to the risk of increased interest rates as borrowings under our revolving credit facility are subject to variable rates of interest; |
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placing us at a competitive disadvantage compared to our competitors that have less debt; and |
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limiting our ability to borrow additional funds. |
If new debt is added to our and our subsidiaries current debt levels, the related risks that we and they face would be increased, and we may not be able to meet all our debt obligations, including repayment of the New Notes, in whole or in part.
We may not be able to generate sufficient cash from operations to service our debt.
Our ability to make payments on, and to refinance, our debt and to fund planned capital expenditures will depend on our ability to generate cash in the future and our ability to borrow under our revolving credit facility to the extent of available borrowings. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We could experience decreased revenues from our operations and could fail to generate sufficient cash to fund our liquidity needs or fail to satisfy the covenants and borrowing limitations which we are subject to under our debt. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our revolving credit facility or otherwise in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs. We may need to refinance all or a portion of our debt on or before the maturity thereof. We cannot assure you that we will be able to refinance any of our debt on commercially reasonable terms or at all. If we cannot service our debt, we may have to take actions such as selling assets, selling equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. We cannot assure you that any such actions, if necessary, could be effected on commercially reasonable terms or at all. Our ability to issue equity to satisfy liquidity needs may be limited pursuant to the Tax Sharing and Indemnity Agreement we entered into with Mondelēz International on September 27, 2012 (the Tax Sharing and Indemnity Agreement), which may restrict the amount of equity we may issue for two years from the date of the Spin-Off.
If we default on our obligations to pay our other debt, we may not be able to make payments on the New Notes.
Any default under the agreements governing our debt, including a default under our revolving credit facility, that is not waived by the required lenders or holders of such debt, and the remedies sought by the holders of such debt could prevent us from paying principal and interest on the New Notes and substantially decrease the market value of the New Notes. If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments or principal and interest on our debt, or if we otherwise fail to comply with the various covenants in the agreements governing our debt, including the covenants contained in our revolving credit facility, we would be in default under the terms of the agreements governing such debt. In the event of such a default under our revolving credit facility, including a failure to satisfy the minimum financial ratios:
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the lenders under our revolving credit facility could elect to terminate their commitments thereunder, declare all the outstanding loans thereunder to be due and payable; and |
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such default could cause a cross-default or cross-acceleration under our other debt. |
As a result of such default and any actions the lenders may take in response thereto, we could be forced into bankruptcy or liquidation.
The New Notes will be subject to a change of control provision, and we may not have the ability to raise the funds necessary to fulfill our obligations under the New Notes following a change of control.
Under the Indentures, upon the occurrence of a defined change of control, we will be required to offer to repurchase all outstanding New Notes at 101% of the principal amount thereof plus accrued and unpaid interest
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to the date of repurchase. However, we may not have sufficient funds at the time of the change of control to make the required repurchase of the New Notes. Our failure to make or complete a change of control offer would place us in default under the Indentures. In addition, we are limited in our ability to make a change of control payment for the New Notes under our revolving credit facility, so we would need to repay any debt then outstanding thereunder or obtain the requisite consents from the lenders thereunder. However, there can be no assurance that we would be able to repay such debt or obtain such consents at such time.
Changes in credit ratings issued by nationally recognized statistical rating organizations could adversely affect our cost of financing and the market price of our securities, including the New Notes.
Credit rating agencies rate our debt securities on factors that include our operating results, actions that we take, their view of the general outlook for our industry and their view of the general outlook for the economy. Actions taken by the rating agencies can include maintaining, upgrading, or downgrading the current rating or placing us on a watch list for possible future downgrading. Downgrading the credit rating of our debt securities or placing us on a watch list for possible future downgrading would likely increase our cost of financing, limit our access to the capital markets and have an adverse effect on the market price of our securities, including the New Notes offered hereby.
There is no established trading market for the New Notes.
The New Notes are a new issue of securities for which there is no established trading market. We do not intend to apply for listing of the New Notes on any securities exchange or to arrange for quotation on any automated dealer quotation system. As a result, an active trading market for the New Notes may not develop. If an active trading market does not develop or is not maintained, the market price and liquidity of the New Notes may be adversely affected. In that case, you may not be able to sell your New Notes at a particular time or at a favorable price.
Risks Relating to Our Business
We face the following risks in connection with our business and the general conditions and trends of the food and beverage industry in which we operate:
We operate in a highly competitive industry.
The food and beverage industry is highly competitive. We compete based on product innovation, price, product quality, brand recognition and loyalty, effectiveness of marketing, promotional activity and the ability to identify and satisfy consumer preferences.
We may need to reduce our prices in response to competitive and customer pressures. Competition and customer pressures may also restrict our ability to increase prices in response to commodity and other cost increases. We may also need to increase or reallocate spending on marketing, retail trade incentives, advertising and new product innovation to maintain market share. These expenditures are subject to risks, including uncertainties about trade and consumer acceptance of our efforts. If we reduce prices or face increased costs, but cannot increase sales volumes to offset those changes, then our financial condition and results of operations will suffer.
Maintaining our reputation and brand image is essential to our business success.
We have many iconic brands with long-standing consumer recognition. Our success depends on our ability to maintain brand image for our existing products, extend our brands to new platforms and expand our brand image with new product offerings.
We seek to maintain, extend and expand our brand image through marketing investments, including advertising and consumer promotions, and product innovation. Increasing media attention to the role of food marketing could adversely affect our brand image or lead to stricter regulations and greater scrutiny of food
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marketing practices. Increased legal or regulatory restrictions on our advertising, consumer promotions and marketing, or our response to those restrictions, could limit our efforts to maintain, extend and expand our brands. Moreover, adverse publicity about regulatory or legal action against us could damage our reputation and brand image, undermine our customers confidence and reduce long-term demand for our products, even if the regulatory or legal action is unfounded or not material to our operations.
In addition, our success in maintaining, extending and expanding our brand image depends on our ability to adapt to a rapidly changing media environment. We increasingly rely on social media and online dissemination of advertising campaigns. Negative posts or comments about us on social networking websites or similar online activity could seriously damage our reputation and brand image. We are subject to a variety of legal and regulatory restrictions on how we market our products. These restrictions may limit our ability to maintain, extend and expand our brand image as the media and communications environment continues to evolve. If we do not maintain, extend and expand our brand image, then our product sales, financial condition and results of operations could be materially and adversely affected.
We must leverage our value proposition to compete against retailer brands and other economy brands.
Retailers are increasingly offering retailer and other economy brands that compete with some of our products. Our products must provide higher value and/or quality to our consumers than less expensive alternatives, particularly during periods of economic uncertainty such as those we continue to experience. Consumers may not buy our products if relative differences in value and/or quality between our products and retailer or other economy brands change in favor of competitors products or if consumers perceive this type of change. If consumers prefer retailer or other economy brands, then we could lose market share or sales volumes or shift our product mix to lower margin offerings. These events could materially and adversely affect our financial condition and results of operations.
The consolidation of retail customers could adversely affect us.
Retail customers, such as supermarkets, warehouse clubs and food distributors in our major markets, continue to consolidate, resulting in fewer customers on which we can rely for business. Consolidation also produces larger retail customers that may seek to leverage their position to improve their profitability by demanding improved efficiency, lower pricing, increased promotional programs or specifically tailored products. In addition, larger retailers have the scale to develop supply chains that permit them to operate with reduced inventories or to develop and market their own retailer brands. Further retail consolidation and increasing retailer power could materially and adversely affect our product sales, financial condition and results of operations.
Retail consolidation also increases the risk that adverse changes in our customers business operations or financial performance will have a corresponding material and adverse effect on us. For example, if our customers cannot access sufficient funds or financing, then they may delay, decrease or cancel purchases of our products, or delay or fail to pay us for previous purchases.
Changes in our relationships with significant customers or suppliers could adversely affect us.
During 2011, our five largest customers accounted for approximately 41% of our combined net revenues, with our largest customer, Wal-Mart Stores, Inc., accounting for approximately 24% of our combined net revenues. There can be no assurance that all significant customers will continue to purchase our products in the same quantities or on the same terms as in the past, particularly as increasingly powerful retailers may demand lower pricing and focus on developing their own brands. The loss of a significant customer or a material reduction in sales to a significant customer could materially and adversely affect our product sales, financial condition and results of operations.
Disputes with significant suppliers, including regarding pricing or performance, could adversely affect our ability to supply products to our customers and could materially and adversely affect our product sales, financial condition and results of operations.
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We must correctly predict, identify and interpret changes in consumer preferences and demand, and offer new products to meet those changes.
Consumer preferences for food products change continually. Our success depends on our ability to predict, identify and interpret the tastes and dietary habits of consumers and to offer products that appeal to consumer preferences. If we do not offer products that appeal to consumers, our sales and market share will decrease and our profitability could suffer.
We must distinguish between short-term fads, mid-term trends and long-term changes in consumer preferences. If we do not accurately predict which shifts in consumer preferences will be long-term, or if we fail to introduce new and improved products to satisfy those preferences, our sales could decline. In addition, because of our varied consumer base, we must offer an array of products that satisfy the broad spectrum of consumer preferences. If we fail to expand our product offerings successfully across product categories, or if we do not rapidly develop products in faster growing and more profitable categories, demand for our products will decrease and our profitability could suffer.
Prolonged negative perceptions concerning the health implications of certain food products could influence consumer preferences and acceptance of some of our products and marketing programs. We strive to respond to consumer preferences and social expectations, but we may not be successful in our efforts. Continued negative perceptions and failure to satisfy consumer preferences could materially and adversely affect our product sales, financial condition and results of operations.
We may be unable to drive revenue growth in our key product categories or add products that are in faster growing and more profitable categories.
The food and beverage industrys overall growth is linked to population growth. Our future results will depend on our ability to drive revenue growth in our key product categories. Because our operations are concentrated in North America, where growth in the food and beverage industry has been moderate, our success also depends in part on our ability to enhance our portfolio by adding innovative new products in faster growing and more profitable categories. Our failure to drive revenue growth in our key product categories or develop innovative products for new and existing categories could materially and adversely affect our profitability, financial condition and results of operations.
Commodity, energy and other input prices are volatile and may rise significantly, and increases in the costs of producing, transporting and distributing our products could materially and adversely affect our financial condition.
We purchase large quantities of commodities, including dairy products, coffee beans, meat products, wheat, corn products, soybean and vegetable oils, nuts and sugar and other sweeteners. In addition, we purchase and use significant quantities of resins and cardboard to package our products and natural gas to operate our factories and warehouses. We are also exposed to changes in oil prices, which influence both our packaging and transportation costs. Prices for commodities, other supplies and energy are volatile and can fluctuate due to conditions that are difficult to predict, including global competition for resources, currency fluctuations, severe weather or global climate change, consumer, industrial or commodity investment demand and changes in governmental regulation and trade, alternative energy and agricultural programs. Rising commodity, energy and other input costs could materially and adversely affect our cost of operations, including the manufacture, transportation and distribution of our products, which could materially and adversely affect our financial condition and results of operations.
Although we monitor our exposure to commodity prices as an integral part of our overall risk management program, and seek to hedge against input price increases to the extent we deem appropriate, we do not fully hedge against changes in commodity prices, and our hedging strategies may not protect us from increases in raw materials costs. For example, hedging our costs for one of our key inputs, dairy products, is difficult because dairy futures markets are not as developed as many other commodities futures markets. Continued volatility or
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sustained increases in the prices of commodities and other supplies we purchase could increase the costs of our products, and our profitability could suffer. Moreover, increases in the prices of our products to cover these increased costs may result in lower sales volumes. If we are not successful in our hedging activities, or if we are unable to price our products to cover increased costs, then commodity and other input price volatility or increases could materially and adversely affect our financial condition and results of operations.
We rely on our management team and other key personnel, and the loss of one or more key employees or any difficulty in attracting, training and retaining other talented personnel could materially and adversely affect our financial condition and results of operations.
We depend on the skills, working relationships and continued services of key personnel, including our experienced management team. In addition, our ability to achieve our operating goals depends on our ability to identify, hire, train and retain qualified individuals. We compete with other companies both within and outside of our industry for talented personnel, and we may lose key personnel or fail to attract, train and retain other talented personnel. Any such loss or failure could materially and adversely affect our financial condition and results of operations.
As a result of the Spin-Off, we no longer operate as part of a globally diversified food and beverage company and therefore may be more vulnerable to adverse events and trends in North America.
As formerly part of a globally diversified food and beverage company, we were historically insulated against adverse events and trends in any particular region. After separating from Mondelēz International, however, we may be more susceptible to adverse regulations, economic climate, consumer trends, market fluctuations, including commodity price fluctuations or supply shortages for certain of our key ingredients, and other adverse events that are specific to the United States and Canada. For example, because a majority of our operations and product sales are in the United States, we expect that regulatory changes or changes in consumer food preferences in the United States will have a more significant impact on us than these changes would have had when we were part of Mondelēz International.
The concentration of our operations in North America will present a challenge and may increase the likelihood that an adverse event in North America will materially and adversely affect our financial condition and results of operations.
Changes in regulations could increase our costs and affect our profitability.
Our activities are highly regulated and subject to government oversight. Various federal, state, provincial and local laws and regulations govern food production and marketing, as well as licensing, trade, tax and environmental matters. Governing bodies regularly issue new regulations and changes to existing regulations. Our need to comply with new or revised regulations or their interpretation and application, including proposed requirements designed to enhance food safety or to regulate imported ingredients, could materially and adversely affect our product sales, financial condition and results of operations.
Legal claims or other regulatory enforcement actions could subject us to civil and criminal penalties that affect our product sales, reputation and profitability.
We are a large food and beverage company operating in a highly regulated environment and a constantly evolving legal and regulatory framework. Consequently, we are subject to heightened risk of legal claims or other regulatory enforcement actions. Although we have implemented policies and procedures designed to ensure compliance with existing laws and regulations, there can be no assurance that our employees, contractors or agents will not violate our policies and procedures. Moreover, the failure to maintain effective control environment processes could lead to violations, unintentional or otherwise, of laws and regulations. Legal claims
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or regulatory enforcement actions arising out of our failure or alleged failure to comply with applicable laws and regulations could subject us to civil and criminal penalties that could materially and adversely affect our product sales, reputation, financial condition and results of operations.
Product recalls or other product liability claims could materially and adversely affect us.
Selling products for human consumption involves inherent risks. We could decide to, or be required to, recall products due to suspected or confirmed product contamination, spoilage or other adulteration, product misbranding, product tampering or other deficiencies. Any of these events could materially and adversely affect our reputation and product sales, financial condition and results of operations.
We may also suffer losses if our products or operations violate applicable laws or regulations, or if our products cause injury, illness or death. In addition, our marketing could face claims of false or deceptive advertising or other criticism. A significant product liability or other legal judgment or a related regulatory enforcement action against us, or a widespread product recall, may materially and adversely affect our reputation and profitability. Moreover, even if a product liability or consumer fraud claim is unsuccessful, has no merit or is not pursued, the negative publicity surrounding assertions against our products or processes could materially and adversely affect our product sales, financial condition and results of operations.
Unanticipated business disruptions could affect our ability to provide our products to our customers as well as maintain our back-office systems.
We have a complex network of suppliers, owned manufacturing locations, co-manufacturing locations, distribution networks and information systems that support our ability to consistently provide our products to our customers. Factors that are hard to predict or beyond our control, like weather, natural disasters, fire, terrorism, generalized labor unrest or health pandemics, could damage or disrupt our operations, or our suppliers or co-manufacturers operations. If we cannot respond to disruptions in our operations, whether by finding alternative suppliers or replacing capacity at key manufacturing or distribution locations, or are unable to quickly repair damage to our information, production or supply systems, we may be late in delivering, or unable to deliver, products to our customers and may also be unable to track orders, inventory, receivables and payables. If that occurs, our customers confidence in us and long-term demand for our products could decline. Any of these events could materially and adversely affect our product sales, financial condition and results of operations.
Our acquisition and divestiture activities may present financial, managerial and operational risks.
From time to time, we may identify acquisition candidates that we believe strategically fit our business objectives or we may seek to divest businesses that do not meet our strategic objectives or growth or profitability targets. Our acquisition or divestiture activities may present financial, managerial and operational risks. Those risks include diversion of management attention from existing core businesses, difficulties integrating or separating personnel and financial and other systems, inability to effectively and immediately implement control environment processes across a diverse employee population, adverse effects on existing customer and supplier business relationships, inaccurate estimates of fair value made in the accounting for acquisitions and amortization of acquired intangible assets which would reduce future reported earnings, potential loss of acquired businesses customers or key employees and indemnities and potential disputes with the buyers or sellers. In addition, while we are a North American business focused on traditional grocery categories, to the extent we undertake acquisitions or other developments outside our core geography or in new categories, we may face additional risks related to such acquisitions or developments. In particular, risks related to foreign operations include compliance with U.S. laws affecting operations outside of the United States, such as the Foreign Corrupt Practices Act, currency rate fluctuations, compliance with foreign regulations and laws, including tax laws, and exposure to politically and economically volatile developing markets. Any of these factors could materially and adversely affect our financial condition and results of operations.
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Weak financial performance, downgrades in our credit ratings, illiquid capital markets and volatile economic conditions could limit our access to the capital markets, reduce our liquidity or increase our borrowing costs.
From time to time we may need to access the short-term and long-term capital markets to obtain financing. Our financial performance, our short-term and long-term credit ratings, the liquidity of the overall capital markets and the state of the economy, including the food and beverage industry, will affect our access to, and the availability of, financing on acceptable terms and conditions in the future. There can be no assurance that, as a new public company, we will have access to the capital markets on terms we find acceptable.
In particular, we intend to access the commercial paper market for regular funding requirements. A downgrade in our credit ratings would increase our borrowing costs and could affect our ability to issue commercial paper. Disruptions in the commercial paper market or other effects of volatile economic conditions on the credit markets also could reduce the amount of commercial paper that we could issue and could raise our borrowing costs for both short-term and long-term debt offerings. Further, our inability to access the capital markets or an increase in our borrowing costs could materially and adversely affect our financial condition and results of operations.
Adverse changes in the equity markets or interest rates, changes in actuarial assumptions and legislative or other regulatory actions could substantially increase our pension costs and materially and adversely affect our profitability and results of operations.
In connection with the Spin-Off, we assumed pension plan obligations and related expenses for plans that provided benefits to substantially all of Mondelēz Internationals former North American employees at the time of the Spin-Off. We also retained pension plan obligations and related expenses related to the North American Grocery Business current and former employees. The difference between plan obligations and assets, or the funded status of the plans, significantly affects the net periodic benefit costs of our pension plans and the ongoing funding requirements of those plans. Among other factors, changes in interest rates, mortality rates, early retirement rates, investment returns, minimum funding requirements and the market value of plan assets can affect the level of plan funding, cause volatility in the net periodic pension cost, and consequently volatility in our reported net income, and increase our future funding requirements. Legislative and other governmental regulatory actions may also increase funding requirements for our pension plans benefits obligations. See Unaudited Pro Forma Combined Financial Statements and our Pension and Other Postemployment Benefit Plans notes to our historical combined financial statements included in this prospectus. Volatile economic conditions increase the risk that we will be required to make additional cash contributions to the pension plans and recognize further increases in our net pension cost in the remainder of 2012 and beyond. A significant increase in our pension funding requirements could negatively affect our ability to invest in our business or could require us to reduce spending on marketing, retail trade incentives, advertising and other similar activities.
Volatility in the market value of all or a portion of the derivatives we use to manage exposures to fluctuations in commodity prices will cause volatility in our gross profits and net earnings.
We use commodity futures and options to partially hedge the price of certain input costs, including dairy products, coffee beans, meat products, wheat, corn products, soybean oils, sugar and natural gas. For derivatives not designated as hedges, changes in the values of these derivatives are currently recorded in earnings, resulting in volatility in both gross profits and net earnings. We report these gains and losses in cost of sales in our combined statements of earnings to the extent we utilize the underlying input in our manufacturing process. We report these gains and losses in the unallocated corporate items line in our segment operating results until we utilize the underlying input in our manufacturing process, at which time we reclassify the gains and losses to segment operating profit. We may experience volatile earnings as a result of these accounting treatments.
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We are increasingly dependent on information technology, and if we are unable to protect against service interruptions, data corruption, cyber-based attacks or network security breaches, our operations could be disrupted.
We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic and financial information, to manage a variety of business processes and activities and to comply with regulatory, legal and tax requirements. We also depend on our information technology infrastructure for digital marketing activities and for electronic communications among our locations, personnel, customers and suppliers. These information technology systems, some of which are managed by third parties, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors or catastrophic events. Furthermore, the separation of our information technology networks and systems from Mondelēz Internationals, or the duplication of any of these networks or systems, in connection with the Spin-Off may significantly increase our susceptibility to damage, disruptions or shutdowns. If our information technology systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results.
In addition, if we are unable to prevent security breaches, we may suffer financial and reputational damage or penalties because of the unauthorized disclosure of confidential information belonging to us or to our partners, customers, consumers or suppliers. In addition, the disclosure of non-public sensitive information through external media channels could lead to the loss of intellectual property or damage our reputation and brand image.
Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brands.
We consider our intellectual property rights, particularly and most notably our trademarks, but also our patents, trade secrets, copyrights and licensing agreements, to be a significant and valuable aspect of our business. We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, as well as licensing agreements, third-party nondisclosure and assignment agreements and policing of third-party misuses of our intellectual property. Our failure to obtain or adequately protect our trademarks, products, new features of our products or our technology, or any change in law or other changes that serve to lessen or remove the current legal protections of our intellectual property, may diminish our competitiveness and could materially harm our business.
We may be unaware of intellectual property rights of others that may cover some of our technology, brands or products. Any litigation regarding patents or other intellectual property could be costly and time-consuming and could divert the attention of our management and key personnel from our business operations. Third-party claims of intellectual property infringement might also require us to enter into costly license agreements. We also may be subject to significant damages or injunctions against development and sale of certain products.
Risks Relating to the Spin-Off
We face the following risks in connection with the Spin-Off:
If the Contribution, Internal Distribution or Distribution were to fail to qualify for non-recognition treatment for U.S. federal income tax purposes, then Mondelēz International, we and our shareholders could be subject to significant tax liability.
The Distribution was conditioned on the continued validity of the private letter ruling that Mondelēz International received from the Internal Revenue Service (the IRS) and the receipt and continued validity of an opinion of tax counsel, each to the effect that, subject to the accuracy of and compliance with certain representations, assumptions and covenants, (i) the Contribution and Internal Distribution described under Certain
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Relationships and Related Party TransactionsAgreements with Mondelēz InternationalSeparation and Distribution Agreement will qualify for non-recognition of gain or loss to Mondelēz International and us pursuant to Sections 368 and 355 of the Internal Revenue Code of 1986, as amended (the Code) (except, in the case of the private letter ruling, to the extent the IRS generally will not rule on certain transfers of intellectual property, which will be covered solely by the opinion) and (ii) the Distribution will qualify for non-recognition of gain or loss to Mondelēz International and Mondelēz Internationals shareholders pursuant to Section 355 of the Code, except to the extent of cash received in lieu of fractional shares.
Notwithstanding the receipt of the private letter ruling and the opinion of tax counsel, the IRS could determine that the Contribution, Internal Distribution and/or Distribution should be treated as taxable transactions if it determines that any of the representations, assumptions or covenants on which the private letter ruling is based are untrue or have been violated. Furthermore, as part of the IRSs policy, the IRS did not determine whether the Internal Distribution or Distribution satisfies certain conditions that are necessary to qualify for non-recognition treatment. Rather, the private letter ruling is based on representations by Mondelēz International and us that these conditions have been satisfied. The opinion of tax counsel addressed the satisfaction of these conditions. Similarly, the IRS generally will not rule on contributions of intellectual property that do not satisfy certain criteria. As a result, the private letter ruling does not address whether transfers of certain intellectual property included in the Contribution qualify for non-recognition treatment. Rather, the opinion of tax counsel addressed such qualification.
The opinion of tax counsel is not binding on the IRS or the courts, and there is no assurance that the IRS or a court will not take a contrary position. In addition, the opinion of tax counsel relied on certain representations and covenants delivered by Mondelēz International and us.
If the IRS ultimately determines that the Contribution, Internal Distribution and/or Distribution are taxable, Mondelēz International and we could incur significant U.S. federal income tax liabilities, and we could have an indemnification obligation to Mondelēz International. For a more detailed discussion, see We could have an indemnification obligation to Mondelēz International if the transactions we undertake in the Spin-Off do not qualify for non-recognition treatment, which could materially adversely affect our financial condition.
If the Canadian aspects of the Internal Reorganization were to fail to qualify for tax-deferred treatment for Canadian federal and provincial income tax purposes, then Mondelēz Internationals and/or our Canadian subsidiaries could be subject to significant tax liability.
The Internal Reorganization included steps to separate the assets and liabilities in Canada held in connection with the Global Snacks Business from the assets and liabilities in Canada held in connection with the North American Grocery Business.
The Distribution was conditioned on the receipt and continued validity of an advance income tax ruling from the Canada Revenue Agency (the CRA), which our Canadian subsidiary received, to the effect that, subject to the accuracy of and compliance with certain representations, assumptions and covenants and based on the current provisions of the Canadian Tax Act, such separation will be treated for purposes of the Canadian Tax Act as resulting in a butterfly reorganization with no material Canadian federal income tax payable by Mondelēz Internationals Canadian subsidiary, our Canadian subsidiary or their respective shareholders.
Notwithstanding the receipt of the advance income tax ruling, the CRA could determine that the separation should be treated as a taxable transaction if it determines that any of the representations, assumptions or covenants on which the advance income tax ruling is based are untrue or have been violated. If the CRA ultimately determines that the separation is taxable, Mondelēz Internationals and/or our Canadian subsidiaries could incur significant Canadian federal and provincial income tax liabilities, and we are generally obligated to indemnify Mondelēz International and its affiliates against such Canadian federal and provincial income taxes. For a more detailed discussion, see We could have an indemnification obligation to Mondelēz International if the transactions we undertake in the Spin-Off do not qualify for non-recognition treatment, which could materially adversely affect our financial condition.
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We could have an indemnification obligation to Mondelēz International if the transactions we undertake in the Spin-Off do not qualify for non-recognition treatment, which could materially adversely affect our financial condition.
Generally, taxes resulting from the failure of the Spin-Off to qualify for non-recognition treatment for U.S. federal income tax purposes would be imposed on Mondelēz International or Mondelēz Internationals shareholders and, under the Tax Sharing and Indemnity Agreement, Mondelēz International is generally obligated to indemnify us against such taxes. However, under the Tax Sharing and Indemnity Agreement, we could be required, under certain circumstances, to indemnify Mondelēz International and its affiliates against all tax-related liabilities caused by those failures, to the extent those liabilities result from an action we or our affiliates take or from any breach of our or our affiliates representations, covenants or obligations under the Tax Sharing and Indemnity Agreement or any other agreement we enter into in connection with the Spin-Off. Events triggering an indemnification obligation under the agreement include events occurring after the Distribution that cause Mondelēz International to recognize a gain under Section 355(e) of the Code. See Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalTax Sharing and Indemnity Agreement.
Generally, taxes resulting from the failure of the Canadian steps of the Internal Reorganization to qualify for tax-deferred treatment for Canadian federal and provincial income tax purposes could be imposed on Mondelēz Internationals Canadian subsidiary, our Canadian subsidiary or both. Under the Tax Sharing and Indemnity Agreement, we are generally obligated to indemnify Mondelēz International and its affiliates against such Canadian federal and provincial income taxes, other than in certain circumstances where Mondelēz International is obligated to indemnify us. See Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalTax Sharing and Indemnity Agreement.
We have agreed to numerous restrictions to preserve the non-recognition treatment of the transactions, which may reduce our strategic and operating flexibility.
Even if the Distribution otherwise qualifies for non-recognition of gain or loss under Section 355 of the Code, it may be taxable to Mondelēz International, but not Mondelēz Internationals shareholders, under Section 355(e) of the Code if 50% or more (by vote or value) of our common stock or Mondelēz Internationals common stock is acquired as part of a plan or series of related transactions that include the Distribution. For this purpose, any acquisitions of Mondelēz Internationals or our common stock within two years before or after the Distribution are presumed to be part of such a plan, although Mondelēz International or we may be able to rebut that presumption based on either applicable facts and circumstances or a safe harbor described in the tax regulations. As a consequence, we agreed in the Tax Sharing and Indemnity Agreement to covenants and indemnity obligations that address compliance with Section 355(e) of the Code. These covenants and indemnity obligations may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business, and might discourage or delay a strategic transaction that you may consider favorable. See Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalTax Sharing and Indemnity Agreement.
Similarly, even if the Canadian aspects of the Internal Reorganization otherwise qualify for tax-deferred treatment in Canada under the butterfly reorganization provisions of the Canadian Tax Act, this tax-deferred treatment may be lost upon the occurrence of certain events after the Spin-Off. These would include an acquisition of control of our Canadian subsidiary (which may occur upon an acquisition of control of us) that occurs as part of (or in some cases in contemplation of) a series of transactions or events that includes the butterfly reorganization. These post-butterfly transaction restrictions may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business, and might discourage or delay a strategic transaction that you may consider favorable.
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We may be unable to achieve some or all of the benefits that we expect to achieve from the Spin-Off.
We believe that, as an independent, publicly traded company, we will be able to, among other matters, better focus our financial and operational resources on our specific business, growth profile and strategic priorities, design and implement corporate strategies and policies targeted to our operational focus and strategic priorities, streamline our processes and infrastructure to focus on our core center of the store strengths, implement and maintain a capital structure designed to meet our specific needs and more effectively respond to industry dynamics. However, we may be unable to achieve some or all of these benefits. For example, in order to position ourselves for the Spin-Off, we undertook a series of strategic, structural and process realignment and restructuring actions within our operations, including significant cost-cutting initiatives. These actions may not provide the cost benefits we currently expect, and could lead to disruption of our operations, loss of, or inability to recruit, key personnel needed to operate and grow our businesses, weakening of our internal standards, controls or procedures and impairment of our key customer and supplier relationships. If we fail to achieve some or all of the benefits that we expect to achieve as an independent company, or do not achieve them in the time we expect, our business, financial condition and results of operations could be materially and adversely affected.
We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent company.
We historically operated as part of Mondelēz Internationals corporate organization, and Mondelēz International assisted us by providing various corporate functions. As a result of the Spin-Off, Mondelēz International has no obligation to provide us with assistance other than the transition services described under Certain Relationships and Related Party TransactionsAgreements with Mondelēz International. These services do not include every service we received from Mondelēz International in the past, and Mondelēz International is only obligated to provide these services for limited periods from the date of the Spin-Off. Accordingly, following the Spin-Off, we need to provide internally or obtain from unaffiliated third parties the services we formerly received from Mondelēz International. These services include information technology, research and development, finance, legal, insurance, compliance and human resources activities, the effective and appropriate performance of which is critical to our operations. We may be unable to replace these services in a timely manner or on terms and conditions as favorable as those we receive from Mondelēz International. In particular, Mondelēz Internationals information technology networks and systems are complex, and duplicating these networks and systems will be challenging. Because our business previously operated as part of the wider Mondelēz International organization, we may be unable to successfully establish the infrastructure or implement the changes necessary to operate independently, or we may incur additional costs that could adversely affect our business. If we fail to obtain the quality of administrative services necessary to operate effectively or incur greater costs in obtaining these services, our profitability, financial condition and results of operations may be materially and adversely affected.
We have no operating history as an independent, publicly traded company, and our historical and pro forma financial information is not necessarily representative of the results we would have achieved as an independent, publicly traded company and may not be a reliable indicator of our future results.
We derived the historical and pro forma financial information included in this prospectus from Mondelēz Internationals consolidated financial statements and this information does not necessarily reflect the results of operations, financial position and cash flows we would have achieved as an independent, publicly traded company during the periods presented, or those that we will achieve in the future. This is primarily because of the following factors:
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Prior to the Spin-Off, we operated as part of Mondelēz Internationals broader corporate organization, rather than as an independent company. Mondelēz International performed various corporate functions for us, including information technology, research and development, finance, legal, insurance, compliance and human resources activities. Our historical and pro forma financial information reflects |
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allocations of corporate expenses from Mondelēz International for these and similar functions. These allocations may not reflect the costs we will incur for similar services in the future as an independent company. |
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We entered into transactions with Mondelēz International that did not exist prior to the Spin-Off. See Certain Relationships and Related Party Transactions for information regarding these transactions. |
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Our historical financial information does not reflect changes that we expect to experience in the future as a result of our separation from Mondelēz International, including changes in our cost structure, personnel needs, tax structure, financing and business operations. As part of Mondelēz International, we enjoyed certain benefits from Mondelēz Internationals operating diversity, size, purchasing power and available capital for investments, and we no longer receive these benefits after the Spin-Off. As an independent entity, we may be unable to purchase goods, services and technologies, such as insurance and health care benefits and computer software licenses, on terms as favorable to us as those we obtained as part of Mondelēz International prior to the Spin-Off. |
Following the Spin-Off, we are also responsible for the additional costs associated with being an independent, publicly traded company, including costs related to corporate governance, investor and public relations and public reporting. Therefore, our financial statements may not be indicative of our future performance as an independent company. While we have been profitable as part of Mondelēz International, we cannot assure you that our profits will continue at a similar level when we are a stand-alone company. For additional information about our past financial performance and the basis of presentation of our financial statements, see Selected Historical Combined Financial Data, Unaudited Pro Forma Combined Financial Statements, Managements Discussion and Analysis of Financial Condition and Results of Operations and our historical combined financial statements and accompanying notes included elsewhere in this prospectus.
The unaudited pro forma combined financial statements are subject to the assumptions and adjustments described in the accompanying notes. While we believe that these assumptions and adjustments are reasonable under the circumstances and given the information available at this time, these assumptions and adjustments are subject to change.
Mondelēz International has a significant understanding of our business and may be uniquely positioned to compete against us following the Spin-Off.
Prior to the Spin-Off, we operated as part of Mondelēz International, and many of its officers, directors and employees have participated in the development and execution of our corporate strategy and the management of our day-to-day operations. Mondelēz International has significant knowledge of our products, operations, strengths, weaknesses and strategies. It is also one of the largest food and beverage companies in the world, with a strong presence in North America, and thus may be uniquely positioned to develop grocery products that compete against our products in North America. Though, following the Spin-Off, Mondelēz International generally does not have rights to use trademarks related to the North American Grocery Business in North America and is restricted from using certain shared patents and trade secrets in North America for a period of time and under certain circumstances, it is not restricted from developing products in the same product categories as our products and marketing these products under trademarks related to the Global Snacks Business or under new trademarks. Because of Mondelēz Internationals competitive insight into our operations, competition from Mondelēz International may materially and adversely affect our product sales, financial condition and results of operations.
We incurred substantial indebtedness in connection with the Spin-Off, and the degree to which we are leveraged following completion of the Spin-Off may materially and adversely affect our business, financial condition and results of operations.
We incurred substantial indebtedness in connection with the Spin-Off. We have historically relied upon Mondelēz International for working capital requirements on a short-term basis and for other financial support
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functions. After the Spin-Off, we are not able to rely on Mondelēz Internationals earnings, assets or cash flow, and we are responsible for servicing our own debt, obtaining and maintaining sufficient working capital and paying dividends.
Our ability to make payments on and to refinance our indebtedness, including the debt retained or incurred pursuant to the Spin-Off as well as any future debt that we may incur, will depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We may not generate sufficient funds to service our debt and meet our business needs, such as funding working capital or the expansion of our operations. If we are not able to repay or refinance our debt as it becomes due, we may be forced to take disadvantageous actions, including reducing spending on marketing, retail trade incentives, advertising and new product innovation, reducing financing in the future for working capital, capital expenditures and general corporate purposes, selling assets or dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. In addition, our ability to withstand competitive pressures and to react to changes in the food and beverage industry could be impaired. The lenders who hold our debt could also accelerate amounts due in the event that we default, which could potentially trigger a default or acceleration of the maturity of our other debt.
In addition, our substantial leverage could put us at a competitive disadvantage compared to our competitors that are less leveraged. These competitors could have greater financial flexibility to pursue strategic acquisitions and secure additional financing for their operations. Our substantial leverage could also impede our ability to withstand downturns in our industry or the economy in general.
We may increase our debt or raise additional capital in the future, which could affect our financial health and may decrease our profitability.
We may increase our debt or raise additional capital in the future, subject to restrictions in our debt agreements. If our cash flow from operations is less than we anticipate, or if our cash requirements are more than we expect, we may require more financing. However, debt or equity financing may not be available to us on terms we find acceptable, if at all. Also, regardless of the terms of our debt or equity financing, our agreements and obligations under the Tax Sharing and Indemnity Agreement may limit our ability to issue stock. For a more detailed discussion, see We intend to agree to numerous restrictions to preserve the non-recognition treatment of the transactions, which may reduce our strategic and operating flexibility. If we are unable to raise additional capital when needed, our financial condition, and thus your investment in us, could be materially and adversely affected.
Certain of our directors and officers may have actual or potential conflicts of interest because of their Mondelēz International equity ownership or their former Mondelēz International positions.
Certain of the persons that are our executive officers and directors have been Mondelēz International officers, directors or employees and thus have professional relationships with Mondelēz Internationals executive officers, directors or employees. In addition, because of their former Mondelēz International positions, certain of our directors and executive officers may own Mondelēz International common stock or options to acquire shares of Mondelēz International common stock, and the individual holdings may be significant for some of these individuals compared to their total assets. These relationships and financial interests may create, or may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for Mondelēz International and us. For example, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between Mondelēz International and us regarding the terms of the agreements governing the Spin-Off and the relationship between the companies going forward.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our historical ratios of earnings to fixed charges for the periods indicated. This information should be read in conjunction with the consolidated financial statements and the accompanying notes incorporated by reference in this prospectus.
Nine Months Ended | Fiscal Year Ended December 31, | |||||||||||||||||||||||
September 30,
2012 |
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Ratio of Earnings to Fixed Charges |
15.4 | 45.3 | 47.1 | 32.1 | 28.2 | 36.1 |
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We will not receive any cash proceeds from the issuance of the New Notes. In consideration for issuing the New Notes as contemplated by this prospectus, we will receive in exchange Outstanding Notes in like principal amount. We will cancel all Outstanding Notes exchanged for New Notes in the exchange offer.
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SELECTED HISTORICAL COMBINED FINANCIAL DATA
The following table presents our selected historical combined financial data as of September 30, 2012 and for the nine months ended September 30, 2012 and 2011, and as of and for each of the fiscal years in the five-year period ended December 31, 2011. We derived the selected historical combined financial data as of September 30, 2012 and for the nine months ended September 30, 2012 and 2011, and as of December 31, 2011 and 2010, and for each of the fiscal years in the three-year period ended December 31, 2011, from our unaudited condensed and audited combined financial statements included elsewhere in this prospectus. We derived the selected historical combined financial data as of December 31, 2009, and as of and for the fiscal years ended December 31, 2008 and 2007, from our unaudited combined financial statements that are not included in this prospectus. In our managements opinion, the unaudited combined financial statements have been prepared on the same basis as the audited combined financial statements and include all adjustments, consisting only of ordinary recurring adjustments, necessary for a fair presentation of the information for the periods presented.
Our historical combined financial statements include certain expenses of Mondelēz International that were allocated to us for certain functions, including general corporate expenses related to information technology, research and development, finance, legal, insurance, compliance and human resources activities. These costs may not be representative of the future costs we will incur as an independent public company. In addition, our historical financial information does not reflect changes that we expect to experience in the future as a result of our Spin-Off from Mondelēz International, including changes in our cost structure, personnel needs, tax structure, financing and business operations. Our historical combined financial statements also do not reflect the allocation of certain net liabilities between Mondelēz International and us as reflected under Unaudited Pro Forma Combined Financial Statements included elsewhere in this prospectus. Consequently, the financial information included here may not necessarily reflect our financial position, results of operations and cash flows in the future or what our financial position, results of operations and cash flows would have been had we been an independent, publicly traded company during the periods presented.
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You should read the selected historical combined financial data presented below in conjunction with our audited and unaudited condensed combined financial statements and accompanying notes, Unaudited Pro Forma Combined Financial Statements and Managements Discussion and Analysis of Financial Condition and Results of Operations included in this prospectus.
For the Nine Months Ended
September 30, (1) |
For the Year ended December 31, (2)(3) | |||||||||||||||||||||||||||
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Net Revenues |
$ | 13,845 | $ | 13,620 | $ | 18,655 | $ | 17,797 | $ | 17,278 | $ | 17,708 | $ | 17,023 | ||||||||||||||
Cost of Sales |
9,139 | 9,193 | 12,761 | 11,778 | 11,281 | 12,298 | 11,467 | |||||||||||||||||||||
Gross Profit |
4,706 | 4,427 | 5,894 | 6,019 | 5,997 | 5,410 | 5,556 | |||||||||||||||||||||
Selling, general and administrative expenses |
2,158 | 2,131 | 2,973 | 3,066 | 3,031 | 2,999 | 2,855 | |||||||||||||||||||||
Asset impairment and exit costs |
156 | (2 | ) | (2 | ) | (8 | ) | (9 | ) | 244 | 269 | |||||||||||||||||
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Operating income |
2,392 | 2,298 | 2,923 | 2,961 | 2,975 | 2,167 | 2,432 | |||||||||||||||||||||
Operating margin |
17.3 | % | 16.9 | % | 15.7 | % | 16.6 | % | 17.2 | % | 12.2 | % | 14.3 | % | ||||||||||||||
Interest and other expense, net |
129 | 6 | 9 | 7 | 34 | 24 | 20 | |||||||||||||||||||||
Royalty (income) from affiliates |
(41 | ) | (37 | ) | (55 | ) | (43 | ) | (47 | ) | (38 | ) | (46 | ) | ||||||||||||||
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Earnings from continuing operations before income taxes |
2,304 | 2,329 | 2,969 | 2,997 | 2,988 | 2,181 | 2,458 | |||||||||||||||||||||
Provision for income taxes |
763 | 891 | 1,130 | 1,110 | 1,036 | 728 | 841 | |||||||||||||||||||||
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1,541 | 1,438 | 1,839 | 1,887 | 1,952 | 1,453 | 1,617 | |||||||||||||||||||||
Earnings and gains from discontinued operations, net of income taxes (3) |
| | | 1,644 | 218 | 1,209 | 371 | |||||||||||||||||||||
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$ | 1,541 | $ | 1,438 | $ | 1,839 | $ | 3,531 | $ | 2,170 | $ | 2,662 | $ | 1,988 | ||||||||||||||
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Continuing operations |
$ | 2.60 | $ | 2.43 | $ | 3.11 | $ | 3.19 | $ | 3.30 | $ | 2.45 | $ | 2.73 | ||||||||||||||
Discontinued operations |
| | | 2.77 | 0.36 | 2.04 | 0.63 | |||||||||||||||||||||
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$ | 2.60 | $ | 2.43 | $ | 3.11 | $ | 5.96 | $ | 3.66 | $ | 4.49 | $ | 3.36 | ||||||||||||||
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592 | 592 | 592 | 592 | 592 | 592 | 592 | |||||||||||||||||||||
Net cash provided by operating activities |
$ | 2,067 | $ | 2,045 | $ | 2,664 | $ | 828 | $ | 3,017 | $ | 2,920 | $ | 2,277 | ||||||||||||||
Capital expenditures |
282 | 267 | 401 | 448 | 513 | 533 | 623 | |||||||||||||||||||||
Depreciation and amortization |
261 | 269 | 364 | 354 | 348 | 356 | 404 |
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As of
September 30, 2012 (1) |
As of December 31, (2)(3) | |||||||||||||||||||||||
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Inventories, net |
$ | 2,090 | $ | 1,943 | $ | 1,773 | $ | 1,795 | $ | 1,828 | $ | 1,995 | ||||||||||||
Property, plant and equipment, net |
4,211 | 4,278 | 4,283 | 4,521 | 4,425 | 4,837 | ||||||||||||||||||
Total assets |
22,284 | 21,539 | 21,598 | 22,189 | 22,052 | 24,339 | ||||||||||||||||||
Long-term debt |
9,568 | 27 | 31 | 48 | 227 | 193 | ||||||||||||||||||
Total debt |
9,574 | 35 | 39 | 55 | 231 | 200 | ||||||||||||||||||
Total long-term liabilities |
14,826 | 2,368 | 2,193 | 2,247 | 2,356 | 2,505 | ||||||||||||||||||
Total equity |
7,458 | 16,599 | 17,039 | 17,512 | 17,297 | 19,649 |
(1) | Significant items affecting comparability of earnings from continuing operations include the initiation of a restructuring program in 2012 and the cessation of the Starbucks CPG business in 2011. For more information, please refer to Managements Discussion and Analysis of Financial Condition and Results of Operations and the notes to our unaudited interim condensed combined financial statements, including Note 6, Restructuring Program, and Note 14, Segment Reporting. |
(2) | Significant items affecting comparability of earnings from continuing operations include a 53rd week of operating results in 2011 and not in any of the other fiscal years presented; the cessation of the Starbucks CPG business in 2011; and cost savings initiatives that we began in 2009 and that are included in cost of sales and selling, general and administrative expenses. For more information, please refer to Managements Discussion and Analysis of Financial Condition and Results of Operations and the notes to our audited combined financial statements, including Note 2, Summary of Significant Accounting Policies, Note 15, Segment Reporting, and Note 7, Cost Savings Initiatives. Costs incurred in connection with a 2004-2008 restructuring program are reflected within asset impairment and exit costs in 2007 and 2008. |
(3) | Earnings and gains from discontinued operations include the results and gains on the sales of our Frozen Pizza business in 2010 and our Post cereals business in 2008. Refer to Note 3, Divestitures, to our historical combined financial statements for more information on the Frozen Pizza business divestiture. In connection with the Post cereals divestiture, we reported earnings and a gain from discontinued operations, net of tax, of $1,039 million in 2008 and $232 million in 2007. Assets divested in the Post cereals divestiture included $94 million of inventory, $425 million of net property, plant and equipment and $1,234 million of goodwill. In addition, $11 million of other assets and $3 million of other liabilities were divested, totaling $1,761 million of divested net assets. |
(4) | On October 1, 2012, Kraft Foods Group issued 592 million shares of our common stock in connection with the Spin-Off. Basic and diluted earnings per common share and the average number of common shares outstanding were retrospectively restated for the number of shares of our common stock outstanding immediately following this transaction. |
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements as of September 30, 2012 and for the nine months ended September 30, 2012 and for the year ended December 31, 2011 were derived from our unaudited interim condensed and audited combined financial statements included elsewhere in this prospectus.
The unaudited pro forma combined financial statements reflect adjustments to our historical financial results in connection with the Spin-Off and related transactions. The unaudited pro forma combined statements of earnings give effect to these events as if they occurred on January 1, 2011, the beginning of our last fiscal year. The unaudited pro forma combined balance sheet gives effect to these events as if they occurred as of September 30, 2012, our latest balance sheet date. The pro forma adjustments are described in the accompanying notes and include the following:
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Incurrence of $10 billion total debt incurred as part of our plan to capitalize our company and secure an investment grade credit rating. On October 1, 2012, we incurred approximately $400 million of long-term senior unsecured notes that were historically related to the Global Snacks Business and not allocated to us in our historical combined financial statements to complete the key elements of our capitalization plan in connection with the Spin-Off. |
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Distribution of substantially all of our cash from operations to Mondelēz International through the Distribution Date as part of our capitalization plan, except for approximately $224 million of operating cash, based on our estimates as of September 30, 2012 and subject to provisions of final tax rulings. |
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Transfer of net liabilities between Mondelēz International and us, including certain employee benefit plan and other obligations, net of any related assets. |
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Removal of royalty income received from Mondelēz Internationals affiliates that we no longer receive following the Distribution Date. The royalty income relates to rights to intellectual property that we have not retained following the Distribution Date. |
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Issuance of approximately 592 million shares of our common stock. This number of shares is based on the number of shares of Mondelēz International common stock outstanding on September 30, 2012 and a distribution ratio of one share of our common stock for every three shares of Mondelēz International common stock. |
The unaudited pro forma combined financial statements are subject to the assumptions and adjustments described in the accompanying notes. Our management believes that these assumptions and adjustments are reasonable under the circumstances and given the information available at this time.
The unaudited pro forma financial information is for illustrative and informational purposes only and is not intended to represent, or be indicative of, what our financial position or results of operations would have been had the Spin-Off and related transactions occurred on the dates indicated. The unaudited pro forma financial information also should not be considered representative of our financial position, and you should not rely on the financial information presented below as a representation of our future performance.
Except for any one-time financing costs paid or expensed prior to the Spin-Off, which were retained by Mondelēz International, Mondelēz International and we each bore our own direct financing and related costs, which will be recognized in interest expense over the life of the related debt. In the historical statement of earnings through September 30, 2012, no one-time Spin-Off financing expenses and approximately $125 million of interest expense were recorded. The unaudited pro forma combined financial statements reflect the expected recurring financing costs related to our incurring the $10 billion of debt. We refer to the one-time Spin-Off transaction, transition and financing and related costs collectively as Spin-Off Costs.
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We also expect to experience changes in our ongoing cost structure as an independent, publicly traded company and as a result of our restructuring activities. For example, Mondelēz International, prior to the Spin-Off, provided many corporate functions on our behalf, including, but not limited to, information technology, research and development, finance, legal, insurance, compliance and human resource activities. Our historical combined financial statements include allocations of these expenses from Mondelēz International. However, these costs may not be representative of the future costs we will incur as an independent public company. We estimate that the overhead savings associated with the Restructuring Program will offset the overhead dis-synergies resulting from our becoming an independent company. Further, we estimate that we will realize approximately $100 million of annual overhead cost savings from costs currently allocated to us that will be incurred by and remain in Mondelēz International. These anticipated cost changes have not been reflected in our unaudited pro forma combined statements of earnings. For a description of the allocation of Mondelēz Internationals general and administrative corporate expenses to us, see Note 1, Background and Basis of Presentation, to our historical combined financial statements and Note 2, Summary of Significant Accounting Policies, to our audited combined financial statements as of December 31, 2011 and 2010 and for each of the three years ended December 31, 2011 included in this prospectus.
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The unaudited pro forma combined financial statements should be read in conjunction with our historical combined financial statements and accompanying notes and Managements Discussion and Analysis of Financial Condition and Results of Operations included in this prospectus.
Kraft Foods Group, Inc.
Unaudited Pro Forma Combined Statement of Earnings
Nine Months Ended September 30, 2012
(in millions, except per share amounts)
Historical
Kraft Foods Group, Inc. |
Pro
Forma
Adjustments (1) |
Notes |
Pro Forma
Kraft Foods Group, Inc. |
|||||||||||
Net revenues |
$ | 13,845 | $ | 13,845 | ||||||||||
Cost of sales |
9,139 | 33 | (b) | 9,172 | ||||||||||
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Gross profit |
4,706 | 4,673 | ||||||||||||
Selling, general and administrative expenses |
2,158 | 35 | (b) | 2,193 | ||||||||||
Asset impairment and exit costs |
156 | 156 | ||||||||||||
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Operating income |
2,392 | 2,324 | ||||||||||||
Interest and other expense, net |
(129 | ) | (250 | ) | (a) | (379 | ) | |||||||
Royalty income from affiliates |
41 | (41 | ) | (d) | | |||||||||
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Earnings before income taxes |
2,304 | 1,946 | ||||||||||||
Provision for income taxes |
763 | (135 | ) | (h) | 628 | |||||||||
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|
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Net earnings |
$ | 1,541 | $ | 1,317 | ||||||||||
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Pro forma earnings per share: |
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Basic |
$ | 2.60 | (g) | $ | 2.23 | |||||||||
Diluted |
$ | 2.60 | (g) | $ | 2.23 | |||||||||
Pro forma weighted average shares outstanding: |
||||||||||||||
Basic |
592 | (g) | 592 | |||||||||||
Diluted |
592 | (g) | 592 |
(1) | The change in our annual costs related to our becoming an independent, publicly traded company is not reflected above. |
As a result of becoming an independent company and due to our restructuring activities, we expect our annual overhead cost structure to change. We estimate that the overhead savings associated with our restructuring program will offset the overhead dis-synergies resulting from our becoming an independent company. Further, we estimate that we will realize approximately $100 million of annual overhead cost savings from costs currently allocated to us that will be incurred by and remain in Mondelēz International.
See accompanying notes to the unaudited pro forma combined financial statements.
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Kraft Foods Group, Inc.
Unaudited Pro Forma Combined Statement of Earnings
Year Ended December 31, 2011
(in millions, except per share amounts)
Historical
Kraft Foods Group, Inc. |
Pro Forma
Adjustments (1) |
Notes |
Pro Forma
Kraft Foods Group, Inc. |
|||||||||||
Net revenues |
$ | 18,655 | $ | 18,655 | ||||||||||
Cost of sales |
12,761 | 44 | (b) | 12,805 | ||||||||||
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Gross profit |
5,894 | 5,850 | ||||||||||||
Selling, general and administrative expenses |
2,973 | 46 | (b) | 3,019 | ||||||||||
Asset impairment and exit costs |
(2 | ) | (2 | ) | ||||||||||
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Operating income |
2,923 | 2,833 | ||||||||||||
Interest and other expense, net |
(9 | ) | (500 | ) | (a) | (509 | ) | |||||||
Royalty income from affiliates |
55 | (55 | ) | (d) | | |||||||||
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Earnings before income taxes |
2,969 | 2,324 | ||||||||||||
Provision for income taxes |
1,130 | (243 | ) | (h) | 887 | |||||||||
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Net earnings |
$ | 1,839 | $ | 1,437 | ||||||||||
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Pro forma earnings per share: |
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Basic |
(g) | $ | 2.43 | |||||||||||
Diluted |
(g) | $ | 2.43 | |||||||||||
Pro forma weighted average shares outstanding: |
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Basic |
(g) | 592 | ||||||||||||
Diluted |
(g) | 592 |
(1) | The change in our annual costs related to our becoming an independent, publicly traded company is not reflected above. |
As a result of becoming an independent company and due to our restructuring activities, we expect our annual overhead cost structure to change. We estimate that the overhead savings associated with our restructuring program will offset the overhead dis-synergies resulting from our becoming an independent company. Further, we estimate that we will realize approximately $100 million of annual overhead cost savings from costs currently allocated to us that will be incurred by and remain in Mondelēz International.
See accompanying notes to the unaudited pro forma combined financial statements.
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Kraft Foods Group, Inc.
Unaudited Pro Forma Combined Balance Sheet
As of September 30, 2012
(in millions)
Historical
Kraft Foods Group, Inc. |
Pro Forma
Adjustments |
Notes |
Pro Forma
Kraft Foods Group, Inc. |
|||||||||||
ASSETS |
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Cash and cash equivalents |
$ | 244 | 3 | (a), (e) | $ | 247 | ||||||||
Receivables, net |
1,157 | 270 | (c), (e) | 1,427 | ||||||||||
Due from Mondelēz International, net |
| 258 | (c) | 258 | ||||||||||
Inventories, net |
2,090 | 9 | (e) | 2,099 | ||||||||||
Deferred income taxes |
208 | 130 | (c) | 338 | ||||||||||
Other current assets |
206 | (38 | ) | (e) | 168 | |||||||||
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Total current assets |
3,905 | 4,537 | ||||||||||||
Property, plant and equipment, net |
4,211 | 4,211 | ||||||||||||
Goodwill |
11,364 | 11,364 | ||||||||||||
Intangible assets, net |
2,632 | 2,632 | ||||||||||||
Other assets |
172 | 703 | (a), (e) | 875 | ||||||||||
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TOTAL ASSETS |
$ | 22,284 | $ | 23,619 | ||||||||||
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LIABILITIES |
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Current portion of long-term debt |
$ | 6 | $ | 6 | ||||||||||
Accounts payable |
1,510 | 288 | (c), (e) | 1,798 | ||||||||||
Accrued marketing |
458 | 5 | (e) | 463 | ||||||||||
Accrued employment costs |
178 | 12 | (e) | 190 | ||||||||||
Other current liabilities |
417 | 335 | (b), (c), (e) | 752 | ||||||||||
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Total current liabilities |
2,569 | 3,209 | ||||||||||||
Long-term debt |
9,568 | 397 | (a) | 9,965 | ||||||||||
Deferred income taxes |
2,047 | (1,179 | ) | (a), (b), (c) | 868 | |||||||||
Accrued pension costs |
105 | 1,909 | (b) | 2,014 | ||||||||||
Accrued postretirement costs |
| 3,329 | (b) | 3,329 | ||||||||||
Other liabilities |
537 | (121 | ) | (b), (c) | 416 | |||||||||
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TOTAL LIABILITIES |
14,826 | 19,801 | ||||||||||||
EQUITY |
||||||||||||||
Common stock, no par value |
| | (f) | | ||||||||||
Additional paid-in capital |
| 8,123 | (f) | 8,123 | ||||||||||
Parent company investment |
7,918 | (7,918 | ) | (a), (b), (c), (e), (f) | | |||||||||
Accumulated other comprehensive losses |
(460 | ) | (3,845 | ) | (a), (b), (e) | (4,305 | ) | |||||||
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|
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TOTAL EQUITY |
7,458 | 3,818 | ||||||||||||
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TOTAL LIABILITIES AND EQUITY |
$ | 22,284 | $ | 23,619 | ||||||||||
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|
|
See accompanying notes to the unaudited pro forma combined financial statements.
33
Kraft Foods Group, Inc.
Notes to Unaudited Pro Forma Combined Financial Statements
The unaudited pro forma combined financial statements as of September 30, 2012 and for the nine months ended September 30, 2012 and for the year ended December 31, 2011 include the following adjustments:
(a) | In connection with our Spin-Off capitalization plan, which supported our and Mondelēz International obtaining investment grade credit ratings following the Spin-Off, we incurred a total of approximately $10 billion of borrowings. We also distributed cash from operations to Mondelēz International through the Distribution Date, except for operating cash within our Canadian subsidiary. Within our unaudited pro forma combined balance sheet, we reflected the distribution of cash, except for approximately $244 million of operating cash, based on our estimates as of September 30, 2012. Mondelēz International applied the cash we distributed to it to reduce its debt over time while we increased our debt to the planned $10 billion level. To date, we have incurred the following debt comprised of long-term, fixed rate, senior unsecured notes. |
Date Incurred |
Principal
Outstanding |
Weighted-
Average Interest Rate |
Maturity |
|||||||
June 4, 2012 |
$ | 6.0 billion | 3.9 | % | $1 billion due in June 2015 and June 2017 and $2 billion due in June 2022 and June 2042 | |||||
July 18, 2012 |
$ | 3.6 billion | 6.5 | % | $1.035 billion due in August 2018, $900 million due in February 2020, $878 million due in January 2039 and $787 million due in February 2040 | |||||
October 1, 2012 |
$ | 0.4 billion | 7.9 | % | June 2015 | |||||
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$ | 10.0 billion | 5.0 | % |
The $6.0 billion of notes issued on June 4, 2012, the $3.6 billion of notes issued on July 18, 2012, and the related deferred financing and related costs are reflected in our historical balance sheet as of September 30, 2012. See Note 7, Debt, to our unaudited interim condensed combined financial statements for additional information. We have reflected $400 million of senior unsecured notes related to the Global Snacks Business for which we have been and will continue to be the direct obligor. We have reflected approximately $4 million of debt issuance and related costs in long-term debt and long-term other assets related to the $400 million of notes. See Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources for more information on our capitalization plan, our senior unsecured notes and the terms of Mondelēz Internationals debt exchange.
Within our unaudited pro forma combined statements of earnings, we reflected pro forma interest expense based on a weighted-average 5.0% annual effective interest rate which relates to the $10 billion of debt we estimated, as of September 30, 2012, to have incurred prior to the Distribution Date. Pro forma interest expense related to this debt was estimated to be approximately $500 million for the year ended December 31, 2011 and $375 million for the nine months ended September 30, 2012.
(b) |
Certain of our eligible employees participated in the pension, postretirement and postemployment benefit plans offered by Mondelēz International. As a stand-alone, independent company, we assumed these obligations and now provide the benefits directly. Mondelēz International transferred to us the plan liabilities and assets associated with our active and retired and other former employees. Additionally, we assumed certain net benefit plan liabilities for most of the Global Snacks Business retired and other former North American employees as of the Distribution Date. See Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalEmployee Matters Agreement. The net benefit obligations we assumed will result in our recording estimated net benefit plan liabilities of $5,526 million, accumulated other comprehensive losses, net of tax, of $3,537 |
34
million, and $2,076 million of related deferred tax assets. The estimated incremental annual expense we expect to recognize is approximately $90 million, which reflects our estimate of the 2012 annual expense and is based on market conditions and benefit plan assumptions as of January 1, 2012. In the unaudited pro forma combined statements of earnings, we reflected this estimate for both the year ended December 31, 2011 and nine months ended September 30, 2012, which reflects a prorated nine-month $68 million incremental expense. The actual assumed net benefit plan obligations and incremental expense could change significantly from our estimates as of September 30, 2012. |
(c) | While our historical financial statements reflect the allocation to us of certain assets and liabilities related to our North American Grocery Business, as of the Distribution Date, we assumed from, and transferred to, Mondelēz International certain obligations in their entirety to facilitate management, including the final payment or resolution, of these obligations. Within our unaudited pro forma combined financial statements, based on our estimates and the value of these net liabilities as of September 30, 2012, Mondelēz International transferred to us approximately $79 million of net liabilities as follows: |
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Mondelēz International transferred to us an estimated $127 million of net tax liabilities and related deferred taxes. The obligation for U.S. state income taxes and Canadian federal and provincial income taxes attributable to the tax periods prior to the Spin-Off was transferred to us, while the obligation for U.S. federal income taxes and substantially all foreign income taxes (excluding Canadian income taxes) attributable to the tax periods prior to the Spin-Off was retained by Mondelēz International. Related deferred tax assets or deferred tax liabilities were also transferred. |
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We transferred to Mondelēz International an estimated $143 million of our workers compensation and other accrued insurance liabilities. |
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We assumed a net liability of $95 million consisting of $332 million related to certain North American trade accounts payable of the Global Snacks Business and $237 million of certain North American trade accounts receivable of the Global Snacks Business. |
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Within 60 days after the Distribution Date, there was a true-up of $258 million between Mondelēz International and us of the net cash associated with our assumption of the net trade payables and receivables of approximately $95 million and our targeted cash flows distributed by Mondelēz International in connection with the Spin-Off of approximately $163 million. |
The transfers of these obligations to and from Mondelēz International did not impact our net earnings. The net liability amounts estimated as of September 30, 2012 may change substantially from the Distribution Date. See Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalSeparation and Distribution Agreement and Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalTax Sharing and Indemnity Agreement for additional detail.
(d) | Adjustment reflects the removal of royalty income Mondelēz Internationals affiliates paid to us under various royalty arrangements. After the Spin-Off, we no longer receive royalty income under these arrangements because we do not retain the rights to the intellectual property underlying this royalty income. See Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalMaster Ownership and License Agreement Regarding Patents, Trade Secrets and Related Intellectual Property and Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalMaster Ownership and License Agreement Regarding Trademarks and Related Intellectual Property for more information. |
(e) | Our historical financial statements reflect the allocation to us of certain assets and liabilities related to our North American Grocery Business. After the Spin-Off, we assumed from and transferred to Mondelēz International certain assets and obligations in their entirety to facilitate management. This adjustment represents the transfer of these assets and obligations. |
35
(f) | Adjustment reflects the pro forma recapitalization of our equity. As of the Distribution Date, Mondelēz Internationals net investment in our business was exchanged to reflect the Distribution of our common stock to Mondelēz Internationals shareholders. Mondelēz Internationals shareholders received shares based on a distribution ratio of one share of our common stock for every three shares of Mondelēz International common stock owned as of the Record Date for the Distribution. |
(g) | The computation of pro forma basic and diluted earnings per share is based on the 592 million Kraft Foods Group common shares issued on October 1, 2012. Holders of Mondelēz International common stock received one common share of Kraft Foods Group for three common shares of Mondelēz International held on September 19, 2012. The same number of shares was used to calculate basic and diluted earnings per share since no Kraft Foods Group equity awards were outstanding prior to the Spin-Off. |
(h) | The tax effects of adjustments made within the unaudited pro forma combined statements of earnings were estimated using a 37.6% marginal U.S. income tax rate for our primarily U.S.related pro forma adjustments. |
36
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with the other sections of this prospectus, including our audited and unaudited condensed historical combined financial statements and the related notes, Business and Unaudited Pro Forma Combined Financial Statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. The forward-looking statements are subject to a number of important factors, including those factors discussed under Risk Factors and Cautionary Statement Concerning Forward-Looking Statements, that could cause our actual results to differ materially from those indicated in the forward-looking statements.
Introduction
Managements discussion and analysis of financial condition and results of operations accompanies our combined financial statements and provides additional information about our business, financial condition, liquidity and capital resources, cash flows and results of operations. We have organized the information as follows:
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Overview . This section provides a brief description of the Spin-Off, our business, accounting basis of presentation and a brief summary of our results of operations. |
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Discussion and analysis . This section highlights items affecting the comparability of our financial results and provides an analysis of our combined and segment results of operations for the nine months ended September 30, 2012 and 2011 and for each of the three years ended December 31, 2011. |
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Liquidity and capital resources . This section provides an overview of our historical and anticipated cash and financing activities. We also review our historical sources and uses of cash in our operating, investing and financing activities. We summarize our current and planned debt and other long-term financial commitments. |
|
Critical accounting policies and estimates . This section summarizes the accounting policies that we consider important to our financial condition and results of operations and which require significant judgment or estimates to be made in their application. We also discuss commodity cost trends impacting our historical results and which we expect will continue through the remainder of 2012. |
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Non-GAAP financial measures . This section discusses certain operational performance measures we use internally to evaluate our operating results and to make important decisions about our business. We also provide a reconciliation of these measures to the financial measures we have reported in our historical combined financial statements so you understand the adjustments we make to further evaluate our underlying operating performance. |
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Quantitative and qualitative disclosures about market risk . This section discusses how we monitor and manage market risk related to changing commodity prices, currency and interest rates. We also provide an analysis of how adverse changes in market conditions could impact our results based on certain assumptions we have provided. We discuss how we hedge certain of these risks to mitigate unplanned or adverse impacts to our operating results and financial condition. |
Overview
Spin-Off Transaction
On October 1, 2012, Mondelēz International created an independent public company through a spin-off of the North American grocery business to Mondelēz Internationals shareholders. To effect the separation, Mondelēz International undertook a series of transactions to separate net assets and entities. As a result of these
37
transactions, Mondelēz International now holds the Global Snacks Business, and we, Kraft Foods Group, now hold the North American Grocery Business. Mondelēz International distributed our common stock pro rata to its shareholders. As a result of the Spin-Off, we now operate as an independent, publicly traded company.
Description of the Company
Kraft Foods Group operates one of the largest consumer packaged food and beverage companies in North America. We manufacture and market refrigerated meals, refreshment beverages and coffee, cheese and other grocery products, primarily in the United States and Canada. Our product categories span all major meal occasions, both at home and in foodservice locations.
Over the last several years, we have made significant investments in product quality, marketing and innovation behind our iconic North American brands and have implemented a series of cost saving initiatives. The Spin-Off provides us the opportunity to further tailor our strategies for the North American Grocery Business to achieve greater operational focus and drive our return on investment. Our goals are to drive revenue growth in our key product categories and leverage category-leading profit margins to deliver strong free cash flow and a highly competitive dividend payout. To achieve these goals, we intend to build on our leading market positions, remain sharply focused on cost structure and superior execution and invest in employee and organization excellence.
Basis of Presentation
Our historical combined financial statements have been prepared on a stand-alone basis and are derived from Mondelēz Internationals consolidated financial statements and accounting records. These historical combined financial statements reflect our financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States, or U.S. GAAP. The North American Grocery Business consists of Mondelēz Internationals former U.S. and Canadian grocery, beverages, cheese, convenient meals, Planters and Corn Nuts businesses, including the related foodservice operations and certain of the grocery operations in Puerto Rico, as well as portions of its grocery export operations from the United States and Canada. See Summary and Business for additional information.
As a result of the Spin-Off, we now operate as an independent, publicly traded company. Our reportable segments are Beverages (formerly known as U.S. Beverages), Cheese (formerly known as U.S. Cheese), Refrigerated Meals (formerly known as U.S. Convenient Meals), Grocery (formerly known as U.S. Grocery) and International & Foodservice (formerly known as Canada & N.A. Foodservice).
Our historical combined financial statements include certain expenses of Mondelēz International which were allocated to us for certain functions, including general corporate expenses related to finance, legal, information technology, human resources, compliance, shared services, insurance, employee benefits and incentives and stock-based compensation. These expenses have been allocated in our historical results of operations on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenue, operating income or headcount. We consider the expense allocation methodology and results to be reasonable for all periods presented. However, these allocations may not be indicative of the actual expenses we would have incurred as an independent public company or of the costs we will incur in the future, and may differ substantially from the allocations we have agreed to in the various separation agreements described under Certain Relationships and Related Party Transactions.
Mondelēz International maintained a number of benefit programs at a corporate level. Our employees participated in those programs and, as such, we were allocated a portion of the expenses associated with those programs. Any benefit plan net liabilities that are our direct obligation, such as certain Canadian pension and North American postemployment plans, are reflected in our condensed combined balance sheets as well as within our other operating results. On October 1, 2012, we recorded $5.5 billion of net benefit plan obligations related to
38
our pension and other postretirement benefit plans and will reflect them on our balance sheet as of December 31, 2012. Accordingly, our total net pension and postretirement benefit plan obligations were $5.6 billion as of October 1, 2012. See Note 9, Pension, Postretirement and Postemployment Benefit Plans, to our unaudited interim condensed combined financial statements for further description of these benefit programs.
While our historical financial statements reflect the allocation to us of certain assets and liabilities related to our North American Grocery Business, as of the Distribution Date, we assumed from, and transferred to, Mondelēz International certain obligations in their entirety to facilitate management, including the final payment or resolution, of these obligations. Within our unaudited pro forma combined financial statements, based on our estimates and the value of these net liabilities as of September 30, 2012, we transferred to Mondelēz International approximately $365 million of our net liabilities. We assumed an estimated $71 million of net liabilities for certain North American trade accounts payable and receivables of the Global Snacks Business. We transferred to Mondelēz International an estimated $298 million of primarily U.S. federal and certain foreign net tax liabilities and related deferred taxes. The obligation for U.S. state income taxes and Canadian federal and provincial income taxes attributable to the tax periods prior to the Spin-Off was transferred to us, while the obligation for U.S. federal income taxes and substantially all foreign income taxes (excluding Canadian income taxes) attributable to the tax periods prior to the Spin-Off was retained by Mondelēz International. Related deferred tax assets or deferred tax liabilities were also transferred. We transferred to Mondelēz International an estimated $138 million of our workers compensation and other accrued insurance liabilities. The transfers of these obligations to and from Mondelēz International did not impact our net earnings in any period. See Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalSeparation and Distribution Agreement, Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalTax Sharing and Indemnity Agreement and Unaudited Pro Forma Combined Financial Statements for additional information.
Also, in connection with the Spin-Off, Mondelēz International and we redistributed Mondelēz Internationals former debt between Mondelēz International and us such that both companies would have investment grade credit ratings following the Spin-Off. In addition, we distributed substantially all of our cash, except for certain operating cash within our Canadian subsidiary, to Mondelēz International to allow Mondelēz International to reduce its debt over time while we increased our debt to the planned $10 billion level. To date, we issued $6.0 billion of aggregate principal amount of three-year, five-year, ten-year and thirty-year senior unsecured notes on June 4, 2012 and distributed the net proceeds from the unsecured notes to Mondelēz International following the issuance of the notes. In addition, on July 18, 2012, we issued $3.6 billion of aggregate principal amount of notes in a debt exchange for certain of Mondelēz Internationals then outstanding notes. On October 1, 2012, we incurred approximately $400 million of long-term senior unsecured notes that are historically related to the Global Snacks Business and not allocated to us in our historical combined financial statements to complete the key elements of our capitalization plan in connection with the Spin-Off. See Liquidity and Capital Resources for more information on our capitalization plan, our senior unsecured notes and Mondelēz Internationals debt exchange.
On October 29, 2012, our Board of Directors approved a $650 million restructuring program consisting of restructuring costs, implementation costs and Spin-Off transition costs. Approximately one-half of the total Restructuring Program costs are expected to result in cash expenditures. The Restructuring Program is part of, and its costs are consistent with, a restructuring program previously announced by Mondelēz International prior to the Spin-Off. The primary objective of the Restructuring Program activities is to ensure that we are set up to operate efficiently and execute our business strategy as a stand-alone company. We have incurred $170 million of Restructuring Program costs, of which $32 million were cash expenditures, during the nine months ended September 30, 2012. We expect to incur approximately $225 million of Restructuring Program costs in the last three months of 2012. In addition to approving the Restructuring Program, our Board approved related capital expenditures of $200 million. We expect to complete the program by the end of 2014.
39
We anticipate incurring approximately $490 million of restructuring charges, of which approximately $180 million are expected to be cash expenditures through 2014. These charges reflect primarily severance, asset disposals and other manufacturing-related one-time costs. We recorded one-time restructuring charges of $156 million for the nine months ended September 30, 2012 within asset impairment and exit costs. We spent $32 million in the nine months ended September 30, 2012 in cash, and we also recognized non-cash asset write-downs totaling $65 million in the nine months ended September 30, 2012. We also incurred implementation costs of $14 million for the nine months ended September 30, 2012. These costs were recorded within cost of sales and selling, general and administrative expenses. See Note 6, Restructuring Program, to our unaudited interim condensed combined financial statements for additional information.
During the nine months ended September 30, 2012, all Spin-Off transition costs were incurred by Mondelēz International. Accordingly, we have not incurred any Spin-Off transition costs as of September 30, 2012. Subsequent to the Spin-Off, we expect to incur approximately $70 million of Spin-Off transition costs including professional service fees within the finance, legal and information system functions.
We expect to experience changes in our ongoing cost structure as a result of being an independent, publicly traded company and as a result of our restructuring activities. We estimate that the overhead savings associated with the Restructuring Program will offset the overhead dis-synergies resulting from our becoming an independent company. Further, we estimate that we will realize approximately $100 million of annual overhead cost savings from costs currently allocated to us that will be incurred by and remain in Mondelēz International. See Unaudited Pro Forma Combined Financial Statements for additional information.
Mondelēz International and its affiliates pay royalties to us under various royalty arrangements. Amounts outstanding under these arrangements are considered settled for cash at the end of each reporting period and, as such, are included in parent company investment. Royalty income from affiliates was $41 million for the nine months ended September 30, 2012, $37 million for the nine months ended September 30, 2011, $55 million in 2011, $43 million in 2010 and $47 million in 2009. Following the Distribution Date, we no longer receive this royalty income because we did not retain the rights to the intellectual property underlying this royalty income. See Unaudited Pro Forma Combined Financial Statements, Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalMaster Ownership and License Agreement Regarding Patents, Trade Secrets and Related Intellectual Property and Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalMaster Ownership and License Agreement Regarding Trademarks and Related Intellectual Property for additional information.
Due to these and other changes we anticipate in connection with the Spin-Off, the historical financial information included in this prospectus may not necessarily reflect our financial position, results of operations and cash flows in the future or what our financial position, results of operations and cash flows would have been had we been an independent, publicly traded company during the periods presented.
Summary of Operating Results
The following summary is intended to provide a few highlights of the discussion and analysis that follows.
Nine Months Ended September 30, 2012 and 2011
|
Net revenues increased 1.7% to $13.8 billion in the first nine months of 2012 as compared to the same period in the prior year. |
|
Organic Net Revenues, a non-GAAP financial measure we use to evaluate our underlying results, increased 2.6% to $13.9 billion in the first nine months of 2012 as compared to the same period in the prior year. See Non-GAAP Financial Measures below for a discussion of this financial measure and a reconciliation of Organic Net Revenues to net revenues. |
40
|
Diluted EPS increased 7.0% to $2.60 in the first nine months of 2012 as compared to $2.43 from the same period in the prior year. Diluted earnings per common share and the average number of common shares outstanding were retrospectively restated for the 592 million shares of our common stock distributed on October 1, 2012 in connection with the Spin-Off. |
Years Ended December 31, 2011, 2010 and 2009
|
Net revenues increased 4.8% to $18.7 billion in 2011. In 2010, net revenues increased 3.0% to $17.8 billion. |
|
Organic Net Revenues increased 5.8% to $18.2 billion in 2011 and increased 2.0% to $17.6 billion in 2010. See Non-GAAP Financial Measures below for a discussion of this financial measure and a reconciliation of Organic Net Revenues to net revenues. |
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Earnings from continuing operations decreased 2.5% to $1.8 billion in 2011. In 2010, earnings from continuing operations decreased 3.3% to $1.9 billion. |
|
Diluted earnings per share from continuing operations were $3.11 in 2011, $3.19 in 2010 and $3.30 in 2009. Diluted earnings per common share and the average number of common shares outstanding were retrospectively restated for the 592 million shares of our common stock issued on October 1, 2012 in connection with the Spin-Off. |
Discussion and Analysis
Financial Results for the Nine Months Ended September 30, 2012 and 2011
Items Affecting Comparability of Results for the Nine Months Ended September 30, 2012 and 2011
Restructuring Program
On October 29, 2012, our Board of Directors approved a $650 million restructuring program consisting of restructuring costs, implementation costs and Spin-Off transition costs. Approximately one-half of the total Restructuring Program costs are expected to result in cash expenditures. The Restructuring Program is part of, and its costs are consistent with, a restructuring program previously announced by Mondelēz International prior to the Spin-Off. The primary objective of the Restructuring Program activities is to ensure that we are set up to operate efficiently and execute our business strategy as a stand-alone company. We have incurred $170 million of Restructuring Program costs, of which $32 million were cash expenditures, during the nine months ended September 30, 2012. We expect to incur approximately $225 million of Restructuring Program costs in the last three months of 2012. In addition to approving the Restructuring Program, our Board approved related capital expenditures of $200 million. We expect to complete the program by the end of 2014.
We anticipate incurring approximately $490 million of restructuring charges, of which approximately $180 million are expected to be cash expenditures through 2014. These charges reflect primarily severance, asset disposals and other manufacturing-related one-time costs. We recorded one-time restructuring charges of $44 million for the three months ended and $156 million for the nine months ended September 30, 2012 within asset impairment and exit costs. We spent $7 million in the three months and $32 million in the nine months ended September 30, 2012 in cash, and we also recognized non-cash asset write-downs totaling $16 million in the three months and $65 million in the nine months ended September 30, 2012. We also incurred implementation costs of $10 million for the three months and $14 million for the nine months ended September 30, 2012. These costs were recorded within cost of sales and selling, general and administrative expenses. See Note 6, Restructuring Program, to our unaudited interim condensed combined financial statements for additional information.
During the nine months ended September 30, 2012, all Spin-Off transition costs were incurred by Mondelēz International. Accordingly, we have not incurred any Spin-Off transition costs as of September 30, 2012. Subsequent to the Spin-Off, we expect to incur approximately $70 million of Spin-Off transition costs including professional service fees within the finance, legal and information system functions.
41
Starbucks CPG Business
On March 1, 2011, the Starbucks Coffee Company (Starbucks) took control of the Starbucks packaged coffee business (Starbucks CPG business) in grocery stores and other channels. Starbucks did so without our authorization and in what we contend is a violation and breach of our license and supply agreement with Starbucks related to the Starbucks CPG business. The dispute is in arbitration in Chicago, Illinois. We are seeking appropriate remedies, including payment of the fair market value of the supply and license agreement, plus the premium this agreement specifies, prejudgment interest under New York law and attorneys fees. Starbucks has counterclaimed for damages. Testimony and post-hearing briefing in the arbitration proceeding are completed, and we await the arbitrators decision. We remain the named party in the proceeding. However, under the Separation and Distribution Agreement between Mondelēz International and us, we will direct any recovery awarded in the arbitration proceeding to Mondelēz International. Mondelēz International will reimburse us for any costs and expenses we incur in connection with the arbitration proceeding. The results of the Starbucks CPG business were included primarily in our Beverages and International & Foodservice segments through March 1, 2011.
Provision for Income Taxes
Our effective tax rate was 29.7% in the third quarter of 2012 and 33.1% for the first nine months of 2012. The effective tax rate was favorably impacted by net discrete items totaling $31 million in the three months and $36 million in the nine months ended September 30, 2012, which primarily related to favorable Canadian and U.S. federal tax audit settlements.
Our effective tax rate was 42.0% in the third quarter of 2011 and 38.3% in the first nine months of 2011. The effective tax rate was unfavorably impacted by net discrete items totaling $36 million in the three months and $37 million in the nine months ending September 30, 2011, arising principally from the unfavorable resolution of tax matters with the U.S. federal and U.S. state tax authorities.
Combined Results of Operations for the Nine Months ended September 30, 2012 and 2011
The following discussion compares our combined results of operations for the nine months ended September 30, 2012 and 2011.
For the Nine Months Ended
September 30, |
$
change |
%
change |
||||||||||||||
2012 | 2011 | |||||||||||||||
(in millions, except per share data) |
||||||||||||||||
Net revenues |
$ | 13,845 | $ | 13,620 | $ | 225 | 1.7 | % | ||||||||
Operating income |
$ | 2,392 | $ | 2,298 | $ | 94 | 4.1 | % | ||||||||
Net earnings |
$ | 1,541 | $ | 1,438 | $ | 103 | 7.2 | % | ||||||||
Diluted earnings per share |
$ | 2.60 | $ | 2.43 | $ | 0.17 | 7.0 | % |
42
Net Revenues Net revenues increased $225 million (1.7%) to $13,845 million in the first nine months of 2012, and Organic Net Revenues (1) increased $356 million (2.6%) to $13,885 million as follows:
For the Nine Months Ended
September 30, |
$
Change |
%
Change |
||||||||||||||
2012 | 2011 | |||||||||||||||
(in millions) | ||||||||||||||||
Net Revenues |
$ | 13,845 | $ | 13,620 | $ | 225 | 1.7 | % | ||||||||
Impact of foreign currency |
40 | | 40 | 0.3 | pp | |||||||||||
Impact of the Starbucks CPG business cessation |
| (91 | ) | 91 | 0.6 | pp | ||||||||||
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|
|
|
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Organic Net Revenues (1) |
$ | 13,885 | $ | 13,529 | $ | 356 | 2.6 | % | ||||||||
|
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|
|
|
|
|
|
|||||||||
Volume/mix |
(93 | ) | (0.7 | )pp | ||||||||||||
Net pricing |
449 | 3.3 | pp |
(1) | See Non-GAAP Financial Measures for a reconciliation of Organic Net Revenues to net revenues. |
Organic Net Revenues growth was driven by higher net pricing, partially offset by unfavorable volume/mix. Higher net pricing, including the impact of pricing from prior periods, was reflected across all segments as we increased pricing to offset higher product costs. Unfavorable volume/mix was reflected in Grocery and Beverages, partially offset by favorable volume/mix in the International & Foodservice and Refrigerated Meals segments. Volume/mix was unfavorably impacted by product pruning (1.2 pp) partially offset by gains in new products (1.9 pp) and customer inventory shifts (0.8 pp), largely related to the Spin-Off. The impact of unfavorable foreign currency decreased net revenues by $40 million due to the strength of the U.S. dollar relative to the Canadian dollar. The Starbucks CPG business cessation also decreased net revenue growth by $91 million.
Operating Income Operating income increased $94 million (4.1%) to $2,392 million in the first nine months of 2012 due to the following:
Operating
Income |
Change | |||||||
(in millions) | (percentage point) | |||||||
Operating Income for the Nine Months Ended September 30, 2011 |
$ | 2,298 | ||||||
Higher net pricing |
449 | 19.7 | pp | |||||
Higher product costs |
(142 | ) | (6.3 | )pp | ||||
Unfavorable volume/mix |
(90 | ) | (3.9 | )pp | ||||
Higher selling, general and administrative expenses |
(40 | ) | (1.8 | )pp | ||||
Change in unrealized gains / (losses) on hedging activities |
109 | 4.8 | pp | |||||
Unfavorable foreign currency |
(7 | ) | (0.3 | )pp | ||||
Decreased operating income from the Starbucks CPG business cessation |
(15 | ) | (0.8 | )pp | ||||
Restructuring Program costs |
(170 | ) | (7.3 | )pp | ||||
|
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|
|
|||||
Operating Income for the Nine Months Ended September 30, 2012 |
$ | 2,392 | 4.1 | % | ||||
|
|
|
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Higher net pricing, including the impact of pricing actions taken in previous periods, outpaced increased product costs during the first nine months of 2012. The increase in product costs was driven by higher commodity costs, partially offset by productivity. Unfavorable volume/mix was driven by declines in Grocery and Beverages, partially offset by favorable volume/mix in Refrigerated Meals. Excluding Restructuring Program costs, the impact of foreign currency and the impact of the Starbucks CPG business cessation, total selling, general and administrative expenses increased $40 million from the first nine months of 2011 due primarily to higher advertising and consumer spending costs and higher other selling, general and administrative
43
expenses. The change in unrealized gains / (losses) on hedging activities increased operating income by $109 million, as we recognized gains of $58 million in the first nine months of 2012 versus losses of $51 million in the first nine months of 2011. The impact of unfavorable foreign currency decreased operating income by $7 million due to the strength of the U.S. dollar relative to the Canadian dollar. The Starbucks CPG business cessation, which occurred on March 1, 2011, decreased operating income by $15 million. We incurred $170 million of Restructuring Program costs in the nine months ended September 30, 2012.
Net Earnings and Diluted Earnings per Share Net earnings of $1,541 million increased by $103 million (7.2%) in the first nine months of 2012. Diluted EPS was $2.60 in the first nine months of 2012, up $0.17 (7.0%) from $2.43 in the first nine months of 2011. These changes were due to the following:
Diluted EPS | ||||
Diluted EPS for the Nine Months Ended September 30, 2011 |
$ | 2.43 | ||
Increases in operations |
0.19 | |||
Change in unrealized gains / (losses) on hedging activities |
0.12 | |||
Decreased operating income from the Starbucks CPG business cessation |
(0.02 | ) | ||
Higher interest and other expense, net |
(0.13 | ) | ||
Unfavorable foreign currency |
(0.01 | ) | ||
Changes in taxes |
0.21 | |||
Restructuring Program costs |
(0.19 | ) | ||
|
|
|||
Diluted EPS for the Nine Months Ended September 30, 2012 |
$ | 2.60 | ||
|
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The increase in interest and other expense, net for the nine months ended September 30, 2012 was due primarily to the $6.0 billion debt issuance in June 2012 and the $3.6 billion debt exchange in July 2012.
Mondelēz International paid royalties to us of $41 million in the nine months ended September 30, 2012 under various royalty arrangements. Following the Spin-Off, we no longer receive this royalty income because we do not retain the rights to the intellectual property underlying this royalty income.
Results of Operations by Reportable Segment for the Nine Months Ended September 30, 2012 and 2011
Our reportable segments are Beverages (formerly known as U.S. Beverages), Cheese (formerly known as U.S. Cheese), Refrigerated Meals (formerly known as U.S. Convenient Meals), Grocery (formerly known as U.S. Grocery) and International & Foodservice (formerly known as Canada & N.A. Foodservice).
The following discussion compares the net revenues and earnings of each of our reportable segments for the nine months ended September 30, 2012 and September 30, 2011.
For the Nine Months Ended
September 30, |
||||||||
2012 | 2011 | |||||||
Net revenues: |
||||||||
Beverages |
$ | 2,182 | $ | 2,297 | ||||
Cheese |
2,766 | 2,667 | ||||||
Refrigerated Meals |
2,609 | 2,542 | ||||||
Grocery |
3,449 | 3,313 | ||||||
International & Foodservice |
2,839 | 2,801 | ||||||
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|
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|
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Net revenues |
$ | 13,845 | $ | 13,620 | ||||
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|
|
44
For the Nine Months Ended
September 30, |
||||||||
2012 | 2011 | |||||||
Earnings before income taxes: |
||||||||
Operating income: |
||||||||
Beverages |
$ | 308 | $ | 400 | ||||
Cheese |
482 | 422 | ||||||
Refrigerated Meals |
338 | 309 | ||||||
Grocery |
1,048 | 998 | ||||||
International & Foodservice |
349 | 365 | ||||||
Unrealized gains / (losses) on hedging activities |
58 | (51 | ) | |||||
Certain U.S. pension plan costs |
(169 | ) | (108 | ) | ||||
General corporate expenses |
(22 | ) | (37 | ) | ||||
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|
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Operating income |
2,392 | 2,298 | ||||||
Interest and other expense, net |
(129 | ) | (6 | ) | ||||
Royalty income from affiliates |
41 | 37 | ||||||
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|
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Earnings before income taxes |
$ | 2,304 | $ | 2,329 | ||||
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As discussed in our Segment Reporting notes to our historical combined financial statements, management uses segment operating income to evaluate segment performance and allocate resources. We believe it is appropriate to disclose this measure to help investors analyze segment performance and trends. Segment operating income excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), certain components of our U.S. pension plan costs (which are a component of cost of sales and selling, general and administrative expenses) and general corporate expenses (which are a component of selling, general and administrative expenses) for all periods presented. We exclude the unrealized gains and losses on hedging activities from segment operating income in order to provide better transparency of our segment operating results. Once realized, we record the gains and losses on hedging activities within segment operating results. We exclude certain components of our U.S. pension plan cost from segment operating income because we centrally manage pension plan funding decisions and the determination of discount rate, expected rate of return on plan assets and other actuarial assumptions. Therefore, we allocate only the service cost component of our U.S. pension plan expense to segment operating income. Furthermore, we centrally manage interest and other expense, net. Accordingly, we do not present these items by segment because they are excluded from the segment profitability measure that management reviews.
Net changes in unrealized gains / (losses) on hedging activities were favorable, primarily related to gains on commodity hedging activity and foreign currency contracts of $58 million for the nine months ended September 30, 2012, compared to losses on commodity hedging activity and foreign currency contracts of $51 million for the nine months ended September 30, 2011.
In connection with our Restructuring Program, we recorded restructuring charges of $156 million for the nine months ended September 30, 2012. We also recorded implementation costs of $14 million for the nine months ended September 30, 2012. We recorded the restructuring charges in operations, as asset impairment and exit costs, and recorded the implementation costs in operations, as a part of cost of sales and selling, general and administrative expenses.
The increase in interest and other expense, net for the nine months ended September 30, 2012 was due primarily to the $6.0 billion debt issuance in June 2012 and the $3.6 billion debt exchange in July 2012.
Included within our segment results are intercompany sales with Mondelēz International, which totaled $77 million in the nine months ended September 30, 2012 and $74 million in the nine months ended September 30, 2011.
45
Mondelēz International paid royalties to us of $41 million in the nine months ended September 30, 2012 and $37 million in the nine months ended September 30, 2011 under various royalty arrangements. Following the Spin-Off, we no longer receive this royalty income because we do not retain the rights to the intellectual property underlying this royalty income.
Beverages
For the Nine Months Ended
September 30, |
$
change |
%
change |
||||||||||||||
2012 | 2011 | |||||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 2,182 | $ | 2,297 | $ | (115 | ) | (5.0 | %) | |||||||
Segment operating income |
308 | 400 | (92 | ) | (23.0 | %) |
Net revenues decreased $115 million (5.0%), due to the impact of the Starbucks CPG business cessation (3.7 pp) and unfavorable volume/mix (2.3 pp, including a detriment of 0.5 pp due to customer inventory shifts), partially offset by higher net pricing (1.0 pp). Unfavorable volume/mix was due primarily to lower shipments in ready-to-drink beverages, due to higher sales in the fourth quarter of 2011 in advance of an announced increase in list prices, and powdered beverages, which was partially offset by liquid concentrates. Higher net pricing was due primarily to higher commodity cost-driven pricing in ready-to-drink beverages, partially offset by lower commodity cost-driven pricing in coffee.
Segment operating income decreased $92 million (23.0%), due primarily to higher commodity costs, costs incurred for the Restructuring Program, unfavorable volume/mix, the impact of the Starbucks CPG business cessation and higher advertising and consumer spending costs, partially offset by lower manufacturing costs (driven by productivity gains) and higher net pricing.
Cheese
For the Nine Months Ended
September 30, |
$
change |
%
change |
||||||||||||||
2012 | 2011 | |||||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 2,766 | $ | 2,667 | $ | 99 | 3.7 | % | ||||||||
Segment operating income |
482 | 422 | 60 | 14.2 | % |
Net revenues increased $99 million (3.7%), driven by higher net pricing (3.7 pp), as volume/mix was flat (including a detriment of approximately 0.9 pp due to product pruning and 0.5 pp due to customer inventory shifts). Higher net pricing was due to commodity cost-driven pricing actions across all major cheese categories. Volume/mix was flat as higher shipments in snacking cheese, cream cheese and natural cheese categories were offset by lower shipments in cultured and processed cheese categories.
Segment operating income increased $60 million (14.2%), due primarily to higher net pricing, lower manufacturing costs (driven by productivity gains), lower other selling, general and administrative expenses (excluding advertising and consumer spending costs) and lower commodity costs (primarily lower dairy costs), partially offset by costs incurred for the Restructuring Program and higher advertising and consumer spending costs.
46
Refrigerated Meals
For the Nine Months Ended
September 30, |
$
change |
%
change |
||||||||||||||
2012 | 2011 | |||||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 2,609 | $ | 2,542 | $ | 67 | 2.6 | % | ||||||||
Segment operating income |
338 | 309 | 29 | 9.4 | % |
Net revenues increased $67 million (2.6%), driven by higher net pricing (2.2 pp) and favorable volume/mix (0.4 pp, including a detriment of approximately 2.2 pp due to product pruning, partially offset by 1.1 pp due to customer inventory shifts). Higher net pricing was due to commodity cost-driven pricing actions primarily related to lunch combinations and hot dogs. Favorable volume/mix was driven primarily by higher shipments in lunch meats and bacon, partially offset by lower shipments in hot dogs.
Segment operating income increased $29 million (9.4%), due to higher net pricing, lower manufacturing costs (driven by productivity gains), lower other selling, general and administrative expenses (excluding advertising and consumer spending costs) and favorable volume/mix, partially offset by higher commodity costs, costs incurred for the Restructuring Program and higher advertising and consumer spending costs.
Grocery
For the Nine Months Ended
September 30, |
$
change |
%
change |
||||||||||||||
2012 | 2011 | |||||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 3,449 | $ | 3,313 | $ | 136 | 4.1 | % | ||||||||
Segment operating income |
1,048 | 998 | 50 | 5.0 | % |
Net revenues increased $136 million (4.1%), driven by higher net pricing (6.3 pp), partially offset by unfavorable volume/mix (2.2 pp, including a positive impact of 1.7 pp due to customer inventory shifts, partially offset by a detriment of approximately 0.4 pp due to product pruning). Higher net pricing was realized across most key categories, including snack nuts, macaroni and cheese dinners, pourable dressings, spoonable dressings and peanut butter. Unfavorable volume/mix was impacted by lower shipments of snack nuts, ready-to-eat desserts, barbecue sauce, pourable dressings and spoonable dressings, partially offset by higher shipments in macaroni and cheese dinners, peanut butter and dry packaged desserts.
Segment operating income increased $50 million (5.0%), due primarily to higher net pricing, lower advertising and consumer spending costs and lower manufacturing costs (driven by productivity gains), partially offset by higher commodity costs, unfavorable volume/mix, costs incurred for the Restructuring Program and higher other selling, general and administrative costs.
International & Foodservice
For the Nine Months Ended
September 30, |
$
change |
%
change |
||||||||||||||
2012 | 2011 | |||||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 2,839 | $ | 2,801 | $ | 38 | 1.4 | % | ||||||||
Segment operating income |
349 | 365 | (16 | ) | (4.4 | %) |
47
Net revenues increased $38 million (1.4%), driven by higher net pricing (2.3 pp) and favorable volume/mix (0.6 pp, including a detriment of 2.4 pp due to product pruning, partially offset by 1.4 pp of customer inventory shifts), partially offset by unfavorable foreign currency (1.4 pp) and the impact of the Starbucks CPG business cessation (0.1 pp). In Canada, net revenues increased driven by favorable volume/mix and higher net pricing, partially offset by unfavorable foreign currency and the impact of the Starbucks CPG business cessation. Favorable volume/mix was driven by cheese and beverages, partially offset by lower shipments in grocery as well as a ready-to-drink product exit. In Foodservice, net revenues decreased due to unfavorable volume/mix and unfavorable foreign currency, partially offset by higher net pricing. In our Puerto Rico and export business, net revenues increased driven by higher shipments.
Segment operating income decreased $16 million (4.4%), due primarily to higher product costs, costs incurred for the Restructuring Program, higher advertising and consumer spending costs, unfavorable foreign currency and higher other selling, general and administrative costs, partially offset by higher net pricing.
Financial Results for the Years Ended December 31, 2011, 2010 and 2009
Items Affecting Comparability of Results for the Years Ended December 31, 2011, 2010 and 2009
Pizza Divestiture
On March 1, 2010, we completed the sale of the assets of our North American frozen pizza business, or Frozen Pizza, to Nestlé USA, Inc., or Nestlé, for $3.7 billion. Our Frozen Pizza business was a component of our Refrigerated Meals and International & Foodservice segments. The sale included the DiGiorno , Tombstone and Jacks brands in the United States, the Delissio brand in Canada and the California Pizza Kitchen trademark license. It also included two Wisconsin manufacturing facilities (Medford and Little Chute) and the leases for the pizza depots and delivery trucks. Approximately 3,600 of our employees transferred with the business to Nestlé. Accordingly, the results of our Frozen Pizza business have been reflected as discontinued operations on the combined statement of earnings, and prior period results of our continuing operations have been revised to exclude Frozen Pizza in a consistent manner. As a result of the divestiture, we recorded a gain on discontinued operations of $1,596 million, net of taxes, in 2010.
Pursuant to the Frozen Pizza business Transition Services Agreement, we agreed to provide certain sales, co-manufacturing, distribution, information technology, accounting and finance services to Nestlé for up to two years. As of December 31, 2011, these service agreements were substantially complete.
Summary results of operations for the Frozen Pizza business through March 1, 2010 were as follows:
For the Years Ended
December 31, |
||||||||
2010 | 2009 | |||||||
(in millions) | ||||||||
Net revenues |
$ | 335 | $ | 1,632 | ||||
|
|
|
|
|||||
Earnings from continuing operations before income taxes |
73 | 341 | ||||||
Provision for income taxes |
(25 | ) | (123 | ) | ||||
Gain on discontinued operations, net of income taxes |
1,596 | | ||||||
|
|
|
|
|||||
Earnings and gain from discontinued operations, net of income taxes |
$ | 1,644 | $ | 218 | ||||
|
|
|
|
Earnings from continuing operations before income taxes exclude allocated overheads related to the Frozen Pizza business of $25 million in 2010 and $108 million in 2009. The 2010 gain on discontinued operations from the sale of the Frozen Pizza business included tax expense of $1.2 billion.
48
The following assets of the Frozen Pizza business were divested (in millions):
Inventories, net |
$ | 102 | ||
Property, plant and equipment, net |
317 | |||
Goodwill |
475 | |||
|
|
|||
Divested assets of the Frozen Pizza business |
$ | 894 | ||
|
|
Cost Savings Initiatives
Within our cost savings initiatives, we include certain costs along with exit and disposal costs that are directly attributable to those activities but that do not qualify for treatment as exit or disposal costs under U.S. GAAP. These costs, which we commonly refer to as other project costs or implementation costs, generally include the reorganization of operations and facilities, the discontinuance of product lines and the incremental expenses related to the closure of facilities. We believe the disclosure of these charges within our operating income provides greater transparency of the impact of these programs and initiatives on our operating results.
In connection with our cost savings initiatives in 2011, we reversed $18 million of cost savings initiative program costs across all segments. These reversals were primarily related to severance benefits that were accrued and not paid due to natural attrition or employees who accepted other open positions within Mondelēz International or our company.
In 2010, we recorded $33 million of charges, primarily severance costs for benefits for terminated employees, associated benefit plan costs and other related activities. These charges were recorded across all segments.
In 2009, we recorded $110 million of charges, primarily severance costs for benefits for terminated employees, associated benefit plan costs and other related activities. These charges were recorded across all segments.
Starbucks CPG Business
On March 1, 2011, Starbucks took control of the Starbucks CPG business in grocery stores and other channels. Starbucks did so without our authorization and in what we contend is a violation and breach of our license and supply agreement with Starbucks related to the Starbucks CPG business. The dispute is in arbitration in Chicago, Illinois. We are seeking appropriate remedies, including payment of the fair market value of the supply and license agreement, plus the premium this agreement specifies, prejudgment interest under New York law and attorneys fees. Starbucks has counterclaimed for damages. Testimony and post-hearing briefing in the arbitration proceeding are completed, and we await the arbitrators decision. We remain the named party in the proceeding. However, under the Separation and Distribution Agreement between Mondelēz International and us, we will direct any recovery awarded in the arbitration proceeding to Mondelēz International. Mondelēz International will reimburse us for any costs and expenses we incur in connection with the arbitration proceeding. The results of the Starbucks CPG business were included primarily in our Beverages and International & Foodservice segments through March 1, 2011.
Favorable Accounting Calendar Impact in 2011
Our fiscal year end is December 31. Our operating subsidiaries report results on the last Saturday of the fiscal year. Because we report results on the last Saturday of the year, and December 31, 2011 fell on a Saturday, our 2011 results included an extra week, or the 53rd week, of operating results than in the prior two years which had 52 weeks. We estimate that the extra week positively impacted net revenues by approximately $225 million and operating income by approximately $63 million in 2011. The favorable impact to operating income was reinvested in the business.
49
Provision for Income Taxes
Our effective tax rate was 38.1% in 2011, 37.0% in 2010 and 34.7% in 2009. Our 2011 effective tax rate included net tax costs of $52 million from discrete one-time events, primarily from various U.S. federal and U.S. state tax audit developments during the year as well as the revaluation of state deferred tax assets and liabilities resulting from state tax legislation enacted in 2011.
Our 2010 effective tax rate included net tax costs of $32 million, primarily due to a $79 million write-off of deferred tax assets as a result of the U.S. health care legislation enacted in March 2010, partially offset by the federal and state impacts from the favorable resolution of a federal tax audit.
Our 2009 effective tax rate included net tax benefits of $52 million, primarily due to settlements with various state tax authorities and an agreement we reached with the IRS on specific matters related to years 2000 through 2003.
Combined Results of Operations for the Years Ended December 31, 2011, 2010 and 2009
The following discussion compares our combined results of operations for 2011 with 2010 and 2010 with 2009.
2011 compared with 2010
For the Years Ended
December 31, |
||||||||||||||||
2011 | 2010 | $ Change | % Change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 18,655 | $ | 17,797 | $ | 858 | 4.8 | % | ||||||||
Operating income |
2,923 | 2,961 | (38 | ) | (1.3 | )% | ||||||||||
Earnings from continuing operations |
1,839 | 1,887 | (48 | ) | (2.5 | )% | ||||||||||
Net earnings |
1,839 | 3,531 | (1,692 | ) | (47.9 | )% |
Net Revenues . Net revenues increased $858 million (4.8%) to $18,655 million in 2011, and Organic Net Revenues (1) increased $998 million (5.8%) to $18,248 million in 2011, as follows.
Change in net revenues (by percentage point) |
||||
Higher net pricing |
6.7 | pp | ||
Unfavorable volume/mix |
(0.9 | )pp | ||
|
|
|||
Total change in Organic Net Revenues (1) |
5.8 | % | ||
Impact of divestitures |
(2.8 | )pp | ||
Impact of the 53rd week of shipments |
1.3 | pp | ||
Favorable foreign currency |
0.5 | pp | ||
|
|
|||
Total change in net revenues |
4.8 | % | ||
|
|
(1) | See Non-GAAP Financial Measures for a reconciliation of Organic Net Revenues to net revenues. |
Organic Net Revenue growth was driven by higher net pricing, partially offset by unfavorable volume/mix. Higher net pricing was reflected across all reportable segments as we increased pricing to offset higher input costs. Unfavorable volume/mix was driven primarily by lower shipments in all reportable business segments except Beverages. Divestitures (including for reporting purposes the Starbucks CPG business) had an unfavorable impact on net revenues. The 53rd week of shipments in 2011 increased net revenues by $225 million. Favorable foreign currency increased net revenues by $91 million, due to the strength of the Canadian dollar relative to the U.S. dollar.
50
Operating Income . Operating income decreased $38 million (1.3%) to $2,923 million in 2011, due to the following:
Operating
Income |
Change | |||||||
(in millions) | (percentage point) | |||||||
Operating Income for the Year Ended December 31, 2010 |
$ | 2,961 | ||||||
Change in operating income |
||||||||
Higher pricing |
1,163 | 41.4 | pp | |||||
Higher input costs |
(956 | ) | (34.0 | )pp | ||||
Unfavorable volume/mix |
(151 | ) | (5.4 | )pp | ||||
Lower selling, general and administrative expenses |
56 | 2.0 | pp | |||||
Increased operating income from the 53rd week of shipments |
63 | 2.2 | pp | |||||
Decreased operating income from divestitures (including for reporting purposes the Starbucks CPG business) |
(130 | ) | (4.5 | )pp | ||||
Change in unrealized gains/losses on hedging activities |
(92 | ) | (3.3 | )pp | ||||
Favorable foreign currency |
15 | 0.5 | pp | |||||
Other |
(6 | ) | (0.2 | )pp | ||||
|
|
|
|
|||||
Total change in operating income |
(38 | ) | (1.3 | )% | ||||
|
|
|
|
|||||
Operating Income for the Year Ended December 31, 2011 |
$ | 2,923 | ||||||
|
|
Higher pricing outpaced increased input costs during 2011. The increase in input costs was driven by significantly higher raw material costs, partially offset by lower manufacturing costs. Unfavorable volume/mix was driven by declines in all reportable segments except Beverages. Total selling, general and administrative expenses decreased $93 million from 2010. Excluding the impact of the 53rd week of shipments, divestitures (including for reporting purposes the Starbucks CPG business) and foreign currency, selling, general and administrative expenses decreased $56 million from 2010. The 53rd week of shipments in 2011 added $63 million in operating income which was reinvested in the business. The impact of divestitures (including for reporting purposes the Starbucks CPG business) decreased operating income by $130 million. The change in unrealized gains/losses on hedging activities decreased operating income by $92 million, as we recognized unrealized losses of $63 million in 2011, versus unrealized gains of $29 million in 2010. Favorable foreign currency increased operating income by $15 million, due to the strength of the Canadian dollar versus the U.S. dollar. As a result of the net effect of these drivers, operating income margin decreased 0.9 percentage points, from 16.6% in 2010 to 15.7% in 2011. The margin decline was driven primarily by a decline in gross profit margin, reflecting the impact of the higher revenue base on the margin calculation, the unfavorable change in unrealized gains and the impact of divestitures (including for reporting purposes the Starbucks CPG business), partially offset by overhead leverage.
2010 compared with 2009
For the Years Ended
December 31, |
||||||||||||||||
2010 | 2009 | $ Change | % Change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 17,797 | $ | 17,278 | $ | 519 | 3.0 | % | ||||||||
Operating income |
2,961 | 2,975 | (14 | ) | (0.5 | )% | ||||||||||
Earnings from continuing operations |
1,887 | 1,952 | (65 | ) | (3.3 | )% | ||||||||||
Net earnings |
3,531 | 2,170 | 1,361 | 62.7 | % |
51
Net Revenues . Net revenues increased $519 million (3.0%) to $17,797 million in 2010, and Organic Net Revenues (1) increased $341 million (2.0%) to $17,589 million in 2010 as follows.
Change in net revenues (by percentage point) |
||||
Higher net pricing |
1.6 | pp | ||
Favorable volume/mix |
0.4 | pp | ||
|
|
|||
Total change in Organic Net Revenues (1) |
2.0 | % | ||
Favorable foreign currency |
1.1 | pp | ||
Impact of divestitures |
(0.1 | )pp | ||
|
|
|||
Total change in net revenues |
3.0 | % | ||
|
|
(1) | See Non-GAAP Financial Measures for a reconciliation of Organic Net Revenues to net revenues. |
Organic Net Revenue growth was driven by higher net pricing and favorable volume/mix. Higher net pricing was reflected across all reportable segments as we increased pricing to offset higher input costs. Favorable volume/mix was driven by higher shipments in Beverages, Refrigerated Meals and International & Foodservice, partially offset by lower shipments in Cheese and Grocery. Favorable foreign currency increased net revenues by $194 million, due to the strength of the Canadian dollar relative to the U.S. dollar. Divestitures during 2010 also had a small unfavorable impact on net revenues.
Operating Income . Operating income decreased $14 million (0.5%) to $2,961 million in 2010, due to the following:
Operating
Income |
Change | |||||||
(in millions) |
(percentage
point) |
|||||||
Operating Income for the Year Ended December 31, 2009 |
$ | 2,975 | ||||||
Change in operating income |
||||||||
Higher pricing |
273 | 9.2 | pp | |||||
Higher input costs |
(196 | ) | (6.5 | )pp | ||||
Favorable volume/mix |
23 | 0.7 | pp | |||||
Higher selling, general and administrative expenses |
(16 | ) | (0.6 | )pp | ||||
Impact of divestitures |
6 | 0.2 | pp | |||||
Change in unrealized gains/losses on hedging activities |
(136 | ) | (4.6 | )pp | ||||
Favorable foreign currency |
33 | 1.1 | pp | |||||
Other |
(1 | ) | | |||||
|
|
|
|
|||||
Total change in operating income |
(14 | ) | (0.5 | )% | ||||
|
|
|
|
|||||
Operating Income for the Year Ended December 31, 2010 |
$ | 2,961 | ||||||
|
|
|
|
Higher pricing outpaced increased input costs during 2010. The increase in input costs was driven by significantly higher raw material costs, partially offset by lower manufacturing costs. Favorable volume/mix was driven by gains in Beverages, Refrigerated Meals and International & Foodservice, partially offset by declines in Grocery and Cheese. Total selling, general and administrative expenses increased $35 million from 2009. Excluding the impacts of divestitures and foreign currency, selling, general and administrative expenses increased $16 million versus the prior year due primarily to higher advertising and consumer promotion expenses. The change in unrealized gains on hedging activities decreased operating income by $136 million, as we recognized unrealized gains of $29 million in 2010, versus unrealized gains of $165 million in 2009. Favorable foreign currency increased operating income by $33 million, due to the strength of the Canadian dollar relative to the U.S. dollar. As a result of the net effect of these drivers, operating income margin decreased 0.6
52
percentage points, from 17.2% in 2009 to 16.6% in 2010. The margin decline was driven primarily by the decline in gross profit margin, reflecting the unfavorable change in unrealized gains on hedging activities, partially offset by overhead leverage.
Results of Operations by Reportable Segment for the Years Ended December 31, 2011, 2010 and 2009
The following discussion compares our results of operations for each of our reportable segments for 2011 with 2010 and 2010 with 2009.
For the Years Ended
December 31, |
||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Net revenues: |
||||||||||||
Beverages |
$ | 3,028 | $ | 3,236 | $ | 3,081 | ||||||
Cheese |
3,832 | 3,548 | 3,632 | |||||||||
Refrigerated Meals |
3,337 | 3,133 | 3,032 | |||||||||
Grocery |
4,593 | 4,333 | 4,298 | |||||||||
International & Foodservice |
3,865 | 3,547 | 3,235 | |||||||||
|
|
|
|
|
|
|||||||
Net revenues |
$ | 18,655 | $ | 17,797 | $ | 17,278 | ||||||
|
|
|
|
|
|
For the Years Ended
December 31, |
||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Operating income: |
||||||||||||
Beverages |
$ | 450 | $ | 564 | $ | 511 | ||||||
Cheese |
629 | 598 | 667 | |||||||||
Refrigerated Meals |
319 | 268 | 234 | |||||||||
Grocery |
1,316 | 1,246 | 1,187 | |||||||||
International & Foodservice |
482 | 474 | 405 | |||||||||
Unrealized gains/(losses) on hedging activities |
(63 | ) | 29 | 165 | ||||||||
Certain U.S. pension plan costs |
(155 | ) | (144 | ) | (133 | ) | ||||||
General corporate expenses |
(55 | ) | (74 | ) | (61 | ) | ||||||
|
|
|
|
|
|
|||||||
Operating income |
$ | 2,923 | $ | 2,961 | $ | 2,975 | ||||||
|
|
|
|
|
|
Included within our segment results are intercompany sales with Mondelēz International subsidiaries which totaled $100 million in 2011, $79 million in 2010 and $83 million in 2009.
In 2011, the unfavorable $63 million net change in unrealized gains/(losses) on hedging activities primarily resulted from higher commodity hedge losses, partially offset by gains on currency forward contracts. In 2010, the favorable $29 million net change in unrealized gains/(losses) on hedging activities primarily resulted from gains associated with commodity hedge contracts. In 2009, the favorable $165 million net change in unrealized gains/(losses) on hedging activities primarily resulted from the transfer of unrealized losses on energy derivatives that were realized and reflected in segment operating income in 2009.
Beverages
For the Years Ended
December 31, |
||||||||||||||||
2011 | 2010 | $ Change | % Change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 3,028 | $ | 3,236 | $ | (208 | ) | (6.4 | %) | |||||||
Segment operating income |
450 | 564 | (114 | ) | (20.2 | %) |
53
For the Years Ended
December 31, |
||||||||||||||||
2010 | 2009 | $ Change | % Change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 3,236 | $ | 3,081 | $ | 155 | 5.0 | % | ||||||||
Segment operating income |
564 | 511 | 53 | 10.4 | % |
2011 compared with 2010
Net revenues decreased $208 million (6.4%) in 2011, due to the impact of the Starbucks CPG business cessation (14.3 pp) and unfavorable volume/mix (0.2 pp), partially offset by higher net pricing (6.8 pp) and the impact of the 53rd week of shipments (1.3 pp). Unfavorable volume/mix was driven primarily by lower shipments in mainstream coffee, primarily Maxwell House and Gevalia coffee (in our direct-to-consumer business), partially offset by the introduction of MiO liquid concentrate and higher shipments in ready-to-drink beverages, primarily Capri Sun and Kool-Aid , and Tassimo coffee. Higher net pricing was due primarily to input cost-driven pricing actions in coffee.
Segment operating income decreased $114 million (20.2%) due primarily to the impact of the Starbucks CPG business cessation. Segment operating income benefited from the remaining effects of higher net pricing, lower manufacturing costs, favorable volume mix, the impact of the 53rd week of shipments and lower advertising and consumer promotion costs, which more than offset higher raw material costs.
2010 compared with 2009
Net revenues increased $155 million (5.0%) in 2010, due to favorable volume/mix (4.4 pp) and higher net pricing (0.6 pp). Favorable volume/mix was driven primarily by higher shipments in ready-to-drink beverages, primarily Kool-Aid and Capri Sun ; coffee, primarily Maxwell House , Starbucks and Tassimo ; and powdered beverages, primarily Tang .
Segment operating income increased $53 million (10.4%) due to favorable volume/mix, lower manufacturing costs, higher net pricing and lower other selling, general and administrative expenses, partially offset by higher raw material costs and higher advertising and consumer promotion costs.
Cheese
For the Years Ended
December 31, |
||||||||||||||||
2011 | 2010 | $ Change | % Change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 3,832 | $ | 3,548 | $ | 284 | 8.0 | % | ||||||||
Segment operating income |
629 | 598 | 31 | 5.2 | % |
For the Years Ended
December 31, |
||||||||||||||||
2010 | 2009 | $ Change | % Change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 3,548 | $ | 3,632 | $ | (84 | ) | (2.3 | %) | |||||||
Segment operating income |
598 | 667 | (69 | ) | (10.3 | %) |
2011 compared with 2010
Net revenues increased $284 million (8.0%) in 2011, due to higher net pricing (8.2 pp) and the impact of the 53rd week of shipments (1.3 pp), partially offset by unfavorable volume/mix (1.1 pp) and the impact of
54
divestitures (0.4 pp). Higher net pricing, across most major cheese categories, was due to input cost-driven pricing actions. Unfavorable volume/mix was driven primarily by lower shipments in sandwich, cream cheese and recipe cheese categories, partially offset by higher shipments in cultured, natural cheese and grated cheese categories.
Segment operating income increased $31 million (5.2%) due primarily to higher net pricing, lower other selling, general and administrative expenses (including a termination fee received due to the restructuring of a service contract), lower manufacturing costs, the impact of the 53rd week of shipments and the 2010 loss on the divestiture of our Bagelfuls operations, partially offset by higher raw material costs (primarily higher dairy costs), unfavorable volume/mix and higher advertising and consumer promotion costs.
2010 compared with 2009
Net revenues decreased $84 million (2.3%) in 2010, due to unfavorable volume/mix (4.9 pp) and the impact of divestitures (0.4 pp), partially offset by higher net pricing (3.0 pp). Unfavorable volume/mix was driven by lower shipments across most cheese categories. Higher net pricing, across all cheese categories, was due to input cost-driven pricing, partially offset by increased promotional spending.
Segment operating income decreased $69 million (10.3%) due to higher raw material costs (primarily higher dairy costs), unfavorable volume/mix, higher advertising and consumer promotion costs and a loss on the divestiture of our Bagelfuls operations, partially offset by higher net pricing, lower manufacturing costs, lower other selling, general and administrative expenses and the impact of divestitures.
Refrigerated Meals
For the Years Ended
December 31, |
||||||||||||||||
2011 | 2010 | $ Change | % Change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 3,337 | $ | 3,133 | $ | 204 | 6.5 | % | ||||||||
Segment operating income |
319 | 268 | 51 | 19.0 | % |
For the Years Ended
December 31, |
||||||||||||||||
2010 | 2009 | $ Change | % Change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 3,133 | $ | 3,032 | $ | 101 | 3.3 | % | ||||||||
Segment operating income |
268 | 234 | 34 | 14.5 | % |
2011 compared with 2010
Net revenues increased $204 million (6.5%) in 2011, due to higher net pricing (5.9 pp) and the impact of the 53rd week of shipments (1.4 pp), partially offset by unfavorable volume/mix (0.8 pp). Higher net pricing was due to input cost-driven pricing actions primarily related to bacon, lunch meats, hot dogs and Lunchables combination meals. Unfavorable volume/mix was driven primarily by lower shipments in bacon and hot dogs, partially offset by higher shipments in lunch meats and Lunchables combination meals.
Segment operating income increased $51 million (19.0%) due primarily to higher net pricing, lower manufacturing costs, lower other selling, general and administrative expenses and the impact of the 53rd week of shipments, partially offset by higher raw material costs, higher advertising and consumer promotion costs and unfavorable volume/mix.
55
2010 compared with 2009
Net revenues increased $101 million (3.3%) in 2010, due to favorable volume/mix (3.0 pp) and higher net pricing (0.3 pp). Favorable volume/mix was driven by higher shipments in hot dogs, Lunchables combination meals and lunch meats. Higher net pricing was driven by input-cost driven pricing, mostly offset by increased promotional spending.
Segment operating income increased $34 million (14.5%) due to lower manufacturing costs, lower other selling, general and administrative expenses, favorable volume/mix and higher net pricing, partially offset by higher raw material costs and higher advertising and consumer promotion costs.
Grocery
For the Years Ended
December 31, |
||||||||||||||||
2011 | 2010 | $ Change | % Change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 4,593 | $ | 4,333 | $ | 260 | 6.0 | % | ||||||||
Segment operating income |
1,316 | 1,246 | 70 | 5.6 | % |
For the Years Ended
December 31, |
||||||||||||||||
2010 | 2009 | $ Change | % Change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 4,333 | $ | 4,298 | $ | 35 | 0.8 | % | ||||||||
Segment operating income |
1,246 | 1,187 | 59 | 5.0 | % |
2011 compared with 2010
Net revenues increased $260 million (6.0%) in 2011, due to higher net pricing (6.9 pp) and the impact of the 53rd week of shipments (1.3 pp), partially offset by unfavorable volume/mix (2.2 pp). Higher net pricing was reflected across most grocery categories including Planters nuts, spoonable dressings, Kraft macaroni & cheese dinners, dry packaged desserts and ready-to-eat desserts. Unfavorable volume/mix was driven by lower shipments, primarily spoonable dressings, Planters nuts, ready-to-eat desserts, barbecue sauces, dessert toppings and dry packaged desserts, partially offset by the introduction of Planters peanut butter and higher shipments in Kraft macaroni & cheese dinners.
Segment operating income increased $70 million (5.6%) due primarily to higher net pricing, the impact of the 53rd week of shipments, lower other selling, general and administrative expenses, lower manufacturing costs and lower advertising and consumer promotion costs, partially offset by higher raw material costs and unfavorable volume/mix.
2010 compared with 2009
Net revenues increased $35 million (0.8%) in 2010, due to higher net pricing (1.4 pp), partially offset by unfavorable volume/mix (0.6 pp). Higher net pricing, across most key categories, was primarily related to Kraft macaroni & cheese dinners, pourable dressings, ready-to-eat desserts and dry packaged desserts. Unfavorable volume/mix was due primarily to lower shipments across most key categories, including pourable dressings, ready-to-eat desserts, spoonable dressings and dry packaged desserts, partially offset by higher shipments in Planters nuts.
Segment operating income increased $59 million (5.0%) due primarily to higher net pricing, lower manufacturing costs and lower other selling, general and administrative expenses, partially offset by unfavorable volume/mix and higher advertising and consumer promotion costs.
56
International & Foodservice
For the Years Ended
December 31, |
||||||||||||||||
2011 | 2010 | $ Change | % Change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 3,865 | $ | 3,547 | $ | 318 | 9.0 | % | ||||||||
Segment operating income |
482 | 474 | 8 | 1.7 | % |
For the Years Ended
December 31, |
||||||||||||||||
2010 | 2009 | $ Change | % Change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues |
$ | 3,547 | $ | 3,235 | $ | 312 | 9.6 | % | ||||||||
Segment operating income |
474 | 405 | 69 | 17.0 | % |
2011 compared with 2010
Net revenues increased $318 million (9.0%) in 2011, due primarily to higher net pricing (5.9 pp), favorable foreign currency (2.6 pp) and the impact of the 53rd week of shipments (1.3 pp), partially offset by the impact of the cessation of the Starbucks CPG business (0.5 pp) and unfavorable volume/mix (0.3 pp). In Canada, net revenues increased, driven primarily by higher net pricing, favorable foreign currency and the impact of the 53rd week of shipments, partially offset by the impact of the cessation of the Starbucks CPG business. In Foodservice, net revenues increased, driven primarily by higher net pricing, the impact of the 53rd week of shipments and favorable foreign currency, partially offset by unfavorable volume/mix. In Puerto Rico and U.S. exports, net revenue increased due to higher shipments.
Segment operating income increased $8 million (1.7%) due primarily to higher net pricing, favorable foreign currency and the impact of the 53rd week of shipments, mostly offset by higher raw material costs, higher other selling, general and administrative expenses and unfavorable volume/mix.
2010 compared with 2009
Net revenues increased $312 million (9.6%) in 2010, due to the significant impact of favorable foreign currency (6.0 pp), higher net pricing (2.4 pp) and favorable volume/mix (1.2 pp). In Canada, net revenues increased, driven by favorable foreign currency, favorable volume/mix due to higher shipments in our Canadian grocery, cheese and refrigerated meals retail businesses and higher net pricing. In Foodservice, net revenues increased, driven by higher net pricing and favorable foreign currency, partially offset by unfavorable volume/ mix (unfavorable product mix, net of higher shipments).
Segment operating income increased $69 million (17.0%) due primarily to higher net pricing, favorable volume/mix, favorable foreign currency and lower advertising and consumer promotion costs, partially offset by higher raw material costs.
Liquidity and Capital Resources
We believe that cash generated from our operating activities, our $3.0 billion revolving credit facility and our commercial paper program will provide sufficient liquidity to meet our working capital needs, planned capital expenditures, future contractual obligations and payment of our anticipated quarterly dividends. We will use our commercial paper program and primarily uncommitted international credit lines for daily funding requirements. Overall, we do not expect any negative effects to our funding sources that would have a material effect on our short-term or long-term liquidity.
57
Historically, certain cash balances were swept by Mondelēz International, and we received funding from Mondelēz International for our operating and investing cash needs. As agreed under the Separation and Distribution Agreement between Mondelēz International and us, they retained the cash swept by Mondelēz International prior to the Spin-Off. In advance of the Spin-Off, we modified some of these arrangements and retained $244 million of cash. We expect to finance short-term cash needs through cash from our operating activities, our commercial paper program and our $3.0 billion revolving credit facility.
Net Cash Provided by Operating Activities
During the first nine months of 2012, net cash provided by operating activities was $2,067 million, compared with $2,045 million provided in the first nine months of 2011. The increase in cash provided by operating cash flows primarily relates to increased earnings and lower estimated tax payments due to the impact of our debt exchange in July 2012, partially offset by higher other working capital costs (mainly due to decreased income taxes payable and increased receivables offset by lower cash expended on inventory in the first nine months of 2012 than in the first nine months of the prior year).
During the first nine months of 2012, we contributed $15 million to our Canadian pension plans. On October 1, 2012, we recorded $5.5 billion of net benefit plan obligations related to our pension and other postretirement benefit plans and will reflect them on our balance sheet as of December 31, 2012. Accordingly, our total net pension and postretirement benefit plan obligations were $5.6 billion as of October 1, 2012. We plan to contribute approximately $10 million to our Canadian pension plans during the remainder of 2012. However, our actual contributions may differ due to many factors, including changes in tax and other benefit laws, significant differences between expected and actual pension asset performance or interest rates, or considerations related to the Spin-Off.
Net Cash Used in Investing Activities
Net cash used in investing activities was $279 million in the first nine months of 2012 as compared to $267 million in the first nine months of 2011. The increase is attributable to lower capital expenditures which were $282 million in the first nine months of 2012 and $267 million in the first nine months of 2011. Capital expenditures include investments in our business for growth, new products and productivity initiatives as well as investments in our Restructuring Program. We expect 2012 capital investments to be approximately $500 million. We expect to fund these expenditures with cash from operations.
Net Cash Used in Financing Activities
During the first nine months of 2012, net cash used in financing activities was $1,548 million, compared with $1,778 million in the first nine months of 2011. Net transfers to Mondelēz International were $7,220 million in the first nine months of 2012 compared with $1,805 million in the first nine months of 2011. The transfers to Mondelēz International in 2012 were primarily related to the net proceeds we received from our $6.0 billion debt issuance and cash generated from operating activities. The transfers to Mondelēz International in 2011 were primarily related to cash generated from operating activities.
Borrowing Arrangements
On March 8, 2012, in connection with the Spin-Off, we entered into a $4.0 billion 364-day senior unsecured revolving credit facility that was to expire on March 7, 2013. On July 18, 2012, we effected a mandatory $2.6 billion reduction of the unused commitment under the facility, leaving us with $1.4 billion of borrowing capacity under the facility. On September 24, 2012, we terminated this facility with no amounts drawn.
On May 18, 2012, we entered into a $3.0 billion five-year senior unsecured revolving credit facility that expires on May 17, 2017. All committed borrowings under the facility will bear interest at a variable annual rate
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based on the London Inter-Bank Offered Rate or a defined base rate, at our election, plus an applicable margin based on the ratings of our long-term senior unsecured indebtedness. The revolving credit agreement requires us to maintain a minimum total shareholders equity (excluding accumulated other comprehensive income or losses and any income or losses recognized in connection with mark-to-market accounting in respect of pension and other retirement plans). The revolving credit agreement also contains customary representations, covenants and events of default. We intend to use the proceeds of this facility for general corporate purposes. As of September 30, 2012, no amounts were drawn on this credit facility.
Long-Term Debt
On June 4, 2012, we issued $6.0 billion of senior unsecured notes at a weighted-average effective rate of 3.938% and transferred the net proceeds of $5.9 billion to Mondelēz International. We also recorded approximately $260 million of deferred financing costs which will be recognized in interest expense over the life of the notes. The general terms of the $6.0 billion notes are:
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$1 billion notes due June 4, 2015 at a fixed, annual interest rate of 1.625%. Interest is payable semiannually beginning December 4, 2012. |
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$1 billion notes due June 5, 2017 at a fixed, annual interest rate of 2.250%. Interest is payable semiannually beginning December 5, 2012. |
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$2 billion notes due June 6, 2022 at a fixed, annual interest rate of 3.500%. Interest is payable semiannually beginning December 6, 2012. |
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$2 billion notes due June 4, 2042 at a fixed, annual interest rate of 5.000%. Interest is payable semiannually beginning December 4, 2012. |
On July 18, 2012, Mondelēz International completed a debt exchange in which $3.6 billion of Mondelēz International debt was exchanged for our debt in connection with our Spin-Off capitalization plans. No cash was generated from the exchange. In connection with the debt exchange, we recorded deferred tax liabilities of $411 million. The general terms of the $3.6 billion notes issued are:
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$1,035 million notes due August 23, 2018 at a fixed, annual interest rate of 6.125%. Interest is payable semiannually beginning August 23, 2012. This debt was issued in exchange for $596 million of Mondelēz Internationals 6.125% Notes due in February 2018 and $439 million of Mondelēz Internationals 6.125% Notes due in August 2018. |
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$900 million notes due February 10, 2020 at a fixed, annual interest rate of 5.375%. Interest is payable semiannually beginning August 10, 2012. This debt was issued in exchange for an approximately equal principal amount of Mondelēz Internationals 5.375% Notes due in February 2020. |
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$878 million notes due January 26, 2039 at a fixed, annual interest rate of 6.875%. Interest is payable semiannually beginning July 26, 2012. This debt was issued in exchange for approximately $233 million of Mondelēz Internationals 6.875% Notes due in January 2039, approximately $290 million of Mondelēz Internationals 6.875% Notes due in February 2038, approximately $185 million of Mondelēz Internationals 7.000% Notes due in August 2037 and approximately $170 million of Mondelēz Internationals 6.500% Notes due in November 2031. |
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$787 million notes due February 9, 2040 at a fixed, annual interest rate of 6.500%. Interest is payable semiannually beginning August 9, 2012. This debt was issued in exchange for an approximately equal principal amount of Mondelēz Internationals 6.500% Notes due in 2040. |
On October 1, 2012, Mondelēz International transferred approximately $400 million of Mondelēz International 7.550% senior unsecured notes maturing in June 2015 to us to complete the key elements of the debt migration plan in connection with the Spin-Off.
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Total Debt
Our total debt was $9.6 billion at September 30, 2012 and $35 million at December 31, 2011, and, prior to our debt issuance in the current year, consisted entirely of capital lease obligations. The weighted-average remaining term of our debt was 14.9 years at September 30, 2012.
Guarantee of Mondelēz International Debt
As of September 30, 2012, Mondelēz International and three of its indirect wholly owned subsidiaries, including a subsidiary that became our indirect wholly owned subsidiary as a result of the Spin-Off on October 1, 2012, are joint and several guarantors of $1.0 billion of indebtedness issued by Cadbury Schweppes US Finance LLC and maturing on October 1, 2013. Under the Separation and Distribution Agreement between Mondelēz International and us, Mondelēz International has agreed to indemnify us in the event our subsidiary is called upon to satisfy its obligation under the guarantee. Accordingly, we have no obligation included on our balance sheets for this guarantee.
Dividend Policy
We currently expect to recommend to our Board of Directors (the Board) an annual dividend of $2.00 per share. The timing, declaration, amount and payment of any future dividends to shareholders will fall within the discretion of our Board. Our Boards decisions regarding the payment of future dividends will depend on many factors, including our financial condition, earnings, capital requirements and debt service obligations, as well as legal requirements, regulatory constraints, industry practice and other factors that our Board deems relevant. In addition, the terms of the agreements governing our new debt or debt that we may incur in the future may limit or prohibit the payment of dividends. There can be no assurance that we will pay a dividend in the future or that we will continue to pay any dividend if we do commence paying dividends.
Critical Accounting Policies and Estimates
Note 2, Summary of Significant Accounting Policies, to our audited combined financial statements as of December 31, 2011 and 2010 and for each of the three years ended December 31, 2011, includes a summary of the significant accounting policies we used to prepare our historical combined financial statements. The following is a review of the more significant assumptions and estimates as well as the accounting policies we used to prepare our historical combined financial statements.
Principles of Combination
The combined annual and interim financial statements include our net assets and results of our operations as described above. All significant intracompany transactions and accounts within our combined businesses have been eliminated.
Intercompany transactions between Mondelēz International and us are reflected in the historical combined financial statements. Intercompany transactions with Mondelēz International or its affiliates are reflected in the combined statements of cash flows as net transfers to Mondelēz International and its affiliates within financing activities and in the combined balance sheets within the parent company investment. The parent company investment equity balance represents Mondelēz Internationals historical investment in us and the net effect of transactions with and allocations from Mondelēz International.
Our fiscal year end is December 31. Our operating subsidiaries report results on the last Saturday of the fiscal year. Because we report results on the last Saturday of the year, and December 31, 2011 fell on a Saturday, our 2011 results included the 53rd week of operating results. We estimate that the extra week positively impacted net revenues by approximately $225 million and operating income by approximately $63 million in 2011. The favorable impact to operating income was reinvested in the business.
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Use of Estimates
We prepare our historical combined financial statements in accordance with U.S. GAAP, which requires us to make accounting policy elections, estimates and assumptions that affect a number of amounts in our historical combined financial statements. Significant accounting policy elections, estimates and assumptions include, among others, allocation methods used to allocate net assets and expenses from Mondelēz International, including defined benefit and stock-based compensation expenses; goodwill and intangible assets; long-lived assets; marketing program accruals; insurance and self-insurance reserves and income taxes. We base our estimates on historical experience and other assumptions that we believe are reasonable. If actual amounts differ from estimates, we include the revisions in our combined results of operations in the period the actual amounts become known. Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a significant impact on our historical combined financial statements.
Inventories
Inventories are stated at the lower of cost or market. We value all our inventories using the average cost method. We also record inventory allowances for overstocked and obsolete inventories due to ingredient and packaging changes.
Long-Lived Assets
We review long-lived assets, including amortizable intangible assets, for impairment when conditions exist that indicate the carrying amount of the assets may not be fully recoverable. We perform undiscounted operating cash flow analyses to determine if an impairment exists. When testing for impairment of assets held for use, we group assets and liabilities at the lowest level for which cash flows are separately identifiable. If we determine an impairment exists, we calculate the loss based on estimated fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.
Goodwill and Intangible Assets
We test goodwill and non-amortizable intangible assets for impairment at least once a year in the fourth quarter. We assess goodwill impairment risk by first performing a qualitative review of entity-specific, industry, market and general economic factors for each reporting unit. If significant potential goodwill impairment risk exists for a specific reporting unit, we apply a two-step quantitative test. The first step compares the reporting units estimated fair value with its carrying value. We estimate a reporting units fair value using a 20-year projection of discounted cash flows which incorporates planned growth rates, market-based discount rates and estimates of residual value. We used a market-based, weighted-average cost of capital of 6.8% to discount the projected cash flows of those operations. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans, industry and economic conditions and our actual results and conditions may differ over time. If the carrying value of a reporting units net assets exceeds its fair value, the second step is applied to measure the difference between the carrying value and implied fair value of goodwill. If the carrying value of goodwill exceeds its implied fair value, the goodwill is considered impaired and reduced to its implied fair value. We test non-amortizable intangible assets for impairment by comparing the fair value of each intangible asset with its carrying value. We determine fair value of non-amortizable intangible assets using planned growth rates, market-based discount rates and estimates of royalty rates. If the carrying value exceeds fair value, the intangible asset is considered impaired and is reduced to fair value.
Definite-lived intangible assets are amortized over their estimated useful lives and evaluated for impairment as long-lived assets.
In 2011, 2010 and 2009, there were no impairments of goodwill or non-amortizable intangible assets. In 2011, we noted one reporting unit in our goodwill testing, Planters and Corn Nuts within our Grocery segment,
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which continued to be sensitive primarily to ongoing significant input cost pressure. Planters and Corn Nuts had $1,170 million of goodwill as of December 31, 2011, and its excess fair value over the carrying value of its net assets improved from 12% in 2010 to 19% in 2011. While the reporting unit passed the first step of the impairment test by a substantial margin, if its operating income were to decline significantly in the future, it would adversely affect the estimated fair value of the reporting unit. If input costs were to continue to rise, we expect to take further pricing actions as we have done in 2011. However, if we are unsuccessful in these efforts, it would decrease profitability, negatively affect the estimated fair value of the Planters and Corn Nuts reporting unit and could lead to a potential impairment in the future.
Insurance and Self-Insurance
We use a combination of insurance and self-insurance for a number of risks, including workers compensation, general liability, automobile liability, product liability and our obligation for employee health care benefits. Liabilities associated with the risks are estimated by considering historical claims experience and other actuarial assumptions.
Revenue Recognition
We recognize revenues when title and risk of loss pass to customers, which generally occurs upon shipment or delivery of goods. Revenues are recorded net of consumer incentives and trade promotions and include all shipping and handling charges billed to customers. Provisions for product returns and customer allowances are also recorded as reductions to revenues within the same period that the revenue is recognized. Shipping and handling costs are classified as part of cost of sales.
Marketing and Research and Development
We promote our products with advertising, consumer incentives and trade promotions. These programs include, but are not limited to, discounts, coupons, rebates, in-store display incentives and volume-based incentives. Consumer incentive and trade promotion activities are recorded as a reduction to revenues based on amounts estimated as being due to customers and consumers at the end of a period. We base these estimates principally on historical utilization and redemption rates. For interim reporting purposes, advertising and consumer incentive expenses are charged to operations as a percentage of volume, based on estimated volume and related expense for the full year. We do not defer costs on our year-end combined balance sheet and all marketing costs are recorded as an expense in the year incurred. Advertising expense was $535 million in 2011, $540 million in 2010 and $477 million in 2009. We expense costs as incurred for product research and development. Research and development expense was $198 million in 2011, $185 million in 2010 and $194 million in 2009. We record marketing and research and development expenses within selling, general and administrative expenses.
Environmental Costs
We are subject to laws and regulations relating to the protection of the environment. We accrue for environmental remediation obligations on an undiscounted basis when amounts are probable and can be reasonably estimated. The accruals are adjusted as new information develops or circumstances change. Recoveries of environmental remediation costs from third parties are recorded as assets when recovery of those costs is deemed probable. As of December 31, 2011, we were involved in 67 active actions and as of September 30, 2012, we were involved in 66 active actions in the United States under the Superfund legislation (and other similar actions and legislation) related to our current operations and certain closed, inactive or divested operations for which we retain liability. We are subject to applicable multi-national, national and local environmental laws and regulations in the countries in which we do business. We have specific programs across our business units designed to meet applicable environmental compliance requirements.
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As of December 31, 2011 and September 30, 2012, we accrued an immaterial amount for environmental remediation. Based on information currently available, we believe that the ultimate resolution of existing environmental remediation actions and our compliance in general with environmental laws and regulations will not have a material effect on our financial condition. However, we cannot quantify with certainty the potential impact of future compliance efforts and environmental remediation actions.
Stock-based Compensation
Our employees historically participated in Mondelēz Internationals stock-based compensation plans. Stock-based compensation expense has been allocated to us based on the awards and terms previously granted to our employees. The stock-based compensation was initially measured at the fair value of the awards on the grant date and is recognized in the financial statements over the period the employees are required to provide services in exchange for the awards. The fair value of our option awards is measured on the grant date using the Black-Scholes option-pricing model. The fair value of performance awards of restricted stock is based on the Mondelēz International stock price at the grant date and the assessed probability of meeting future performance targets. The fair value of restricted and deferred stock awards is based on the number of units granted and Mondelēz Internationals stock price on the grant date. See our Stock Benefit Plans notes to our historical combined financial statements for additional information. Stock-based compensation expense allocated to us was $39 million for the nine months ended September 30, 2012 and 2011, $51 million in 2011, $49 million in 2010 and $52 million in 2009.
Pension and Other Postemployment Benefit Plans
Mondelēz International provided defined benefit pension, postretirement health care, defined contribution and multiemployer pension and medical benefits to our eligible employees and retirees. As such, these liabilities are not reflected in our combined balance sheets. As of the Distribution Date, we record the net benefit plan obligations related to these plans and reflect them in our combined balance sheet. See Unaudited Pro Forma Combined Financial Statements for additional information.
Our combined statements of earnings include expense allocations for these benefits which were determined based on a review of personnel by business unit and based on allocations of corporate and other shared functional personnel. We consider the expense allocation methodology and results to be reasonable for all periods presented.
Total Mondelēz International benefit plan net expenses allocated to us were $497 million in 2011, $486 million in 2010 and $464 million in 2009 and are detailed below. The Mondelēz International benefit plan net expenses allocated to us were $491 million for the nine months ended September 30, 2012 and $367 million for the nine months ended September 30, 2011. These costs are reflected in our cost of sales and selling, general and administrative expenses. These costs were funded through intercompany transactions with Mondelēz International which are now reflected within the parent company investment equity balance.
Allocated from
Mondelēz International Plans |
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2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Pension plan cost |
$ | 261 | $ | 248 | $ | 235 | ||||||
Postretirement health care cost |
160 | 166 | 157 | |||||||||
Employee savings plan cost |
54 | 52 | 52 | |||||||||
Multiemployer pension plan cost |
2 | 2 | 2 | |||||||||
Multiemployer medical plan cost |
20 | 18 | 18 | |||||||||
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Net expense |
$ | 497 | $ | 486 | $ | 464 | ||||||
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Certain pension plans in our Canadian operations, or the Canadian Pension Plans, and our postemployment benefit plans, or collectively, the Kraft Foods Group Plans, are our direct obligations and
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have been recorded within our historical combined financial statements. We record amounts relating to these Kraft Foods Group Plans based on calculations specified by U.S. GAAP. These calculations require the use of various actuarial assumptions, such as discount rates, assumed rates of return on plan assets, compensation increases and turnover rates. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate. As permitted by U.S. GAAP, we generally amortize any effect of the modifications over future periods. We believe that the assumptions used in recording our Canadian Pension Plan obligations are reasonable based on our experience and advice from our actuaries. See our Pension and Other Postemployment Benefit Plans notes to our historical combined financial statements for a discussion of the assumptions used.
We recorded the following amounts in earnings for the Kraft Foods Group Plans during the years ended December 31, 2011, 2010 and 2009:
Kraft Foods Group Plans | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Canadian Pension Plans costs |
$ | 14 | $ | 9 | $ | 9 | ||||||
Postemployment benefit plans costs |
19 | 4 | 5 | |||||||||
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Net expense |
$ | 33 | $ | 13 | $ | 14 | ||||||
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The 2011 net expense of $33 million increased $20 million over the prior year. The cost increase primarily related to higher pension plan costs, including settlement costs and higher amortization of the net loss from experience differences, and the incorporation of a Canadian postemployment plan into our obligations. The 2010 net expense of $13 million decreased an insignificant amount over the 2009 amount.
In 2011, we contributed $22 million and our employees contributed $2 million to our Canadian Pension Plans. Based on current tax law and minimum funding requirements, we estimate that 2012 pension contributions would be approximately $25 million. Our actual contributions may be different due to many factors, including changes in tax and other benefit laws, significant differences between expected and actual pension asset performance or interest rates or other factors.
We expect our 2012 net expense for the Kraft Foods Group Plans to decrease, primarily due to the drop off of the one-time cost in 2011 of incorporating a Canadian postemployment plan into our obligations, partially offset by a weighted-average decrease of 75 basis points in our discount rate assumption for our Canadian Pension Plans. Our net expense for the Kraft Foods Group Plans was $17 million for the nine months ended September 30, 2012 and $14 million for the nine months ended September 30, 2011.
Our 2012 expected rate of return on plan assets decreased to 6.80% from 7.36% for our Canadian Pension Plans. We determine our expected rate of return on plan assets from the plan assets historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class. We attempt to maintain our target asset allocation by rebalancing between asset classes as we make contributions and monthly benefit payments.
While we do not anticipate further changes in the 2012 assumptions for our Canadian Pension Plans, as a sensitivity measure, a fifty basis point change in our discount rate or a fifty basis point change in the expected rate of return on plan assets would have the following effects, increase / (decrease) in cost, as of December 31, 2011:
Fifty Basis Point | ||||||||
Increase | Decrease | |||||||
(in millions) | ||||||||
Effect of change in discount rate on pension costs |
$ | (5 | ) | $ | 5 | |||
Effect of change in expected rate of return on plan assets on pension costs |
(3 | ) | 3 |
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Financial Instruments
As we operate primarily in North America but source our commodities on global markets and periodically enter into financing or other arrangements abroad, we use a variety of risk management strategies and financial instruments to manage commodity price, foreign currency exchange rate and interest rate risks. Our risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on our operating results. One way we do this is through actively hedging our risks through the use of derivative instruments.
Derivatives are recorded on our combined balance sheets at fair value, which fluctuates based on changing market conditions. Certain derivatives are designated as cash flow hedges and qualify for hedge accounting treatment, while others do not qualify and are marked to market through earnings. For cash flow hedges, changes in fair value are deferred in accumulated other comprehensive earnings / (losses) within equity until the underlying hedged items are recognized in net earnings. Accordingly, we record deferred cash flow hedge gains or losses in cost of sales when the related inventory is sold and in interest and other expense, net, when the related debt interest expense is recorded. Cash flows from derivative instruments are also classified in the same manner as the underlying hedged items in the combined statement of cash flows. For additional information on the location of derivative activity within our operating results, see our Financial Instruments notes to our historical combined financial statements.
To qualify for hedge accounting, a specified level of hedging effectiveness between the hedging instrument and the item being hedged must be achieved at inception and maintained throughout the hedged period. Any hedging ineffectiveness is recognized in net earnings when the change in the value of the hedge does not offset the change in the value of the underlying hedged item. We formally document our risk management objectives, strategies for undertaking the various hedge transactions, the nature of and relationships between the hedging instruments and hedged items and method for assessing hedge effectiveness. Additionally, for qualified hedges of forecasted transactions, we specifically identify the significant characteristics and expected terms of the forecasted transactions. If it becomes probable that a forecasted transaction will not occur, the hedge will no longer be effective and all of the derivative gains or losses would be recognized in earnings in the current period.
When we use financial instruments, we are exposed to credit risk that a counterparty might fail to fulfill its performance obligations under the terms of our agreement. We minimize our credit risk by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure we have with each counterparty and monitoring the financial condition of our counterparties. We also maintain a policy of requiring that all significant, non-exchange traded derivative contracts with a duration of greater than one year be governed by an International Swaps and Derivatives Association master agreement. We are also exposed to market risk as the value of our financial instruments might be adversely affected by a change in foreign currency exchange rates, commodity prices or interest rates. We manage market risk by incorporating monitoring parameters within our risk management strategy that limit the types of derivative instruments and derivative strategies we use and the degree of market risk that we hedge with derivative instruments.
Commodity cash flow hedges . We are exposed to price risk related to forecasted purchases of certain commodities that we primarily use as raw materials. We enter into commodity forward contracts primarily for coffee beans, meat products, sugar, wheat and dairy products. Commodity forward contracts generally are not subject to the accounting requirements for derivative instruments and hedging activities under the normal purchases exception. We also use commodity futures and options to hedge the price of certain input costs, including dairy products, coffee beans, meat products, wheat, corn products, soybean oils, sugar and natural gas. Some of these derivative instruments are highly effective and qualify for hedge accounting treatment. We also sell commodity futures to unprice future purchase commitments, and we occasionally use related futures to cross-hedge a commodity exposure. We are not a party to leveraged derivatives and, by policy, do not use financial instruments for speculative purposes.
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Foreign currency cash flow hedges . We use various financial instruments to mitigate our exposure to changes in exchange rates from third-party and intercompany actual and forecasted transactions. These instruments may include forward foreign exchange contracts and foreign currency options. We primarily use these instruments to hedge our exposure to the Canadian dollar.
Interest rate cash flow hedges . We use derivative instruments, including interest rate swaps, as part of our interest rate risk management strategy. As a matter of policy, we do not use highly leveraged derivative instruments for interest rate risk management. We primarily use interest rate swaps to hedge the variability of interest payment cash flows on a portion of our future debt obligations. Substantially all of these derivative instruments are highly effective and qualify for hedge accounting treatment.
Income Taxes
For purposes of the historical combined financial statements, our income tax expense and deferred tax balances have been estimated as if we filed income tax returns on a stand-alone basis separate from Mondelēz International. As a stand-alone entity, our deferred taxes and effective tax rate may differ from those in the historical periods.
We recognize tax benefits in our financial statements when our uncertain tax positions are more likely than not to be sustained upon audit. The amount we recognize is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
We recognize deferred tax assets for deductible temporary differences, operating loss carryforwards and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.
New Accounting Guidance
See Note 2, Summary of Significant Accounting Policies, to our audited combined financial statements as of December 31, 2011 and 2010 and for each of the three years ended December 31, 2011, and Note 1, Background and Basis of Presentation, to our unaudited condensed combined financial statements as of September 30, 2012 and for the nine months ended September 30, 2012 and 2011, for a discussion of new accounting standards and significant accounting policies.
Contingencies
See our Commitments and Contingencies notes to our historical combined financial statements.
Commodity Trends
We purchase large quantities of commodities, including dairy products, coffee beans, meat products, wheat, corn products, soybean and vegetable oils, nuts, and sugar and other sweeteners. In addition, we use significant quantities of resins and cardboard to package our products, and energy to operate our factories and warehouses. We continuously monitor worldwide supply and cost trends of these commodities so we can act quickly to procure ingredients and packaging materials needed for production.
The most significant cost component of our cheese products are dairy commodities, including milk and cheese. We purchase our dairy raw material requirements from independent third parties such as agricultural cooperatives and independent processors. Market supply and demand, as well as government programs, substantially influence the price for milk and other dairy products. The most significant cost component of our coffee products is green coffee beans, which we purchase on world markets. Quality and availability of supply, changes in the value of the U.S. dollar in relation to certain other currencies and consumer demand for coffee products impact coffee bean prices. Significant cost components in our meat business include pork, beef and
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poultry, which we purchase on domestic markets. Livestock feed costs and the global demand for U.S. meats influence the prices of these meat products. Other significant cost components in our grocery products are grains, including wheat, sugar and soybean oil.
During 2011, our aggregate commodity costs increased primarily due to the higher costs of dairy products, coffee beans, meat products, packaging materials, grains and oils costs. We expect a higher cost environment and commodity cost volatility to continue in 2012. During the first nine months of 2012, our aggregate commodity costs increased over the comparable prior year period, primarily as a result of packaging material costs, sugar, meat, other raw materials, nuts, energy and flour and grain costs, partially offset by lower dairy costs. We expect the price volatility and higher cost environment and commodity cost volatility to continue over the remainder of the year. As noted earlier in our discussion of our operating results, we have addressed higher commodity costs primarily through higher pricing, lower manufacturing costs due to our end-to-end cost management program and lower discretionary spending. We expect to continue to use these measures to address further commodity cost increases.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
We have no material off-balance sheet arrangements other than the guarantees and contractual obligations that are discussed below.
Guarantees
As discussed in our Commitments and Contingencies notes to our historical combined financial statements, we have third-party guarantees primarily covering the long-term obligations of our vendors. As part of those transactions, we guarantee that third parties will make contractual payments or achieve performance measures. The carrying amount of our third-party guarantees on our combined balance sheet and the maximum potential payments under these guarantees was $22 million at September 30, 2012 and $22 million at December 31, 2011. Substantially all of these guarantees expire at various times through 2018.
In addition, we were contingently liable for guarantees related to our own performance totaling $184 million at September 30, 2012 and $154 million at December 31, 2011. These include letters of credit related to dairy commodity purchases and other letters of credit.
Guarantees do not have, and we do not expect them to have, a material effect on our liquidity.
Aggregate Contractual Obligations
During the first nine months of 2012, our long-term debt and expected interest payments increased as we issued $9.6 billion of senior unsecured notes. See Note 7, Debt, to our unaudited condensed combined financial statements for additional information on our long-term debt issuances. The following table summarizes our contractual obligations at September 30, 2012 for our total long-term debt and interest expense for the periods presented and as adjusted for the changes in our long-term debt through September 30, 2012 and the related impact on our interest expense. Amounts in the table do not reflect the additional $4.0 billion of debt we have incurred after September 30, 2012 in connection with the Spin-Off, as described under Liquidity and Capital Resources.
Payments Due for the 12-Month Period Ending September 30, | ||||||||||||||||||||
Total | 2013 | 2014-15 | 2016-17 |
2018 and
Thereafter |
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(in millions) | ||||||||||||||||||||
Long-term debt (1) |
$ | 9,629 | $ | 6 | $ | 1,006 | $ | 1,006 | $ | 7,611 | ||||||||||
Interest expense (2) |
7,610 | 432 | 864 | 830 | 5,484 | |||||||||||||||
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Total |
$ | 17,239 | $ | 438 | $ | 1,870 | $ | 1,836 | $ | 13,095 | ||||||||||
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(1) | Amounts represent the expected cash payments for the maturities of our long-term debt and do not include unamortized bond premiums or discounts. |
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(2) | Amounts represent the expected cash payments of our interest expense on our long-term debt. |
The following table summarizes our contractual obligations at December 31, 2011. Amounts in the table do not reflect the $10 billion of debt we incurred in connection with the Spin-Off described under Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources, and the allocation of certain net liabilities between Mondelēz International and us described under Unaudited Pro Forma Combined Financial Statements.
Payments Due | ||||||||||||||||||||
Total | 2012 | 2013-14 | 2015-16 |
2017 and
Thereafter |
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(in millions) | ||||||||||||||||||||
Capital leases (1) |
$ | 46 | $ | 10 | $ | 10 | $ | 8 | $ | 18 | ||||||||||
Operating leases (2) |
503 | 118 | 175 | 93 | 117 | |||||||||||||||
Purchase obligations (3) |
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Inventory and production costs |
3,144 | 2,791 | 348 | 5 | | |||||||||||||||
Other |
303 | 153 | 150 | | | |||||||||||||||
3,447 | 2,944 | 498 | 5 | | ||||||||||||||||
Other long-term liabilities (4) |
13 | 1 | 10 | 2 | | |||||||||||||||
$ | 4,009 | $ | 3,073 | $ | 693 | $ | 108 | $ | 135 | |||||||||||
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(1) | Amounts represent the expected cash payments of our capital leases, which includes interest expenses. |
(2) | Operating leases represent the minimum rental commitments under non-cancelable operating leases. |
(3) | Purchase obligations for inventory and production costs (such as raw materials, indirect materials and supplies, packaging, co-manufacturing arrangements, storage and distribution) are commitments for projected needs to be utilized in the normal course of business. Other purchase obligations include commitments for marketing, advertising, capital expenditures, information technology and professional services. Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the transaction. Most arrangements are cancelable without a significant penalty and with short notice (usually 30 days). Any amounts reflected on the combined balance sheet as accounts payable and accrued liabilities are excluded from the table above. |
(4) | The following long-term liabilities included on the combined balance sheet are excluded from the table above: accrued pension costs, income taxes, insurance accruals and other accruals. We are unable to reliably estimate the timing of the payments (or contributions beyond 2012, in the case of accrued pension costs) for these items. Based on current tax law and minimum funding requirements, we estimate that pension contributions to our Canadian Pension Plans would be approximately $25 million in 2012. We also expect that our net pension cost will increase to approximately $20 million in 2012. As of December 31, 2011, our total liability for income taxes, including uncertain tax positions and associated accrued interest and penalties, was $339 million. We estimate that approximately $127 million will be paid in the next 12 months. We are not able to reasonably estimate the timing of future cash flows related to accrued tax liabilities beyond 12 months due to uncertainties in the timing and outcomes of current and future tax audits. |
Non-GAAP Financial Measures
We use certain non-GAAP financial measures to budget, make operating and strategic decisions and evaluate our performance. We have disclosed the following measures so that you have the same financial data that we use to assist you in making comparisons to our historical operating results and analyzing our underlying performance.
We believe that the presentation of these non-GAAP financial measures, when considered together with our U.S. GAAP financial measures and the reconciliations to the corresponding U.S. GAAP financial measures,
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provides you with a more complete understanding of the factors and trends affecting our business than could be obtained absent these disclosures. Because non-GAAP financial measures may vary among companies, the non-GAAP financial measures presented in this prospectus may not be comparable to similarly titled measures used by other companies. Our use of non-GAAP financial measures is not meant to be considered in isolation or as a substitute for any U.S. GAAP financial measure. A limitation of the non-GAAP financial measures is that they exclude items detailed below which have an impact on our U.S. GAAP reported results. The best way this limitation can be addressed is by evaluating our non-GAAP financial measures in combination with our U.S. GAAP reported results and carefully evaluating the following tables which reconcile U.S. GAAP reported figures to the non-GAAP financial measures.
Organic Net Revenues
We use the non-GAAP financial measure Organic Net Revenues and corresponding growth measures. The difference between Organic Net Revenues and net revenues (the most comparable U.S. GAAP financial measure) is that Organic Net Revenues exclude the impact of divestitures (including for reporting purposes the Starbucks CPG business), the impact of the 53rd week of shipments in 2011 and currency. We believe that Organic Net Revenues better reflect the underlying growth from the ongoing activities of our business and provide improved comparability of results.
For the Nine Months Ended
September 30, |
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2012 | 2011 | $ Change | % Change | |||||||||||||
(in millions) | ||||||||||||||||
Organic Net Revenues |
$ | 13,885 | $ | 13,529 | $ | 356 | 2.6 | % | ||||||||
Impact of foreign currency |
(40 | ) | | (40 | ) | (0.3 | )pp | |||||||||
Impact of the Starbucks CPG business cessation |
| 91 | (91 | ) | (0.6 | )pp | ||||||||||
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Net revenues |
$ | 13,845 | $ | 13,620 | $ | 225 | 1.7 | % | ||||||||
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December 31, |
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2011 | 2010 | $ Change | % Change | |||||||||||||
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Organic Net Revenues |
$ | 18,248 | $ | 17,250 | $ | 998 | 5.8 | % | ||||||||
Impact of divestitures (1) |
91 | 547 | (456 | ) | (2.8 | )pp | ||||||||||
Impact of 53 rd week of shipments |
225 | | 225 | 1.3 | pp | |||||||||||
Impact of foreign currency |
91 | | 91 | 0.5 | pp | |||||||||||
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Net revenues |
$ | 18,655 | $ | 17,797 | $ | 858 | 4.8 | % | ||||||||
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For the Years Ended
December 31, |
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(in millions) | ||||||||||||||||
Organic Net Revenues |
$ | 17,589 | $ | 17,248 | $ | 341 | 2.0 | % | ||||||||
Impact of divestitures (2) |
14 | 30 | (16 | ) | (0.1 | )pp | ||||||||||
Impact of foreign currency |
194 | | 194 | 1.1 | pp | |||||||||||
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$ | 17,797 | $ | 17,278 | $ | 519 | 3.0 | % | ||||||||
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(1) | Impact of divestitures includes for reporting purposes the Starbucks CPG business. |
(2) | The Starbucks CPG business net revenues were included in 2009 and 2010 within our Organic Net Revenues. |
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Quantitative and Qualitative Disclosures about Market Risk
As we operate primarily in North America but source our commodities on global markets and periodically enter into financing or other arrangements abroad, we use financial instruments to manage commodity price, foreign currency exchange rate and interest rate risks. We monitor and manage these exposures as part of our overall risk management program. Our risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on our operating results. We maintain commodity price, foreign currency and interest rate risk management policies that principally use derivative instruments to reduce significant, unanticipated earnings fluctuations that may arise from volatility in commodity prices, foreign currency exchange rates and interest rates. We also sell commodity futures to unprice future purchase commitments, and we occasionally use related futures to cross-hedge a commodity exposure. We are not a party to leveraged derivatives and, by policy, do not use financial instruments for speculative purposes. See Note 2, Summary of Significant Accounting Policies, to our audited combined financial statements and our Financial Instruments notes to our historical combined financial statements for further details of our commodity price, foreign currency and interest rate risk management policies and the types of derivative instruments we use to hedge those exposures.
Value at Risk
We use a value at risk, or VAR, computation to estimate: 1) the potential one-day loss in pre-tax earnings of our commodity price and foreign currency-sensitive derivative financial instruments; and 2) the potential one-day loss in the fair value of our interest rate-sensitive financial instruments. We include our commodity futures, forwards and options, foreign currency forwards and interest rate swaps in our VAR computation. Excluded from the computation were anticipated transactions and foreign currency trade payables and receivables which the financial instruments are intended to hedge.
We made the VAR estimates assuming normal market conditions, using a 95% confidence interval. We used a variance / co-variance model to determine the observed interrelationships between movements in interest rates and various currencies. These interrelationships were determined by observing interest rate and forward currency rate movements over the prior quarter for the calculation of VAR amounts at December 31, 2011 and 2010, and over each of the four prior quarters for the calculation of average VAR amounts during each year. The values of commodity options do not change on a one-to-one basis with the underlying currency or commodity, and were valued accordingly in the VAR computation.
As of and for the years ended December 31, 2011 and 2010, the estimated potential one-day loss in pre-tax earnings from our commodity and foreign currency instruments and the estimated potential one-day loss in fair value of our interest rate-sensitive instruments, as calculated in the VAR model, were:
Pre-Tax Earnings Impact | Fair Value Impact | |||||||||||||||||||||||||||||||
At 12/31/11 | Average | High | Low | At 12/31/11 | Average | High | Low | |||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||
Instruments sensitive to: |
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Commodity prices |
$ | 14 | $ | 17 | $ | 20 | $ | 13 | ||||||||||||||||||||||||
Foreign currency rates |
1 | 2 | 2 | 1 | ||||||||||||||||||||||||||||
Interest rates |
$ | 9 | $ | 2 | $ | 9 | |
Pre-Tax Earnings Impact | Fair Value Impact | |||||||||||||||||||||||||||||||
At 12/31/10 | Average | High | Low | At 12/31/10 | Average | High | Low | |||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||
Instruments sensitive to: |
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Commodity prices |
$ | 17 | $ | 11 | $ | 17 | $ | 4 | ||||||||||||||||||||||||
Foreign currency rates |
2 | 1 | 2 | 1 | ||||||||||||||||||||||||||||
Interest rates |
N/A | N/A | N/A | N/A |
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This VAR computation is a risk analysis tool designed to statistically estimate the maximum probable daily loss from adverse movements in commodity prices, foreign currency rates and interest rates under normal market conditions. The computation does not represent actual losses in fair value or earnings to be incurred, nor does it consider the effect of favorable changes in market rates. We cannot predict actual future movements in such market rates and do not present these VAR results to be indicative of future movements in such market rates or to be representative of any actual impact that future changes in market rates may have on our future financial results.
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Overview
We are one of the largest consumer packaged food and beverage companies in North America and one of the largest worldwide among publicly traded consumer packaged food and beverage companies, based on our 2011 combined net revenues of $18.7 billion. We manufacture and market food and beverage products, including refrigerated meals, refreshment beverages and coffee, cheese and other grocery products, primarily in the United States and Canada, under a host of iconic brands. Our product categories span breakfast, lunch and dinner meal occasions, both at home and in foodservice locations.
Our diverse brand portfolio consists of many of the most popular food brands in North America, including three brands with annual net revenues exceeding $1 billion each Kraft cheeses, dinners and dressings; Oscar Mayer meats; and Maxwell House coffeesplus over 20 brands with annual net revenues of between $100 million and $1 billion each. In the United States, based on dollar share in 2011, we hold the number one branded share position in a majority of our 50 product categories, as well as in 18 of our top 20 product categories. These 18 product categories contributed approximately 75% of our 2011 U.S. retail net revenues. We hold the number two branded share position in the other two product categories.
As a result of our superior brands, quality, innovation and marketing capabilities, as well as our ongoing focus on productivity and operating efficiency, we believe we have achieved category-leading profit margins in almost all of our key product categories. Our business has generated significant cash flow, which we believe will allow us to continue to invest in the development and continual rejuvenation of our brands and return value to our shareholders. Our goal as an independent public company is to deliver superior operating income, strong cash flows and a highly competitive dividend payout while driving revenue growth in our key product categories.
Competitive Strengths
We believe the following competitive strengths support our leading positions in the categories we serve:
Superior Brand Portfolio
Our brand portfolio represents one of the strongest collections of consumer brands in the food and beverage industry. Our brands are among the most popular in North America and, according to the Nielsen Company, were enjoyed in 98% of households in the United States and Canada in 2011. Our core brands have been built through yearsand in many cases decadesof significant investment in product innovation, advertising and promotion, and reflect a deep commitment to product quality. We believe that our remarkable stable of brands provides a foundation for us to maintain our category leadership positions and to drive profitability.
Significant Scale in North America
The North American food and beverage market is highly profitable, but is relatively mature and characterized by moderate growth in most categories. We believe that this environment favors competitors with the scale to drive operating efficiency and productivity. We are one of the largest consumer packaged food and beverage companies in North America based on our combined net revenues in 2011. Our significant scale in North America enables us to effectively serve our customers while keeping costs low and enhancing our margins. For example, we leverage our scale in distribution and our status as one of the largest buyers of food-related raw and packaging materials to drive efficiency and control costs. In addition, our scale across product categories helps to strengthen our relationships with our customers by allowing us to provide them with a diverse array of leading brands, as well as customized sales support to market those brands in their stores.
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Diverse Category Profile
We offer food and beverage products across an extensive array of grocery categories. Our wide variety of products includes coffee, lunch meats, cream cheese, salad dressings, macaroni & cheese and refrigerated desserts. In 2011, our products covered 50 categories, with no single category accounting for more than 10% of our combined net revenues.
Our grocery categories provide some insulation against soft economic conditions, while the diversity of our categories protects us against weakness in any individual category. As a result, our category profile helps us generate stable cash flow.
Reputation for High Quality Products
We have a strong reputation for offering high quality products. This reputation, coupled with our strong brand positions, enables us to offer our products at a premium price relative to competitor products, and to capture high market shares across most of our categories. We are focused on producing high quality products and continuously monitor consumer preferences for our brands to ensure we deliver superior quality and value. Through our rigorous quality and product development process, we continually seek to improve our products and packaging to appeal to our consumers evolving preferences with respect to taste, texture, appearance, convenience and health and wellness benefits.
Strong Innovation Culture and Pipeline
We nurture the growth of our brands by developing new and innovative products and product line extensions that appeal to consumers. We have invested significantly, and expect to continue to invest significantly, in food and beverage product development, focusing on core and next generation technologies, products and platforms that address consumer needs. Our investments in developing and marketing new products have been significant drivers of our category leadership. In 2011, new products introduced in the last three years represented approximately 10% of our combined net revenues. New product platforms that we have recently launched include MiO (a liquid beverage enhancer) and Velveeta Skillets meal kits, and new product line extensions include Oscar Mayer Lunchables with fruit, Kraft shredded cheese with a Touch of Philadelphia and Jell-O Temptations .
Deep Consumer Knowledge
Understanding consumer needs and trends is essential to driving revenue growth in our key product categories. We have developed proprietary tools and work with third-party vendors, such as the Nielsen Company, to capture and analyze consumer buying patterns and category trends. We use our deep consumer insights to develop targeted marketing programs and merchandising activities that maximize return on investment, better predict the impact of pricing actions and trade incentives on volume, understand and anticipate long-term consumer trends and determine the best allocation of our resources for new product development and capital deployment.
Long-Standing Relationships with Major Retailers
We have long-standing relationships with all the major food retailers in North America, including grocery stores, such as Kroger, Supervalu and Loblaw; mass merchants, such as Wal-Mart and Target; and warehouse clubs, such as Sams Club. We also have long-standing relationships with retailers in other channels, including dollar/value, convenience and drug stores. Due to our brand leadership positions, investments in market research, dedicated category business development teams and range of products, we are able to work closely with our customers to develop mutually beneficial marketing.
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Experienced Management Team
Our senior management team has substantial experience in managing large businesses, primarily in consumer products, and related operational, financial and sales and marketing experience. For example, our Executive Chairman, John Cahill, has over 20 years of experience in the food and beverage industry and has held a number of senior positions with The Pepsi Bottling Group, Inc., including Executive Chairman and Chairman and Chief Executive Officer. W. Anthony Vernon, our Chief Executive Officer, led a number of Johnson & Johnsons largest franchises during his 23-year career there and led Mondelēz Internationals business in North America prior to the Spin-Off. In addition, our senior management has a long history with Mondelēz International and us. Combined, our top 14 senior executives have over 165 years of service at Mondelēz International or its predecessor companies. They have a track record of strong operating performance, recognizing and capitalizing on attractive opportunities in the categories and markets we serve and driving operating efficiencies.
Goals and Strategies
Over the last several years, we have made significant investments in product quality, marketing and innovation behind our iconic North American brands and have implemented a series of cost saving initiatives to drive margin improvement and fund brand investments.
The Spin-Off provides the North American Grocery Business the opportunity to achieve greater operational focus and drive our return on investment. Sales will be primarily driven by a center of the store warehouse distribution model, allowing us to streamline our organization, processes and systems to a single model.
Our goals are to drive profitable revenue growth in the categories in which we compete and leverage category-leading profit margins to deliver strong free cash flow and a highly competitive dividend payout. To achieve these goals, we will take the following actions:
Build on Leading Market Positions
We have one of the strongest portfolios of food and beverage brands in North America, and we believe that building on our leading market positions is essential to our success. Therefore, we will invest in our most attractive growth opportunities by disproportionately allocating our marketing and product development resources to those brands that we believe have a distinct competitive advantage and brand position.
Maintain a Sharp Focus on Cost Structure and Superior Execution
We will strive to achieve optimal levels of efficiency and effectiveness by streamlining and simplifying our supply chain operations, as well as by reducing overhead costs.
We will continue to implement Lean Six Sigma principles in our manufacturing, warehousing and transportation organizations. In addition, we announced a reorganization in the first quarter of 2012, which included realigning our U.S. sales organization, consolidating U.S. management centers and streamlining our corporate and business unit organizations.
We believe that our focus on productivity and lower cost structures will create favorable operating leverage as volumes increase, and that the gains from favorable operating leverage will both continue to fund higher investments in our brands and expand our profit margins.
Invest in Employee and Organization Excellence
We will focus on attracting and hiring the best talent available, particularly to strengthen our sales, marketing and innovation capabilities. We will attract and retain our talent by offering attractive and fulfilling career paths and by investing in employee training and development programs to develop outstanding leaders.
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Our Products and Reportable Segments
We manufacture and sell food and beverage products in 50 categories, with our top 20 product categories accounting for approximately 85% of our U.S. retail net revenues in 2011. We report our operating results through five reportable segments:
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Beverages , which primarily manufactures packaged juice drinks, powdered beverages and coffee; |
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Cheese , which primarily manufactures processed, natural and cream cheeses; |
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Refrigerated Meals , which primarily manufactures processed meats and lunch combinations; |
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Grocery , which primarily manufactures spoonable and pourable dressings, condiments, desserts, packaged dinners and snack nuts; and |
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International & Foodservice , which sells products across the Grocery Business Lines and is composed of our Canadian and Puerto Rico grocery operations, our North American grocery-related foodservice operations and the North American Grocery Export Business. |
The following table presents the relative percentages of total segment operating income attributable to each reportable segment for the six months ended September 30, 2012 and each of the last three fiscal years. See Managements Discussion and Analysis of Financial Condition and Results of Operations and our Segment Reporting notes to our historical combined financial statements for information regarding net revenues and total assets by reportable segment.
Relative Percentages of Segment Operating Income | ||||||||||||||||
For the Nine Months
Ended September 30, 2012 |
For the Years Ended December 31 | |||||||||||||||
2011 | 2010 | 2009 | ||||||||||||||
Beverages |
12 | % | 14 | % | 18 | % | 17 | % | ||||||||
Cheese |
19 | % | 20 | % | 19 | % | 22 | % | ||||||||
Refrigerated Meals |
13 | % | 10 | % | 9 | % | 8 | % | ||||||||
Grocery |
42 | % | 41 | % | 39 | % | 40 | % | ||||||||
International & Foodservice |
14 | % | 15 | % | 15 | % | 13 | % |
Cheese products in our Cheese segment contributed 20% of our combined net revenues in each of 2011 and 2010 and 21% of our combined net revenues in 2009. Meat products in our Refrigerated Meals segment, including lunch meats, hot dogs and bacon, contributed 13% of our combined net revenues in each of 2011, 2010 and 2009.
Beverages
Our Beverages segment had net revenues of $3.028 billion and contributed 16% of our combined net revenues in 2011, and had net revenues of $2.182 billion and contributed 16% of our combined net revenues for the nine months ended September 30, 2012. This segment primarily manufactures refreshment beverages, including Capri Sun (under license) and Kool-Aid packaged juice drinks, Kool-Aid , Crystal Light and Country Time powdered beverages and MiO liquid concentrate, and coffee products, including Maxwell House , Gevalia and Yuban coffees, Maxwell House International beverage mixers and Tassimo (under license) hot beverage system.
Cheese
Our Cheese segment had net revenues of $3.832 billion and contributed 20% of our combined net revenues in 2011, and had net revenues of $2.766 billion and contributed 20% of our combined net revenues for the nine months ended September 30, 2012. This segment primarily manufactures processed cheese, including Velveeta and Cheez Whiz processed cheeses, Kraft and Deli Deluxe processed cheese slices, Kraft grated cheeses and Polly-O and Athenos hummus and cheeses; natural cheese, including Kraft and Cracker Barrel natural cheeses; and cream cheese, including Philadelphia cream cheese and cooking creme.
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Refrigerated Meals
Our Refrigerated Meals segment had net revenues of $3.337 billion and contributed 18% of our combined net revenues in 2011, and had net revenues of $2.609 billion and contributed 19% of our combined net revenues for the nine months ended September 30, 2012. This segments principal brands and products include Oscar Mayer lunch meats, hot dogs and bacon, Lunchables lunch combinations, Boca soy-based meat alternatives and Claussen pickles.
Grocery
Our Grocery segment had net revenues of $4.593 billion and contributed 25% of our combined net revenues in 2011, and had net revenues of $3.449 billion and contributed 25% of our combined net revenues for the nine months ended September 30, 2012. This segments principal brands and products include Kraft and Kraft Deluxe macaroni & cheese dinners, Planters nuts, trail mixes and peanut butter, Corn Nuts corn snacks, Jell-O dry packaged desserts and refrigerated gelatin and pudding snacks, Cool Whip whipped topping, Jet-Puffed marshmallows, Bakers chocolate and baking ingredients, Kraft and Miracle Whip spoonable dressings, Kraft and Good Seasons salad dressings, A.1. steak sauce, Kraft and Bulls-Eye barbecue sauces, Grey Poupon premium mustards, Shake N Bake coatings, Stove Top stuffing mix, Taco Bell Home Originals (under license) meal kits, Velveeta shells and cheese dinners and Velveeta Skillets meal kits.
International & Foodservice
Our International & Foodservice segment had net revenues of $3.865 billion and contributed 21% of our combined net revenues in 2011, and had net revenues of $2.839 billion and contributed 20% of our combined net revenues for the nine months ended September 30, 2012. This segment sells products and brands across the Grocery Business Lines, spanning all of our other segments, and is composed of our Canadian and Puerto Rico grocery operations, our North American grocery-related foodservice operations and the North American Grocery Export Business.
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Canadian grocery offerings include Nabob coffee and Kraft peanut butter, as well as a range of products in the Grocery Business Lines bearing brand names similar to those marketed in the United States. |
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Puerto Rico grocery offerings include products and brands from all of our other segments, except for powdered and liquid concentrate beverages, such as Crystal Light , Kool-Aid and MiO . |
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The North American foodservice business sells primarily branded products in the Grocery Business Lines, including Maxwell House coffee, A.1. steak sauce and a broad array of Kraft sauces, dressings and cheeses, and serves the needs of restaurants and other foodservice operations. |
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The North American Grocery Export Business products and brands span all of the Grocery Business Lines, except for (i) Tang powdered beverages, MiO liquid concentrate beverages and Philadelphia cream cheese in a number of jurisdictions and (ii) certain branded products, such as Kool-Aid packaged juice drinks and powdered beverages, Miracle Whip spoonable dressings and Kraft mayonnaise, that Mondelēz International will market and sell in a limited number of countries outside of the United States and Canada. |
Customers
We sell our products primarily to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, drug stores, gasoline stations, value stores and other retail food outlets in the United States and Canada.
Our five largest customers accounted for approximately 41% of our combined net revenues in 2011, while our ten largest customers accounted for approximately 53%. One of our customers, Wal-Mart Stores, Inc., accounted for approximately 24% of our combined net revenues in 2011.
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Sales
Our sales force has consistently been rated as one of the leading sales forces in customer and industry surveys. Our direct customer teams call on the headquarter operations of our customers and manage our customer relationships. These teams collaborate with customers on developing strategies for new item introduction, category and assortment management, shopper insights, shopper marketing, trade and promotional planning and strategic retail pricing solutions. We have a dedicated headquarter customer team covering all of our product lines for many of our largest customers, and we pool resources across our product lines to provide competitive support to regional retailers. As a leader in the industry, and in many of the categories in which we compete, we also provide many of our retail partners with strategic advice regarding product categories.
Our breadth of product lines and scale throughout the retail environment are supported by two leading sales agencies within our customers stores. Acosta Sales & Marketing supports our grocery and mass channel customers, while CROSSMARK supports our convenience store retail partners. Both Acosta and CROSSMARK are extensions of our direct customer teams and are managed by our sales leadership. Both sales agencies provide in-store support of product placement, distribution and promotional execution. We believe our agency relationships will complement our headquarter customer teams and allow us to provide top-tier customer support.
We also utilize sales agencies, distributors or other similar arrangements to sell our products in Puerto Rico and in markets outside of the United States and Canada.
Marketing and Advertising
We support our brands with strong marketing and advertising campaigns and invest heavily in consumer promotions to stimulate demand for our products. We work with third-party vendors, such as the Nielsen Company, to capture and analyze consumer buying patterns and product trends, and we use our deep consumer knowledge to develop targeted marketing programs and merchandising activities. As one of the largest food and beverage advertisers in North America, we leverage our large marketing budget and brand portfolio to negotiate attractive prices and terms for advertising campaigns and to pursue national multi-brand marketing campaigns.
Raw Materials and Packaging
We use large quantities of commodities, including dairy products, coffee beans, meat products, wheat, corn products, soybean and vegetable oils, nuts and sugar and other sweeteners, to manufacture our products. In addition, we use significant quantities of resins and cardboard to package our products and natural gas to operate our factories and warehouses. For commodity inputs that we use across many of our product categories, such as corrugated paper and energy, we coordinate sourcing requirements and centralize procurement to leverage our scale. In addition, some of our product lines and brands separately source raw materials that are specific to their operations, such as the peanuts requirements of Planters .
We purchase from numerous sources, from large, international producers to smaller, local independent sellers. We have preferred purchaser status and/or have developed strategic partnerships with many of our suppliers, and consequently enjoy favorable pricing and dependable supply for many of our inputs. The prices of raw materials and agricultural materials that we use in our products are affected by external factors such as global competition for resources, currency fluctuations, severe weather or global climate change, consumer or industrial demand and changes in governmental regulation and trade, alternative energy and agricultural programs.
The most significant cost component of our cheese products are dairy commodities, including milk and cheese. We purchase our dairy raw material requirements from independent third parties such as agricultural cooperatives and independent processors. Market supply and demand, as well as government programs, substantially influence the prices for milk and other dairy products. The most significant cost component of our coffee products is green coffee beans, which we purchase on world markets. Quality and availability of supply, changes in the value of the U.S. dollar in relation to certain other currencies and consumer demand for coffee
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products impact coffee bean prices. Significant cost components in our meat business include pork, beef and poultry, which we purchase on domestic markets. Livestock feed costs and the global demand for U.S. meats influence the prices of these meat products. Other significant cost components in our grocery products are grains, including wheat, sugar and soybean oil.
Our risk management groups, each of which focuses on particular commodities, work with our procurement teams to continuously monitor worldwide supply and cost trends so we can act quickly to obtain ingredients and packaging needed for production on favorable terms. Although the prices of our principal raw materials can be expected to fluctuate, we believe there will be an adequate supply of the raw materials we use and that they are generally available from numerous sources. Our risk management groups use a range of hedging techniques to limit the impact of price fluctuations in our principal raw materials. However, we do not fully hedge against changes in commodity prices, and our hedging strategies may not protect us from increases in specific raw material costs. We closely monitor any exposure we have to increased input costs so that we can quickly adjust our pricing to offset any higher costs.
Manufacturing and Processing
We manufacture our products in our network of manufacturing and processing facilities located throughout North America. As of September 30, 2012, we operated 37 manufacturing and processing facilities in the United States and three in Canada. We own all 40 of these facilities.
While some of our plants are dedicated to the production of specific products or brandsour Madison, Wisconsin plant, for example, manufactures only Oscar Mayer productsother plants can accommodate multiple product lines. We manufacture our Beverages products in five locations, our Cheese products in 12 locations, our Refrigerated Meals products in eight locations and our Grocery products in 12 locations. In many cases, our facilities are strategically located close to major supply sources. In managing our network of manufacturing and processing facilities, we focus on eliminating excess capacity through consolidation, harmonizing production practices and safety procedures and pursuing productivity opportunities that cut across multiple divisions and product lines. We maintain all of our manufacturing and processing facilities in good condition and believe they are suitable and adequate for our present needs.
From time to time, we strategically enter into co-manufacturing arrangements with third parties if we determine it is advantageous to outsource the production of any of our products. For example, we may outsource production of a new product before it reaches sufficient scale to be manufactured in our operated facilities.
Distribution
We distribute our products through our network of 43 owned and leased distribution centers, satellite warehouses and depots. As of September 30, 2012, we operated 39 distribution centers, satellite warehouses and depots in the United States and four in Canada. We own three and lease 40 of these distribution centers, satellite warehouses and depots. In addition, third-party logistics providers perform storage and distribution services for us to support our distribution network.
We rely on common carriers and our private fleet to transport our products from our manufacturing and processing facilities to our distribution facilities. Our distribution facilities generally accommodate all of our product lines from each of our segments and have the capacity to store refrigerated, dry and frozen goods. We assemble customer orders for multiple products at the distribution facilities and deliver them by common carrier or our private fleet to our customers warehouses. This allows us to efficiently sell full truckloads to both our large and small customers. We focus on optimizing the number and location of our distribution facilities to minimize both transportation and facility maintenance costs, while meeting our customers needs and providing them with desired stock levels and delivery times. We maintain all of our distribution facilities in good condition and believe they have sufficient capacity to meet our present distribution needs.
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Competition
We face competition in all aspects of our business. Competitors include large national and international companies and numerous local and regional companies. We also compete with generic products and retailer brands, wholesalers and cooperatives. We compete primarily on the basis of product quality and innovation, brand recognition and loyalty, service, effectiveness of marketing, advertising and other promotional activity, the ability to identify and satisfy consumer preferences and price. Improving our market position or introducing a new product requires substantial advertising and promotional expenditures.
Trademarks and Intellectual Property
Our trademarks are material to our business and are among our most valuable assets. Some of our most significant trademarks include Kraft , Kool-Aid , Crystal Light , MiO , Cracker Barrel , Velveeta , Cheez Whiz , Oscar Mayer , Lunchables , Planters , Jell-O , Cool Whip , Miracle Whip , A.1. , Grey Poupon , Shake N Bake , Bakers and Stove Top . We own the rights to these trademarks in the United States, Canada and many other countries throughout the world. In addition, we own the trademark rights to Philadelphia in the United States, Canada and the Caribbean, and to Maxwell House and Gevalia throughout North America and Latin America. We protect our trademarks by registration or otherwise in the United States, Canada and other markets. Trademark protection continues in some countries for as long as the mark is used and in other countries for as long as it is registered. Registrations generally are for renewable, fixed terms. From time to time, we grant third parties licenses to use one or more of our trademarks in particular locations. Similarly, as of September 30, 2012, we sell some products under brands we license from third parties, including:
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Capri Sun packaged juice drinks for sale in the United States and Canada; and |
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Taco Bell Home Originals Mexican-style food products for sale in U.S. grocery stores. |
In connection with the Spin-Off, we granted Mondelēz International licenses to use some of our trademarks in particular locations outside of the United States and Canada and will sell some products under brands we license from Mondelēz International. See Certain Relationships and Related Party TransactionsAgreements with Mondelēz International for more detail.
Additionally, we own numerous patents worldwide. We consider our portfolio of patents, patent applications, patent licenses under patents owned by third parties, proprietary trade secrets, technology, know-how processes and related intellectual property rights to be material to our operations. While our patent portfolio is material to our business, the loss of one patent or a group of related patents would not have a material adverse effect on our business. We either have been issued patents or have patent applications pending that relate to a number of current and potential products, including products licensed to others. Patents, issued or applied for, cover inventions ranging from basic packaging techniques to processes relating to specific products and to the products themselves.
Our issued patents extend for varying periods according to the date of patent application filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage as determined by the patent office or courts in the country, and the availability of legal remedies in the country.
In connection with the Spin-Off, we granted Mondelēz International licenses to use some of our patents, and we also license certain patents from Mondelēz International. See Certain Relationships and Related Party TransactionsAgreements with Mondelēz International for more detail.
Properties
Our corporate headquarters are located in Northfield, Illinois. Our headquarters are owned and house our executive offices, our U.S. business units, except Oscar Mayer , and our administrative, finance and human resource functions. We maintain additional owned and leased offices in the United States and Canada.
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We also operate 40 manufacturing and processing facilities, 43 distribution facilities and three technology centers. See Manufacturing and Processing, Distribution and Research and Development for additional detail. We do not believe that any of these facilities are individually material to our business.
Research and Development
We pursue four main objectives in research and development:
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growth through new products and line extensions, |
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uncompromising product safety and quality, |
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superior customer satisfaction, and |
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cost reduction. |
Our research and development specialists have historically focused on both major product innovation and more modestly scaled line extensions, such as the introduction of new flavors, colors or package designs for established products. We have approximately 810 food scientists, chemists and engineers, with teams dedicated to particular brands and products.
We maintain three key technology centers, each equipped with pilot plants and state-of-the-art instruments. We expended approximately $198 million on research and development activities in 2011, $185 million in 2010 and $194 million in 2009.
Seasonality
Overall sales of our products are fairly balanced throughout the year, although demand for certain products may be influenced by holidays, changes in seasons or other annual events.
Employees
We have approximately 25,000 employees, of whom approximately 21,300 are located in the United States and approximately 2,400 are located in Canada. Approximately one-third of our hourly employees are represented under contracts primarily with the United Food and Commercial Workers International Union and the International Brotherhood of Teamsters. These contracts expire at various times throughout the next several years. We believe that our relationships with employees and their representative organizations are generally good.
Regulation
Our U.S. food products and packaging materials are primarily regulated by the U.S. Food and Drug Administration or, for products containing meat and poultry, the U.S. Food Safety and Inspection Service of the U.S. Department of Agriculture. These agencies enact and enforce regulations relating to the manufacturing, distribution and labeling of food products. We supported the Food Safety Modernization Act, a 2011 law that provided additional food safety authority to the U.S. Food and Drug Administration. We do not expect the cost of complying with that law, and implementing regulations expected over the next two to three years, to be material.
In addition, various states regulate our U.S. operations by licensing plants, enforcing federal and state standards for selected food products, grading food products, inspecting plants and warehouses, regulating trade practices related to the sale of dairy products and imposing their own labeling requirements on food products.
Many of the food commodities we use in our U.S. operations are subject to governmental agricultural programs. These programs have substantial effects on prices and supplies and are subject to periodic U.S. Congressional and administrative review.
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Our food operations in Canada are subject to local and national regulations similar to those applicable to our business in the United States.
Environmental Regulation
We are subject to various federal, provincial, state and local laws and regulations in the United States and Canada relating to the protection of the environment, including those governing discharges to air and water, the management and disposal of hazardous materials, the cleanup of contaminated sites and health and safety matters.
These laws and regulations include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act and Superfund (the environmental program established in the Comprehensive Environmental Response, Compensation, and Liability Act to address abandoned hazardous waste sites), which imposes joint and severable liability on each potentially responsible party. We are not a party to any proceedings arising under these laws and regulations that we currently expect to have a material effect on our financial condition. As of September 30, 2012, we were involved in 66 active actions in the United States under the Superfund legislation (and other similar actions and legislation) related to our current operations and certain closed, inactive or divested operations for which we retain liability.
As of September 30, 2012, we accrued an immaterial amount for environmental remediation. Based on information currently available, we believe that the ultimate resolution of existing environmental remediation actions and our compliance in general with environmental laws and regulations will not have a material effect on our financial condition. However, it is difficult to predict with certainty the potential impact of future compliance efforts and environmental remedial actions and thus future costs associated with such matters may exceed current forecasts.
Legal Proceedings
We routinely are involved in legal proceedings, claims and governmental inspections or investigations, or Legal Matters, arising in the ordinary course of our business.
On March 1, 2011, Starbucks took control of the Starbucks CPG business in grocery stores and other channels. Starbucks did so without our authorization and in what we contend is a violation and breach of our license and supply agreement with Starbucks related to the Starbucks CPG business. The dispute is in arbitration in Chicago, Illinois. We are seeking appropriate remedies, including payment of the fair market value of the supply and license agreement, plus the premium this agreement specifies, prejudgment interest under New York law and attorneys fees. Starbucks has counterclaimed for damages. Testimony and post-hearing briefing in the arbitration proceeding are completed and we await the arbitrators decision. We remain the named party in the proceeding. However, under the Separation and Distribution Agreement between Mondelēz International and us, we will direct any recovery we are awarded in the arbitration proceeding to Mondelēz International. Mondelēz International will reimburse us for any costs and expenses we incur in connection with the arbitration proceeding.
While we cannot predict with certainty the results of our dispute with Starbucks or any other Legal Matters in which we are currently involved or may in the future be involved, we do not expect that the ultimate costs to resolve any of the Legal Matters that are currently pending individually and in the aggregate will have a material adverse effect on our financial results.
Foreign Operations
We sell our products to consumers in the United States and Canada, and export our products to over 35 countries and territories. We generated approximately 12% of our 2011 and 2010 combined net revenues and 11% of our 2009 combined net revenues outside the United States, primarily in Canada. For additional information about our foreign operations, see our Segment Reporting notes to our historical combined financial statements included in this prospectus.
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General
When we sold the Outstanding 2015 Notes, Outstanding 2017 Notes, Outstanding 2022 Notes and Outstanding 2042 Notes (the Outstanding Notes Issued June 2012) on June 4, 2012, we entered into a registration rights agreement among us, as issuer, Mondelēz International (formerly known as Kraft Foods Inc.), as guarantor prior to the Spin-Off, and Barclays Capital Inc., Citigroup Global Markets Inc., Goldman, Sachs & Co., J.P. Morgan Securities LLC and RBS Securities Inc., as representatives of the initial purchasers (the June 2012 Registration Rights Agreement). Under the June 2012 Registration Rights Agreement, we agreed:
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to prepare and file the registration statement of which this prospectus forms a part, regarding the exchange of the New Notes which will be registered under the Securities Act for the Outstanding Notes; |
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to use our reasonable best efforts to have the registration statement become and remain effective until 180 days after the closing of the exchange offer; |
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to use our reasonable efforts to have the exchange offer consummated not later than 60 days after the registration statement has been declared effective; |
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to hold the exchange offer open for at least 20 business days; and |
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to complete the exchange offer not later than June 4, 2013. |
When we offered for exchange the Outstanding 2018 Notes, Outstanding 2020 Notes, Outstanding 2039 Notes and Outstanding 2040 Notes (the Outstanding Notes Issued July 2012) on July 18, 2012, we entered into a registration rights agreement among us, as issuer, Mondelēz International (formerly known as Kraft Foods Inc.), as guarantor prior to the Spin-Off, and Barclays Capital Inc., Citigroup Global Markets Inc., J.P. Morgan Securities LLC and RBS Securities Inc., as dealer managers (the July 2012 Registration Rights Agreement). Under the July 2012 Registration Rights Agreement, we agreed:
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to prepare and file the registration statement of which this prospectus forms a part, regarding the exchange of the New Notes which will be registered under the Securities Act for the Outstanding Notes; |
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to use our reasonable best efforts to have the registration statement become and remain effective until 180 days after the closing of the exchange offer; |
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to use our reasonable efforts to have the exchange offer consummated not later than 60 days after the registration statement has been declared effective; |
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to hold the exchange offer open for at least 20 business days; and |
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to complete the exchange offer not later than July 18, 2013. |
For each Outstanding Note validly tendered pursuant to the exchange offer and not withdrawn by the holder thereof, the holder of such Outstanding Note will receive in exchange a New Note having a principal amount equal to that of the tendered Outstanding Note. Interest on each New Note will accrue from the last interest payment date on which interest was paid on the tendered Outstanding Note in exchange therefor or, if no interest has been paid on such Outstanding Note, from the date of the original issue of such Outstanding Note.
Shelf Registration
Under both the June 2012 Registration Rights Agreement and the July 2012 Registration Rights Agreement, we also agreed to use our reasonable best efforts to file and to have become effective a shelf registration statement relating to resales of the Outstanding Notes and to keep that shelf registration statement effective until the date that the Outstanding Notes cease to be registrable securities (as defined in the June 2012 Registration
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Rights Agreement and July 2012 Registration Rights Agreement, which definitions are identical), including when all Outstanding Notes covered by the shelf registration statement have been sold pursuant to the shelf registration statement, in the event that:
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we determine that a registered exchange offer is not available or may not be completed as soon as practicable after the last date for acceptance of each of the Outstanding Notes Issued June 2012 and Outstanding Notes Issued July 2012 under the June 2012 Registration Rights Agreement and the July 2012 Registration Rights Agreement, respectively, for exchange because it would violate any applicable law or applicable interpretations of the staff of the SEC; or |
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if for any reason the exchange offer is not for any other reason completed by June 4, 2013 for the Outstanding Notes Issued June 2012 and July 18, 2013 for the Outstanding Notes Issued July 2012, or |
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in certain circumstances, if any initial purchaser of the Outstanding Notes Issued June 2012 or dealer manager of the Outstanding Notes Issued July 2012 so requests in connection with any offer or sale of Outstanding Notes. |
We will, in the event of such a shelf registration, provide to each participating holder of Outstanding Notes copies of a prospectus, notify each participating holder of notes when the shelf registration statement has become effective and take certain other actions to permit resales of the Outstanding Notes. A holder of Outstanding Notes that sells notes under the shelf registration statement generally will be required to make certain representations to us (as described in the June 2012 Registration Rights Agreement and July 2012 Registration Rights Agreement), to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with those sales and will be bound by the provisions of either the June 2012 Registration Rights Agreement or July 2012 Registration Rights Agreement that are applicable to such a holder of Outstanding Notes (including certain indemnification obligations). Holders of Outstanding Notes will also be required to suspend their use of the prospectus included in the shelf registration statement under specified circumstances upon receipt of notice from us. Under applicable interpretations of the staff of the SEC, our affiliates will not be permitted to exchange their Outstanding Notes for registered notes in the exchange offer.
Additional Interest on Outstanding Notes
If a registration default (as defined in the June 2012 Registration Rights Agreement and July 2012 Registration Rights Agreement, which definitions are identical in all material respects) with respect to a series of registrable securities occurs, then additional interest shall accrue on the principal amount of the Outstanding Notes of a particular series that are registrable securities at a rate of 0.25% per annum (which rate will be increased by an additional 0.25% per annum for each subsequent 90-day period that such additional interest continues to accrue, provided that the rate at which such additional interest accrues may in no event exceed 1.00% per annum). The additional interest will cease to accrue when the registration default is cured. A registration default occurs if (1) we have not exchanged New Notes for all Outstanding Notes validly tendered in accordance with the terms of the exchange offer or, if a shelf registration statement is required and is not declared effective, on or prior to the 365th day after the issuance of the applicable series of Outstanding Notes or (2) if applicable, a shelf registration statement covering resales of the Outstanding Notes has been declared effective and such shelf registration statement ceases to be effective or the prospectus contained therein ceases to be usable (a) on more than two occasions during the required effectiveness period or (b) at any time in any 12-month period during the required effectiveness period, and such failure to remain effective or be usable exists for more than 30 days (whether or not consecutive) in any 12-month period. A registration default is cured with respect to a series of Outstanding Notes, and additional interest ceases to accrue on any registrable securities of a series of Outstanding Notes, when the exchange offer is completed or the shelf registration statement is declared effective or the prospectus again becomes usable, as applicable, or such applicable series of notes cease to be registrable securities.
Any amounts of additional interest due will be payable in cash on the same original interest payment dates as interest on the Outstanding Notes is payable. The New Notes will be accepted for clearance through DTC.
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This summary of the provisions of the June 2012 Registration Rights Agreement and July 2012 Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the June 2012 Registration Rights Agreement and July 2012 Registration Rights Agreement, copies of which are filed as exhibits to our Registration Statement on Form S-4, of which this prospectus forms a part.
Terms of the Exchange Offer
This prospectus and the accompanying letter of transmittal together constitute the exchange offer. Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept for exchange Outstanding Notes that are properly tendered on or before the expiration date and are not withdrawn as permitted below. We have agreed to use our reasonable efforts to keep the registration statement effective for at least 20 business days from the date notice of the exchange offer is mailed. The expiration date for this exchange offer is 5:00 p.m., New York City time, on , 2012, or such later date and time to which we, in our sole discretion, extend the exchange offer.
The form and terms of the New Notes being issued in the exchange offer are the same as the form and terms of the Outstanding Notes, except that the New Notes being issued in the exchange offer:
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will have been registered under the Securities Act; |
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will not bear the restrictive legends restricting their transfer under the Securities Act; and |
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will not contain the registration rights and additional interest provisions contained in the Outstanding Notes. |
We expressly reserve the right, in our sole discretion:
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to extend the expiration date; |
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to delay accepting any Outstanding Notes; |
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to terminate the exchange offer and not accept any Outstanding Notes for exchange if any of the conditions set forth below under Conditions to the Exchange Offer have not been satisfied; and |
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to amend the exchange offer in any manner. |
We will give oral or written notice of any extension, delay, non-acceptance, termination or amendment as promptly as practicable by a public announcement, and in the case of an extension, no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. During an extension, all Outstanding Notes previously tendered will remain subject to the exchange offer and may be accepted for exchange by us. Any Outstanding Notes not accepted for exchange for any reason will be returned without cost to the holder that tendered them as promptly as practicable after the expiration or termination of the exchange offer.
Exchange Offer Procedures
When the holder of Outstanding Notes tenders and we accept Outstanding Notes for exchange, a binding agreement between us and the tendering holder is created, subject to the terms and conditions set forth in this prospectus and the accompanying letter of transmittal. Except as set forth below, a holder of Outstanding Notes who wishes to tender Outstanding Notes for exchange must, on or prior to the expiration date:
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transmit a properly completed and duly executed letter of transmittal, including all other documents required by such letter of transmittal, to Deutsche Bank Trust Company Americas, the exchange agent, at the address set forth below under the heading The Exchange Agent; or |
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if Outstanding Notes are tendered pursuant to the book-entry procedures set forth below, the tendering holder must transmit an agents message to the exchange agent at the address set forth below under the heading The Exchange Agent. |
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In addition, either:
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the exchange agent must receive the certificates for the Outstanding Notes and the letter of transmittal; |
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the exchange agent must receive, prior to the expiration date, a timely confirmation of the book-entry transfer of the Outstanding Notes being tendered into the exchange agents account at The Depository Trust Company, or DTC, along with the letter of transmittal or an agents message; or |
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the holder must comply with the guaranteed delivery procedures described below. |
The term agents message means a message, transmitted to DTC and received by the exchange agent and forming a part of a book-entry transfer, referred to as a book-entry confirmation, which states that DTC has received an express acknowledgment that the tendering holder agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against such holder.
The method of delivery of the Outstanding Notes, the letters of transmittal and all other required documents is at the election and risk of the holder. If such delivery is by mail, we recommend registered mail, properly insured, with return receipt requested. In all cases, you should allow sufficient time to assure timely delivery. No letters of transmittal or Outstanding Notes should be sent directly to us.
Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Outstanding Notes surrendered for exchange are tendered:
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by a holder of Outstanding Notes who has not completed the box entitled Special Issuance Instructions or Special Delivery Instructions on the letter of transmittal; or |
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for the account of an eligible institution. |
An eligible institution is a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States.
If signatures on a letter of transmittal or notice of withdrawal are required to be guaranteed, the guarantor must be an eligible institution. If Outstanding Notes are registered in the name of a person other than the signer of the letter of transmittal, the Outstanding Notes surrendered for exchange must be endorsed by, or accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by us in our sole discretion, duly executed by the registered holder with the holders signature guaranteed by an eligible institution.
We will determine all questions as to the validity, form, eligibility, including time of receipt, and acceptance of Outstanding Notes tendered for exchange in our sole discretion. Our determination will be final and binding. We reserve the absolute right to:
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reject any and all tenders of any Outstanding Note improperly tendered; |
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refuse to accept any Outstanding Note if, in our judgment or the judgment of our counsel, acceptance of the Outstanding Note may be deemed unlawful; and |
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waive any defects or irregularities or conditions of the exchange offer as to any particular Outstanding Note either before or after the expiration date, including the right to waive the ineligibility of any class of holder who seeks to tender Outstanding Notes in the exchange offer. |
Our interpretation of the terms and conditions of the exchange offer as to any particular Outstanding Notes either before or after the expiration date, including the letter of transmittal and the instructions to it, will be final and binding on all parties. Holders must cure any defects and irregularities in connection with tenders of Outstanding Notes for exchange within such reasonable period of time as we will determine, unless we waive
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such defects or irregularities. Neither we, the exchange agent nor any other person will be under any duty to give notification of any defect or irregularity with respect to any tender of Outstanding Notes for exchange, nor will any such persons incur any liability for failure to give such notification.
If a person or persons other than the registered holder or holders of the Outstanding Notes tendered for exchange signs the letter of transmittal, the tendered Outstanding Notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders that appear on the Outstanding Notes.
If trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity sign the letter of transmittal or any Outstanding Notes or any power of attorney, such persons should so indicate when signing, and you must submit proper evidence satisfactory to us of such persons authority to so act unless we waive this requirement.
By tendering, each holder will represent to us that, among other things, the person acquiring New Notes in the exchange offer is obtaining them in the ordinary course of its business, whether or not such person is the holder, and that neither the holder nor such other person has any arrangement or understanding with any person to participate in the distribution of the New Notes. If any holder or any such other person is an affiliate, as defined in Rule 405 under the Securities Act, of ours, or is engaged in or intends to engage in or has an arrangement or understanding with any person to participate in a distribution of the New Notes, such holder or any such other person:
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may not rely on the applicable interpretations of the staff of the SEC; and |
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must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. |
Each broker-dealer that receives New Notes for its own account in exchange for Outstanding Notes, where such Outstanding Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act.
Acceptance of Outstanding Notes for Exchange; Delivery of New Notes Issued in the Exchange Offer
Upon satisfaction or waiver of all of the conditions to the exchange offer, we will accept, promptly after the expiration date, all Outstanding Notes properly tendered and will issue New Notes registered under the Securities Act. For purposes of the exchange offer, we will be deemed to have accepted properly tendered Outstanding Notes for exchange when, as and if we have given oral or written notice to the exchange agent, with written confirmation of any oral notice to be given promptly thereafter. See The Exchange OfferConditions to the Exchange Offer for a discussion of the conditions that must be satisfied before we accept any Outstanding Notes for exchange.
For each Outstanding Notes accepted for exchange, the holder will receive a New Note registered under the Securities Act having a principal amount equal to, and in the denomination of, that of the surrendered Outstanding Note. Accordingly, registered holders of New Notes on the relevant record date for the first interest payment date following the consummation of the exchange offer will receive interest accruing from the issue date of the Outstanding Notes or, if interest has been paid, the most recent date to which interest has been paid. Outstanding Notes that we accept for exchange will cease to accrue interest from and after the date of consummation of the exchange offer. Under the exchange and registration rights agreement, we may be required to make additional payments in the form of additional interest to the holders of the Outstanding Notes under circumstances relating to the timing of the exchange offer, as discussed above.
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In all cases, we will issue New Notes in the exchange offer for Outstanding Notes that are accepted for exchange only after the exchange agent timely receives:
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certificates for such Outstanding Notes or a timely book-entry confirmation of such Outstanding Notes into the exchange agents account at DTC; |
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a properly completed and duly executed letter of transmittal or an agents message; and |
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all other required documents. |
If for any reason set forth in the terms and conditions of the exchange offer we do not accept any tendered Outstanding Notes, or if a holder submits Outstanding Notes for a greater principal amount than the holder desires to exchange, we will return such unaccepted or non-exchanged Outstanding Notes without cost to the tendering holder. In the case of Outstanding Notes tendered by book-entry transfer into the exchange agents account at DTC, such non-exchanged Outstanding Notes will be credited to an account maintained with DTC. We will return the Outstanding Notes or have them credited to DTC as promptly as practicable after the expiration or termination of the exchange offer.
Book-Entry Transfers
The exchange agent will make a request to establish an account at DTC for purposes of the exchange offer within two business days after the date of this prospectus. Any financial institution that is a participant in DTCs system must make book-entry delivery of Outstanding Notes denominated in dollars by causing DTC to transfer the Outstanding Notes into the exchange agents account at DTC in accordance with DTCs procedures for transfer. Such participant should transmit its acceptance to DTC on or prior to the expiration date or comply with the guaranteed delivery procedures described below. DTC will verify such acceptance, execute a book-entry transfer of the tendered Outstanding Notes into the exchange agents account at DTC and then send to the exchange agent confirmation of such book-entry transfer. The confirmation of such book-entry transfer will include an agents message confirming that DTC has received an express acknowledgment from such participant that such participant has received and agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against such participant. Delivery of Outstanding Notes tendered in the exchange offer may be effected through book-entry transfer at DTC as applicable. However, the letter of transmittal or facsimile thereof or an agents message, with any required signature guarantees and any other required documents, must:
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be transmitted to and received by the exchange agent at the address set forth below under The Exchange Agent on or prior to the expiration date; or |
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comply with the guaranteed delivery procedures described below. |
Guaranteed Delivery Procedures
If a holder of Outstanding Notes desires to tender such notes and the holders Outstanding Notes are not immediately available, or time will not permit such holders Outstanding Notes or other required documents to reach the exchange agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if:
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the holder tenders the Outstanding Notes through an eligible institution; |
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prior to the expiration date, the exchange agent receives from such eligible institution a properly completed and duly executed notice of guaranteed delivery, substantially in the form we have provided, by facsimile transmission, mail or hand delivery, setting forth the name and address of the holder of the Outstanding Notes being tendered and the amount of the Outstanding Notes being tendered. The notice of guaranteed delivery will state that the tender is being made and guarantee that within three business days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered Outstanding Notes, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed letter of transmittal or agents message with |
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any required signature guarantees and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and |
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the exchange agent receives the certificates for all physically tendered Outstanding Notes, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed letter of transmittal or agents message with any required signature guarantees and any other documents required by the letter of transmittal, within three business trading days after the date of execution of the notice of guaranteed delivery. |
Withdrawal Rights
You may withdraw tenders of your Outstanding Notes at any time prior to 5:00 p.m., New York City time, on the expiration date. For a withdrawal to be effective, you must send a written notice of withdrawal to the exchange agent at the address set forth below under The Exchange Agent. Any such notice of withdrawal must:
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specify the name of the person having tendered the Outstanding Notes to be withdrawn; |
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identify the Outstanding Notes to be withdrawn, including the principal amount of such Outstanding Notes; and |
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where certificates for Outstanding Notes are transmitted, specify the name in which Outstanding Notes are registered, if different from that of the withdrawing holder. |
If certificates for Outstanding Notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and signed notice of withdrawal with signatures guaranteed by an eligible institution unless such holder is an eligible institution. If Outstanding Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn Outstanding Notes and otherwise comply with the procedures of such facility. We will determine all questions as to the validity, form and eligibility, including time of receipt, of such notices and our determination will be final and binding on all parties. Any tendered Outstanding Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Any Outstanding Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder of those Outstanding Notes without cost to the holder. In the case of Outstanding Notes tendered by book-entry transfer into the exchange agents account at DTC, the Outstanding Notes withdrawn will be credited to an account maintained with DTC for the Outstanding Notes. The Outstanding Notes will be returned or credited to this account as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn Outstanding Notes may be re-tendered by following one of the procedures described under Exchange Offer Procedures at any time on or prior to 5:00 p.m., New York City time, on the expiration date.
Conditions to the Exchange Offer
We are not required to accept for exchange, or to issue New Notes in the exchange offer for, any Outstanding Notes. We may terminate or amend the exchange offer at any time before the acceptance of Outstanding Notes for exchange if:
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the exchange offer would violate any applicable federal law, statute, rule or regulation or any applicable interpretation of the staff of the SEC; |
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any action or proceeding is instituted or threatened in any court or by or before any governmental agency challenging the exchange offer or that we believe might be expected to prohibit or materially impair our ability to proceed with the exchange offer; |
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any stop order is threatened or in effect with respect to either (1) the registration statement of which this prospectus forms a part or (2) the qualification of the Indentures governing the New Notes under the Trust Indenture Act of 1939, as amended (the Trust Indenture Act); |
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any law, rule or regulation is enacted, adopted, proposed or interpreted that we believe might be expected to prohibit or impair our ability to proceed with the exchange offer or to materially impair the ability of holders generally to receive freely tradable New Notes in the exchange offer. See The Exchange OfferConsequences of Failure to Exchange Outstanding Notes; |
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any change or a development involving a prospective change in our business, properties, assets, liabilities, financial condition, operations or results of operations taken as a whole, that is or may be adverse to us; |
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any declaration of war, armed hostilities or other similar international calamity directly or indirectly involving the United States, or the worsening of any such condition that existed at the time that we commence the exchange offer; or |
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we become aware of facts that, in our reasonable judgment, have or may have adverse significance with respect to the value of the Outstanding Notes or the New Notes to be issued in the exchange offer. |
The preceding conditions are for our sole benefit and we may assert them regardless of the circumstances giving rise to any such condition. We may waive the preceding conditions in whole or in part at any time and from time to time in our sole discretion. If we do so, the exchange offer will remain open for at least three business days following any waiver of the preceding conditions. Our failure at any time to exercise the foregoing rights will not be deemed a waiver of any such right and each such right will be deemed an ongoing right which we may assert at any time and from time to time.
The Exchange Agent
Deutsche Bank Trust Company Americas has been appointed as our exchange agent for the exchange offer. All executed letters of transmittal should be directed to our exchange agent at the address set forth below. Questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the exchange agent addressed as follows:
Main Delivery To:
Deutsche Bank Trust Company Americas
Exchange Agent
By Mail:
DB Services Americas, Inc.
MS JCK01-0218
5022 Gate Parkway, Suite 200
Jacksonville, FL 32256
By Overnight Mail or Courier:
DB Services Americas, Inc.
MS JCK01-0218
5022 Gate Parkway, Suite 200
Jacksonville, FL 32256
For Additional Information, Contact:
(800) 735-7777 (Option #1)
DB.Reorg@db.com
Delivery of the letter of transmittal to an address other than as set forth above or transmission of such letter of transmittal via facsimile other than as set forth above does not constitute a valid delivery of such letter of transmittal.
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Fees and Expenses
We will not make any payment to brokers, dealers or others soliciting acceptance of the exchange offer except for reimbursement of mailing expenses. We will pay the cash expenses to be incurred by us in connection with the exchange offer, including:
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the SEC registration fee; |
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fees and expenses of the exchange agent and the Trustee; |
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accounting and legal fees; |
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printing fees; and |
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other related fees and expenses. |
Transfer Taxes
Holders who tender their Outstanding Notes for exchange will not be obligated to pay any transfer taxes in connection with the exchange. If, however, the New Notes issued in the exchange offer are to be delivered to, or are to be issued in the name of, any person other than the holder of the Outstanding Notes tendered, or if a transfer tax is imposed for any reason other than the exchange of Outstanding Notes in connection with the exchange offer, then the holder must pay any of these transfer taxes, whether imposed on the registered holder or on any other person. If satisfactory evidence of payment of, or exemption from, these taxes is not submitted with the letter of transmittal, the amount of these transfer taxes will be billed directly to the tendering holder.
Consequences of Failure to Exchange Outstanding Notes
Holders who desire to tender their Outstanding Notes in exchange for New Notes registered under the Securities Act should allow sufficient time to ensure timely delivery. Neither the exchange agent nor we are under any duty to give notification of defects or irregularities with respect to the tenders of Outstanding Notes for exchange.
Outstanding Notes that are not tendered or are tendered but not accepted will, following the consummation of the exchange offer, continue to be subject to the provisions in the applicable Indenture regarding the transfer and exchange of the Outstanding Notes and the existing restrictions on transfer set forth in the legend on the Outstanding Notes and in the prospectus dated June 4, 2012 or July 18, 2012, as applicable, relating to the Outstanding Notes. Except in limited circumstances with respect to specific types of holders of Outstanding Notes, we will have no further obligation to provide for the registration under the Securities Act of such Outstanding Notes. In general, Outstanding Notes, unless registered under the Securities Act, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not currently anticipate that we will take any action to register the Outstanding Notes under the Securities Act or under any state securities laws.
Upon completion of the exchange offer, holders of the Outstanding Notes will not be entitled to any further registration rights under the June 2012 Registration Rights Agreement or July 2012 Registration Rights Agreement, as applicable, except under limited circumstances.
Holders of the New Notes and any Outstanding Notes that remain outstanding after consummation of the exchange offer will vote together as a single class for purposes of determining whether holders of the requisite percentage of the class have taken certain actions or exercised certain rights under the applicable Indenture.
Consequences of Exchanging Outstanding Notes
Based on interpretations of the staff of the SEC, as set forth in no-action letters to third parties, we believe that the New Notes may be offered for resale, resold or otherwise transferred by holders of those New Notes,
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other than by any holder that is an affiliate of ours within the meaning of Rule 405 under the Securities Act. The New Notes may be offered for resale, resold or otherwise transferred without compliance with the registration and prospectus delivery provisions of the Securities Act, if:
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the New Notes issued in the exchange offer are acquired in the ordinary course of the holders business; and |
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the holder, other than a broker-dealer, has no arrangement or understanding with any person to participate in the distribution of the New Notes issued in the exchange offer. |
However, the SEC has not considered this exchange offer in the context of a no-action letter and we cannot guarantee that the staff of the SEC would make a similar determination with respect to this exchange offer as in such other circumstances.
Each holder, other than a broker-dealer, must furnish a written representation, at our request, that:
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it is not an affiliate of ours; |
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it is not engaged in, and does not intend to engage in, a distribution of the New Notes issued in the exchange offer and has no arrangement or understanding to participate in a distribution of New Notes issued in the exchange offer; |
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it is acquiring the New Notes issued in the exchange offer in the ordinary course of its business; and |
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it is not acting on behalf of a person who could not make the three preceding representations. |
Each broker-dealer that receives New Notes for its own account in exchange for Outstanding Notes must acknowledge that:
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such Outstanding Notes were acquired by such broker-dealer as a result of market-making or other trading activities; and |
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it will comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, including the delivery of a prospectus that contains information with respect to any selling holder required by the Securities Act in connection with any resale of New Notes issued in the exchange offer. |
Furthermore, any broker-dealer that acquired any of its Outstanding Notes directly from us:
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may not rely on the applicable interpretation of the SEC staffs position contained in Exxon Capital Holdings Corp., SEC No-Action Letter (April 13, 1989), Morgan, Stanley & Co., Incorporated, SEC No-Action Letter (June 5, 1991) and Shearman & Sterling, SEC No-Action Letter (July 2, 1983); and |
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must also be named as a selling holder of the new notes in connection with the registration and prospectus delivery requirements of the Securities Act relating to any resale transaction. |
In addition, to comply with state securities laws of certain jurisdictions, the New Notes issued in the exchange offer may not be offered or sold in any state unless they have been registered or qualified for sale in such state or an exemption from registration or qualification is available and complied with by the holders selling the New Notes. We have agreed in the June 2012 Registration Rights Agreement and July 2012 Registration Rights Agreement that, prior to any public offering of transfer restricted notes, we will use our reasonable efforts to register or qualify the transfer restricted notes for offer or sale under the securities laws of those states as any holder of the New Notes reasonably requests at the time the registration statement of which this prospectus forms a part is declared effective. We are not required to (1) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where we would not otherwise be required to so qualify, (2) file any general consent to service of process in any such jurisdiction, (3) subject ourselves to taxation in any such jurisdiction if it is not so subject or (4) make any changes to our incorporating organization documents.
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The New 2015 Notes, New 2017 Notes, New 2022 Notes and New 2042 Notes will be issued under a base indenture, dated as of June 4, 2012, among us, as issuer, and Deutsche Bank Trust Company Americas, as trustee (the Trustee), as supplemented by a supplemental indenture no. 1 thereto dated June 4, 2012, among us, as issuer, Mondelēz International (formerly known as Kraft Foods Inc.), as guarantor prior to the Spin-Off, and the Trustee (the June 2012 Indenture).
The New 2018 Notes, New 2020 Notes, New 2039 Notes and New 2040 Notes will be issued under a base indenture, dated as of June 4, 2012, among us, as issuer, and the Trustee, as supplemented by a supplemental indenture no. 2 thereto dated July 18, 2012, among us, as issuer, Mondelēz International (formerly known as Kraft Foods Inc.), as guarantor prior to the Spin-Off, and the Trustee (the July 2012 Indenture). When applicable, the June 2012 Indenture and the July 2012 Indenture are referred to in this prospectus as the Indentures. The terms of the June 2012 Indenture and the July 2012 Indenture are identical in all material respects except, except with respect to the amount, interest rate, record date and maturity date of each of the Outstanding Notes issued thereunder, and New Notes to be issued thereunder.
The following description is a summary of the material provisions of the Indentures, and does not restate the terms of the Indentures in their entirety. We urge you to read the Indentures because they, and not this description, define your rights as holders of the New Notes. Certain defined terms used in this description but not defined herein have the meanings assigned to them in the Indentures.
The registered holder of a New Note will be treated as the owner of such New Note for all purposes. Only registered holders will have rights under the Indentures.
Certain Terms of the New 1.625% Notes due 2015
We will issue up to $1,000,000,000 principal amount of the 1.625% Notes due 2015 (the New 2015 Notes) as a series of notes under the June 2012 Indenture in exchange for a like principal amount of Outstanding 2015 Notes. Unless an earlier redemption has occurred, the entire principal amount of New 2015 Notes will mature and become due and payable, together with any accrued and unpaid interest thereon, on June 4, 2015. The New 2015 Notes will bear interest at the rate of 1.625% per annum from the date of original issuance or from the most recent interest payment date to which interest has been paid or provided for, payable semiannually in arrears on June 4 and December 4 of each year, beginning on December 4, 2012, to the persons in whose names the New 2015 Notes are registered at the close of business on the preceding May 19 and November 19, each a record date, as the case may be. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months.
Certain Terms of the New 2.250% Notes due 2017
We will issue up to $1,000,000,000 principal amount of the New 2.250% Notes due 2017 (the New 2017 Notes) as a series of notes under the June 2012 Indenture in exchange for a like principal amount of Outstanding 2017 Notes. Unless an earlier redemption has occurred, the entire principal amount of New 2017 Notes will mature and become due and payable, together with any accrued and unpaid interest thereon, on June 5, 2017. The New 2017 Notes will bear interest at the rate of 2.250% per annum from the date of original issuance or from the most recent interest payment date to which interest has been paid or provided for, payable semiannually in arrears on June 5 and December 5 of each year, beginning on December 5, 2012, to the persons in whose names the New 2017 Notes are registered at the close of business on the preceding May 20 and November 20, each a record date, as the case may be. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months.
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Certain Terms of the New 6.125% Notes due 2018
We will issue up to $1,034,657,000 principal amount of the New 6.125% Notes due 2018 (the New 2018 Notes) as a series of notes under the July 2012 Indenture in exchange for a like principal amount of Outstanding 2018 Notes. Unless an earlier redemption has occurred, the entire principal amount of New 2018 Notes will mature and become due and payable, together with any accrued and unpaid interest thereon, on August 23, 2018. The New 2018 Notes will bear interest at the rate of 6.125% per annum from the date of original issuance or from the most recent interest payment date to which interest has been paid or provided for, payable semi-annually in arrears on February 23 and August 23 of each year, to the persons in whose names the New 2018 Notes are registered at the close of business on the preceding February 8 and August 8, each a record date, as the case may be. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months.
Certain Terms of the New 5.375% Notes due 2020
We will issue up to $900,000,000 principal amount of the New 5.375% Notes due 2020 (the New 2020 Notes) as a series of notes under the June 2012 Indenture in exchange for a like principal amount of Outstanding 2020 Notes. Unless an earlier redemption has occurred, the entire principal amount of New 2020 Notes will mature and become due and payable, together with any accrued and unpaid interest thereon, on February 10, 2020. The New 2020 Notes will bear interest at the rate of 5.375% per annum from the date of original issuance or from the most recent interest payment date to which interest has been paid or provided for, payable semi-annually in arrears on February 10 and August 10 of each year, to the persons in whose names the New 2020 Notes are registered at the close of business on the preceding January 26 and July 26, each a record date, as the case may be. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months.
Certain Terms of the New 3.500% Notes due 2022
We will issue up to $2,000,000,000 principal amount of the New 3.500% Notes due 2022 (the New 2022 Notes) as a series of notes under the July 2012 Indenture in exchange for a like principal amount of Outstanding 2022 Notes. Unless an earlier redemption has occurred, the entire principal amount of New 2022 Notes will mature and become due and payable, together with any accrued and unpaid interest thereon, on June 6, 2022. The New 2022 Notes will bear interest at the rate of 3.500% per annum from the date of original issuance or from the most recent interest payment date to which interest has been paid or provided for, payable semiannually in arrears on June 6 and December 6 of each year, beginning on December 6, 2012, to the persons in whose names the New 2022 Notes are registered at the close of business on the preceding May 21 and November 21, each a record date, as the case may be. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months.
Certain Terms of the New 6.875% Notes due 2039
We will issue up to $877,860,000 principal amount of the New 6.875% Notes due 2039 (the New 2039 Notes) as a series of notes under the July 2012 Indenture in exchange for a like principal amount of Outstanding 2039 Notes. Unless an earlier redemption has occurred, the entire principal amount of New 2039 Notes will mature and become due and payable, together with any accrued and unpaid interest thereon, on January 26, 2039. The New 2039 Notes will bear interest at the rate of 6.875% per annum from the date of original issuance or from the most recent interest payment date to which interest has been paid or provided for, payable semi-annually in arrears on January 26 and July 26 of each year, to the persons in whose names the New 2039 Notes are registered at the close of business on the preceding January 11 and July 11, each a record date, as the case may be. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months.
Certain Terms of the New 6.500% Notes due 2040
We will issue up to $787,483,000 principal amount of the New 6.500% Notes due 2040 (the New 2040 Notes) as a series of notes under the July 2012 Indenture. Unless an earlier redemption has occurred, the entire principal amount of New 2040 Notes will mature and become due and payable, together with any accrued and
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unpaid interest thereon, on February 9, 2040. The New 2040 Notes will bear interest at the rate of 6.500% per annum from the date of original issuance or from the most recent interest payment date to which interest has been paid or provided for, payable semi-annually in arrears on February 9 and August 9 of each year, to the persons in whose names the New 2040 Notes are registered at the close of business on the preceding January 25 and July 25, each a record date, as the case may be. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months.
Certain Terms of the 5.000% Notes due 2042
We will issue up to $2,000,000,000 principal amount of the New 5.000% Notes due 2042 (the New 2042 Notes) as a series of notes under the June 2012 Indenture. Unless an earlier redemption has occurred, the entire principal amount of New 2042 Notes will mature and become due and payable, together with any accrued and unpaid interest thereon, on June 4, 2042. The New 2042 Notes will bear interest at the rate of 5.000% per annum from the date of original issuance or from the most recent interest payment date to which interest has been paid or provided for, payable semi-annually in arrears on June 4 and December 4 of each year, beginning on December 4, 2012, to the persons in whose names the New 2042 Notes are registered at the close of business on the preceding May 19 and November 19, each a record date, as the case may be. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months.
General
In some circumstances, we may elect to discharge our obligations on an applicable series of New Notes through full defeasance or covenant defeasance. See Defeasance for more information.
We may, without the consent of the holders of an applicable series of New Notes, issue additional New Notes having the same ranking and the same interest rate, maturity and other terms as such New Notes (except for the issue date, issue price, and, in some cases, the first payment of interest or interest accruing prior to the issue date of such additional New Notes), provided that if the additional New Notes are not fungible with such New Notes for U.S. federal income tax purposes, they will be issued under a separate CUSIP number. Any additional New Notes having such similar terms, together with the applicable series of New Notes offered by this prospectus, will constitute a single series of New Notes under the June 2012 Indenture or July 2012 Indenture, as applicable. No additional New Notes may be issued if an Event of Default has occurred with respect to the applicable series of New Notes.
We will not be required to make any mandatory redemption or sinking fund payments with respect to the New Notes. However, under certain circumstances, we may be required to offer to purchase New Notes as described under the caption Change of Control. We may at any time and from time to time purchase New Notes in the open market or otherwise.
No Guarantee
The New Notes are not guaranteed by Mondelēz International. Prior to the Distribution, the Outstanding Notes were initially guaranteed by Mondelēz International, and upon consummation of the Distribution, the guarantee terminated in accordance with the provisions of the Indentures. Mondelēz International no longer has an obligation with respect to the Outstanding Notes or the New Notes.
Payment and Transfer
We will pay the principal of, and any premium and interest on, fully registered securities at the place or places that we will designate for such purposes. We will make payment to the persons in whose names the New Notes are registered on the close of business on the day or days that we will specify in accordance with the Indentures. We will pay the principal of, and any premium on, registered New Notes only against surrender of those New Notes. Holders may transfer or exchange fully registered securities at the corporate trust office of the Trustee or at any other office or agency, maintained for such purposes, without the payment of any service charge except for any tax or governmental charge.
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Change of Control
If a Change of Control Triggering Event (as defined below) occurs, unless we have exercised our right to redeem the New Notes upon the occurrence of specified events involving U.S. taxation as described below under Redemption for Tax Reasons, holders of New Notes will have the right to require us to repurchase all or any part (equal to $2,000 or an integral multiple of $1,000 in excess thereof) of their New Notes pursuant to the offer described below (the Change of Control Offer) on the terms set forth in the New Notes. In the Change of Control Offer, we will be required to offer payment in cash equal to 101% of the aggregate principal amount of New Notes repurchased plus accrued and unpaid interest, if any, on the New Notes repurchased, to the date of purchase (the Change of Control Payment). Within 30 days following any Change of Control Triggering Event, we will be required to mail a notice to holders of New Notes describing the transaction or transactions that constitute the Change of Control Triggering Event and offering to repurchase the New Notes on the date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the Change of Control Payment Date), pursuant to the procedures required by the New Notes and described in such notice. We must comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the New Notes as a result of a Change of Control Triggering Event. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the New Notes, we will be required to comply with the applicable securities laws and regulations and will not be deemed to have breached our obligations under the Change of Control provisions of the New Notes by virtue of such conflicts.
On the Change of Control Payment Date, we will be required, to the extent lawful, to:
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accept for payment all New Notes or portions of New Notes properly tendered pursuant to the Change of Control Offer; |
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deposit with the paying agent an amount equal to the Change of Control Payment in respect of all New Notes or portions of New Notes properly tendered; and |
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deliver or cause to be delivered to the Trustee the New Notes properly accepted together with an officers certificate stating the aggregate principal amount of New Notes or portions of New Notes being purchased. |
The paying agent will promptly mail to each holder of New Notes properly tendered the purchase price for the New Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each holder a new New Note equal in principal amount to any unpurchased portion of any New Notes surrendered; provided that each new New Note will be in a principal amount of $2,000 or an integral multiple of $1,000 in excess thereof.
We will not be required to make an offer to repurchase the New Notes upon a Change of Control Triggering Event if a third party makes such an offer in the manner, at the times and otherwise in compliance with the requirements for an offer made by us and such third party purchases all New Notes properly tendered and not withdrawn under its offer.
Our ability to pay cash to holders of New Notes following the occurrence of a Change of Control Triggering Event may be limited by our then-existing financial resources. Therefore, sufficient funds may not be available when necessary to make any required repurchases.
For purposes of the foregoing discussion of a repurchase at the option of holders, the following definitions are applicable:
Below Investment Grade Rating Event means the New Notes are rated below an Investment Grade Rating by each of the Rating Agencies (as defined below) on any date from the date of the public notice of an arrangement that could result in a Change of Control (as defined below) until the end of the 60-day period following public notice of the occurrence of the Change of Control (which 60-day period shall be extended so
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long as the rating of the New Notes is under publicly announced consideration for possible downgrade by any of the Rating Agencies); provided that a below investment grade rating event otherwise arising by virtue of a particular reduction in rating shall not be deemed to have occurred in respect to a particular Change of Control (and thus shall not be deemed a below investment grade rating event for purposes of the definition of Change of Control Triggering Event hereunder) if the rating agencies making the reduction in rating to which this definition would otherwise apply do not announce or publicly confirm or inform the Trustee in writing at its request that the reduction was the result, in whole or in part, of any event or circumstance comprising of or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of the below investment grade rating event).
Change of Control means the occurrence of any of the following: (i) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of Kraft Foods Group and its subsidiaries taken as a whole to any Person (as defined below) or group of related persons for purposes of Section 13(d) of the Exchange Act (a Group) other than Kraft Foods Group or one of its subsidiaries, and other than the Internal Reorganization described under Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalSeparation and Distribution Agreement; (ii) the approval by the holders of our common stock of any plan or proposal for the liquidation or dissolution of Kraft Foods Group (whether or not otherwise in compliance with the provisions of the Indentures); (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any Person or Group becomes the beneficial owner, directly or indirectly, of more than 50% of the then-outstanding number of shares of Kraft Foods Groups voting stock; or (iv) the first day on which a majority of the members of Kraft Foods Groups Board of Directors are not Continuing Directors (as defined below).
The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of all or substantially all of the properties or assets of Kraft Foods Group and its subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase substantially all, there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of New Notes to require Kraft Foods Group to repurchase its New Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of Kraft Foods Group and its subsidiaries taken as a whole to another Person or Group may be uncertain.
Change of Control Triggering Event means the occurrence of both a Change of Control and a Below Investment Grade Rating Event.
Continuing Directors means, as of any date of determination, any member of the Board of Directors of Kraft Foods Group who (i) was a member of such Board of Directors on the date of the issuance of the New Notes; or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election (either by a specific vote or by approval of Kraft Foods Groups proxy statement in which such member was named as a nominee for election as a director, without objection to such nomination).
Investment Grade Rating means a rating equal to or higher than Baa3 (or the equivalent) by Moodys (as defined below) and BBB(or the equivalent) by S&P (as defined below), respectively.
Moodys means Moodys Investors Service, Inc.
Person has the meaning set forth in the Indentures and includes a person as used in Section 13(d)(3) of the Exchange Act.
Rating Agencies means (i) each of Moodys and S&P; and (ii) if any of Moodys or S&P ceases to rate the New Notes or fails to make a rating of the New Notes publicly available for reasons outside of our control, a nationally recognized statistical rating organization within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the
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Exchange Act, selected by us (as certified by a resolution of our Board of Directors) as a replacement agency for Moodys or S&P, or all of them, as the case may be.
S&P means Standard & Poors Ratings Services, a division of The McGraw-Hill Companies, Inc. Payment of Additional Amounts
We will, subject to the exceptions and limitations set forth below, pay to the beneficial owner of any New Note who is a Non-U.S. Holder (as defined under Certain U.S. Federal Income Tax Considerations) or is a partnership that is not created or organized in or under the laws of the United States or any political subdivision thereof such additional amounts as may be necessary to ensure that every net payment on such New Note, after deduction or withholding by us or any of our paying agents for or on account of any present or future tax, assessment or other governmental charge imposed upon or as a result of such payment by the United States or any political subdivision or taxing authority of the United States, will not be less than the amount provided in such New Note to be then due and payable. However, we will not pay additional amounts if the beneficial owner is subject to taxation solely for reasons other than its ownership of the New Note, nor will we pay additional amounts for or on account of:
(a) | any tax, assessment or other governmental charge that is imposed or withheld solely by reason of the existence of any present or former connection (other than the mere fact of being a beneficial owner of a New Note) between the beneficial owner (or between a fiduciary, settlor, beneficiary or person holding a power over such beneficial owner, if the beneficial owner is an estate or trust, or a partner, member or shareholder of the beneficial owner, if the beneficial owner is a partnership, limited liability company or corporation) of a New Note and the United States, including, without limitation, such beneficial owner (or such fiduciary, settlor, beneficiary, person holding a power, partner, member or shareholder) being or having been a citizen or resident of the United States or treated as being or having been a resident thereof; |
(b) | any tax, assessment or other governmental charge that is imposed or withheld solely by reason of the beneficial owner (or a fiduciary, settlor, beneficiary or person holding a power over such beneficial owner, if the beneficial owner is an estate or trust, or a partner, member or shareholder of the beneficial owner, if the beneficial owner is a partnership, limited liability company or corporation) (i) being or having been present in, or engaged in a trade or business in, the United States, (ii) being treated as having been present in, or engaged in a trade or business in, the United States, or (iii) having or having had a permanent establishment in the United States; |
(c) | any tax, assessment or other governmental charge that is imposed or withheld solely by reason of the beneficial owner (or a fiduciary, settlor, beneficiary or person holding a power over such beneficial owner, if the beneficial owner is an estate or trust, or a partner, member or shareholder of the beneficial owner, if the beneficial owner is a partnership, limited liability company or corporation) being or having been with respect to the United States a personal holding company, a controlled foreign corporation, a passive foreign investment company, a foreign private foundation or other foreign tax-exempt organization, or being a corporation that accumulates earnings to avoid U.S. federal income tax; |
(d) | any tax, assessment or other governmental charge imposed on a beneficial owner that actually or constructively owns 10% or more of the total combined voting power of all of our classes of stock that are entitled to vote within the meaning of Section 871(h)(3) of the Code; |
(e) | any tax, assessment or other governmental charge which would not have been so imposed but for the presentation of such New Note for payment on a date more than 30 days after the date on which such payment became due and payable or the date on which such payment is duly provided for, whichever occurs later; |
(f) | any tax, assessment or other governmental charge that is payable by any method other than withholding or deduction by us or any paying agent from payments in respect of such New Note; |
(g) | any gift, estate, inheritance, sales, transfer, personal property or excise tax or any similar tax, assessment or other governmental charge; |
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(h) | any tax, assessment or other governmental charge required to be withheld by any paying agent from any payment in respect of any New Note if such payment can be made without such withholding by at least one other paying agent; |
(i) | any tax, assessment or other governmental charge that is imposed or withheld by reason of a change in law, regulation, or administrative or judicial interpretation that becomes effective more than 15 days after the payment becomes due or is duly provided for, whichever occurs later; |
(j) | any tax, assessment or other governmental charge imposed as a result of the failure of the holder or beneficial owner of a New Note to comply with a request to comply with applicable certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connection with the United States of the holder or beneficial owner of a New Note, if such compliance is required by statute or regulation of the United States, as a precondition to relief or exemption from such tax, assessment or other governmental charge; |
(k) | any tax, assessment or other governmental charge imposed by reason of the failure of the beneficial owner to fulfill the statement requirements of Section 871(h) or Section 881(c) of the Code; or |
(l) | any combination of items (a) through (k) above. |
In addition, we will not pay additional amounts to a beneficial owner of a New Note that is a fiduciary, partnership, limited liability company or other fiscally transparent entity, or to a beneficial owner of a New Note that is not the sole beneficial owner of such New Note, as the case may be. This exception, however, will apply only to the extent that a beneficiary or settlor with respect to the fiduciary, or a beneficial owner, partner or member of the partnership, limited liability company or other fiscally transparent entity, would not have been entitled to the payment of an additional amount had the beneficiary, settlor, beneficial owner, partner or member received directly its beneficial or distributive share of the payment. For purposes of this paragraph, the term beneficial owner includes any person holding a New Note on behalf of or for the account of a beneficial owner.
Redemption for Tax Reasons
Each series of the New Notes will mature and be redeemed at par on their respective maturity dates of June 4, 2015, June 5, 2017, August 23, 2018, February 10, 2020, June 6, 2022, January 26, 2039, February 9, 2040 and June 4, 2042 and are not redeemable prior to maturity except upon the occurrence of a Change of Control Triggering Event or certain tax events described below.
We may redeem a series of New Notes prior to maturity in whole, but not in part, on not more than 60 days notice and not less than 30 days notice at a redemption price equal to the principal amount of such New Notes plus any accrued interest and additional amounts to the date fixed for redemption if:
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as a result of a change in or amendment to the tax laws, regulations or rulings of the United States or any political subdivision or taxing authority of or in the United States or any change in official position regarding the application or interpretation of such laws, regulations or rulings (including a holding by a court of competent jurisdiction in the United States) that is announced or becomes effective on or after the issue date, we have or will become obligated to pay additional amounts with respect to the New Notes as described above under Payment of Additional Amounts, and we, in our business judgment, determine that such obligations cannot be avoided by the use of reasonable measures available to us; or |
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on or after the issue date, any action is taken by a taxing authority of, or any decision has been rendered by a court of competent jurisdiction in, the United States or any political subdivision of or in the United States, including any of those actions specified above, whether or not such action was taken or decision was rendered with respect to us, or any change, amendment, application or interpretation is officially proposed, which, in any such case, in the written opinion of independent legal counsel of recognized standing, will result in a material probability that we will become obligated to pay additional amounts with respect to the New Notes, and we, in our business judgment, determine that such obligations cannot be avoided by the use of reasonable measures available to us. |
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If we exercise our option to redeem the New Notes, we will deliver to the Trustee a certificate signed by an authorized officer stating that we are entitled to redeem the New Notes and an opinion of independent tax counsel to the effect that the circumstances described in the above bullets exist.
Consolidation, Merger or Sale
We have agreed not to consolidate with or merge into any other corporation or convey or transfer or lease substantially all of our properties and assets to any person, unless:
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we are a continuing corporation or any successor purchaser is an entity organized under the laws of the United States or any state of the United States; |
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the successor corporation expressly assumes by a supplemental indenture the due and punctual payment of the principal of, and any premium and interest on, all the New Notes and the performance of every covenant in the Indentures that we would otherwise have to perform as if it were an original party to the Indentures; |
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immediately after the effective date of the transaction, no Event of Default has occurred and is continuing under the Indentures; and |
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we deliver to the Trustee an officers certificate and an opinion of counsel, each stating that the consolidation, merger, conveyance or transfer and the supplemental indenture comply with these provisions. |
The successor corporation will assume all of our obligations under the Indentures as if it were an original party to the Indentures. After assuming such obligations, the successor corporation will have all of our rights and powers under the Indentures.
Restrictive Covenants
The Indentures include the following restrictive covenants:
Limitations on Liens
The Indentures limit the amount of liens that we or our Subsidiaries (as defined below) may incur or otherwise create in order to secure indebtedness for borrowed money, upon any Principal Facility (as defined below) or any shares of capital stock that any of our Subsidiaries owning any Principal Facility has issued to us or any of our Subsidiaries. If we or any of our Subsidiaries incur such liens, then we will secure the New Notes to the same extent and in the same proportion as the debt that is secured by such liens. This covenant does not apply, however, to any of the following:
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in the case of a Principal Facility, liens incurred in connection with the issuance by a state or its political subdivision of any securities the interest on which is exempt from United States federal income taxes by virtue of Section 103 of the Internal Revenue Code or any other laws and regulations in effect at the time of such issuance; |
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liens existing on the date of the applicable Indenture; |
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liens on property or shares of stock existing at the time we or any of our Subsidiaries acquire such property or shares of stock, including through a merger, share exchange or consolidation, or securing the payment of all or part of the purchase price, construction or improvement of such property incurred prior to, during, or within 180 days after the later of the acquisition, completion of construction or improvement or commencement of full operation of such property or within 180 days after the acquisition of such shares for the purpose of financing all or a portion of such purchase of the property or construction or improvement on it; or |
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liens for the sole purpose of extending, renewing or replacing all or a part of the indebtedness secured by any lien referred to in the previous bullet points or in this bullet point if the extension, removal and replacement is limited to all or a part of the property secured by the original lien. |
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Notwithstanding the foregoing, we and/or any of our Subsidiaries may incur liens that would otherwise be subject to the restriction described above, without securing New Notes issued under the Indentures equally and ratably, if the aggregate value of all outstanding indebtedness secured by the liens and the value of Sale and Leaseback Transactions (as defined below) does not at the time exceed the greater of:
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10% of our Consolidated Net Tangible Assets (as defined below); or |
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10% of our Consolidated Capitalization (as defined below). |
As of September 30, 2012, our Consolidated Net Tangible Assets were $5.7 billion and our Consolidated Capitalization was $17.7 billion, each as calculated on the basis of our unaudited interim condensed combined financial statements contained elsewhere in this prospectus.
Sale and Leaseback Transactions
A Sale and Leaseback Transaction of any Principal Facility is prohibited, unless within 180 days of the effective date of the arrangement, an amount equal to the greater of the proceeds of the sale or the fair value of the property (value) is applied to the retirement of long-term non-subordinated indebtedness for money borrowed with more than one year stated maturity, including our New Notes, except that such sales and leasebacks are permitted to the extent that the value thereof plus the other secured debt referred to in the previous paragraph does not exceed the amount stated in the previous paragraph.
There are no other restrictive covenants in the Indentures. The Indentures do not require us to maintain any financial ratios, minimum levels of net worth or liquidity or restrict the payment of dividends, the making of other distributions on our capital stock or the redemption or purchase of our capital stock. Moreover, the Indentures do not contain any provision requiring us to repurchase or redeem any New Notes or modify the terms thereof or afford the holders thereof any other protection in the event of our change of control, any highly leveraged transaction or any other event involving us that may materially adversely affect our creditworthiness or the value of the New Notes.
Defined Terms
We define Subsidiaries as any corporation of which at least a majority of all outstanding stock having ordinary voting power in the election of directors of such corporation is at the time, directly or indirectly, owned by us or by one or more Subsidiaries or by us and one or more Subsidiaries.
We define Principal Facility as all real property owned and operated by us or any Subsidiary located within the United States and constituting part of any manufacturing plant or distribution facility, including all attached plumbing, electrical, ventilating, heating, cooling, lighting and other utility systems, ducts and pipes but excluding trade fixtures (unless their removal would cause substantial damage to the manufacturing plant or distribution facility), business machinery, equipment, motorized vehicles, tools, supplies and materials, security systems, cameras, inventory and other personal property and materials. However, no manufacturing plant or distribution facility will be a Principal Facility unless its net book value exceeds 0.25% of Consolidated Capitalization.
We define a Sale and Leaseback Transaction as the sale or transfer of a Principal Facility with the intention of taking back a lease of the property, except a lease for a temporary period of less than 3 years, including renewals, with the intent that the use by us or any Subsidiary will be discontinued on or before the expiration of such period.
We define Consolidated Net Tangible Assets as the excess of all assets over current liabilities appearing on our most recent quarterly or annual consolidated balance sheet, less goodwill and other intangible assets and the minority interests of others in Subsidiaries.
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We define Consolidated Capitalization as the total of all of the assets appearing on our most recent quarterly or annual consolidated balance sheet, less:
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current liabilities, including liabilities for indebtedness maturing more than 12 months from the date of the original creation thereof, but maturing within 12 months from the date of our most recent quarterly or annual consolidated balance sheet; and |
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deferred income tax liabilities reflected in such consolidated balance sheet. |
Defeasance
We can terminate all of our obligations under the applicable Indenture with respect to an applicable series of New Notes, other than the obligation to pay the principal of, and any premium and interest on, such New Notes and certain other obligations, at any time by:
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depositing money or United States government obligations with the Trustee in an amount sufficient in the opinion of an internationally recognized firm of independent public accountants to pay the principal of, and any premium and interest on, such New Notes to their maturity; and |
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complying with certain other conditions, including delivery to the Trustee of an opinion of counsel to the effect that holders of such New Notes will not recognize income, gain or loss for United States federal income tax purposes as a result of our defeasance. |
We can terminate all of our obligations under the applicable Indenture with respect to an applicable series of New Notes, with minor exceptions, including the obligation to pay the principal of, and any premium and interest on, such New Notes, at any time by:
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depositing money or United States government obligations with the Trustee in an amount sufficient to pay the principal of, and the interest and any premium on, such New Notes to their maturity; and |
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complying with certain other conditions, including delivery to the Trustee of an opinion of counsel stating that there has been a ruling by the Internal Revenue Service, or a change in the United States federal tax law since the date of the applicable Indenture, to the effect that holders of such New Notes will not recognize income, gain or loss for United States federal income tax purposes as a result of our defeasance. |
Payments of Unclaimed Moneys
Moneys deposited with the Trustee or any paying agent for the payment of principal of, or any premium and interest on, any New Notes that remain unclaimed for two years will be repaid to us at our written request, unless the law requires otherwise. If this happens and you want to claim these moneys, you must look to us and not to the Trustee or paying agent.
Supplemental Indentures Not Requiring Consent of Holders
Without the consent of any holders of New Notes, we and the Trustee may supplement the Indentures, among other things, to:
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pledge property to the Trustee as security for the New Notes; |
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reflect that another entity has succeeded us and assumed the covenants and obligations of us under the New Notes and the Indentures; |
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cure any ambiguity or inconsistency in the Indentures or in the New Notes or make any other provisions necessary or desirable, as long as the interests of the holders of the New Notes are not adversely affected in any material respect; |
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issue and establish the form and terms of any series of additional New Notes as provided in the Indentures; |
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add to our covenants further covenants for the benefit of the holders of New Notes, and if the covenants are for the benefit of less than all series of New Notes, stating which series are entitled to benefit; |
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add any additional event of default and if the new event of default applies to fewer than all series of New Notes, stating to which series it applies; |
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change the Trustee or provide for an additional trustee; |
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provide additional provisions for bearer New Notes so long as the action does not adversely affect the interests of holders of any New Notes in any material respect; or |
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modify the Indentures in order to continue its qualification under the Trust Indenture Act or as may be necessary or desirable in accordance with amendments to the Trust Indenture Act. |
Supplemental Indentures Requiring Consent of Holders
With the consent of the holders of a majority in principal amount of each series of the New Notes that would be affected by a modification of the applicable Indenture, the Indentures permit us and the Trustee to supplement the applicable Indenture or modify in any way the terms of the applicable Indenture or the rights of the holders of the New Notes of such series. However, without the consent of each holder of all of the New Notes affected by that modification, we and the Trustee may not:
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modify the maturity date of, or reduce the principal of, or premium on, or change the stated final maturity of, any New Note; |
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reduce the rate of or change the time for payment of interest on any New Note; |
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change any of our obligations to pay additional amounts under the applicable Indenture; |
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reduce or alter the method of computation of any amount payable upon redemption, repayment or purchase of any New Note by us, or the time when the redemption, repayment or purchase may be made; |
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make the principal or interest on any New Note payable in a currency other than that stated in the New Note or change the place of payment; |
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impair any right of repayment or purchase at the option of any holder of New Notes; |
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reduce the right of any holder of New Notes to receive or sue for payment of the principal or interest on a New Note that would be due and payable at the maturity thereof or upon redemption; or |
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reduce the percentage in principal amount of the outstanding New Notes of any series required to supplement the applicable Indenture or to waive any of its provisions. |
A supplemental indenture that modifies or eliminates a provision intended to benefit the holders of one series of New Notes will not affect the rights under the applicable Indenture of holders of other series of New Notes.
Waivers Under the Indentures
Under the Indentures, the holders of a majority in aggregate principal amount of the outstanding New Notes of any series, may on behalf of all holders of that series:
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waive our compliance with certain covenants of the applicable Indenture; |
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waive any past default under the applicable Indenture, except a default in the payment of the principal of, or any premium or interest on, any New Notes of the series; and |
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a default under any provision of the applicable Indenture which itself cannot be modified without the consent of the holders of each affected New Note of the series. |
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Events of Default
When we use the term Event of Default in the Indentures with respect to a particular series of New Notes, we mean any of the following:
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we fail to pay interest, including any additional interest, on any New Note of that series for 30 days after payment was due; |
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we fail to make payment of the principal of, or any premium on, any New Note of that series when due; |
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we fail to perform any other covenant or warranty in the applicable Indenture and this failure continues for 90 days after we receive written notice of it from the Trustee or holders of 25% in principal amount of the outstanding New Notes of that series; |
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we or a court take certain actions relating to bankruptcy, insolvency or reorganization of our company; or |
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any other event of default that may be specified for the New Notes of the series or in the board resolution with respect to the New Notes of that series. |
The supplemental indenture or the form of security for a particular series of New Notes may include additional Events of Default or changes to the Events of Default described above.
A default with respect to a single series of New Notes under the applicable Indenture will not necessarily constitute a default with respect to any other series of New Notes issued under the Indentures. A default under our other indebtedness will not be a default under the Indentures. The Trustee may withhold notice to the holders of New Notes of any default, except for defaults that involve our failure to pay principal or interest, if it determines in good faith that the withholding of notice is in the interest of the holders.
If an Event of Default for any series of New Notes occurs and continues (other than an Event of Default involving our bankruptcy, insolvency or reorganization), either the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding New Notes of the affected series may require us upon notice in writing to us, to immediately repay the entire principal, of all the New Notes of such series together with accrued interest on the New Notes.
If an Event of Default occurs which involves our bankruptcy, insolvency or reorganization, then all unpaid principal amounts and accrued interest on all New Notes of each series will immediately become due and payable, without any action by the Trustee or any holder of New Notes.
Subject to certain conditions, the holders of a majority in principal amount of the outstanding New Notes of a series may rescind a declaration of acceleration if all Events of Default, besides the failure to pay principal or interest due solely because of the declaration of acceleration, have been cured or waived.
Other than its duties in case of a default, the Trustee is not obligated to exercise any of its rights or powers under the Indentures at the request, order or direction of any holders, unless the holders offer the Trustee an indemnity satisfactory to it. The holders of a majority in principal amount outstanding of any series of New Notes may, subject to certain limitations, direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any power conferred upon the Trustee, for any series of New Notes.
The Indentures require us to file each year with the Trustee, an officers certificate that states that the signing officer has supervised a review of the activities and performance under the Indentures, and to the best of his or her knowledge, based on the review, we comply with all conditions and covenants of the Indentures.
A judgment for money damages by courts in the United States, including a money judgment based on an obligation expressed in a foreign currency, will ordinarily be rendered only in U.S. dollars. New York statutory law provides that a court shall render a judgment or decree in the foreign currency of the underlying obligation and that the judgment or decree shall be converted into U.S. dollars at the exchange rate prevailing on the date of
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entry of the judgment or decree. If a court requires a conversion to be made on a date other than a judgment date, the Indentures require us to pay additional amounts necessary to ensure that the amount paid in U.S. dollars to a holder is equal to the amount due in such foreign currency.
Reports
For so long as any New Notes are outstanding, Kraft Foods Group will furnish to Holders and prospective purchasers of the New Notes, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. The requirements set forth in this paragraph may be satisfied by delivering such information to the Trustee and posting copies of such information on a website (which may be nonpublic and may be maintained by Kraft Foods Group or a third party; provided, however, that the Trustee shall have no responsibility to determine if such posting has occurred) to which access will be given to Holders and prospective purchasers of the New Notes (which prospective purchasers will be limited to qualified institutional buyers within the meaning of Rule 144A of the Securities Act or non-U.S. persons (as defined in Regulation S under the Securities Act) that certify their status as such to the reasonable satisfaction of Kraft Foods Group.
Notices
Notices to holders of the New Notes will be sent by mail or email to the registered holders.
Concerning the Trustee
Deutsche Bank Trust Company Americas is the Trustee under the Indentures. Deutsche Bank Trust Company Americas has performed and will perform other services for us and certain of our subsidiaries in the normal course of its business.
Governing Law
The Indentures are and the New Notes will be governed by, and construed in accordance with, the laws of the State of New York.
Book-Entry Notes
Global Notes
The New Notes will be offered and exchanged in principal amounts of $2,000 and integral multiples of $1,000 in excess thereof. We will issue the New Notes in the form of one or more permanent global notes in fully registered, book-entry form, which we refer to as the global notes.
Each such global note will be deposited with, or on behalf of, The Depository Trust Company (DTC) or any successor thereto, as depositary (the Depositary), and registered in the name of Cede & Co. (DTCs partnership nominee).
Beneficial interests in the global notes may not be exchanged for notes in physical, certificated form except in the limited circumstances described below. Unless and until it is exchanged in whole or in part for notes in definitive form, no global note may be transferred except as a whole by the Depositary to a nominee of such Depositary.
Book-Entry Procedures for the Global Notes
DTC has advised us that:
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DTC is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provision of Section 17A of the Exchange Act. |
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DTC holds securities that its participants (Direct Participants) deposit with DTC and facilitates posttrade settlement among its Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between accounts of the Direct Participants. This eliminates the need for physical movement of securities certificates. |
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Direct Participants in DTC include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations |
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DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (DTCC). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. |
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Access to DTCs book-entry system is also available to others, such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (Indirect Participants). |
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The rules applicable to DTC and its Direct and Indirect Participants are on file with the SEC. |
Purchases of the New Notes under DTCs book-entry system must be made by or through Direct Participants, which will receive a credit for the New Notes on the records of DTC. The ownership interest of each actual purchaser of the New Notes, which we refer to as the beneficial owner, is in turn to be recorded on the Direct and Indirect Participants records. Beneficial owners will not receive written confirmation from DTC of their purchase, but beneficial owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings from the Direct or Indirect Participant through which the beneficial owner entered into the transaction. Transfers of ownership interests in the global notes will be effected only through entries made on the books of Direct and Indirect Participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in the global notes, except in the event that use of the book-entry system for the New Notes is discontinued. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to own, transfer or pledge beneficial interests in the global notes.
To facilitate subsequent transfers, all global notes deposited by Direct Participants with DTC are registered in the name of DTCs partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the global notes with DTC and their registration in the name of Cede & Co. or such other nominee effect no change in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the New Notes; DTCs records reflect only the identity of the Direct Participants to whose accounts such New Notes are credited, which may or may not be the beneficial owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. So long as DTC or its nominee is the registered owner and holder of the global notes, DTC or its nominee, as the case may be, will be considered the sole owner or holder of the New Notes represented by the global notes for all purposes under the Indentures. Except as described below, beneficial owners of interests in the global notes will not be entitled to have book-entry notes represented by the New Notes registered in their names, will not receive or be entitled to receive physical delivery of New Notes in definitive form and will not be considered the owners or holders thereof under the Indentures. Accordingly, each beneficial owner must rely on the procedures of DTC and, if the person is not a Direct or Indirect Participant, on the procedures of the Direct or Indirect Participants through which such person owns its interest, to exercise any rights of a holder under the Indentures. We understand that under existing industry practices, in the event that we request any action of holders or that an owner of a beneficial interest in the New Notes desires to give or take any action which a holder is entitled to give or take under the Indentures, DTC would authorize the Direct Participants holding the relevant beneficial interests to give or take the action, and those Direct or any Indirect Participants would authorize beneficial owners owning through those Direct or Indirect Participants to give or to take the action or would otherwise act upon the instructions of beneficial owners.
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Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and/or Indirect Participants to beneficial owners, will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to DTC. If less than all of the notes within an issue are being redeemed, DTCs practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent with respect to New Notes unless authorized by a Direct Participant in accordance with DTCs MMI Procedures. Under its usual procedures, DTC mails an omnibus proxy to us as soon as possible after the record date. The omnibus proxy assigns Cede & Co.s consenting or voting rights to those Direct Participants to whose accounts New Notes are credited on the record date (identified in a listing attached to the omnibus proxy).
Payments of principal of and interest on the New Notes and redemption proceeds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. We will send all required reports and notices solely to DTC as long as DTC is the registered holder of the global notes. Neither we, the Trustee, nor any other agent of ours or agent of the Trustee will have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in global notes or for maintaining, supervising or reviewing any records relating to the beneficial ownership interests. We believe, however, that it is currently the policy of DTC to credit the accounts of the Direct Participants upon DTCs receipt of funds and corresponding detail information from us or our agent on the payable date in accordance with their respective holdings shown on DTCs records. Payments by Direct or Indirect Participants to beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name and will be the responsibility of the Direct or Indirect Participants subject to any statutory or regulatory requirements as may be in effect from time to time. Payments of principal of and interest on the New Notes and redemption proceeds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of us or our agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the beneficial owners will be the responsibility of Direct and Indirect Participants.
A beneficial owner shall give notice to elect to have its New Notes purchased or tendered, through its Participant, to the tender agent, and shall effect delivery of such New Notes by causing the Direct Participant to transfer the Participants interest in the New Notes, on DTCs records, to the tender agent. The requirement for physical delivery of notes in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the notes are transferred by Direct Participants on DTCs records and followed by a book-entry credit of tendered notes to the tender agents DTC account.
DTC may discontinue providing its services as depository with respect to the New Notes at any time by giving reasonable notice to us or our agent. Under such circumstances, in the event that a successor depository is not obtained, physical notes are required to be printed and delivered. We may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, physical certificates will be printed and delivered to DTC.
The information in this section concerning DTC and DTCs book-entry system has been obtained from sources that we believe to be reliable, but we take no responsibility for the accuracy thereof.
Certificated Notes
The New Notes will not be issued in definitive form except in very limited circumstances. If DTC notifies us that it is unwilling or unable to continue as a clearing system in connection with the global notes or, DTC ceases to be a clearing system registered under the Exchange Act, and in each case a successor clearing system is not appointed by us within 90 days after receiving such notice from DTC or on becoming aware that DTC is no
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longer so registered, we will issue or cause to be issued individual certificates in registered form on registration of transfer of, or in exchange for, book-entry interests in the New Notes represented by such global notes upon delivery of such global notes for cancellation
Settlement Procedures
Initial settlement for the New Notes will be made in immediately available funds. Secondary market trading between the Direct or Indirect Participants will occur in the ordinary way in accordance with the Depositarys rules and will be settled in immediately available funds using DTCs Same-Day Funds Settlement System.
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Our Directors
Our Board is comprised of eleven directors. These eleven individuals have significant experience in relevant industries and demonstrated leadership capabilities. These individuals possess expertise in a wide variety of areas important to our operations, including manufacturing, supply chain and logistics, marketing, consumer products, finance, the governmental regulatory environment and social media. As a group, they provide a broad base of complementary experience and expertise, while bringing a wide range of viewpoints and backgrounds to our Board.
All of the individuals who serve as our directors have worked in a range of U.S. markets and served as significant corporate or academic leaders or both. Our directors include several current and former top executives of leading U.S. companies and combined have decades of strategy development and managerial experience. Nearly all have served or currently serve on the boards of major U.S. public companies and possess an understanding of the responsibilities that accompany board membership.
The following table and biographies present information, as of November 28, 2012, concerning the individuals who serve as our directors, including their respective business experience. The following also includes information about all public company directorships each individual currently holds or held during the past five years. In addition to the public company directorships listed below, the directors also serve on the boards of various charitable, educational and cultural institutions.
Name |
Age |
Position |
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John T. Cahill |
55 |
Executive Chairman |
||||
W. Anthony Vernon |
56 |
Chief Executive Officer and Director |
||||
Abelardo E. Bru |
63 |
Director |
||||
L. Kevin Cox |
49 |
Director |
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Myra M. Hart |
72 |
Director |
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Peter B. Henry |
43 |
Director |
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Jeanne P. Jackson |
61 |
Director |
||||
Terry J. Lundgren |
60 |
Director |
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Mackey J. McDonald |
66 |
Director |
||||
John C. Pope |
63 |
Director |
||||
E. Follin Smith |
53 |
Director |
Mr. Cahill is our Executive Chairman. He joined Mondelēz International on January 2, 2012 as the Executive Chairman Designate, North American Grocery, and served in that capacity until the Distribution Date. Prior to that, he served as an Industrial Partner at Ripplewood Holdings LLC, a private equity firm, from 2008 to 2011. Mr. Cahill spent nine years with The Pepsi Bottling Group, Inc., a beverage manufacturing company, most recently as Chairman and Chief Executive Officer from 2003 to 2006 and Executive Chairman until 2007. Mr. Cahill previously spent nine years with PepsiCo, Inc., a food and beverage company, in a variety of leadership positions. He currently serves as lead director of Colgate-Palmolive Company and is also a director at Legg Mason, Inc. Mr. Cahill brings to our Board his knowledge of the food and beverage industry, financial management and operational expertise and public company board and corporate governance experience.
Mr. Vernon is our Chief Executive Officer and a member of our Board. Prior to the Distribution Date, he served as Mondelēz Internationals Executive Vice President and President, Kraft Foods North America. Prior to joining Mondelēz International in August 2009, he was the Healthcare Industry Partner of Ripplewood Holdings LLC, a private equity firm, since 2006. Mr. Vernon spent 23 years with Johnson & Johnson, a pharmaceutical company, in a variety of leadership positions, most recently serving as Company Group Chairman of DePuy Inc., an orthopedics company and subsidiary of Johnson & Johnson, from 2004 to 2005. He is also a director of Medivation, Inc. and was formerly a director of Uluru Inc. Mr. Vernon brings to our Board his experience overseeing strategy and development for major consumer brands and operating, retail and governmental regulatory expertise.
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Mr. Bru has been a member of our Board since the Distribution Date. From 1976 to 2005, he served at PepsiCo, Inc., a food and beverage company, in various leadership capacities, including as Vice Chairman from 2004 to 2005, Chairman and Chief Executive Officer, Frito-Lay North America from 2003 to 2004, President and Chief Executive Officer, Frito-Lay North America from 1999 to 2003 and President and General Manager, Sabritas Mexico from 1992 to 1999. He is currently a director of Kimberly-Clark Corporation and was formerly a director of Office Depot, Inc. Mr. Bru brings to our Board his knowledge of the food and beverage industry, business leadership experience, operating, finance and retail expertise and public company board and corporate governance experience.
Mr. Cox has been a member of our Board since the Distribution Date. He has been serving as Executive Vice President, Human Resources of the American Express Company, a global provider of payment solutions and travel-related services for consumers and businesses, since April 2005. Prior to that, he spent 16 years at PepsiCo, Inc., a food and beverage company, and The Pepsi Bottling Group, Inc., a beverage manufacturing company, where he served in a variety of leadership positions in strategy, business development, technology and human resources. He currently serves as a director of The Corporate Executive Board Company, and he was formerly a director of Virgin Mobile USA, Inc. and The Chefs Warehouse, Inc. Mr. Cox brings to our Board knowledge of the consumer products industry, corporate leadership expertise and public company board and corporate governance experience.
Dr. Hart has been a member of our Board since the Distribution Date. She joined the faculty of the Harvard Business School in 1995 as a professor of management practice and retired to its senior faculty in 2008. From 1985 until 1990, Dr. Hart was a member of the team that founded Staples, Inc., an office products retailer, leading operations, strategic planning and growth implementation in new and existing markets. Prior to that, she was Director of Marketing for Star Market, a division of SuperValu Inc., a U.S. grocery retailer, from 1983 to 1985. Dr. Hart served as a director of Mondelēz International from December 2007 until the Distribution Date. She was also formerly a director of Office Depot Inc., Royal Ahold N.V. and Summer Infant, Inc. Dr. Hart brings to our Board her leadership, operating and marketing expertise, knowledge of the grocery industry and public company board and corporate governance experience.
Dr. Henry has been a member of our Board since the Distribution Date. He is currently Dean of the Leonard N. Stern School of Business at New York University. Prior to that, Dr. Henry was on the faculty at Stanford University since 1997, where he served as Konosuke Matsushita Professor of International Economics, John and Cynthia Fry Gunn Faculty Scholar and Associate Director of the Stanford Center for Global Business and the Economy from 2008 to 2009, Professor of Economics from 2007 to 2008 and Tenured Associate Professor of Economics from 2005 to 2007. Dr. Henry served as a director of Mondelēz International from May 2011 until the Distribution Date. Dr. Henry brings to our Board his financial expertise, leadership and experience as a member of leading academic institutions and economic research and foreign relations organizations.
Ms. Jackson has been a member of our Board since the Distribution Date. She has been serving as President, Direct to Consumer at Nike, Inc., a designer, marketer and distributor of athletic footwear, equipment and accessories, since 2009. Prior to that, she founded and served as the Chief Executive Officer of MSP Capital, a private investment company, from 2002 to 2003 and as Chief Executive Officer of Walmart.com, a private eCommerce enterprise, from 2000 to 2002. Ms. Jackson previously served in various leadership positions at Gap Inc., Victorias Secret Direct LLC, Saks Fifth Avenue, Federated Department Stores, Inc. and Bullocks, all clothing retailers, and Walt Disney Attractions, Inc., the theme parks and vacation resorts division of The Walt Disney Company, a mass media company. She currently serves as a director of McDonalds Corporation and was formerly a director of Harrahs Entertainment Inc., Nike, Inc. and Nordstrom, Inc. Ms. Jackson brings to our Board her marketing, social media and product development expertise, retail and consumer products knowledge and public company board and corporate governance experience.
Mr. Lundgren has been a member of our Board since the Distribution Date. He has been serving at Macys, Inc., a national retailer, as President and Chief Executive Officer since 2003 and as a director since 1997, becoming Chairman of the Board in 2004. Mr. Lundgren previously served as Macys, Inc.s President and Chief
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Operating Officer from 2002 to 2003, President and Chief Merchandising Officer from 1997 until 2002 and Chairman and Chief Executive Officer, Federated Merchandising Group from 1994 until 1997. Prior to joining Federated Department Stores, Inc., Macys, Inc.s predecessor, Mr. Lundgren was affiliated with The Neiman Marcus Group, a national retailer, from 1994 to 1998, serving as Chairman and Chief Executive Officer, Neiman Marcus Stores from 1990 to 1994. He served as a director of Mondelēz International from May 2012 until the Distribution Date. He is also currently a director of the Federal Reserve Bank of New York. Mr. Lundgren brings to our Board corporate leadership and marketing expertise and public company board and corporate governance experience.
Mr. McDonald has been a member of our Board since the Distribution Date. He has been serving as a senior advisor to Crestview Partners, a private equity firm, since 2008. Prior to that, he served at VF Corporation, an apparel manufacturer, as Chief Executive Officer from 1996 to 2008 and as President from 1993 to 1996. Mr. McDonald also served at VF Corporation as a director from 1993 to 1998 and as Chairman of the Board from 1998 to 2008. Mr. McDonald served as a director of Mondelēz International from January 2010 until the Distribution Date. He currently serves as a director of Hyatt Hotels Corporation and was formerly a director of Wells Fargo & Company, The Hershey Company, Tyco International, Ltd. and Wachovia Corporation. Mr. McDonald brings to our Board his knowledge of the consumer products industry, leadership and operating expertise and public company board and corporate governance experience.
Mr. Pope has been a member of our Board since August 2012. He has been serving as Chairman of PFI Group, LLC, a financial management firm, since 1994. From December 1995 to November 1999, Mr. Pope served as Chairman of the Board of MotivePower Industries, Inc., a manufacturer and remanufacturer of locomotives and locomotive components. Prior to joining MotivePower Industries, Inc., Mr. Pope served in various capacities at United Airlines, a U.S.-based airline, and its parent, UAL Corporation, including as Director, Vice Chairman, President, Chief Operating Officer, Chief Financial Officer and Executive Vice President, Marketing and Finance. Mr. Pope served as a director of Mondelēz International from July 2001 until the Distribution Date. He is also currently a director of Con-way, Inc., Navistar International Corporation, R.R. Donnelley and Sons Co. and Waste Management, Inc. and was formerly a director of Dollar Thrifty Automotive Group, Inc. and Federal-Mogul Corporation. Mr. Pope brings to our Board his leadership, operating and marketing experience, financial and accounting expertise and public company board and corporate governance experience.
Ms. Smith has been a member of our Board since the Distribution Date. She served at Constellation Energy Group, Inc., a commercial and industrial electricity supplier, as Executive Vice President, Chief Financial Officer and Chief Administrative Officer from 2003 to 2007 and as Executive Vice President and Chief Financial Officer from 2001 to 2003. Prior to that, Ms. Smith served at Armstrong World Industries Inc., a manufacturer of hard-surface flooring and ceilings, as Senior Vice President and Chief Financial Officer from 2000 to 2001 and as Vice President and Treasurer from 1998 to 2000. Prior to joining Armstrong World Industries Inc., Ms. Smith spent thirteen years with General Motors Corporation, an automotive company, in various financial and leadership positions, most recently as Chief Financial Officer, Delphi Chassis Systems from 1997 to 1998. She is currently a director of Discover Financial Services and Ryder Systems, Inc. Ms. Smith brings to our Board her financial, accounting and governmental regulatory expertise, strategy and management background and public company board and corporate governance experience.
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Our Executive Officers
The following table presents information, as of November 28, 2012, concerning our executive officers, including their respective business experience.
Name, Age and Position with Kraft Foods Group
Name |
Age |
Position |
||||
Timothy R. McLevish |
57 |
Executive Vice President and Chief Financial Officer |
||||
Dino J. Bianco |
50 | Executive Vice President and President, National Businesses and Marketing Services | ||||
Thomas F. Corley |
50 |
Executive Vice President and President, U.S. Sales |
||||
Charles W. Davis |
55 |
Executive Vice President, Research, Development, Quality & Innovation |
||||
Adrienne D. Elsner |
49 |
Executive Vice President and President, Beverages |
||||
Georges El-Zoghbi |
45 |
Executive Vice President and President, Cheese and Dairy |
||||
Robert Gorski |
60 |
Executive Vice President, Integrated Supply Chain |
||||
Diane Johnson May |
53 |
Executive Vice President, Human Resources |
||||
Nicholas E. Meriggioli |
49 |
Executive Vice President and President, Oscar Mayer |
||||
Michael Osanloo |
46 |
Executive Vice President and President, Grocery |
||||
Sam B. Rovit |
54 |
Executive Vice President, Strategy |
||||
Kim K. W. Rucker |
45 | Executive Vice President, Corporate & Legal Affairs, General Counsel and Corporate Secretary |
Mr. McLevish has served as our Executive Vice President and Chief Financial Officer since August 2012. He served as Mondelēz Internationals Executive Vice President from August 15, 2011 until the Distribution Date, leading the Spin-Off planning. Mr. McLevish also served as Mondelēz Internationals Executive Vice President and Chief Financial Officer from October 2007 to May 2011. Prior to that, Mr. McLevish served as Senior Vice President and Chief Financial Officer at Ingersoll-Rand Company Limited, an industrial company, since June 2002. Mr. McLevish also serves on the Boards of Directors of Kennametal Inc. and URS Corporation.
Mr. Bianco has served as our Executive Vice President and President, National Businesses and Marketing Services, since the Distribution Date. Prior to that, he served as Mondelēz Internationals President, Kraft Foods Canada since November 2005. He has also served in various marketing, sales and finance capacities at Mondelēz International, including Vice President of Marketing, Kraft Foods Canada from January 2002 to November 2005. He joined Mondelēz International in 1990.
Mr. Corley has served as our Executive Vice President and President, U.S. Sales since the Distribution Date. Prior to that, he served as Mondelēz Internationals President, U.S. Sales since April 2012. Prior to that, Mr. Corley served as Mondelēz Internationals Senior Vice President, U.S. Sales from 2009 to 2012, Senior Vice President, Wal-Mart Stores, Inc. Sales from 2008 to 2009 and Vice President, Wal-Mart Stores, Inc. Sales from 2007 to 2008. He joined Mondelēz International in 1985.
Mr. Davis has served as our Executive Vice President, Research, Development, Quality & Innovation since the Distribution Date. Prior to that, he served as Mondelēz Internationals Vice President, Research, Development & Quality, Kraft Foods Europe since 2007. Prior to that, Mr. Davis served as Mondelēz Internationals Vice President, Research, Development & Quality, North American Convenient Meals Sector from 2004 to 2007. He joined Mondelēz International in 1984.
Ms. Elsner has served as our Executive Vice President and President, Beverages since the Distribution Date. Prior to that, she served as Mondelēz Internationals President, Beverages since May 2010. She previously served as Vice President and President, Coffee, Kraft Foods Europe from 2007 to 2010, and as Vice President, Marketing Resources, Kraft Foods Europe from 2005 to 2007. Ms. Elsner joined Mondelēz International in 1992.
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Mr. El-Zoghbi has served as our Executive Vice President and President, Cheese and Dairy since the Distribution Date. Prior to that, he served as Mondelēz Internationals President, Cheese and Dairy since October 2009. Prior to that, he served as Mondelēz Internationals Vice President and Area Director, Kraft Foods Australia & New Zealand from October 2007 to September 2009. Prior to joining Mondelēz International, Mr. El-Zoghbi served in various directorial and managerial capacities at Fonterra Co-operative Group, a multinational processor of dairy products, from July 1998 to September 2007.
Mr. Gorski has served as our Executive Vice President, Integrated Supply Chain since the Distribution Date. Prior to that, Mr. Gorski served as Executive Vice President, Integrated Supply Chain, Kraft Foods North America, since August 1, 2012. Prior to that, he worked for The Procter & Gamble Company, a consumer products company, for 34 years, in a variety of leadership positions in multiple categories in North America and Europe. He most recently served as Vice President, Supply Chain for Procter & Gambles global baby care business from 2003 to 2012.
Ms. Johnson May has served as our Executive Vice President, Human Resources since the Distribution Date. Prior to that, she served as Mondelēz Internationals Senior Vice President, Human Resources, Kraft Foods North America since September 2010. She joined Mondelēz International in 1980 and has served in various roles, including Vice President, Human Resources at various Mondelēz International units from December 2006 to September 2010 and Senior Director, Human Resources from 2002 to 2006.
Mr. Meriggioli has served as our Executive Vice President and President, Oscar Mayer since the Distribution Date. Prior to that, he served as Mondelēz Internationals President, Oscar Mayer since January 2008. Prior to that, Mr. Meriggioli served as Mondelēz Internationals Group Vice President and President, North American Convenient Meals Sector from March 2006 until January 2008 and as Senior Vice President and General Manager, Oscar Mayer from June 2002 to March 2006. He joined Mondelēz International in 1987.
Mr. Osanloo has served as our Executive Vice President and President, Grocery since the Distribution Date. Prior to that, he served as Mondelēz Internationals President, Grocery since October 2010. Prior to that, Mr. Osanloo was Mondelēz Internationals Executive Vice President, Strategy from April 2008 to September 2010. Prior to joining Mondelēz International, Mr. Osanloo served as Senior Vice President, Marketing at Harrahs Entertainment Inc., a provider of branded casino entertainment, from July 2005 to March 2008. Previously, he was a partner in the retail and consumer products practice at Bain & Co., a management consulting firm, from August 1996 to June 2005.
Mr. Rovit has served as our Executive Vice President, Strategy and has led the Planters business unit since the Distribution Date. Prior to that, he served as Mondelēz Internationals Executive Vice President, Strategy since February 1, 2011. Prior to joining Mondelēz International, he served as a Director of Bain & Co., a management consulting firm, from January 2008 to January 2011 and from 1988 to June 2005. Mr. Rovit served as President, Chief Executive Officer and Director of Swift & Company, a meat processing company, from June 2005 to July 2007.
Ms. Rucker has served as our Executive Vice President, Corporate & Legal Affairs, General Counsel and Corporate Secretary since the Distribution Date. Prior to that, she joined Mondelēz International as Executive Vice President, Corporate & Legal Affairs, Kraft Foods North America in September 2012. Ms. Rucker had previously served as Senior Vice President and General Counsel and Chief Compliance Officer of Avon Products, Inc., a global manufacturer of beauty and related products, since March 2008 and as Corporate Secretary since February 2009. Prior to that, Ms. Rucker served as Senior Vice President, Secretary and Chief Governance Officer of Energy Future Holdings Corp. (formerly TXU Corp.), an energy company, from 2004 to 2008. She also served as Counsel, Corporate Affairs at Kimberly-Clark Corporation, a global manufacturer and marketer of consumer and health care products, from 2001 to 2004 and previously was a partner at the Chicago law firm of Sidley Austin LLP.
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Director Independence
In accordance with NASDAQ rules, our Board has a majority of independent directors, and our Board committees comprise only independent directors.
Committees of the Board
Our Board has the following committees, each of which operates under a written charter that is posted on our website.
Audit Committee
The Audit Committee was established in accordance with Section 3(a)(58)(A) and Rule 10A-3 under the Exchange Act. The responsibilities of our Audit Committee are more fully described in our Audit Committee charter. Our Audit Committee, among other duties, oversees:
|
the integrity of our financial statements, our accounting and financial reporting processes and our systems of internal control over financial reporting and safeguarding of our assets; |
|
our compliance with legal and regulatory requirements; |
|
our independent auditors qualifications, independence and performance; |
|
the performance of our internal auditors and internal audit function; |
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our financial matters and strategy; and |
|
our guidelines and policies with respect to risk assessment and risk management. |
The Audit Committee consists entirely of independent directors, and each meets the independence requirements set forth in the listing standards of NASDAQ, Rule 10A under the Exchange Act and the Audit Committee charter. Each member of the Audit Committee is financially literate and has accounting or related financial management expertise as such terms are interpreted by our Board in its business judgment. None of our Audit Committee members simultaneously serve on more than two other public company audit committees unless our Board specifically determines that it would not impair the ability of an existing or prospective member to serve effectively on the Audit Committee. The members of the Audit Committee are Abelardo E. Bru, Peter B. Henry, Jeanne P. Jackson, John C. Pope and E. Follin Smith.
Compensation Committee
The responsibilities of our Compensation Committee are more fully described in our Compensation Committee charter, and include, among other duties:
|
assessing the appropriateness and competitiveness of our executive compensation programs, including our severance programs and executive retirement income design; |
|
reviewing and approving our Chief Executive Officers goals and objectives, evaluating his performance in light of these goals and objectives and, based upon this evaluation, determining both the elements and amounts of his compensation, including perquisites; |
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reviewing managements recommendations for, and approving the compensation of, our Chief Executive Officers executive direct reports; |
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determining annual incentive compensation, equity awards and other long-term incentive awards granted under our equity and long-term incentive plans to eligible participants; |
|
reviewing our compensation policies and practices for employees as they relate to our risk management practices and risk-taking incentives; |
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|
overseeing the management development and succession planning process (including succession planning for emergencies) for our Chief Executive Officer and his executive direct reports and, as appropriate, evaluating potential candidates; |
|
monitoring our policies, objectives and programs related to diversity and reviewing periodically our diversity performance in light of appropriate measures; |
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assessing the appropriateness of, and advising our Board regarding, the compensation of independent directors for service on our Board and its committees; and |
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reviewing and discussing with management the Compensation Discussion and Analysis included in our future public filings with the SEC and preparing and approving the committees annual report to shareholders for inclusion in our annual proxy statement. |
The Compensation Committee consists entirely of independent directors, and meets the independence requirements set forth in the listing standards of NASDAQ and the Compensation Committee charter. The members of the Compensation Committee are non-employee directors (within the meaning of Rule 16b-3 of the Exchange Act) and outside directors (within the meaning of Section 162(m) of the Code). The members of the Compensation Committee are L. Kevin Cox, Myra M. Hart, Terry J. Lundgren and Mackey J. McDonald.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists entirely of independent directors who our Board determined to be independent within the meaning of NASDAQ listing standards. No Compensation Committees members are:
|
a current or former officer or employee of Kraft Foods Group; |
|
a participant in a related person transaction occurring after January 1, 2009 (for a description of our policy on related person transactions, see Certain Relationships and Related Party TransactionsPolicy and Procedures Governing Related Person Transactions); or |
|
an executive officer of another entity at which one of our executive officers serves on the board of directors. |
Governance Committee
The responsibilities of our Governance Committee are more fully described in our Governance Committee charter, and include, among other duties:
|
identifying qualified individuals for Board membership consistent with criteria approved by our Board; |
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considering incumbent directors performance and suitability in determining whether to recommend that our Board nominate them for re-election; |
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making recommendations to our Board as to directors independence; |
|
recommending to our Board the appropriate size, function, needs, structure and composition of our Board and its committees; |
|
recommending to our Board directors to serve as members of each committee and candidates to fill committee vacancies; |
|
monitoring directors compliance with our stock ownership guidelines; |
|
advising our Board on corporate governance matters, including developing and recommending to our Board corporate governance guidelines; and |
|
overseeing policies and programs related to social responsibility, corporate citizenship and public policy issues significant to us. |
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The Governance Committee consists entirely of independent directors, and each meets the independence requirements set forth in the listing standards of NASDAQ and the Governance Committee charter. The members of the Governance Committee are L. Kevin Cox, Peter B. Henry, Terry J. Lundgren, Mackey J. McDonald and E. Follin Smith.
Code of Business Conduct and Ethics for Non-Management Members of our Board and Code of Conduct for Employees
We have adopted a written code of business conduct and ethics for non-management members of our Board, or the Directors Ethics Code, that is designed to deter wrongdoing and to promote:
|
honest and ethical conduct; |
|
full, fair, accurate, timely and understandable disclosure in reports and documents that we file with the SEC and in our other public communications; |
|
compliance with applicable laws, rules and regulations, including insider trading compliance; and |
|
accountability for adherence to the code and prompt internal reporting of violations of the code, including illegal or unethical behavior regarding accounting or auditing practices. |
A copy of the Directors Ethics Code is posted on our website.
We also adopted a written code of conduct, or the Code of Conduct, that applies to all of our employees. Like the Directors Ethics Code, the Code of Conduct reflects our commitment to trust, compliance and integrity in the conduct of our business. It includes employee policies and rules that cover ethical and legal practices for nearly every aspect of our business. A copy of the Code of Conduct is posted on our website.
Director Nomination Process
We adopted corporate governance guidelines that contain information concerning the responsibilities of the Governance Committee with respect to identifying and evaluating future director candidates.
The Governance Committee will evaluate future director candidates in accordance with the director membership criteria described in our corporate governance guidelines. The Governance Committee will evaluate a candidates qualifications to serve as a member of our Board based on the skills and characteristics of individual directors as well as the composition of our Board as a whole. In addition, the Governance Committee will evaluate a candidates professional skills and background, areas of expertise, experience in relevant industries, age, diversity, geographic background and number of other directorships, along with qualities expected of all directors, including integrity, judgment, acumen and the time and ability to make a constructive contribution to our Board. The Governance Committee, along with our Board, will consider a candidate in the context of our Board as a whole to determine the appropriate mix of backgrounds and experiences to establish a Board that is strong in its collective knowledge and benefits from diverse views, experiences and backgrounds. We seek to create a diversity of views and experiences among our Board members as we believe that varying viewpoints better represent our shareholders, employees, business partners and consumers and contribute to a more informed and effective decision-making process.
Communication with Non-Management Members of our Board of Directors
Information for shareholders and other parties interested in communicating with our Board or our independent directors, individually or as a group, are posted on our website. Our corporate secretary will forward communications relating to matters within our Boards purview to the independent directors; communications relating to matters within a board committees area of responsibility to the chair of the appropriate committee; and communications relating to ordinary business matters, such as suggestions, inquiries and consumer complaints, to the appropriate Kraft Foods Group executive or employee. Our corporate secretary will not forward solicitations, junk mail and obviously frivolous or inappropriate communications, but will make them available to any independent director who requests them.
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Compensation Discussion and Analysis
Prior to the Spin-Off on October 1, 2012, we were a wholly owned subsidiary of Mondelēz International, and therefore Mondelēz Internationals senior management and the Human Resources and Compensation Committee of Mondelēz Internationals Board, which we refer to in this Compensation Discussion and Analysis as Mondelēz Internationals Compensation Committee, determined our historical compensation strategy. Since the information presented in the compensation tables of this prospectus relates to the 2011 fiscal year, which ended on December 31, 2011, this Compensation Discussion and Analysis focuses primarily on Mondelēz Internationals compensation programs and decisions with respect to 2011 and the processes for determining 2011 compensation while we were part of Mondelēz International. Following the Spin-Off, our Board has formed its own Compensation Committee that is responsible for our executive compensation programs going forward, which may be different from the compensation programs in place for 2011.
Specifically, in this Compensation Discussion and Analysis, we:
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describe Mondelēz Internationals goals for compensating our executive officers; |
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describe how Mondelēz International designed its compensation program and explain how executive compensation decisions reflect both Mondelēz Internationals business performance and the individual performance goals for each of the Named Executive Officers listed below; and |
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explain the tables and other disclosures that follow. |
This Compensation Discussion and Analysis presents historical compensation information for the following individuals, whom we refer to as the Named Executive Officers;
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Irene Rosenfeld, who served as our Chief Executive Officer, or CEO, in 2011; |
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David Brearton, who served as our Chief Financial Officer since May 9, 2011 and for the remainder of 2011; |
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Timothy McLevish, who served as our Chief Financial Officer until May 9, 2011; and |
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Sanjay Khosla, W. Anthony Vernon and Mary Beth West, our three other most highly compensated executive officers during 2011. |
As described below, some of these officers resigned from their positions at Kraft Foods Group in connection with the Spin-Off. Prior to the Spin-Off, all of the Named Executive Officers served the same or similar role at both Kraft Foods Group and Mondelēz International. As a result, Mondelēz International determined the Named Executive Officers compensation under its compensation program.
In connection with the Spin-Off, Irene Rosenfeld, David Brearton, Sanjay Khosla and Mary Beth West resigned from their positions with Kraft Foods Group and continue to serve in their roles at Mondelēz International. In addition, in connection with the Spin-Off, Timothy McLevish resigned from his role at Mondelēz International and now serves as our Executive Vice President and Chief Financial Officer, and W. Anthony Vernon resigned from his role at Mondelēz International and now serves as our new CEO. For further information regarding our current executive management team, see Management.
On August 27, 2012, in connection with the Spin-Off and in recognition of Mr. Vernons increased responsibilities, Mondelēz Internationals Compensation Committee approved changes to Mr. Vernons compensation to recognize his increased responsibilities. The terms of Mr. Vernons compensation are as follows: base salary of $1,000,000, effective as of the Distribution Date; target annual incentive plan award of 150% of base salary, effective January 1, 2013; and target midpoint long-term incentive award of $5,500,000, effective January 1, 2013.
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Effective January 2, 2012, John T. Cahill was designated our Executive Chairman. Mondelēz Internationals Compensation Committee, in consultation with Ms. Rosenfeld, reviewed and approved Mr. Cahills compensation. In addition to historical information for 2011, this Compensation Discussion and Analysis describes the terms of Mr. Cahills employment arrangement. See Compensation for Executive Chairman.
Compensation Program Design Following the Spin-Off
Kraft Foods Groups Compensation Committee was established immediately following the Spin-Off and therefore has not established a specific set of objectives or principles for our executive compensation program. Prior to the Spin-Off, Mondelēz Internationals Compensation Committee made certain compensation decisions and took actions regarding our compensation philosophy, principles and program design, and after the Spin-Off, Kraft Foods Groups Compensation Committee makes additional compensation decisions and actions.
It is anticipated that our Compensation Committee will establish objectives and principles similar to the objectives and principles that Mondelēz International maintained for its compensation program in 2011, as described in this Compensation Discussion and Analysis.
Kraft Foods Groups executive compensation program generally includes the same elements as Mondelēz Internationals executive compensation program. In connection with the Spin-Off, we adopted a performance incentive plan under which various stock-based awards may be granted to our employees and directors. The terms of the plan are similar to those of Mondelēz Internationals performance incentive plan.
In addition, we retained Mondelēz Internationals deferred compensation plan for our executives and adopted a deferred compensation plan for our directors. The plans allow our U.S. executives to defer up to 50% of their base salary and up to 100% of their annual cash incentive award and our directors to defer 100% of their annual stock incentive award and up to 100% of their annual retainer fee. See Certain Relationships and Related Party TransactionsAgreements with Mondelēz InternationalEmployee Matters Agreement for information on the allocation of liabilities with respect to benefit accruals prior to the Distribution Date under Mondelēz Internationals deferred compensation plans.
We have also adopted a change in control plan and stock ownership guidelines and holding requirements in connection with the Spin-Off similar to those adopted by Mondelēz International.
Following the Spin-Off, Kraft Foods Groups Compensation Committee approves certain changes with respect to performance shares previously granted to Kraft Foods Group employees. Specifically, we expect that the performance goals will be revised so that performance is measured relative to Kraft Foods Group (rather than Mondelēz International), and, if and when the performance shares are earned, they will be settled in shares of Kraft Foods Group common stock.
Our Compensation Committee will review the impact of our separation from Mondelēz International and all aspects of compensation and make appropriate adjustments to our compensation programs and practices.
Compensation for Executive Chairman
In December 2011, Mondelēz International and Kraft Foods Group entered into an employment arrangement with Mr. Cahill, who was designated our Executive Chairman effective January 2, 2012 and who currently serves in this role.
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The material terms of his compensation are summarized below:
Compensation Component |
Target Value
($) |
|||
Annual Base Salary |
750,000 | |||
Annual Cash Incentive Program
|
750,000 | |||
Equity Grants |
4,500,000 | |||
Comprised of: |
||||
Restricted Stock Units (75%) (1) |
3,375,000 | |||
Stock Options (25%) (2) |
1,125,000 | |||
Total Target Annual Compensation |
6,000,000 |
(1) | 100% of restricted stock units will vest on January 2, 2015. |
(2) | 33% of stock options will vest on January 2, 2013; 33% will vest on January 2, 2014; and 34% will vest on January 2, 2015. |
In determining Mr. Cahills compensation, Mondelēz Internationals Compensation Committee reviewed market data for similarly situated executive chairmen in large cap companies. Mondelēz Internationals Compensation Committee awarded Mr. Cahill the mix of long-term incentives described above in order to provide Mr. Cahill with sufficient incentive to drive business results and provide him with the opportunity to meet Mondelēz Internationals stock ownership guidelines. Mr. Cahill was subject to stock ownership guidelines that required him to attain and then hold five times his base salary in Mondelēz International common stock. As a result of the Spin-Off, Mr. Cahill must now hold five times his base salary in our common stock, within five years of his employment. He is also eligible for an annual executive car allowance and financial counseling allowance. In addition, he is eligible for a $125,000 annual allowance in lieu of relocation to cover housing and transportation expenses.
Executive Summary
In this section we highlight Mondelēz Internationals 2011 performance and the key actions Mondelēz Internationals Compensation Committee took to further align the interests of the Named Executive Officers with those of Mondelēz Internationals shareholders. We also include a summary of Mondelēz Internationals compensation governance highlights to provide a better understanding of Mondelēz Internationals Compensation Committees pay decisions relative to company performance in 2011 and its most recently completed three-year (20092011) performance cycle.
2011 Performance . In 2011, Mondelēz International delivered superior financial performance including top-tier revenue growth and earnings results. Mondelēz Internationals net revenues grew 10.5% while its Organic Net Revenue Growth was 6.6%. See Mondelēz International and Subsidiaries Reconciliation of GAAP to Non-GAAP Information for a reconciliation of GAAP to the non-GAAP financial measure Organic Net Revenue Growth. Operating EPS was $2.29, an increase of 13.4%, driven primarily by operating gains, lower tax cost and favorable foreign currency. Each of Mondelēz Internationals geographical units contributed to its strong performance. Strong operating gains, cost management and delivery on synergies resulting from Mondelēz Internationals integration of Cadbury Limited, or Cadbury, which Mondelēz International acquired in 2010, all contributed to drive its strong profitability growth. Cash flow results were also strong for the second straight year. Mondelēz Internationals Total Shareholder Return during 2011 was 22.7%, which significantly exceeded the median of its Performance Peer Group (10.2%).
In the midst of delivering strong operating performance, Mondelēz International announced the Spin-Off, which Mondelēz Internationals Compensation Committee considered when evaluating the Named Executive Officers performance in 2011.
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2011 Performance and Impact to Annual Cash Incentive Payouts . In early 2012, Mondelēz Internationals Compensation Committee reviewed performance with respect to the 2011 Annual Cash Incentive Program objectives. Mondelēz International significantly exceeded its top line growth goal and was slightly below its aggressive profitability and cash flow goals. Mondelēz Internationals 2011 performance, which drove Annual Cash Incentive Program payouts for the Named Executive Officers, is as follows:
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Organic Net Revenue Growth6.6% |
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Adjusted Operating Income$7.1 billion |
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Free Cash Flow$2.7 billion |
The Adjusted Operating Income measure that Mondelēz Internationals Compensation Committee considered to evaluate business performance is calculated differently than Kraft Foods Groups Adjusted Operating Income financial measure that is discussed in Managements Discussion and Analysis of Financial Condition and Results of Operations. See Mondelēz International and Subsidiaries Reconciliation of GAAP to Non-GAAP Information for reconciliations of GAAP financial measures to the non-GAAP financial measures Organic Net Revenue Growth, Adjusted Operating Income and Free Cash Flow, in each case, as used in this Compensation Discussion and Analysis.
Based on these results, Mondelēz Internationals overall Annual Cash Incentive Program rating for 2011 was 130% of target. See Elements of Executive CompensationAnnual Cash Incentive Program2011 Business Unit Ratings for more information about Mondelēz Internationals results relative to targets. See Additional Information on Compensation PrinciplesProviding Competitive PayComposition and Purpose of the Performance Peer Group for additional information regarding Mondelēz Internationals Performance Peer Group.
20092011 Performance and Impact to LTIP Payouts . Overall, Mondelēz International delivered above target results during the three-year performance cycle from 2009 to 2011. Strong Operating EPS Growth and Cumulative Adjusted Free Cash Flow generation, combined with slightly below target Organic Net Revenue Growth results, significantly impacted the final payout. During this period, Mondelēz Internationals Relative Total Shareholder Return outperformed the median of its Performance Peer Group.
Mondelēz Internationals 20092011 performance that drove LTIP payouts for eligible Named Executive Officers was as follows:
|
Organic Net Revenue Growth3.9% |
|
Operating EPS Growth10.7% |
|
Cumulative Adjusted Free Cash Flow$10.2 billion |
|
Annualized Relative Total Shareholder ReturnAbove Performance Peer Group median (Mondelēz International annualized Total Shareholder Return of 16.1% compared to 15.3% median for Mondelēz Internationals Performance Peer Group) |
Based on these results relative to target, Mondelēz Internationals overall LTIP rating for the 20092011 performance cycle was 141% of target. See Elements of Executive CompensationLong-Term IncentivesLTIPPerformance Shares (20092011 Performance Cycle) for more information about Mondelēz Internationals results relative to targets.
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Compensation Governance Highlights. Mondelēz Internationals Compensation Committee continues to ensure that Mondelēz International compensates the Named Executive Officers effectively and consistent with shareholder expectations. Mondelēz International adopted the following compensation practices to promote strong governance and alignment with shareholder interests:
Compensation Governance Highlight |
Mondelēz International Highlight |
|
High Proportion of At-Risk Compensation |
Prior to the Spin-Off, approximately 85% of our then-CEOs total compensation was at-risk, incentive-based compensation. This weighting is higher than the average of other CEOs in Mondelēz Internationals Compensation Survey Group. See Additional Information on Compensation PrinciplesProviding Competitive PayComposition and Purpose of the Compensation Survey Group for additional information regarding Mondelēz Internationals Compensation Survey Group. | |
Long-Term Incentives Are Entirely Stock-Based |
Mondelēz International delivered 50% of long-term incentives in performance shares, 25% in stock options and 25% in restricted stock. This mix promotes alignment of our executives interests with shareholder interests. | |
Pay Targeted to Size-Adjusted Median of Peer Group |
Based on its principles, Mondelēz International generally targets compensation levels at or near the size-adjusted median of Mondelēz Internationals Compensation Survey Group. The median revenues of this peer group are well below Mondelēz Internationals revenues. As stated below under Compensation Paid to Named Executive Officers in 2011, the actual target compensation for some of the Named Executive Officers is below the median. | |
Stock Ownership Guidelines and Holding Requirements Exceed Market Levels | Prior to the Spin-Off, our then-CEO was expected to own eight times her salary in Mondelēz International common stock and the other Named Executives Officers were expected to own four times their salary in Mondelēz International common stock. These guidelines exceed the median levels of Mondelēz Internationals peers. The CEO and each of the Named Executive Officers met or exceeded the required ownership levels. In addition, Mondelēz Internationals holding requirements are more stringent than typical requirements. Starting in 2011, Mondelēz Internationals executive officers, including the Named Executive Officers, were required to hold 100% of all shares acquired from stock option exercises and restricted stock and performance share vestings, net of shares withheld for taxes or payment of exercise price, for a period of one year. |
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Compensation Governance Highlight |
Mondelēz International Highlight |
|
Perquisites are Conservative |
While Mondelēz International offered certain perquisites to the Named Executive Officers, the types and amounts are at or below the median levels of its peers. Mondelēz International does not pay tax gross-ups for any perquisites. | |
Compensation Risk is Assessed Frequently |
Mondelēz Internationals Compensation Committee performs a comprehensive compensation risk assessment annually. It has also established significant and effective safeguards to protect against undue risk such as reasonable caps on incentive payouts, use of diverse mix of performance measures, incentive clawbacks and appropriate discretion by Mondelēz Internationals Compensation Committee on award payouts. |
Compensation Program Design
Mondelēz Internationals executive compensation programs four primary goals are:
|
attract, retain and motivate talented executive officers and develop world-class business leaders; |
|
support business strategies that promote superior long-term shareholder returns; |
|
align pay and performance by making a significant portion of the Named Executive Officers and other executive officers compensation dependent on achieving financial and other critical strategic and individual goals; and |
|
align Mondelēz Internationals executive officers and shareholders interests through stock ownership guidelines, equity-based incentive awards and other long-term incentive awards that link executive compensation to sustained and superior Total Shareholder Return. |
Mondelēz Internationals executive compensation program is designed to achieve these goals by using the following principles:
|
Providing Competitive Pay. Mondelēz International annually benchmarks its target and actual compensation levels and pay-mix with its Compensation Survey Group. Mondelēz International uses this comparison to ensure that its executive compensation and benefits package is competitive with the Compensation Survey Group. Mondelēz Internationals Compensation Committee generally targets total executive compensation at or near the size-adjusted median total compensation of the group and allows business and individual performance to determine whether actual pay is above or below the median. Mondelēz Internationals Compensation Committee uses a size-adjusted median because its revenues are significantly higher than the revenues of companies in its peer group. In addition, Mondelēz Internationals Compensation Committee compares Mondelēz Internationals financial and Total Shareholder Return performance against its Performance Peer Group. The Performance Peer Group comparison allows Mondelēz International to link long-term incentive compensation to the delivery of superior financial results relative to industry peers. More information about the Compensation Survey Group, the Performance Peer Group and the methodology for the size-adjusted median can be found below under Additional Information on Compensation PrinciplesProviding Competitive Pay; |
|
Providing Fixed and Variable Compensation. Mondelēz International provides a mix of fixed and variable compensation (heavily weighted to variable compensation for the Named Executive Officers) designed to attract, retain and motivate top-performing executives, as well as appropriately align compensation levels with achieving relevant financial and strategic goals; |
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|
Providing Equity and Cash Incentives. Mondelēz International provides a mix of equity and cash incentives to focus executive officers on achieving performance results that drive long-term sustainable superior Total Shareholder Returns; |
|
Assessing Individual Performance and Potential. Incentive awards are based in part on the individuals performance and potential for advancement within the organization; and |
|
Requiring Stock Ownership and Holding Periods. Executive officers, including the Named Executive Officers, are required to maintain or exceed specific levels of Mondelēz International stock ownership in order to further align their interests with those of Mondelēz Internationals shareholders. Mondelēz Internationals compensation programs facilitate high levels of stock ownership. Executive officers are also required to hold shares upon exercise of stock options and vesting of restricted stock and performance shares for at least one year. More information about stock ownership guidelines for executive officers can be found below under Additional Information on Compensation PrinciplesRequiring Stock Ownership. |
Overall Pay Mix . The chart below shows the total compensation mix, on average, for the Mondelēz International CEO and other Named Executive Officers, or as referred to in the chart below, NEOs, based on target awards in 2011, compared with the average of the Compensation Survey Group. The mix is well-aligned to the mix paid by companies in the Compensation Survey Group. In the case of the Mondelēz International CEO, the incentive mix is slightly more weighted towards long-term incentives and less weighted in annual incentives compared to the Compensation Survey Group, consistent with Mondelēz Internationals focus on delivering top-tier sustainable performance over the long-term.
(1) | For Mondelēz International, long-term incentives include restricted stock, non-qualified stock options and performance shares; for Compensation Survey Group peers, long-term incentives include all types of long-term incentive awards. |
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Summary of 2011 Compensation Program
The following table summarizes the elements and program objectives of Mondelēz Internationals 2011 compensation program for executive officers, including the Named Executive Officers.
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Program |
Description |
Program Objective |
||
Executive Benefits |
||||
Voluntary Non-Qualified Deferred
Compensation Plan |
Program that allows U.S. executive officers to defer, on a pre-tax basis, certain defined compensation elements with flexible distribution options to meet future financial goals. |
Retention and attraction
Provide opportunity for future financial security
Provide U.S. executive officers an additional opportunity to meet stock ownership requirements |
||
Executive Perquisites | Market-consistent program that is generally limited to a car allowance, financial counseling, and, for the CEO only, personal use of Mondelēz Internationals aircraft. |
Retention and attraction
Supports personal financial planning needs
Security of CEO |
||
Post-Termination Benefits |
||||
Defined Benefit Program | Generally provides for the continuation of a portion of total annual cash compensation (defined as base salary plus annual cash incentive award) at the conclusion of an executive officers career. This program is not offered to any U.S. employees hired on or after January 1, 2009. |
Retention
Attraction
Provide financial security to long-term service executive officers in retirement |
||
Defined Contribution Program
(401(k)) |
Program under which Mondelēz International matches U.S. executive officers contributions. Account balances are typically payable at the conclusion of an executive officers career. This program was enhanced for U.S. employees hired on or after January 1, 2009 who are not eligible for the defined benefit program. |
Retention
Attraction
Provide opportunity for financial security in retirement
Provide U.S. executive officers an additional opportunity to meet stock ownership requirements |
||
Change in Control Plan | Executive separation program that provides for enhanced benefits in the event of an executive officers termination following a defined Mondelēz International change in control. |
Retention
Focus on delivering top-tier shareholder value in periods of uncertainty
Supports effective transition |
||
Other Benefits |
||||
Other Benefits | Health, welfare and other benefits. |
Retention
Attraction |
Elements of Executive Compensation
A description of each of the compensation program elements follows, and individual compensation decisions are discussed under Compensation Paid to Named Executive Officers in 2011.
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Base Salary
Base salary is the principal fixed element of executive compensation. Base salary levels for Named Executive Officers are targeted to be at or near the size-adjusted median of the Compensation Survey Group. However, Mondelēz Internationals Compensation Committee also considers a number of other factors when reviewing and setting base salaries for the Named Executive Officers, including: Mondelēz Internationals performance and the Named Executive Officers individual performance, level of responsibility, potential to assume roles with greater responsibility, tenure and experience. Mondelēz Internationals Compensation Committee reviews salaries on an annual basis and considers merit increases, which are generally effective April 1, for all executive officers.
Annual Cash Incentive Program
Overview
The Annual Cash Incentive Program is a cash bonus plan designed to motivate and reward participants, including the Named Executive Officers, for their contribution to Mondelēz International, or a business unit of Mondelēz International, for achieving Mondelēz Internationals annual financial and strategic goals. The range of amounts that an executive officer may earn is determined at the beginning of the year, and the amount actually paid is based on the financial results achieved during the year and the individuals contribution towards achieving those results.
Award Formula
The formula shown below is used to determine actual awards for participants, including the Named Executive Officers. Other than base salary, which is discussed above, each element of this formula is discussed below.
Base Salary
as
of December 31,
2011 |
X |
Target Annual
Incentive Opportunity (% of Base Salary) |
X |
Business Unit Rating
(0%180%) |
X |
Individual
Performance Assessment (0%180% |
= |
Actual Cash
Award
(Maximum
capped at 250%
of target) |
Award Formula Element |
Explanation of Key Provisions |
|||||||||||||
Target Annual Incentive Opportunity |
Target percentage of base salary reflects the Named Executive Officers role and responsibilities.
Individual targets, as a percentage of base salary, for the Named Executive Officers were, as of December 31, 2011, as follows: |
|
||||||||||||
Ms. Rosenfeld | Mr. Brearton | Mr. McLevish | Mr. Khosla | Mr. Vernon | Ms. West | |||||||||
150% | 90% | 90% | 80% | 90% | 80% | |||||||||
2011 Business Unit Ratings |
Rating can range from 0% to 180%.
Mondelēz Internationals Compensation Committee approved the following financial metrics to measure business performance: |
|
||||||||||||
Measure | Weighting | |||||||||||||
Organic Net Revenue Growth |
45 | % | ||||||||||||
Adjusted Operating Income |
35 | % | ||||||||||||
Free Cash Flow |
20 | % |
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Individual Performance
|
Incentive Payout Range
as a Percent of Target |
|||||||
Outstanding | 140%180% | |||||||
Exceeded Expectations | 115%135% | |||||||
Achieved Expectations | 90%110% | |||||||
Partially Met Expectations | 40%80% | |||||||
Below Expectations | 0% |
In 2011, Mondelēz Internationals Compensation Committee took into account the following factors in determining the individual performance assessments for the Named Executive Officers: contributions to the organization such as operational efficiency, leadership, quality of financial results, talent management and diversity of employees. These factors are discussed in more detail under Compensation Paid to Named Executive Officers in 2011. |
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2011 Business Unit Ratings
The following are the financial targets and actual results that Mondelēz Internationals Compensation Committee considered at year end for the Named Executive Officers:
Mondelēz InternationalFinancial Targets and Results | ||||||||||||||||||||||||
Weighting | Threshold | Target | Maximum | 2011 Actual |
Performance
Rating |
|||||||||||||||||||
($ in millions) | ||||||||||||||||||||||||
Organic Net Revenue Growth |
45 | % | 2.5 | % | 4.0 | % | 6.0 | % | 6.6 | % | 180 | % | ||||||||||||
Adjusted Operating Income |
35 | % | $ | 6,938 | $ | 7,381 | $ | 7,824 | $ | 7,133 | 85 | % | ||||||||||||
Free Cash Flow |
20 | % | $ | 2,465 | $ | 2,900 | $ | 3,625 | $ | 2,749 | 95 | % | ||||||||||||
Actual Rating |
130 | % |
The following are the financial targets, actual results and overall business unit ratings for Kraft Foods Developing Markets and Kraft Foods North America, two of Mondelēz Internationals geographic units as reported in Mondelēz Internationals Form 10-K, that Mondelēz Internationals Compensation Committee considered at year end for the Named Executive Officers in business unit positions, Messrs. Khosla and Vernon. Mr. Khosla leads Kraft Foods Developing Markets and Mr. Vernon led Kraft Foods North America, which includes the North American Grocery Business and the North American portion of the Global Snacks Business.
Key Financial Metrics |
Kraft Foods
North America (1) |
Kraft
Foods
Developing Markets (2) |
||||||||||||||||||||||
Target |
2011
Actual |
Perf.
Rating |
Target |
2011
Actual |
Perf.
Rating |
|||||||||||||||||||
($ in millions) | ||||||||||||||||||||||||
Organic Net Revenue Growth |
2.7 | % | 4.8 | % | 180 | % | 10.3 | % | 11.4 | % | 111 | % | ||||||||||||
Adjusted Segment Operating Income |
$ | 4,336 | $ | 4,202 | 89 | % | $ | 2,157 | $ | 2,186 | 103 | % | ||||||||||||
Free Cash Flow |
$ | 2,707 | $ | 2,751 | 102 | % | $ | 530 | $ | 671 | 171 | % | ||||||||||||
Actual Business Unit Rating |
132 | % | 120 | % |
(1) | For Kraft Foods North America, financial threshold and maximum performance goals are: Organic Net Revenue Growth1.2% and 4.7%, Adjusted Segment Operating Income$4,076 million and $4,596 million, and Free Cash Flow$2,301 million and $3,384 million. |
(2) | For Kraft Foods Developing Markets, financial threshold and maximum performance goals are: Combined Organic Net Revenue Growth6.2% and 13.9%, Adjusted Segment Operating Income$1,941 million and $2,373 million, and Free Cash Flow$371 million and $689 million. |
Although the business unit rating is a formulaic method for assessing performance against these three key internal measures, Mondelēz Internationals Compensation Committee retains discretionary authority to adjust the business rating (up or down) by as much as 25 percentage points to recognize innovation, portfolio management, talent management and the quality of Mondelēz Internationals results. For 2011, Mondelēz Internationals Compensation Committee did not exercise discretion to modify the business ratings.
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While Mondelēz International reports its financial results in accordance with U.S. GAAP, the financial targets under its incentive plans are based on non-GAAP financial measures. For supplemental financial data and corresponding reconciliations to certain GAAP financial measures for the year ended December 31, 2011, see Mondelēz International and Subsidiaries Reconciliation of GAAP to Non-GAAP Information. The adjustments to the related GAAP measure and the reasons for using these measures are described in the chart below.
Measure |
Definition/Adjustment to GAAP measure |
Rationale |
||
Organic Net Revenue Growth (1) | Net revenues, excluding the impact of acquisitions, divestitures, accounting calendar changes, Integration Program costs and currency rate fluctuations (Integration Program costs are defined as the costs associated with combining the Mondelēz International and Cadbury businesses, and are separate from those costs associated with the acquisition) | Reflects the growth rates for Mondelēz Internationals base business by eliminating the impact of certain disclosed one-time factors, facilitating comparisons to prior year(s) | ||
Adjusted Operating Income | Operating income, excluding the impact of divestitures, currency rate fluctuations, Integration Program costs, acquisition-related costs and costs associated with the Spin-Off | Indicator of overall business trends and performance, based on what business leaders can control | ||
Adjusted Segment Operating Income | Segment operating income, (2) excluding the impact of divestitures, currency rate fluctuations, Integration Program costs, acquisition-related costs and costs associated with the Spin-Off | Indicator of trends and performance for business segments, based on what business units can control | ||
Free Cash Flow | Cash flow from operations less capital expenditures | Reflects Mondelēz Internationals financial liquidity, working capital efficiency and financial health |
(1) | For Mondelēz Internationals Kraft Foods Developing Markets, Mondelēz International measures Combined Organic Net Revenue Growth, which differs from Organic Net Revenue Growth in that it includes the impact of significant acquisitions. |
(2) | Segment operating income is a measure of Operating Income by Segment and excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), certain components of Mondelēz Internationals U.S. pension plan cost (which are a component of cost of sales and selling, general and administrative expenses), general corporate expenses (which are a component of selling, general and administrative expenses) and amortization of intangibles for all periods presented. |
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Long-Term Incentives
Long-term incentive equity award grants are awarded to align the interests of Mondelēz Internationals executive officers with those of Mondelēz Internationals shareholders. For 2011, Mondelēz Internationals Compensation Committee determined that the appropriate mix of grants in Mondelēz Internationals long-term incentive program for senior management, including the Named Executive Officers, was 50% performance shares, 25% stock options and 25% restricted stock. This mix places greater emphasis on performance-based compensationperformance shares and stock optionsand less emphasis on restricted stock than in prior years.
Equity AwardsStock Options and Restricted Stock
Mondelēz International grants non-qualified stock options and restricted stock on an annual basis. In 2011, Mondelēz International intended that the value delivered in the form of restricted stock be equal to the value delivered as stock options. To maintain this balance, it continued to use a ratio of restricted stock to stock options of one to six in 2011. Mondelēz Internationals Compensation Committee maintained this equity mix because it balances the retention value of restricted stock with the performance aspect of stock options. Like Mondelēz International, we are committed to growing shareholder value, and we expect that our incentive plans will support this objective. To support the retention aspects of the program, restricted stock awards do not vest until three years after the grant date. The stock options vest one-third each year over three years. For non-U.S. employees, Mondelēz International grants deferred stock units instead of restricted stock, which have the same vesting schedule as restricted stock. Dividends are paid on unvested restricted stock and dividend equivalents are paid on deferred stock units at the same time and rate as dividends are paid on Mondelēz International common stock.
Award ranges are based on an analysis of competitive market practice, with the midpoint of the equity award ranges, plus the value of the target performance shares, approximately equal to the size-adjusted total long-term incentive median of the Compensation Survey Group. An equity award above or below the midpoint of the range is based on a qualitative review of an executive officers sustained individual performance and an evaluation of each executive officers potential to assume roles with greater responsibility. In all cases, awards are between 50% and 150% of the midpoint.
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The range of award opportunities, expressed in terms of grant value, for the Named Executive Officers as of February 23, 2011, the date of Mondelēz Internationals 2011 annual equity award grant, are shown in the table below.
Grant Value Award Range (1) | ||||||||||||
Name |
Threshold | Midpoint | Maximum | |||||||||
($) | ||||||||||||
Ms. Rosenfeld |
2,428,500 | 4,857,000 | 7,285,500 | |||||||||
Mr. Brearton (2) |
175,000 | 350,000 | 525,000 | |||||||||
Mr. McLevish |
550,000 | 1,100,000 | 1,650,000 | |||||||||
Mr. Khosla |
350,000 | 700,000 | 1,050,000 | |||||||||
Mr. Vernon |
550,000 | 1,100,000 | 1,650,000 | |||||||||
Ms. West |
350,000 | 700,000 | 1,050,000 |
(1) | The ranges above include threshold to maximum grant values for these positions. Mondelēz Internationals Compensation Committee may also choose to grant an award below the threshold. |
(2) | Mr. Breartons grant value award range reflected his prior role as Executive Vice President, Operations and Business Services before becoming Executive Vice President and Chief Financial Officer in May 2011. |
All equity awards approved by Mondelēz Internationals Compensation Committee and granted to the Named Executive Officers in 2011 were within the respective ranges presented above. Actual equity award amounts in 2011 are presented in this prospectus in the 2011 Grants of Plan-Based Awards Table under Executive Compensation Tables.
The date for annual restricted stock and stock option awards is pre-set on the scheduled date of Mondelēz Internationals Compensation Committee meeting immediately following the release of Mondelēz Internationals annual financial results. The exercise price for stock options is determined on the date Mondelēz Internationals Compensation Committee approves the awards and is set as the average of the high and low trading prices on that date.
LTIPPerformance Shares (20112013 Performance Cycle)
Mondelēz International designed the LTIP to motivate executive officers to achieve long-term financial goals and top-tier shareholder returns. The plan measures performance over a three-year period (20112013), and shares of Mondelēz International common stock are earned based on the actual performance against goals set at the beginning of the cycle. The number of shares earned by an executive officer depends on the achievement of key internal financial metrics and Total Shareholder Return results relative to the companies in Mondelēz Internationals Performance Peer Group. No individual performance factor is used in the calculation. No dividends or dividend equivalents are paid or earned on unvested performance shares.
The formula shown below is used to determine actual awards for participants, including the Named Executive Officers. Other than base salary, each element of this formula is discussed below.
Base Salary at Beginning of Performance Cycle |
x |
Target Incentive
Salary) (Target number of shares established) |
x |
Business Performance Rating (0%200% of target shares) |
= |
Actual LTIP Award (in shares) |
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Ms. Rosenfeld | Mr. Brearton | Mr. McLevish | Mr. Khosla | Mr. Vernon | Ms. West | |||||||||||||||||
325 | % | 85 | % | 170 | % | 130 | % | 170 | % | 130 | % |
Target amounts are converted to a target number of shares at the beginning of the cycle.
Actual shares earned can range from 0% to 200% of target shares at the end of the performance cycle based on the business performance rating. |
||
Business Performance Rating |
Rating can range from 0% to 200%.
Performance metrics are: |
Measure |
Weighting | |||
Organic Net Revenue Growth (1) |
25 | % | ||
Operating EPS Growth (2) |
25 | % | ||
Annualized Relative Total Shareholder Return (3) |
50 | % |
(1) Organic Net Revenue Growth is a non-GAAP financial measure and is equal to net revenue, excluding the impact of currency, acquisitions and divestitures. (2) Operating EPS Growth is a non-GAAP financial measure and is equal to EPS from continuing operations, excluding certain impacts related to acquisitions and other one-time impacts. (3) Annualized Relative Total Shareholder Return is a comparison relative to the Performance Peer Group during the performance cycle. Information on the Performance Peer Group is discussed below.
Financial metrics apply only to Mondelēz Internationals organizational levels. There is no individual assessment.
The target objective set for Annualized Relative Total Shareholder Return is the median of Mondelēz Internationals Performance Peer Group from 2011 to 2013. The Organic Net Revenue Growth and Operating EPS Growth targets were set relative to historical and projected future results of Mondelēz Internationals Performance Peer Group.
To address unforeseen or unintended consequences, Mondelēz Internationals Compensation Committee retains discretion to adjust the final business performance rating (up or down) by as much as 25 percentage points, allowing Mondelēz Internationals Compensation Committee to factor in a subjective review of the quality of financial results, portfolio management, innovation and talent development. Mondelēz International discloses any discretion applied by Mondelēz Internationals Compensation Committee, and following the Spin-Off, we expect to disclose any discretion applied by our Compensation Committee, at the conclusion of the performance cycle.
Mondelēz International does not publicly disclose specific long-term incentive plan targets on a prospective basis due to potential competitive harm. Revealing specific objectives prospectively would provide competitors and other third parties with insights into its confidential planning process and strategies, thereby causing |
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Award Formula Element |
Explanation of Key Provisions |
|
competitive harm. The performance goals are designed to be challenging, and there is a risk that payments will not be made at all or will be made at less than 100% of the target amount. The performance goals for Organic Net Revenue Growth and Operating EPS Growth are in line with median historical results for Mondelēz Internationals Performance Peer Group. The degree of difficulty in achieving the internal measures is challenging.
Both Mondelēz Internationals annual and long-term incentive plans use Organic Net Revenue Growth, but the benchmarks used to set targets for these plans are different. Mondelēz International believes the use of these measures focuses employees on critical internal drivers, both in the short and long term. Mondelēz International sets the short-term targets against its annual operating plan, whereas it sets the long-term targets against the performance benchmarks of its peers. These metrics, when used together, have a high correlation with shareholder value. |
LTIPPerformance Shares (20092011 Performance Cycle)
All of the Named Executive Officers participated in the 20092011 LTIP. The plan measured Mondelēz Internationals performance over a three-year period (20092011), and Mondelēz Internationals Compensation Committee awarded shares based on actual performance against goals set at the beginning of the cycle.
Business Performance Rating and Payments. Mondelēz Internationals Compensation Committee established the following weightings and target goals for the 20092011 LTIP and approved the resulting performance rating for determining the ultimate payout:
Mondelēz International | ||||||||||||||||
Key Financial Metrics |
Weighting | Threshold | Target | Maximum |
20092011
Actual |
Perf.
Rating |
||||||||||
Organic Net Revenue Growth (1) |
30 | % | 3.0% | 4.0% | 8.0% | 3.9% | 93 | % | ||||||||
Operating EPS Growth (2) |
20 | % | 4.0% | 7.5% | 10.5% | 10.7% | 200 | % | ||||||||
Cumulative Adjusted Free Cash Flow (3) |
20 | % |
$6.2
billion |
$6.9
billion |
$8.2
billion |
$10.2
billion |
200 | % | ||||||||
Annualized Relative Total Shareholder Return (4) |
30 | % |
4.0 pp
(5)
below median |
At
median |
8.0 pp above
median |
0.8 pp above
median |
110 | % | ||||||||
Actual Business Performance Rating |
141 | % |
(1) | For 2009 and 2011, Mondelēz International used Organic Net Revenue Growth. For 2010, it used Combined Organic Net Revenue Growth (which captured the impact of the Cadbury acquisition). |
(2) | For 2010 and 2011, Mondelēz International modified the EPS Growth measure from Ongoing to Operating to align with Mondelēz Internationals EPS benchmark communicated externally. |
(3) | For 2009, Mondelēz International excluded $400 million of voluntary pension contributions and for 2010, Mondelēz International excluded $1.2 billion in taxes paid related to the sale of the Frozen Pizza business. |
(4) | The companies used in the Annualized Relative Total Shareholder Return are the Performance Peer Group companies established at the outset of the performance cycle. |
(5) | pp represents percentage points. |
There were no individual or business unit performance factors used in the calculation. Mondelēz Internationals performance was significantly above target in Cumulative Adjusted Free Cash Flow and Operating EPS Growth. Organic Net Revenue Growth was slightly below target. Annualized Relative Total Shareholder Return was slightly above the median. Mondelēz Internationals Compensation Committee believed the payout was appropriate given its overall evaluation of Mondelēz Internationals performance and economic conditions, and therefore did not use its discretion to adjust the final business performance ratings.
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Based on target awards, as a percent of salary, and the business performance rating of 141% of target, the chart below shows the share payouts for each of the Named Executive Officers.
Name |
Target Award |
Actual Award
(Shares) |
Award
Value At Vest (1) ($) |
|||||||||
Ms. Rosenfeld |
250% of salary | 191,930 | 7,289,501 | |||||||||
Mr. Brearton |
75% of salary | 19,205 | 729,406 | |||||||||
Mr. McLevish |
150% of salary | 54,835 | 2,082,633 | |||||||||
Mr. Khosla |
125% of salary | 47,010 | 1,785,440 | |||||||||
Mr. Vernon |
150% of salary | 56,795 | 2,157,074 | |||||||||
Ms. West |
75% of salary | 17,625 | 669,398 |
(1) | Award value is based on the closing stock price on February 23, 2012, the vesting date. |
Voluntary Non-Qualified Deferred Compensation
U.S. Deferred Compensation Plan
In 2011, certain U.S. senior management (approximately 125 employees), including the Named Executive Officers, were eligible for a voluntary non-qualified deferred compensation plan. The program is similar to those provided to executive officers at many of the companies within the Compensation Survey Group and is provided for retention and recruitment purposes. The deferred compensation plan provides an opportunity for executives to defer, on a pre-tax basis, up to 50% of their salary and up to 100% of their annual cash incentives. The investment choices mirror those in the Mondelēz International Thrift/TIP 401(k) Plan.
U.S. Supplemental Benefits Plan
Mondelēz International also provides a non-qualified program, the Mondelēz International Supplemental Benefits Plan, for U.S. employees whose compensation exceeds the compensation limit established by the Code, for tax-qualified plan contributions. Under this program, and consistent with all other U.S. employees, a company match is provided on contributions of base salary and annual cash incentives.
Perquisites
The Named Executive Officers receive limited perquisites, including a car allowance, a financial counseling allowance and, for the CEO only, personal use of the corporate aircraft. For security and personal safety reasons, Mondelēz International requires Ms. Rosenfeld to use the corporate aircraft for both business and personal travel. This allows Ms. Rosenfeld to be more productive and efficient when she travels. Taxes on all perquisites are the sole responsibility of the Named Executive Officer. The types and total costs of perquisites Mondelēz International offers are similar to the types and costs offered within the Compensation Survey Group. Mondelēz Internationals Compensation Committee believes that these perquisites are important for retention and recruitment purposes. Specific executive officer perquisites are listed in the footnotes to the 2011 Summary Compensation Table under Executive Compensation Tables. Other than these perquisites, executive officers receive the same benefits as other Mondelēz International employees.
Post-Termination Compensation
Post-termination compensation consists of both separation pay and retirement benefits. Neither Mondelēz International nor Kraft Foods Group have employment agreements with any of the Named Executive Officers as these individuals, including Ms. Rosenfeld, are at will employees.
Change in Control Plan. Mondelēz International has a Change in Control Plan, or the CIC Plan, for senior executive officers. The provisions in the CIC Plan are consistent with similar plans maintained by companies in
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the Compensation Survey Group, including eligibility, severance benefit levels and treatment of cash and equity incentive compensation. The separation payments are structured to help assure that key personnel, including the Named Executive Officers, would be available to assist in the successful transition following a change in control of Mondelēz International and provide a competitive level of severance protection if the executive officer is involuntarily terminated without cause following a change in control. Under the CIC Plan, restricted stock and stock options only vest upon a change in control if the participant is terminated without cause or resigns for good reason within two years following the change in control or if the acquiring entity does not assume the awards. In 2009, Mondelēz International eliminated the excise tax gross up for all executives who first become eligible to participate in the CIC Plan after December 31, 2009. For executives who participated in the CIC Plan prior to this change, Mondelēz International will cover excise taxes as follows: (a) all excise taxes that may be triggered by separation payments paid to the CEO; and (b) excise taxes for all other participants will only be paid if change in control separation payments exceed 110% of the IRS-imposed threshold at which the excise tax becomes payable. To the extent that separation payments do not exceed 110% of the threshold but do trigger excise tax payments, separation payments will be limited to the maximum amount that does not trigger the excise tax amounts. This is done to minimize Mondelēz Internationals expense for separation payments that do not significantly exceed the IRS-imposed threshold.
The severance arrangements and other benefits provided under the CIC Plan (as well as the equity treatment upon certain separations in the event of a change in control) are described under Executive Compensation TablesPotential Payments upon Termination or Change in Control.
Non-Change in Control Severance Agreements. Neither Mondelēz International nor we have individual severance or employment agreements with any of the Named Executive Officers. Mondelēz International does maintain a broad-based severance plan in the United States that provides for certain severance payments in the event of job elimination or a workforce reduction. Similar plans are generally available in other countries where Mondelēz International has employees. The plans facilitate recruitment and retention, as most of the companies in the Compensation Survey Group offer similar benefits to their executives. The severance arrangements and other benefits provided for under these severance plans are described under Executive Compensation TablesPotential Payments upon Termination or Change in Control.
Retirement Benefits. Mondelēz International offers both tax-qualified and supplemental defined benefit retirement plans to executive officers, including the Named Executive Officers, with the exception of Mr. Vernon, and these plans vary by country. In the United States, employees, including Mr. Vernon, hired on or after January 1, 2009, are not eligible to participate in either a tax-qualified or supplemental defined benefit retirement plan. U.S. employees hired on or after January 1, 2009, including Mr. Vernon, are eligible to participate in an enhanced defined contribution program. Mondelēz Internationals Compensation Committee believes that these retirement benefits have helped in retention and recruitment, as many of the companies in the Compensation Survey Group offer similar programs. However, in recent years, Mondelēz Internationals Compensation Committee has weighed the volatile cost environment that exists for defined benefit plans, especially in the United States. Based on the significant cost volatility associated with continuing a defined benefit pension plan in the United States, the defined benefit plan was closed to new participants after December 31, 2008. In addition, accruals under the defined benefit pension plan will cease after 2019. Accrued amounts and additional details of these retirement programs are presented in the 2011 Pension Benefits Table and the accompanying narrative to the table under Executive Compensation Tables.
Mondelēz International provides Ms. Rosenfeld with an enhanced pension benefit that credits her pension service for the period of time that she was not employed by Mondelēz International or us between 2004 and 2006. Mondelēz International provided this enhanced pension benefit to Ms. Rosenfeld because she forfeited her right to a pension benefit at her previous employer when she rejoined Mondelēz International. This benefit was part of a broader incentive program to help encourage her to return to Mondelēz International. Additional details of this benefit are presented in the 2011 Pension Benefits Table and the accompanying narrative to the table under Executive Compensation Tables.
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Mondelēz Internationals Compensation Committee believes that both the U.S. tax-qualified and supplemental defined contribution plans are integral parts of its overall executive compensation program. The supplemental defined contribution program is important because it encourages executive officers, including the Named Executive Officers, to save for retirement. Mondelēz Internationals Compensation Committee believes that the Named Executive Officers should be able to defer the same percentage of their compensation, and receive the corresponding Mondelēz International matching contributions, as all other employees, without regard to the compensation limit established by the Code, for tax-qualified plan contributions. As stated previously, employees hired on or after January 1, 2009, including Mr. Vernon, are eligible to participate in an enhanced defined contribution program. This enhanced program is offered to U.S. employees not eligible to participate in the tax-qualified or supplemental defined benefit plans. Accrued amounts and additional details of each of the non-qualified deferred compensation programs offered to Named Executive Officers are presented in the 2011 Non-Qualified Deferred Compensation Benefits Table and the accompanying narrative to the table under Executive Compensation Tables.
Compensation Paid to Named Executive Officers in 2011
Overview
There are no material differences in compensation policies with respect to each Named Executive Officer. Mondelēz International designed each of the Named Executive Officers target compensation levels to be at or near the Compensation Survey Groups size-adjusted median. Actual compensation will be dependent on both business and individual performance in any given year.
Below are the specific compensation actions for each of the Named Executive Officers in 2011.
Ms. Rosenfeld
Base Salary Increase. Ms. Rosenfeld received a 2.3% salary increase from $1.515 million to $1.550 million. Ms. Rosenfelds salary increase was commensurate with company guidelines for increases, taking into account her individual performance assessment. Her salary is below the size-adjusted median of the Compensation Survey Group.
Actual Annual Cash Incentive. Mondelēz Internationals Compensation Committee determined Ms. Rosenfelds annual cash incentive for 2011 in accordance with the 2011 Annual Cash Incentive Program. Based on Mondelēz Internationals performance relative to target (business unit rating of 130%) and Ms. Rosenfelds individual performance, Ms. Rosenfelds actual annual incentive is 182% of her target in 2011. For 2011, Mondelēz Internationals Compensation Committee considered the following performance in determining Ms. Rosenfelds individual performance assessment:
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Delivered strong financial performance relative to peers and in aggregate above targets in the Annual Cash Incentive Program. Financial performance was 130% relative to target as discussed under Elements of Executive CompensationAnnual Cash Incentive Program2011 Business Unit Ratings above. |
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Delivered above plan performance on key strategic initiatives as evidenced by the following: |
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Relative Total Shareholder Return in 2011 of 22.7% exceeded the 75th percentile of Mondelēz Internationals Performance Peer Group. This was the second consecutive year of results at or above the 75th percentile. |
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Global market share improved in key categories. |
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New product revenue results were strong in 2011. |
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Retention of Cadbury leaders and significant changes in the senior executive team improved the talent pipeline, key sales leadership roles were strengthened and diversity improved. |
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Delivery of Cadbury integration savings is ahead of plan. Savings are expected to exceed the original $750 million target by the end of 2012. |
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Implementing the Spin-Off strategy, while delivering top-tier results during the separation process. |
Equity Award (Stock Options and Restricted Stock). As part of Mondelēz Internationals annual equity program in 2011, Mondelēz Internationals Compensation Committee granted Ms. Rosenfeld an award of 83,930 restricted stock shares and 503,570 stock options (combined value on grant date of $4,604,781). This equity grant along with the 20112013 LTIP opportunity is at the size-adjusted median of the Compensation Survey Group.
20092011 LTIP. Based on the formulaic determination of this incentive, Ms. Rosenfeld earned 191,930 shares of Mondelēz International common stock, which represented 141% of her target award opportunity.
Defined Benefit Accrual . The present value of Ms. Rosenfelds retirement benefit increased as measured at the end of 2011. A decrease in the applicable discount rate was the primary factor contributing to $3.2 million of the increase, along with an increase in the final average pay calculation, which accounted for $2.3 million of the increase. In addition, there were normal increases in pension values due to length of service which totaled approximately $0.7 million. There were no changes to the terms of the plan for Ms. Rosenfeld in 2011.
Other Named Executive Officers
The chart below shows specific compensation actions for each of the other Named Executive Officers in 2011 followed by a description of these decisions:
Salary
Increase |
New
Salary ($) |
2011 Annual
Cash Incentive Payment ($) |
2011 Equity Award
(Shares) |
20092011
LTIP
(1)
(Shares) |
||||||||||||||
Mr. Brearton |
28.7 | % | 650,000 | 742,900 |
February 23, 2011 award
7,860 restricted stock 47,140 stock options May 9, 2011 award
5,900 restricted stock
|
19,205 | ||||||||||||
Mr. McLevish |
1.5 | % | 761,000 | 980,000 |
23,570 restricted stock
141,400 stock options |
54,835 | ||||||||||||
Mr. Khosla |
2.0 | % | 755,000 | 1,036,000 |
15,720 restricted stock
94,720 stock options |
47,010 | ||||||||||||
Mr. Vernon |
1.5 | % | 761,000 | 1,167,000 |
22,000 restricted stock
131,980 stock options |
56,795 | ||||||||||||
Ms. West |
1.5 | % | 660,000 | 1,050,000 |
13,360 restricted stock
80,130 stock options |
17,625 |
(1) | Consistent with plan design, Mondelēz Internationals Compensation Committee made no individual adjustments in determining share payout. |
Mr. Brearton
Base Salary Increase. Mr. Brearton received both a merit salary increase in April 2011 and a promotional increase at the time he assumed the role of Chief Financial Officer. His salary is below the size-adjusted median of the Compensation Survey Group for top financial executives.
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Actual Annual Cash Incentive. In 2011, Mr. Breartons individual performance guidelines were primarily related to delivering solid financial results and his leadership on the efforts leading up to the announcement of, and preparing for, the Spin-Off.
Equity Award (Stock Options and Restricted Stock). Mr. Brearton received an annual equity grant on February 23, 2011. He was granted an additional equity grant when he assumed the role of Chief Financial Officer. These equity grants, along with the 20112013 LTIP opportunity, are below the size-adjusted median of the Compensation Survey Group.
Mr. McLevish
Base Salary Increase. Mr. McLevishs salary increase was commensurate with company guidelines for increases, taking into account his individual performance assessment. His salary is below the size-adjusted median of the Compensation Survey Group.
Actual Annual Cash Incentive. In 2011, Mr. McLevishs individual performance guidelines were primarily related to his role in successfully transitioning the Chief Financial Officer duties to Mr. Brearton and his role in leading the Spin-Off transaction.
Equity Award (Stock Options and Restricted Stock). This equity grant along with the 20112013 LTIP opportunity is above the size-adjusted median of the Compensation Survey Group.
Mr. Khosla
Base Salary Increase. Mr. Khoslas salary increase was commensurate with company guidelines for increases, taking into account his individual performance assessment. His salary approximates the size-adjusted median of the Compensation Survey Group.
Actual Annual Cash Incentive. In 2011, Mr. Khoslas individual performance guidelines were primarily related to his leadership in delivering strong business results across all of the regions within Mondelēz Internationals Kraft Foods Developing Markets unit despite significant operating challenges in several countries.
Equity Award (Stock Options and Restricted Stock). This equity grant along with the 20112013 LTIP opportunity is below the size-adjusted median of the Compensation Survey Group.
Mr. Vernon
Base Salary Increase. Mr. Vernons salary increase was commensurate with company guidelines for increases, taking into account his individual performance assessment. His salary approximates the size-adjusted median of the Compensation Survey Group.
Actual Annual Cash Incentive. In 2011, Mr. Vernons individual performance guidelines were primarily related to leading the strong business turnaround in Mondelēz Internationals Kraft Foods North America unit and implementing strong cost management programs while delivering robust innovation in a very challenging business environment.
Equity Award (Stock Options and Restricted Stock). This equity grant along with the 20112013 LTIP opportunity is at the size-adjusted median of the Compensation Survey Group.
Ms. West
Base Salary Increase. Ms. Wests salary increase was commensurate with company guidelines for increases, taking into account her individual performance assessment. Her salary approximates the size-adjusted median of the Compensation Survey Group.
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Actual Annual Cash Incentive. In 2011, Ms. Wests individual performance guidelines were primarily related to her role in building stronger marketing capabilities that have been recognized externally, improving the effectiveness of Mondelēz Internationals global categories and being a key leader in forming the two new companies in connection with the Spin-Off.
Equity Award (Stock Options and Restricted Stock). This equity grant along with the 20112013 LTIP opportunity is above the size-adjusted median of the Compensation Survey Group.
Additional Information on Compensation Principles
Providing Competitive Pay
Composition and Purpose of the Compensation Survey Group
Mondelēz International annually compares its compensation program with those companies in the Compensation Survey Group. This annual review is designed to assure that its compensation program and target compensation levels are consistent with market practice and maintain Mondelēz Internationals ability to attract and retain the level of talent it needs to drive sustainable superior Total Shareholder Returns.
To assure that the Compensation Survey Group includes the most appropriate companies, Mondelēz Internationals Compensation Committee considers companies that: have similar revenue size and market capitalization, emphasize the food and beverage industry, have a global focus, are recognized for their industry leadership and brand recognition, have executive positions similar in breadth, complexity and scope of responsibility and compete with Mondelēz International for executive talent. In its evaluation of companies, Mondelēz Internationals Compensation Committee starts with companies with revenue over $10 billion in 2011 and up to 2.5 times Mondelēz Internationals revenue. The median 2011 revenue of the peers is $29.6 billion. Mondelēz Internationals revenue approximates the 75th percentile of the peer companies.
Based on this, and in consultation with management and with the assistance of Mondelēz Internationals Compensation Committees compensation consultant, Compensation Advisory Partners, LLC, Mondelēz Internationals Compensation Committee maintained the following companies for the 2011 Compensation Survey Group:
3M Company |
Kimberly-Clark Corporation | |
Abbott Laboratories |
McDonalds Corporation | |
Bristol-Myers Squibb Company |
Merck & Co., Inc. | |
The Coca-Cola Company |
Nestlé S.A. | |
Colgate-Palmolive Company |
PepsiCo, Inc. | |
ConAgra Foods, Inc. |
Pfizer Inc. | |
Eli Lilly and Company |
The Procter & Gamble Company | |
General Mills, Inc. |
Sara Lee Corporation | |
H.J. Heinz Company |
Unilever N.V. | |
Johnson & Johnson |
The Walt Disney Company | |
Kellogg Company |
In determining appropriate compensation levels for the Named Executive Officers, Mondelēz Internationals Compensation Committee reviews compensation levels for similarly situated executives at companies in the Compensation Survey Group. Compensation data is provided by Aon Hewitt. Compensation Advisory Partners, LLC reviews and evaluates the data provided by Aon Hewitt on behalf of the Committee.
2011 Competitive Positioning
Mondelēz Internationals compensation philosophy is to set target total compensation, including base salary and annual and long-term incentives, at or near the median of the Compensation Survey Group, based on size-adjusted data. Mondelēz Internationals Compensation Committee believes that targeting the size-adjusted
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median of the Compensation Survey Group provides the opportunity to attract and retain talented employees. Due to Mondelēz Internationals revenue size relative to its peer group ($54 billion in revenue for the year ended December 31, 2011 vs. a median of $29.6 billion), Mondelēz Internationals Compensation Committee uses a size-adjusted median when comparing executive compensation levels. For positions with corporate-wide responsibilities, Mondelēz Internationals Compensation Committee uses the average of the regressed median (based on $54 billion in revenues relative to the $29.6 billion median of the Compensation Survey Group) and the raw median to obtain a size-adjusted median. Mondelēz International uses this same approach for senior business unit level positions. In effect, Mondelēz Internationals Compensation Committee is using a value greater than the raw median but less than a revenue-correlated median. This results in a more conservative approach to benchmarking the compensation data than simply using the revenue-correlated median.
The magnitude of the size-adjusted median (in terms of percentile ranking) typically places total compensation, as well as the individual elements of total compensation, between the raw median and the 75th percentile of the Compensation Survey Group. For perspective, Mondelēz Internationals revenue approximates the 75th percentile of the Compensation Survey Group.
Based on compensation actions taken for each of the Named Executive Officers in 2011, target total compensation for each of them is at or below the size-adjusted median of the Compensation Survey Group, based on the latest available data reported by Aon Hewitt.
Composition and Purpose of the Performance Peer Group
Mondelēz Internationals Compensation Committee uses the Performance Peer Group to understand the linkage of pay and performance and for determining the Relative Total Shareholder Return measure in the LTIP. For 2011, the Performance Peer Group was comprised of companies that Mondelēz Internationals Compensation Committee considered to be Mondelēz Internationals market competitors or that had been selected primarily on the basis of industry. In 2010, Mondelēz Internationals Compensation Committee reviewed the composition of the Performance Peer Group and decided to include only food and non-alcoholic beverage companies. The companies in the Performance Peer Group remain unchanged since 2010.
There is substantial overlap (9 of the 12 companies) between the Performance Peer Group and the Compensation Survey Group. The primary difference between the Performance Peer Group and the Compensation Survey Group is that the Performance Peer Group companies are only food and non-alcoholic beverage companies and are included regardless of revenue size or market capitalization.
With respect to performance measures for Mondelēz Internationals LTIP, we believe that it is relevant to compare Mondelēz Internationals financial performance to a group of food and non-alcoholic beverage companies as it is likely that Mondelēz Internationals shareholders are comparing their financial performance to a similar group of companies when making investment decisions. Mondelēz International believes that this group is less relevant when comparing compensation levels at various positions within the organization due to its size and complexity relative to several companies included in this group. The Performance Peer Group companies are:
Campbell Soup Company |
H.J. Heinz Company | |
The Coca-Cola Company |
Kellogg Company | |
ConAgra Foods, Inc. |
Nestlé S.A. | |
General Mills, Inc. |
PepsiCo, Inc. | |
Groupe Danone |
Sara Lee Corporation | |
The Hershey Company |
Unilever N.V. |
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Requiring Stock Ownership
To further align the interests of Mondelēz Internationals senior management (approximately 190 executives), including the Named Executive Officers, with those of Mondelēz Internationals shareholders, each executive is required to acquire and hold a significant amount of Mondelēz International common stock. The following chart summarizes Mondelēz Internationals stock ownership and holding requirements. Mondelēz Internationals Compensation Committee believes that Mondelēz Internationals stock ownership levels will help increase the focus of its executives on improving Total Shareholder Return over time. Mondelēz Internationals stock ownership guideline levels are greater than the median of Mondelēz Internationals peers in the Compensation Survey Group, and Mondelēz International monitors compliance with these levels regularly.
Stock Ownership / Holding
|
Explanation of Provision |
|
Ownership Requirement |
Eight times salary for Ms. Rosenfeld; four times salary for each other Named Executive Officer.
All Named Executive Officers met the guidelines as of March 1, 2012. |
|
Time to Meet Requirements |
Five years from employment date or three years from promotion to executive level subject to requirements.
CEO may take further action as she deems appropriate if an executive does not meet the required ownership. |
|
Shares Included As Ownership |
Mondelēz International common stock, including sole ownership, direct purchase plan shares, restricted shares and accounts over which the executive has direct or indirect ownership or control.
Excludes unexercised Mondelēz International stock options or unearned performance shares. |
|
Holding Requirements |
Starting in 2011, the Named Executive Officers are required to hold 100% of all Mondelēz International shares acquired from stock option exercises and restricted stock and performance share vestings, net of shares withheld for taxes or payment of exercise price, until they meet stock ownership guidelines.
Once stock ownership guidelines are attained, a Named Executive Officer is required to hold 100% of the shares, net of shares withheld for taxes or payment of exercise price, for at least one year after stock option exercise or restricted stock or LTIP performance share vesting. |
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Policy on Recoupment of Executive Incentive Compensation in the Event of Certain Restatements
The Mondelēz International Board or an appropriate committee of the Mondelēz International Board may determine that, as a result of a restatement of Mondelēz Internationals financial statements, an executive officer received more compensation than the executive officer would have received absent the incorrect financial statements. The Mondelēz International Board or Mondelēz Internationals Compensation Committee, in its discretion, may then take such actions as it deems necessary or appropriate to address the events that gave rise to the restatement and to prevent its recurrence. Such actions may include, to the extent permitted by applicable law:
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requiring the executive officer to repay some or all of any bonus or other incentive compensation paid; |
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requiring the executive officer to repay any gains realized on the exercise of stock options or on the open-market sale of vested shares; |
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canceling some or all of the executive officers restricted stock or deferred stock awards and outstanding stock options; |
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adjusting the executive officers future compensation; or |
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terminating or initiating legal action against the executive officer. |
Anti-Hedging Policy and Trading Restrictions
Mondelēz Internationals current insider trading policy limits the timing and types of transactions in Mondelēz International securities by Section 16 officers, including the Named Executive Officers. Among other restrictions, the policy:
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allows Section 16 officers to trade company securities only during window periods (following earnings releases) and only after they have pre-cleared transactions; |
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prohibits Section 16 officers from short-selling company securities or selling against the box (failing to deliver sold securities); and |
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prohibits Section 16 officers (and any member of the Section 16 officers family sharing the same household) from transactions in puts, calls or other derivatives on Mondelēz International securities on an exchange or in any other organized market, as well as any other derivative or hedging transactions on Mondelēz International securities. |
Policy with Respect to Qualifying Compensation for Tax Deductibility
Section 162(m) of the Code limits Mondelēz Internationals ability to deduct compensation paid to certain of the Named Executive Officers (the covered employees) for tax purposes to $1.0 million annually. Covered employees include Mondelēz Internationals principal executive officer and Mondelēz Internationals next three highest paid executive officers, other than Mondelēz Internationals principal financial officer. This limitation does not apply to performance-based compensation, provided certain conditions are satisfied. For 2011, annual cash incentive awards, stock options, restricted stock and performance shares awarded to covered employees were subject to, and made in accordance with, performance-based compensation arrangements previously implemented that were intended to qualify as tax-deductible.
Mondelēz International intends to qualify time-vested restricted stock awards granted to its covered employees using the performance-based compensation exemption. In February 2010, Mondelēz Internationals Compensation Committee approved a formula to determine the maximum number of restricted shares that could be awarded to the covered employees contingent upon the achievement of adjusted net earnings during a one-year performance period prior to the stock grant. Under the formula, the maximum number of restricted shares that could be awarded under Mondelēz Internationals 2011 annual restricted stock awards program was equal to 1.50% of Mondelēz Internationals adjusted net earnings in 2010. Mondelēz International defined
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adjusted net earnings as net earnings before extraordinary items, discontinued operations and the cumulative effect of accounting changes and excluding certain other items designated by Mondelēz Internationals Compensation Committee. In addition, Mondelēz Internationals Amended and Restated 2005 Performance Incentive Plan limits individual annual restricted stock awards to 1.0 million shares. In February 2011, using the adjusted net earnings formula, Mondelēz Internationals Compensation Committee determined the grant value pool for the 2011 restricted stock grant awards. The maximum award available for grant to the Mondelēz International CEO was equal to one-third of the pool. The remaining two-thirds of the pool was available for allocation among the remaining covered employees, subject in each instance to the maximum individual award amount under Mondelēz Internationals Amended and Restated 2005 Performance Incentive Plan.
Mondelēz Internationals Compensation Committee has retained the discretion to authorize payments that may not be tax-deductible if it believes that such payments are in the best interest of shareholders. For example, Mondelēz Internationals Compensation Committee decided, based on benchmarking salaries of other chief executive officers in the Compensation Survey Group, to pay Ms. Rosenfeld an annual base salary in excess of $1.0 million. Therefore, a portion of her salary was not tax-deductible in 2011. In addition, a portion of certain of the other covered employees income exceeded the $1.0 million tax deductibility limit in 2011 because of other elements of their annual compensation. Specifically, to the extent that a covered employees compensation from a combination of base salary, restricted stock vesting proceeds not intended to be performance-based, restricted stock dividends and certain taxable perquisites exceeded $1.0 million, the excess amount was not deductible in 2011.
Mondelēz International and Subsidiaries Reconciliation of GAAP to Non-GAAP Information
Mondelēz Internationals Compensation Committee reviewed performance of the Named Executive Officers based on certain non-GAAP financial measures of Mondelēz International and two of Mondelēz Internationals geographical units, Kraft Foods Developing Markets, which is led by Mr. Khosla, and Kraft Foods North America, which includes the North American Grocery Business and the North American portion of the Global Snacks Business and was led by Mr. Vernon. The tables below set forth reconciliations of GAAP financial measures to these non-GAAP financial measures.
Mondelēz International
Operating Income
For the Twelve Months Ended December 31, 2011
(in millions) (Unaudited)
As
Reported (GAAP) |
Impact
of
Divestitures (1) |
Impact of
Integration Program Costs (2) |
Impact
of
Currency (3) |
Impact
of
Spin-Off Costs (4) |
As Adjusted
(Non-GAAP) |
|||||||||||||||||||
Segment Operating Income: |
||||||||||||||||||||||||
Kraft Foods North America |
$ | 4,167 | $ | (15 | ) | $ | 66 | $ | (16 | ) | $ | | $ | 4,202 | ||||||||||
Kraft Foods Europe |
1,406 | | 256 | (43 | ) | | 1,619 | |||||||||||||||||
Kraft Foods Developing Markets |
2,053 | | 161 | (28 | ) | | 2,186 | |||||||||||||||||
Unrealized Gain / (Loss) on Hedging Activities |
(100 | ) | | | | | (100 | ) | ||||||||||||||||
HQ Pension |
(206 | ) | | | | | (206 | ) | ||||||||||||||||
General Corporate Expenses |
(438 | ) | | 38 | 3 | 46 | (351 | ) | ||||||||||||||||
Amortization of Intangibles |
(225 | ) | | | 8 | | (217 | ) | ||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mondelēz International |
$ | 6,657 | $ | (15 | ) | $ | 521 | $ | (76 | ) | $ | 46 | $ | 7,133 | ||||||||||
|
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|
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|
|
|
|
|
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(1) | Impact of divestitures includes for reporting purposes the Starbucks CPG business. |
(2) | Integration Program costs are defined as the costs associated with combining the Mondelēz International and Cadbury businesses, and are separate from those costs associated with the acquisition. |
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(3) | Impact of currency rate fluctuations is calculated based on 2011 planned rates. |
(4) | Spin-Off costs include transaction fees and other costs associated with the Spin-Off. |
Mondelēz International
Net Cash Provided by Operating Activities to Free Cash Flow
For the Twelve Months Ended December 31, 2011
(in millions) (Unaudited)
North
America |
Developing
Markets |
Mondelēz
International |
||||||||||
Net Cash Provided by Operating Activities (GAAP) |
$ | 3,431 | $ | 1,384 | $ | 4,520 | ||||||
Capital Expenditures |
(680 | ) | (713 | ) | (1,771 | ) | ||||||
|
|
|
|
|
|
|||||||
Free Cash Flow (Non-GAAP) |
$ | 2,751 | $ | 671 | $ | 2,749 | ||||||
|
|
|
|
|
|
Mondelēz InternationalKraft Foods Developing Markets Net Revenues For the Twelve Months Ended December 31, 2011 and 2010 (in millions) (Unaudited)
Add back: | ||||||||||||||||||||||||||||||||||||||||||||
As
Reported (GAAP) |
Impact
of Divestit- ures |
Impact
of Acqui- sitions (1) |
Impact
of Integration Program Costs |
Impact
of
Accounting Calendar Changes (2) |
Impact of
Currency |
Organic
(Non-GAAP) |
Impact of
Acquisitions- Cadbury (1) |
Impact
of
Divestitures Cadburys Poland and Romania Operations (1) |
Impact
of
Currency Cadbury (1) |
Combined
Organic (Non- GAAP) |
||||||||||||||||||||||||||||||||||
2011 |
||||||||||||||||||||||||||||||||||||||||||||
Kraft Foods Developing Markets |
$ | 15,821 | $ | | $ | (379 | ) | $ | 1 | $ | (183 | ) | $ | (397 | ) | $ | 14,863 | $ | 379 | $ | | $ | (16 | ) | $ | 15,226 | ||||||||||||||||||
2010 |
||||||||||||||||||||||||||||||||||||||||||||
Kraft Foods Developing Markets |
13,613 | (105 | ) | | 1 | (148 | ) | | 13,361 | 315 | (12 | ) | | 13,664 |
% Change | ||||||||||||||||||||||||
As
Reported (GAAP) |
Organic
(Non- GAAP) |
Combined
Organic (Non- GAAP) |
As
Reported (GAAP) |
Organic
(Non-GAAP) |
Combined
Organic (Non- GAAP) |
|||||||||||||||||||
2011 |
||||||||||||||||||||||||
Kraft Foods Developing Markets |
$ | 15,821 | $ | 14,863 | $ | 15,226 | 16.2 | % | 11.2 | % | 11.4 | % | ||||||||||||
2010 |
||||||||||||||||||||||||
Kraft Foods Developing Markets |
13,613 | 13,361 | 13,664 |
(1) | Impact of acquisitions for 2011 reflects the incremental January 2011 operating results from Mondelēz Internationals Cadbury acquisition on February 2, 2010. For 2010, the impact of acquisitions reflects the pro forma operating results of Cadbury from January 2010, adjusted from IFRS to U.S. GAAP and translated to U.S. dollar from local countries currencies. This 2010 data is presented on a combined company, pro forma basis. |
(2) |
Favorable effect of accounting calendar changes in 2011 and 2010 and, for certain countries included in Kraft Foods Developing Markets, a 53 rd week of shipments in 2011. |
143
Mondelēz International and Kraft Foods North America
Net Revenues
For the Twelve Months Ended December 31, 2011 and 2010
(in millions) (Unaudited)
% Change | ||||||||||||||||||||||||||||||||||||
As Reported
(GAAP) |
Impact
of
Divestitures (1) |
Impact
of
Acquisitions (2) |
Impact of
Integration Program Costs |
Impact of
Accounting Calendar Changes (3) |
Impact of
Currency |
Organic
(Non- GAAP) |
As Reported
(GAAP) |
Organic
(Non- GAAP) |
||||||||||||||||||||||||||||
2011 |
||||||||||||||||||||||||||||||||||||
Kraft Foods North America |
$ | 25,188 | $ | (91 | ) | $ | (117 | ) | $ | | $ | (294 | ) | $ | (136 | ) | $ | 24,550 | 5.1 | % | 4.8 | % | ||||||||||||||
Mondelēz International |
54,365 | (91 | ) | (697 | ) | 1 | (880 | ) | (1,165 | ) | 51,533 | 10.5 | % | 6.6 | % | |||||||||||||||||||||
2010 |
||||||||||||||||||||||||||||||||||||
Kraft Foods North America |
23,966 | (547 | ) | | | | | 23,419 | ||||||||||||||||||||||||||||
Mondelēz International |
49,207 | (652 | ) | | 1 | (193 | ) | | 48,363 |
(1) | Impact of divestitures includes for reporting purposes the Starbucks CPG business. |
(2) | Impact of acquisitions for 2011 reflects the incremental January 2011 operating results from Mondelēz Internationals Cadbury acquisition on February 2, 2010. |
(3) |
Favorable effect of accounting calendar changes in 2011 and 2010 and a 53 rd week of shipments in 2011. |
144
Executive Compensation Tables
The Executive Compensation Tables present historical compensation information for the Named Executive Officers in 2011. As further described under Compensation Discussion and Analysis, in connection with the Spin-Off, Irene Rosenfeld, who served as our President and CEO; David Brearton, who served as our Executive Vice President and Chief Financial Officer; Sanjay Khosla, who served as our Executive Vice President; and Mary Beth West, who served as our Executive Vice President and Chief Marketing Officer, resigned from their positions with us and continue to serve in their current roles at Mondelēz International. In addition, in connection with the Spin-Off, W. Anthony Vernon, who served as President, Kraft Foods North America, resigned from his role at Mondelēz International and is employed by us as our new CEO, and Timothy McLevish, who was Mondelēz Internationals Executive Vice President, resigned from his role at Mondelēz International and is employed by us as our Executive Vice President and Chief Financial Officer. For more information regarding our executive management team following the Spin-Off, see Management.
2011 Summary Compensation Table
Non-Equity Incentive
Plan Compensation |
||||||||||||||||||||||||||||||||||||||||
Name and Principal Position |
Year |
Salary
($) |
Stock
Awards (1) ($) |
Option
Awards (2) ($) |
Annual
Incentive Awards (3) ($) |
Cumulative
Three-Year (20072009) Incentive Plan Awards ($) |
Total
Non- Equity Incentive Plan Compen- sation ($) |
Change
in Pension Value (4) ($) |
All
Other Compen- sation (5) ($) |
Total
Compen- sation ($) |
||||||||||||||||||||||||||||||
Rosenfeld, Irene |
2011 | 1,540,712 | 7,754,472 | 1,933,709 | 4,232,000 | | 4,232,000 | 6,207,428 | 276,373 | 21,944,694 | ||||||||||||||||||||||||||||||
Former President and Chief Executive Officer |
2010 | 1,503,231 | 7,394,668 | 2,095,203 | 2,130,810 | | 2,130,810 | 5,812,189 | 351,882 | 19,287,983 | ||||||||||||||||||||||||||||||
2009 | 1,470,000 | 7,829,371 | 1,857,776 | 3,956,000 | 6,628,125 | 10,584,125 | 4,240,935 | 362,994 | 26,345,201 | |||||||||||||||||||||||||||||||
Brearton, David (6) |
2011 | 619,327 | 893,762 | 325,953 | 742,900 | | 742,900 | 940,758 | 62,553 | 3,585,253 | ||||||||||||||||||||||||||||||
Former Executive Vice President and Chief Financial Officer |
||||||||||||||||||||||||||||||||||||||||
McLevish, Timothy (7) |
2011 | 758,081 | 2,066,667 | 542,976 | 980,000 | | 980,000 | 292,451 | 90,244 | 4,730,419 | ||||||||||||||||||||||||||||||
Executive Vice President and Chief Financial |
2010 | 736,923 | 1,956,975 | 566,795 | 665,000 | | 665,000 | 268,411 | 115,752 | 4,309,856 | ||||||||||||||||||||||||||||||
2009 | 700,000 | 1,941,578 | 396,854 | 1,287,000 | 792,219 | 2,079,219 | 185,003 | 103,224 | 5,405,878 | |||||||||||||||||||||||||||||||
Officer |
||||||||||||||||||||||||||||||||||||||||
Khosla, Sanjay |
2011 | 751,019 | 1,493,661 | 361,997 | 1,036,000 | | 1,036,000 | 372,165 | 94,199 | 4,109,041 | ||||||||||||||||||||||||||||||
Former Executive Vice President |
2010 | 734,769 | 1,374,580 | 321,272 | 847,200 | | 847,200 | 297,788 | 101,118 | 3,676,727 | ||||||||||||||||||||||||||||||
2009 | 720,000 | 2,389,562 | 215,472 | 1,050,000 | 900,583 | 1,950,583 | 237,206 | 275,190 | 5,788,013 | |||||||||||||||||||||||||||||||
Vernon, W. Anthony |
2011 | 758,081 | 2,016,702 | 506,803 | 1,167,000 | | 1,167,000 | | 133,055 | 4,581,641 | ||||||||||||||||||||||||||||||
President, Kraft Foods North America |
2010 | 743,462 | 1,900,236 | 491,266 | 409,450 | | 409,450 | | 113,413 | 3,657,827 | ||||||||||||||||||||||||||||||
West, Mary Beth |
2011 | 657,346 | 1,297,769 | 307,699 | 1,050,000 | | 1,050,000 | 819,804 | 71,403 | 4,204,021 | ||||||||||||||||||||||||||||||
Former Executive Vice President and Chief Marketing Officer |
(1) | The stock awards column includes restricted stock and performance shares. The amounts shown in this column represent the full grant date fair value of the stock awards granted in each year as computed in accordance with FASB ASC Topic 718. For performance shares, the amounts are based on the probable outcome of the performance conditions as of the grant date. Assumptions used in calculating these amounts are included in Note 9, Stock Benefit Plans, to our audited combined financial statements included in this prospectus. Below is a breakout of the 20112013, 20102012 and 20092011 performance share grant date fair values assuming target performance and maximum performance (in the case of maximum, based on the maximum number of shares multiplied by the stock price on the grant date). |
145
Name |
Performance
Cycle |
Grant Date Fair
Value ($) |
Payment at Maximum
Performance ($) |
|||||||||
Ms. Rosenfeld |
20112013 | 5,083,400 | 9,847,733 | |||||||||
20102012 | 4,621,521 | 9,114,527 | ||||||||||
20092011 | 3,732,819 | 7,350,480 | ||||||||||
Mr. Brearton |
20112013 | 443,312 | 858,799 | |||||||||
Mr. McLevish |
20112013 | 1,316,552 | 2,550,469 | |||||||||
20102012 | 1,206,783 | 2,380,008 | ||||||||||
20092011 | 1,066,480 | 2,100,060 | ||||||||||
Mr. Khosla |
20112013 | 993,372 | 1,924,393 | |||||||||
20102012 | 949,354 | 1,872,309 | ||||||||||
20092011 | 914,283 | 1,800,360 | ||||||||||
Mr. Vernon |
20112013 | 1,316,552 | 2,550,469 | |||||||||
20102012 | 1,250,011 | 2,465,262 | ||||||||||
Ms. West |
20112013 | 872,587 | 1,690,405 |
(2) | The option awards column includes option awards granted in 2011, 2010 and 2009. The amounts shown in this column represent the full grant date fair value of the option awards granted in each year as computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 9, Stock Benefit Plans, to our audited combined financial statements included in this prospectus. |
(3) | The amounts shown in this column represent awards paid under Mondelēz Internationals Annual Cash Incentive Program. Awards are paid in March of the following plan year. |
(4) | The amounts shown in this column for Mses. Rosenfeld and West and Messrs. Brearton, McLevish and Khosla represent the aggregate increase in the actuarial present value of each Named Executive Officers benefits under Mondelēz Internationals U.S. Tax-Qualified Pension Plan and other U.S. supplemental defined benefit pension plans. U.S. employees hired on or after January 1, 2009, including Mr. Vernon, are not eligible to participate in the U.S. pension plans. However, Mr. Vernon is eligible to participate in an enhanced defined contribution plan similar to all other U.S. employees hired after December 31, 2008. For Mr. Brearton, the amount includes benefits earned under a Canadian pension plan and Canadian non-registered pension plan. |
(5) | The amounts shown in the All Other Compensation column for 2011 include the following: |
I. Rosenfeld
($) |
D. Brearton
($) |
T. McLevish
($) |
S. Khosla
($) |
W. Vernon
($) |
M. West
($) |
|||||||||||||||||||
Personal use of company aircraft (a) |
86,881 | | | | | | ||||||||||||||||||
Car expenses |
24,274 | 15,000 | 18,705 | 14,779 | 15,000 | 15,652 | ||||||||||||||||||
Financial counseling allowance |
| 7,500 | 7,500 | 7,500 | 5,075 | 7,500 | ||||||||||||||||||
Employer match on defined contribution plans |
165,218 | 40,053 | 64,039 | 71,920 | 112,980 | 48,251 | ||||||||||||||||||
Total All Other Compensation |
276,373 | 62,553 | 90,244 | 94,199 | 133,055 | 71,403 |
(a) | For reasons of security and personal safety, Mondelēz International requires Ms. Rosenfeld to use its aircraft for all travel. The incremental cost of personal use of the aircraft includes the costs of trip-related crew hotels and meals, in-flight food and beverages, landing and ground handling fees, hourly maintenance contract costs, hangar or aircraft parking costs, fuel costs based on the average annual cost of fuel per hour flown and other smaller variable costs. Fixed costs that would be incurred in any event to operate Mondelēz Internationals aircraft (for example, aircraft purchase costs, maintenance not related to personal trips and flight crew salaries) are not included in the incremental cost of Ms. Rosenfelds use of the aircraft. Ms. Rosenfeld is responsible for taxes in connection with her personal use of Mondelēz Internationals aircraft and is not reimbursed for these taxes. |
(6) | Mr. Brearton was appointed Chief Financial Officer effective May 9, 2011 and resigned from this position in August 2012. Prior to that, he served as Mondelēz Internationals Executive Vice President. |
(7) | Mr. McLevish served as Mondelēz Internationals Chief Financial Officer until May 9, 2011, when Mr. Breartons appointment as Chief Financial Officer became effective. Mr. McLevish served as Mondelēz Internationals Executive Vice President until the Distribution Date, and has served as our Executive Vice President and Chief Financial Officer since August 2012. |
146
2011 Grants of Plan-Based Awards
Name |
Grant
Date |
Grant
Type |
Estimated Future
Payouts Under Non-Equity Incentive Plan Awards (1) |
Estimated Future
Payouts Under Equity Incentive Plan Awards (2) |
All
Other Stock Awards: Number of Shares of Stock or Units (3) (#) |
All Other
Option Awards: Number of Securities Underlying Options (#) |
Exercise
Price of Option Awards (4) ($/Share) |
Grant
Date Fair Value of Stock and Option Awards (5) ($) |
||||||||||||||||||||||||||||||
Target
($) |
Maximum
($) |
Target
(#) |
Maximum
(#) |
|||||||||||||||||||||||||||||||||||
Ms. Rosenfeld |
| AIP | 2,325,000 | 5,812,500 | | | | | | | ||||||||||||||||||||||||||||
01/03/2011 | Performance Shares | | | 155,720 | 311,440 | | | | 5,083,400 | |||||||||||||||||||||||||||||
02/23/2011 | Restricted Shares | | | | | 83,930 | | | 2,671,072 | |||||||||||||||||||||||||||||
02/23/2011 | Stock Options | | | | | | 503,570 | 31.825 | 1,933,709 | |||||||||||||||||||||||||||||
Mr. Brearton |
| AIP | 546,534 | 1,366,335 | | | | | ||||||||||||||||||||||||||||||
01/03/2011 | Performance Shares | | | 13,580 | 27,160 | | | | 443,312 | |||||||||||||||||||||||||||||
02/23/2011 | Restricted Shares | | | | | 7,860 | | | 250,145 | |||||||||||||||||||||||||||||
02/23/2011 | Stock Options | | | | | | 47,140 | 31.825 | 181,018 | |||||||||||||||||||||||||||||
05/09/2011 | Restricted Shares | | | | | 5,900 | | 200,305 | ||||||||||||||||||||||||||||||
05/09/2011 | Stock Options | | | | | | 35,350 | 33.950 | 144,935 | |||||||||||||||||||||||||||||
Mr. McLevish |
| AIP | 684,900 | 1,712,250 | | | | | | | ||||||||||||||||||||||||||||
01/03/2011 | Performance Shares | | | 40,330 | 80,660 | | | | 1,316,552 | |||||||||||||||||||||||||||||
02/23/2011 | Restricted Shares | | | | | 23,570 | | | 750,115 | |||||||||||||||||||||||||||||
02/23/2011 | Stock Options | | | | | | 141,400 | 31.825 | 542,976 | |||||||||||||||||||||||||||||
Mr. Khosla |
| AIP | 604,000 | 1,510,000 | | | | | | | ||||||||||||||||||||||||||||
01/03/2011 | Performance Shares | | | 30,430 | 60,860 | | | | 993,372 | |||||||||||||||||||||||||||||
02/23/2011 | Restricted Shares | | | | | 15,720 | | | 500,289 | |||||||||||||||||||||||||||||
02/23/2011 | Stock Options | | | | | | 94,270 | 31.825 | 361,997 | |||||||||||||||||||||||||||||
Mr. Vernon |
| AIP | 684,900 | 1,712,250 | | | | | | | ||||||||||||||||||||||||||||
01/03/2011 | Performance Shares | | | 40,330 | 80,660 | | | | 1,316,552 | |||||||||||||||||||||||||||||
02/23/2011 | Restricted Shares | | | | | 22,000 | | | 700,150 | |||||||||||||||||||||||||||||
02/23/2011 | Stock Options | | | | | | 131,980 | 31.825 | 506,803 | |||||||||||||||||||||||||||||
Ms. West |
| AIP | 528,000 | 1,320,000 | | | | | | | ||||||||||||||||||||||||||||
01/03/2011 | Performance Shares | | | 26,730 | 53,460 | | | | 872,587 | |||||||||||||||||||||||||||||
02/23/2011 | Restricted Shares | | | | | 13,360 | | | 425,182 | |||||||||||||||||||||||||||||
02/23/2011 | Stock Options | | | | | | 80,130 | 31.825 | 307,699 |
(1) | The target amounts represent the potential cash payout if both business and individual performance are at target levels under Mondelēz Internationals 2011 Annual Cash Incentive Program (AIP). Actual amounts under Mondelēz Internationals 2011 Annual Cash Incentive Program were paid in March 2012 and are disclosed in the 2011 Summary Compensation Table. The maximum amounts are equal to 250% of target. |
(2) | The performance shares are granted under Mondelēz Internationals 20112013 LTIP. The target number of shares shown in the table reflects the number of shares of Mondelēz International common stock that will be earned if each performance metric reaches target levels. Actual shares awarded under the 20112013 LTIP are scheduled to be paid in March 2014. No dividends or dividend equivalents are paid or earned on unvested performance shares. |
(3) | Dividends are paid on the unvested restricted stock at the same rate as on Mondelēz Internationals common stock. |
(4) | The exercise price of the stock option awards represents the fair market value (average of high and low stock prices) of Mondelēz International common stock on the grant date. For the stock options granted on February 23, 2011, the exercise price is greater than the closing stock price ($31.68) on that date. For the stock options granted on May 9, 2011, the exercise price is lower than the closing stock price ($34.04) on that date. |
(5) | The amounts represent the grant date fair value of the awards as computed in accordance with FASB ASC Topic 718. |
147
2011 Outstanding Equity Awards at Fiscal Year-End
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||
Name |
Grant
Date (1) |
Number
of Securities Underlying Unexercised Options Exercisable (#) |
Number
of Securities Underlying Unexercised Options Unexercisable (#) |
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option
Exercise Price ($) |
Option
Expiration Date |
Number
of Shares or Units of Stock That Have Not Vested (#) |
Market
Value of Shares or Units of Stock That Have Not Vested (2) ($) |
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (2) ($) |
||||||||||||||||||||||||||||||
Ms. Rosenfeld |
05/03/2007 | | | 300,000 | 33.140 | 05/02/2017 | | | | | ||||||||||||||||||||||||||||||
02/04/2008 | 524,000 | | | 29.485 | 02/02/2018 | | | | | |||||||||||||||||||||||||||||||
02/20/2009 | | | | | | 173,300 | 6,474,488 | | | |||||||||||||||||||||||||||||||
02/20/2009 | 457,512 | 235,688 | | 23.639 | 02/20/2019 | | | | | |||||||||||||||||||||||||||||||
01/04/2010 | | | | | | | | 166,780 | 6,230,901 | |||||||||||||||||||||||||||||||
02/23/2010 | | | | | | 95,150 | 3,554,804 | | | |||||||||||||||||||||||||||||||
02/23/2010 | 188,397 | 382,503 | | 29.145 | 02/21/2020 | | | | | |||||||||||||||||||||||||||||||
01/03/2011 | | | | | | | | 155,720 | 5,817,699 | |||||||||||||||||||||||||||||||
02/23/2011 | | | | | | 83,930 | 3,135,625 | | | |||||||||||||||||||||||||||||||
02/23/2011 | | 503,570 | | 31.825 | 02/23/2021 | | | | | |||||||||||||||||||||||||||||||
Mr. Brearton |
02/04/2008 | 50,880 | | | 29.485 | 02/02/2018 | | | | | ||||||||||||||||||||||||||||||
02/20/2009 | | | | | | 15,870 | 592,903 | | | |||||||||||||||||||||||||||||||
02/20/2009 | 41,896 | 21,584 | | 23.639 | 02/20/2019 | | | | | |||||||||||||||||||||||||||||||
01/04/2010 | | | | | | | | 15,250 | 569,740 | |||||||||||||||||||||||||||||||
02/23/2010 | | | | | | 8,580 | 320,549 | | | |||||||||||||||||||||||||||||||
02/23/2010 | 16,988 | 34,492 | | 29.145 | 02/21/2020 | | | | | |||||||||||||||||||||||||||||||
01/03/2011 | | | | | | | | 13,580 | 507,349 | |||||||||||||||||||||||||||||||
02/23/2011 | | | | | | 7,860 | 293,650 | | | |||||||||||||||||||||||||||||||
02/23/2011 | | 47,140 | | 31.825 | 02/23/2021 | | | | | |||||||||||||||||||||||||||||||
05/09/2011 | | | | | | 5,900 | 220,424 | | | |||||||||||||||||||||||||||||||
05/09/2011 | | 35,350 | | 33.950 | 05/09/2021 | | | | | |||||||||||||||||||||||||||||||
Mr. McLevish |
02/04/2008 | 95,000 | | | 29.485 | 02/02/2018 | | | | | ||||||||||||||||||||||||||||||
02/20/2009 | | | | | | 37,020 | 1,383,067 | | | |||||||||||||||||||||||||||||||
02/20/2009 | 97,732 | 50,348 | | 23.639 | 02/20/2019 | | | | | |||||||||||||||||||||||||||||||
01/04/2010 | | | | | | | | 43,550 | 1,627,028 | |||||||||||||||||||||||||||||||
02/23/2010 | | | | | | 25,740 | 961,646 | | | |||||||||||||||||||||||||||||||
02/23/2010 | 50,965 | 103,475 | | 29.145 | 02/21/2020 | | | | | |||||||||||||||||||||||||||||||
01/03/2011 | | | | | | | | 40,330 | 1,506,729 | |||||||||||||||||||||||||||||||
02/23/2011 | | | | | | 23,570 | 880,575 | | | |||||||||||||||||||||||||||||||
02/23/2011 | | 141,400 | | 31.825 | 02/23/2021 | | | | | |||||||||||||||||||||||||||||||
Mr. Khosla |
02/04/2008 | 62,760 | | | 29.485 | 02/02/2018 | | | | | ||||||||||||||||||||||||||||||
02/20/2009 | | | | | | 62,410 | 2,331,638 | | | |||||||||||||||||||||||||||||||
02/20/2009 | 27,064 | 27,336 | | 23.639 | 02/20/2019 | | | | | |||||||||||||||||||||||||||||||
01/04/2010 | | | | | | | | 34,260 | 1,279,954 | |||||||||||||||||||||||||||||||
02/23/2010 | | | | | | 14,590 | 545,082 | | | |||||||||||||||||||||||||||||||
02/23/2010 | 28,888 | 58,652 | | 29.145 | 02/21/2020 | | | | | |||||||||||||||||||||||||||||||
01/03/2011 | | | | | | | | 30,430 | 1,136,865 | |||||||||||||||||||||||||||||||
02/23/2011 | | | | | | 15,720 | 587,299 | | | |||||||||||||||||||||||||||||||
02/23/2011 | | 94,270 | | 31.825 | 02/23/2021 | | | | |
148
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||
Name |
Grant
Date (1) |
Number
of Securities Underlying Unexercised Options Exercisable (#) |
Number
of Securities Underlying Unexercised Options Unexercisable (#) |
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option
Exercise Price ($) |
Option
Expiration Date |
Number
of Shares or Units of Stock That Have Not Vested (#) |
Market
Value of Shares or Units of Stock That Have Not Vested (2) ($) |
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (2) ($) |
||||||||||||||||||||||||||||||
Mr. Vernon |
08/17/2009 | | | | | | 11,970 | 447,199 | | | ||||||||||||||||||||||||||||||
01/04/2010 | | | | | | | | 45,110 | 1,685,310 | |||||||||||||||||||||||||||||||
02/23/2010 | | | | | | 22,310 | 833,502 | | | |||||||||||||||||||||||||||||||
02/23/2010 | 44,173 | 89,687 | | 29.145 | 02/21/2020 | | | | | |||||||||||||||||||||||||||||||
01/03/2011 | | | | | | | | 40,330 | 1,506,729 | |||||||||||||||||||||||||||||||
02/23/2011 | | | | | | 22,000 | 821,920 | | | |||||||||||||||||||||||||||||||
02/23/2011 | | 131,980 | | 31.825 | 02/23/2021 | | | | | |||||||||||||||||||||||||||||||
Ms. West |
02/04/2008 | 40,720 | | | 29.485 | 02/02/2018 | | | | | ||||||||||||||||||||||||||||||
02/20/2009 | | | | | | 13,750 | 513,700 | | | |||||||||||||||||||||||||||||||
02/20/2009 | 18,150 | 18,700 | | 23.639 | 02/20/2019 | | | | | |||||||||||||||||||||||||||||||
01/04/2010 | | | | | | | | 14,000 | 523,040 | |||||||||||||||||||||||||||||||
02/23/2010 | | | | | | 8,580 | 320,549 | | | |||||||||||||||||||||||||||||||
02/23/2010 | 16,988 | 34,492 | | 29.145 | 02/21/2020 | | | | | |||||||||||||||||||||||||||||||
08/01/2010 | | | | | | 5,940 | 221,918 | | | |||||||||||||||||||||||||||||||
08/01/2010 | 11,880 | 23,760 | | 29.500 | 08/01/2020 | | | | | |||||||||||||||||||||||||||||||
01/03/2011 | | | | | | | | 26,730 | 998,633 | |||||||||||||||||||||||||||||||
02/23/2011 | | | | | | 13,360 | 499,130 | | | |||||||||||||||||||||||||||||||
02/23/2011 | | 80,130 | | 31.825 | 02/23/2021 | | | | |
(1) | The vesting schedule for all outstanding stock and stock options is as follows: |
Grant Date |
Grant Type |
Vesting Schedule |
||
05/03/2007 |
Stock options |
One-half of the shares under this performance-contingent stock option vests if the price of Mondelēz International common stock maintains an average trading price of $38.11 over a consecutive ten-day period during the ten-year term of the stock option award. On January 20, 2012, 150,000 option shares vested under the terms of the award.
The remaining 150,000 option shares will vest only if the price of Mondelēz International common stock maintains an average trading price of $41.43 for a consecutive ten-day period during the ten-year term of the stock option award. |
||
02/04/2008 |
Stock options | First tranche (33%) vests on 02/04/2009, second tranche (33%) vests on 02/04/2010 and last tranche (34%) vests on 02/04/2011. | ||
02/20/2009 |
Restricted shares | 100% of award vests on 02/17/2012. | ||
02/20/2009 |
Stock options | First tranche (33%) vests on 02/19/2010, second tranche (33%) vests on 02/18/2011 and last tranche (34%) vests on 02/17/2012. | ||
08/17/2009 |
Restricted shares | First tranche (33%) vests on 08/17/2010, second tranche (33%) vests on 08/17/2011 and last tranche (34%) vests on 08/17/2012. | ||
01/04/2010 |
Performance shares | 100% of award vests on 12/31/2012, subject to the approval of Mondelēz Internationals Compensation Committee and satisfaction of the performance criteria. Payment of the shares, if any, will be made in March 2013. | ||
02/23/2010 |
Restricted shares | 100% of award vests on 02/22/2013. |
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Grant Date |
Grant Type |
Vesting Schedule |
||
02/23/2010 |
Stock options | First tranche (33%) vests on 02/22/2011, second tranche (33%) vests on 02/22/2012 and last tranche (34%) vests on 02/22/2013. | ||
08/01/2010 |
Restricted shares | 100% of award vests on 08/01/2013. | ||
08/01/2010 |
Stock options | Options vest in three equal installments on 08/01/2011, 08/01/2012 and 08/01/2013. | ||
01/03/2011 |
Performance shares | 100% of award vests on 12/31/2013, subject to the approval of Mondelēz Internationals Compensation Committee and satisfaction of the performance criteria. Payment of the shares, if any, will be made in March 2014. | ||
02/23/2011 |
Restricted shares | 100% of award vests on 02/24/2014. | ||
02/23/2011 |
Stock options | First tranche (33%) vests on 02/23/2012, second tranche (33%) vests on 02/25/2013 and last tranche (34%) vests on 02/24/2014. | ||
05/09/2011 |
Restricted shares | 100% of award vests on 05/09/2014. | ||
05/09/2011 |
Stock options | Options vest in three equal installments on 05/09/2012, 05/09/2013 and 05/09/2014. |
(2) | The market value of the shares that have not vested is based on the closing price of Mondelēz International common stock of $37.36 on December 30, 2011, as reported on the NYSE. |
2011 Option Exercises and Stock Vested
Option Awards | Stock Awards | |||||||||||||||
Name |
Number of
Shares Acquired on Exercise (#) |
Value
Realized on Exercise (1) ($) |
Number of
Shares Acquired on Vesting (2) (#) |
Value
Realized on Vesting ( 1) ($) |
||||||||||||
Ms. Rosenfeld |
| | 548,814 | 19,318,067 | ||||||||||||
Mr. Brearton |
45,170 | 163,733 | 31,925 | 1,119,401 | ||||||||||||
Mr. McLevish |
| | 78,585 | 2,810,808 | ||||||||||||
Mr. Khosla |
26,000 | 288,899 | 62,700 | 2,266,495 | ||||||||||||
Mr. Vernon |
| | 68,765 | 2,570,398 | ||||||||||||
Ms. West |
35,500 | 116,620 | 27,805 | 981,516 |
(1) | The amounts shown are calculated based on the closing market price of Mondelēz International common stock on the date of exercise or vesting. |
(2) | The amounts shown include performance shares awarded under Mondelēz Internationals 20092011 LTIP with a performance cycle which ended on December 31, 2011. |
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2011 Pension Benefits
Number
of Years of Credited Service (1) |
Present Value
of Accumulated Benefits (2) |
Payments
During Last Fiscal Year |
||||||||||||
Name |
Plan Name |
(#) | ($) | ($) | ||||||||||
Ms. Rosenfeld |
Kraft Foods Global, Inc. Retirement Plan | 29.2 | 1,113,497 | | ||||||||||
Kraft Foods Global, Inc. Supplemental Benefits Plan I | 29.2 | 21,890,754 | | |||||||||||
Kraft Foods Global, Inc. Supplemental Benefits Plan II | 1.7 | (3) | 1,399,667 | | ||||||||||
Mr. Brearton |
Kraft Foods Global, Inc. Retirement Plan | 15.7 | 584,408 | | ||||||||||
Kraft Foods Global, Inc. Supplemental Benefits Plan I | 15.7 | 2,504,382 | | |||||||||||
Kraft Canada Retirement Plan (4) | 11.8 | 249,815 | ||||||||||||
Mr. McLevish |
Kraft Foods Global, Inc. Retirement Plan | 4.3 | 135,043 | | ||||||||||
Kraft Foods Global, Inc. Supplemental Benefits Plan I | 4.3 | 701,920 | | |||||||||||
Mr. Khosla |
Kraft Foods Global, Inc. Retirement Plan | 5.0 | 165,654 | | ||||||||||
Kraft Foods Global, Inc. Supplemental Benefits Plan I | 5.0 | 955,278 | | |||||||||||
Ms. West |
Kraft Foods Global, Inc. Retirement Plan | 25.6 | 633,564 | | ||||||||||
Kraft Foods Global, Inc. Supplemental Benefits Plan I | 25.6 | 1,783,021 | |
(1) | The years of credited service under the plans are equivalent to the years of total service for the Named Executive Officers through December 31, 2011, unless otherwise noted. |
(2) | For Mses. Rosenfeld and West and Messrs. Brearton, McLevish and Khosla, the amounts reflect the actuarial present value of benefits accumulated under the respective retirement plans, in accordance with the same assumptions and measurement dates disclosed in Note 10, Pension and Other Postemployment Benefit Plans, to our audited combined financial statements included in this prospectus. |
The assumptions for each of the plans are as follows:
|
Assumes commencement at the earliest age that participants would be eligible for an unreduced pension benefit, which is age 62 for Mses. Rosenfeld and West and Mr. Brearton and 65 for Messrs. McLevish and Khosla. Present value amounts are discounted for current age; |
|
Measurement date of December 31, 2011; |
|
Discount rate of 4.9%; and |
|
RP 2000 Mortality Table Projected to 2011. |
For Mr. Brearton, the amount also reflects the actuarial present value of benefits accumulated under the Kraft Canada Retirement Plan.
The assumptions for this plan are as follows:
|
Assumes commencement at the earliest age that participants would be eligible for an unreduced pension benefit, which is age 60. Present value amounts are discounted for current age; |
|
Measurement date of December 31, 2011; |
|
Discount rate of 4.25%; and |
|
RP 2000 Mortality Table Projected to 2011. |
(3) | Reflects the number of years of credited service, which includes an enhanced pension benefit that provides for additional credited service during the period between 2004 and 2006. |
(4) |
Mr. Brearton has service under Mondelēz Internationals U.S. and Canadian pension plans. According to the Kraft Foods Global, Inc. Retirement Plan, or the U.S. Plan, policy on retirement benefits, or the |
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Retirement Benefits Policy, eligible active employees who transfer from a non-U.S. affiliate directly to a U.S. affiliate will be provided a benefit from the U.S. Plan using service recognized by the U.S. Plan after the date of transfer to the U.S. affiliate, as well as all years of Relevant Service under the non-U.S. Plan. |
Under the Retirement Benefits Policy, the benefit is calculated as follows:
Based on the current benefit formula for the U.S. Plan, the employees pension benefit under the U.S. Plan will be equal to the sum of:
|
the benefit calculated under the formula in the U.S. Plan, except that years of service are equal to service on and after the date of transfer while the employee is a participant in the U.S. Plan, plus Relevant Service |
minus
|
the benefit earned and either paid or payable under the non-U.S. Plan(s) based on Relevant Service. |
A participant who is eligible for the Retirement Benefits Policy receives benefits equal to the sum of:
|
the actual benefit earned under the non-U.S. Plan; plus, the greater of |
(a) | the benefit under the U.S. Plan calculated under the Retirement Benefits Policy; or |
(b) | the benefit earned under the U.S. Plan, based on years of service on and after the date of transfer while the employee is a participant in the U.S. Plan. |
Retirement Benefit Plan Descriptions
Both the qualified and supplemental retirement plans are generally offered to executive officers, including the Named Executive Officers, and vary by country.
Kraft Foods Global, Inc. Retirement Plan
Beginning January 1, 2009, this program is not offered to newly hired U.S. employees. However, all eligible full-time and part-time U.S. employees hired before January 1, 2009, including Mses. Rosenfeld and West and Messrs. McLevish and Khosla, are covered automatically in Mondelēz Internationals funded non-contributory, tax-qualified defined benefit plan. Mr. Vernon, hired after December 31, 2008, is not eligible for this program. Mr. Vernon, similar to all other U.S. employees hired after December 31, 2008, is eligible to participate in an enhanced defined contribution plan, which is described under 2011 Non-Qualified Deferred Compensation Benefits and U.S. Supplemental Defined Contribution Plan below.
Benefits under this plan are payable upon retirement in the form of an annuity or a lump sum (if the employee was hired before 2004). Normal retirement under this plan is defined as age 65 with five years of vesting service, at which point participants are eligible to receive an unreduced benefit. Vested participants may elect to receive benefits before age 65, but the amount is reduced as benefits are paid over a longer period of time. Participants must have at least five years of service to become vested.
The formula used to calculate a benefit is equal to the following:
|
1.3% of final average pay up to the Social Security covered compensation amount multiplied by years of service up to 30; plus |
|
1.675% of final average pay in excess of the Social Security covered compensation amount, multiplied by years of service up to 30; plus |
|
0.5% of final average pay multiplied by years of service in excess of 30. Final average pay is defined as the greater of (a) the average of an executive officers salary plus annual bonus during the last 60 |
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consecutive months of service before separation and (b) the five highest consecutive calendar years of salary plus annual bonus out of the last ten years prior to separation. Social Security covered compensation is an amount equal to the average of the Social Security taxable wage bases for the 35-year period that ends in the year the participant reaches age 65. (If you were born between 1938 and 1954, the 35-year average ends in the year you reach age 66. If you were born after 1954, the 35-year average ends in the year you reach age 67.). The IRS has established certain limits on how much employees may receive from this plan. |
As of December 31, 2011, Ms. Rosenfeld is eligible to retire under the Kraft Foods Global, Inc. Retirement Plan. Employees hired before January 1, 2004, with at least ten years of service, are eligible to retire under this plan at age 55. The benefits payable to employees eligible to retire before age 62 are reduced by 3% each year (maximum 20%) between age 62 and the year that the employee retires.
Kraft Foods Global, Inc. Supplemental Benefits Plan I
The Code limits the amount employees may receive from the tax-qualified pension plan. Therefore, Mondelēz International offers a Supplemental Defined Benefit Pension Plan and several Named Executive Officers participate in this plan. Beginning January 1, 2009, this program is not offered to newly hired U.S. employees. However, all eligible full-time and part-time U.S. employees hired before January 1, 2009, including Mses. Rosenfeld and West and Messrs. McLevish and Khosla, may participate in this unfunded plan that provides for the difference between what would have been payable based upon the pension plan formula stated above absent the applicable Code limits and the amount actually payable from the Kraft Foods Global, Inc. Retirement Plan. Additionally, any eligible base salary and annual cash incentive deferrals made under the voluntary non-qualified deferred compensation plan are considered non-qualified earnings and are subsequently paid out under this plan regardless of whether or not the executive exceeds the applicable Code limits. Mr. Vernon, hired after December 31, 2008, is not eligible for this program. Mr. Vernon is eligible to participate in an enhanced defined contribution plan, which is described under 2011 Non-Qualified Deferred Compensation Benefits and U.S. Supplemental Defined Contribution Plan below. As of December 31, 2011, Ms. Rosenfeld is eligible to retire under the Kraft Foods Global, Inc. Supplemental Benefits Plan I. Employees hired before January 1, 2004, with at least ten years of service, are eligible to retire under this plan at age 55. The benefits payable to employees eligible to retire before age 62 are reduced by 3% each year (maximum 20%) between age 62 and the year that the employee retires.
Kraft Foods Global, Inc. Supplemental Benefits Plan IIMs. Rosenfeld
Ms. Rosenfelds employment offer letter provided her with credited service during the period she was not working for Mondelēz International between 2004 and 2006. This enhanced pension benefit was part of a broader incentive program designed to compensate Ms. Rosenfeld for the forfeiture of benefits at her prior employer, as well as to encourage her to return to Mondelēz International.
As of December 31, 2011, Ms. Rosenfeld is eligible to retire under the Kraft Foods Global, Inc. Supplemental Benefits Plan II. The benefits payable to Ms. Rosenfeld before age 62 are reduced by 3% each year (maximum 20%) between age 62 and the year that she retires.
Kraft Canada, Inc. Retirement Plan for Canadian Salaried Employees of Kraft Canada, Inc.Mr. Brearton
All eligible full-time and part-time General Foods Canadian salaried employees hired before January 1, 1991, including Mr. Brearton, are eligible to participate in Mondelēz Internationals funded non-contributory, tax-qualified defined pension plan. Benefits under this plan are payable upon retirement in the form of a monthly pension payment. Normal retirement under this plan is defined as age 65, at which point participants are eligible to receive an unreduced benefit. Participants may elect to receive benefits before age 65 but the amount is reduced as benefits are paid over a longer period of time. Participants under age 55 must have at least two years of service to become vested. Participants over age 55 are immediately vested.
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The formula used to calculate a benefit is equal to the following:
Post December 31, 1986 1.25% of final average earnings (five years) less 1.4285% of the Kraft Canada Retirement Plan benefit, multiplied by credited service in the plan (maximum 35 years).
Pre January 1, 1987 Better of:
|
1.25% of final average earnings (five years) less 1.4285% times 0.5 of the Kraft Canada Retirement Plan benefit, multiplied by credited service in the plan (maximum 30 years), or |
|
1.00% of final average earnings (five years) multiplied by credited service in the plan (maximum 30 years). |
Employees hired before January 1, 1991 are eligible to retire under this plan at age 55. The benefits payable to employees eligible to retire before age 65 are reduced by 4% for each year (maximum 20%) between age 55 and age 60. The benefits are unreduced after age 60.
Kraft Canada Supplemental Benefits PlanMr. Brearton
The Canadian government limits the amount employees may receive from the tax-qualified pension plan. Therefore, Mondelēz International offers a Supplemental Defined Benefit Pension. All eligible full-time and part-time salaried employees may participate in this unfunded plan that provides for the difference between what would have been payable based upon the pension plan formula stated above and the amount actually payable from the Kraft Canada, Inc. Retirement Plan. Eligible employees may retire under this plan at age 55. The benefits payable to employees eligible to retire before age 65 are reduced by 4% each year (maximum 20%) between age 55 and age 60. The benefits are unreduced after age 60.
2011 Non-Qualified Deferred Compensation Benefits
Name |
Executive
Contributions in 2011 (1) ($) |
Registrant
Contributions in 2011 (2) ($) |
Aggregate
Earnings in 2011 (3) ($) |
Aggregate
Withdrawals/ Distributions in 2011 ($) |
Aggregate
Balance as of December 31, 2011 (4) ($) |
|||||||||||||||
Ms. Rosenfeld |
205,591 | 154,193 | 224,065 | 5,385,893 | (5) | 4,850,812 | ||||||||||||||
Mr. Brearton |
211,830 | 29,028 | 51,580 | | 2,337,411 | |||||||||||||||
Mr. McLevish |
176,712 | 53,014 | 27,437 | | 984,577 | |||||||||||||||
Mr. Khosla |
202,983 | 60,895 | 34,223 | | 1,211,152 | |||||||||||||||
Mr. Vernon |
55,352 | 90,930 | 6,257 | | 274,375 | |||||||||||||||
Ms. West |
52,341 | 39,256 | 15,446 | | 541,995 |
(1) | All executive contributions made in 2011 were under Mondelēz Internationals U.S. Supplemental Defined Contribution Plan. Amounts are deferred from base salary and amounts paid in 2011 under the Annual Cash Incentive Program are included in the 2011 Summary Compensation Table. The amount of executive contributions in 2011 attributable to base salary and Annual Cash Incentive Program awards for the participating Named Executive Officers is as follows: |
Name |
Base Salary
($) |
Annual Cash
Incentive Program Award ($) |
||||||
Ms. Rosenfeld |
77,743 | 127,848 | ||||||
Mr. Brearton |
76,455 | 135,375 | ||||||
Mr. McLevish |
92,077 | 84,635 | ||||||
Mr. Khosla |
91,307 | 111,676 | ||||||
Mr. Vernon |
36,831 | 18,521 | ||||||
Ms. West |
31,941 | 20,400 |
(2) | The amounts in this column are also included in the All Other Compensation column in the 2011 Summary Compensation Table. |
154
(3) | The amounts in this column are at market rates and are not reflected in the 2011 Summary Compensation Table. |
(4) | The aggregate balance includes amounts that were reported as compensation for the Named Executive Officers in prior years. Amounts reported attributable to base salary, Annual Cash Incentive Program awards or all other compensation that were reported in the Summary Compensation Table of previously filed Mondelēz International proxy statements for the participating Named Executive Officers are as follows: Ms. Rosenfeld$3,509,299; Mr. McLevish$695,256; Mr. Khosla$862,222; and Mr. Vernon$119,769. |
(5) | Ms. Rosenfeld received a distribution from her Kraft Executive Deferred Compensation Plan Account in this amount. |
U.S. Supplemental Defined Contribution Plan
Because the Code limits the amount that may be contributed to the tax-qualified defined contribution plan on behalf of an employee, Mondelēz International offers a Supplemental Defined Contribution Plan. Mses. Rosenfeld and West and Messrs. McLevish, Khosla and Vernon contributed to the Supplemental Defined Contribution Plan in 2011. This is an unfunded plan that allows eligible employees to defer a portion of their annual compensation (base salary and annual cash incentive awards) and receive corresponding Mondelēz International matching amounts to the extent that their contributions to the tax-qualified defined contribution plan (and the corresponding Mondelēz International matching contributions) are limited by Code Section 401(a)(17) or 415. Executives must defer receipt of the payments until retirement. Executive contributions and employer matching amounts earn the same rate of return as the Interest Income Fund, which is a market rate fund available to employees in the tax-qualified defined contribution plan. The rate of return under this investment fund in 2011 was 3.18%.
U.S. Executive Deferred Compensation Plan
The Mondelēz International U.S. Executive Deferred Compensation Plan is a non-qualified plan that allows the Named Executive Officers to defer, on a pre-tax basis, up to 50% of salary and up to 100% of their annual and long-term cash incentives. The investment choices are similar to those offered to eligible employees in Mondelēz Internationals U.S. 401(k) plan. Participants may elect to defer their compensation until termination of employment or retirement. They may also elect to receive distributions of their accounts while still employed with Mondelēz International, but the plan requires a minimum deferral period of two years. Distributions may be made in a lump sum or in annual installments of between two and ten years.
Potential Payments upon Termination or Change in Control
The tables and narrative below describe the potential payments to each Named Executive Officer upon termination. Other than the types of compensation and benefits described in the tables below or as would be received by all other salaried employees, no other payments are earned by or would be awarded to the Named Executive Officers. In accordance with SEC rules, all information described in this section is presented as if a triggering event occurred on December 31, 2011.
Involuntary Termination Without Cause (Non-Change in Control Event)
Mondelēz International may provide separation pay and benefits to its employees, including the Named Executive Officers, in the event of an involuntary termination without cause. In these circumstances, Mondelēz International has a separation pay plan in the United States that provides employees a payment equal to one month of salary for every year of service up to a maximum of 12 months, assuming at least five years of service.
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Under the plan, an involuntary termination without cause is any company-initiated termination for reasons other than:
|
continued failure to substantially perform the job duties, other than a failure resulting from incapacity due to disability; |
|
gross negligence, dishonesty or violation of any reasonable company rule or regulation if the violation results in significant damage to Mondelēz International; or |
|
engaging in other conduct that adversely reflects on Mondelēz International in any material respect. |
These separation benefits are generally structured similarly to those benefits available to all other employees. The separation pay and benefits available to all employees are generally contingent upon Mondelēz International receiving a general release of claims from the employee. For executive officers, it is typical to use the separation pay and benefits practices in the applicable country as the basis for the pay and benefits.
On a case-by-case basis, Mondelēz International may provide additional pay and benefits to the Named Executive Officers in excess of the amount typically payable upon an involuntary termination without cause. These additional pay and benefits amounts would be compensation for receiving non-competition, non-solicitation, non-disparagement and confidentiality agreements from the Named Executive Officers, in addition to a general release.
The typical elements of separation pay and benefits consist of base salary continuation, health and welfare benefits continuation and outplacement assistance.
Separation Pay. Separation pay to Named Executive Officers is typically 12 months of base salary, except for the CEO, who typically receives 24 months of base salary, plus pro-rata target annual cash incentive. That amount may be increased, at the discretion of management, with the approval of Mondelēz Internationals Compensation Committee, in consideration of the restrictive covenants described above. Separation pay amounts are typically paid as salary continuation. In some cases, amounts are paid in a lump sum.
In the event that separation pay is considered deferred compensation, subject to Section 409A of the Code, payments that would otherwise have been payable are withheld during the six-month period following termination of employment to comply with Section 409A. Mondelēz International then pays the amount, in a lump sum without interest, as soon as permitted under Section 409A.
Benefits Continuation. Named Executive Officers typically continue participating in the health and welfare benefits plans during the period in which they continue to receive a salary. If an executive officer receives separation pay in a lump sum, then his or her participation in the health and welfare benefits plans ends at the time of the lump sum payment. In addition, under Mondelēz Internationals retirement plans, eligible Named Executive Officers receive an additional one year of pension accrual, except for the CEO who receives an additional two years of pension accrual.
Additional Arrangements . In addition to the separation pay and benefits described above, the car allowance and financial counseling allowance will continue for each of the Named Executive Officers for one year and for two years for Ms. Rosenfeld. In addition, in accordance with Mr. Vernons employment offer letter, if he is involuntarily terminated without cause prior to the vesting of the restricted stock granted to him upon joining Mondelēz International, his individual restricted stock awards will continue to vest on the normal vesting date. As of December 31, 2011, Mr. Vernons restricted stock granted to him upon joining Mondelēz International had not fully vested.
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Potential Payout upon an Involuntary Termination Without Cause at Fiscal Year-End 2011
Name |
Separation
Pay (1) ($) |
Health &
Welfare Continuation (2) ($) |
Value of
Unvested Restricted Stock Awards (3) ($) |
Continuation
of Benefits (4) ($) |
Present
Value of Additional Retirement Benefit Plans (5) ($) |
Total
($) |
||||||||||||||||||
Ms. Rosenfeld |
3,100,000 | 455,864 | | 66,667 | 1,169,622 | 4,792,153 | ||||||||||||||||||
Mr. Brearton |
650,000 | 20,827 | | 22,500 | 119,485 | 812,812 | ||||||||||||||||||
Mr. McLevish |
761,000 | 21,356 | | 22,500 | 199,206 | 1,004,062 | ||||||||||||||||||
Mr. Khosla |
755,000 | 17,206 | | 22,500 | 226,557 | 1,021,263 | ||||||||||||||||||
Mr. Vernon |
761,000 | 21,645 | 447,199 | 22,500 | | 1,252,344 | ||||||||||||||||||
Ms. West |
660,000 | 22,624 | | 22,500 | 97,912 | 803,036 |
(1) | For the Named Executive Officers active as of December 31, 2011, the amounts reflect the following: two years of base salary continuation for Ms. Rosenfeld and one year of base salary continuation for Messrs. Brearton, McLevish, Khosla and Vernon and Ms. West. |
(2) | The amounts reflect two years of medical, dental, long-term disability and life insurance premiums for Ms. Rosenfeld, and one year of medical, dental, long-term disability and life insurance premiums for the other Named Executive Officers. The amount also includes a retiree medical benefit with a present value of $420,000 for Ms. Rosenfeld as she would be eligible for retiree medical benefits at the end of the separation pay period. |
(3) | Per the terms of Mr. Vernons employment offer letter, all unvested restricted shares granted to him as sign-on equity awards will continue to vest on the scheduled vesting dates. The value of the shares is based on a December 30, 2011 Mondelēz International common stock closing price of $37.36. |
(4) | The amounts reflect the value of financial counseling and car allowances for two years for Ms. Rosenfeld and one year for the other Named Executive Officers. |
(5) | The amounts reflect two years of additional pension accrual for Ms. Rosenfeld and one year of additional pension accrual for the other Named Executive Officers. |
Change in Control Arrangements
The key elements of the CIC Plan, including amendments, are provided in the table below.
Plan Element |
Description |
|
Definition of Change in Control (CIC) |
Subject to certain exceptions, the occurrence of one of the conditions below:
Acquisition of 20% or more of Mondelēz Internationals outstanding voting securities;
Changes to the Mondelēz International Board membership during any consecutive 24-month period that results in less than 50% of the current board members elected to the Mondelēz International Board;
Mondelēz Internationals merger or consolidation with another company, and
a) Mondelēz International is not the surviving company; or
b) the other entity owns 50% or more of Mondelēz Internationals outstanding voting securities; or
Complete liquidation of Mondelēz International or the sale of all or substantially all of its assets. |
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Plan Element |
Description |
|
Double Trigger for Payment of Separation Benefits under CIC Plan |
Consummation of a CIC; and
Termination of employment by Mondelēz International other than for cause, as a result of death or disability or by the executive officer for good reason, and the termination of employment satisfies the definition of a separation from service under Section 409A. |
|
Definition of Cause |
Continued failure to substantially perform the participants job duties (other than resulting from incapacity due to disability);
Gross negligence, dishonesty or violation of any reasonable rule or regulation of Mondelēz International where the violation results in significant damage to Mondelēz International; or
Engaging in other conduct that adversely reflects on Mondelēz International in any material respect. |
|
Definition of Good Reason |
Mondelēz International takes any other action that results in the following:
Material reduction in job duties;
Material reduction in compensation;
Relocation beyond 50 miles; or
Increased business travel. |
|
Severance Amounts |
CEOthree times base salary plus target annual cash incentive;
All other Named Executive Officerstwo times base salary plus target annual cash incentive;
Additional credited years of pension service and welfare benefits equal, in years, to the severance multiple within Section 409A standards;
Continuation of financial counseling and car allowances for three years for the CEO and two years for the other Named Executive Officers;
Outplacement services up to two years following the CIC; and
The foregoing benefits are subject to non-compete and non-solicit restrictive covenants. |
|
Treatment of Incentive Awards |
Awards under the Annual Cash Incentive Program and the LTIP are paid out in cash at target levels, on a pro-rata basis. This is a single trigger payment. |
|
Treatment of Equity Awards |
Restricted stock and stock options only vest upon a CIC if the participant is terminated by Mondelēz International other than for cause or by the executive officer for good reason and the termination of employment satisfies the definition of a separation from service under Section 409A and occurs within two years following such CIC or if the acquiring entity does not assume the awards (double trigger). |
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The Spin-Off does not meet the criteria of a CIC under Mondelēz Internationals CIC Plan and did not trigger the payment of separation benefits under the plan.
Potential Payout upon an Involuntary Termination Due to a Change-In-Control at Fiscal Year-End 2011
The table below was prepared as though each of the Named Executive Officers had been terminated involuntarily without cause within a two-year period following a CIC on December 31, 2011. The assumptions and valuations are noted in the footnotes to the table.
Name |
Separation
Payment (1) ($) |
Long-
Term Incentive Plan Award (2) ($) |
Health &
Welfare Continuation (3 ) ($) |
Value of
Unvested Stock Awards (4) ($) |
Value of
Unvested Stock Options (4) ($) |
Present
Value of Additional Retirement Plan Benefits (5) ($) |
Continuation
of Benefits (6) ($) |
Excise
Tax
Gross-Up ( 7) ($) |
Total
($) |
|||||||||||||||||||||||||||
Ms. Rosenfeld |
11,625,000 | 6,093,167 | 473,796 | 13,164,917 | 9,163,397 | 1,572,309 | 125,000 | 7,398,898 | 49,616,484 | |||||||||||||||||||||||||||
Mr. Brearton |
2,470,000 | 548,943 | 41,654 | 1,427,526 | 960,969 | 238,969 | 70,000 | 5,758,061 | ||||||||||||||||||||||||||||
Mr. McLevish |
2,891,800 | 1,586,928 | 42,712 | 3,225,289 | 2,323,521 | 398,413 | 70,000 | 10,538,663 | ||||||||||||||||||||||||||||
Mr. Khosla |
2,718,000 | 1,232,257 | 34,412 | 3,464,019 | 1,378,688 | 453,114 | 70,000 | 9,350,490 | ||||||||||||||||||||||||||||
Mr. Vernon |
2,891,800 | 1,625,783 | 43,290 | 2,102,621 | 1,467,288 | | 70,000 | 1,959,591 | 10,160,373 | |||||||||||||||||||||||||||
Ms. West |
2,376,000 | 681,571 | 45,248 | 1,555,297 | 1,170,208 | 195,823 | 70,000 | 6,094,147 |
(1) | For the Named Executive Officers active as of December 31, 2011, the amounts reflect the following: three times base salary plus target annual cash incentive for Ms. Rosenfeld and two times base salary plus target annual cash incentive for Messrs. Brearton, McLevish, Khosla and Vernon and Ms. West. |
(2) | The amounts reflect the prorated LTIP awards based on business performance ratings of 100% and awards paid at the Named Executive Officers individual target at the assumed date of a CIC. The portion of the pro rata LTIP awards relating to the 20102012 and 20112013 performance cycles are based on a December 30, 2011 Mondelēz International common stock closing price of $37.36. |
(3) | The amounts reflect Mondelēz Internationals cost of providing medical, dental, long-term disability and life insurance premiums for three years for Ms. Rosenfeld and two years for the other Named Executive Officers. The amounts also include a retiree medical benefit with a present value of $420,000 for Ms. Rosenfeld as she would be eligible for medical benefits at the end of the payment period. |
(4) | The amounts reflect the value of the immediate vesting of all outstanding restricted stock awards and outstanding stock options as of the effective date of termination, based on a December 30, 2011 Mondelēz International common stock closing price of $37.36. |
(5) | Mondelēz Internationals CIC Plan provides an additional two years of pension accrual (three for the CEO) in the event of a CIC. |
(6) | The amounts reflect the value of financial counseling, car allowance and outplacement services. |
(7) | The amounts reflect the estimated value of excise taxes and associated taxes incurred in connection with the termination following a CIC. In developing this estimate, we have not valued the non-compete feature of the CIC Plan. |
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Potential Payout upon Other Types of Separations
In the event that a Named Executive Officer is terminated from Mondelēz International due to death, disability or normal retirement (retirement at or after the age of 65 years), all unvested restricted stock and stock options would vest in all cases. Ms. Rosenfelds performance-contingent stock options vest in the event of death or disability. In addition, the Named Executive Officer would become eligible for award payments under the annual cash and long-term incentive plans. Such award payments would be prorated based on the number of months the Named Executive Officer participated in the applicable plans.
Based on a December 31, 2011 termination due to death, disability or normal retirement, the estimated value of such payments for the Named Executive Officers are described in the table below:
Name |
Long-Term
Incentive Award (1) ($) |
Value of Unvested
Restricted Stock Awards (2) ($) |
Value of Unvested
Stock Options (2) ($) |
Total
($) |
||||||||||||
Ms. Rosenfeld |
6,093,167 | 13,164,917 | 9,163,397 | 28,421,481 | ||||||||||||
Mr. Brearton |
548,943 | 1,427,526 | 960,969 | 2,937,438 | ||||||||||||
Mr. McLevish |
1,586,928 | 3,225,289 | 2,323,521 | 7,135,738 | ||||||||||||
Mr. Khosla |
1,232,257 | 3,464,019 | 1,378,688 | 6,074,964 | ||||||||||||
Mr. Vernon |
1,625,783 | 2,102,621 | 1,467,288 | 5,195,692 | ||||||||||||
Ms. West |
681,571 | 1,555,297 | 1,170,208 | 3,407,076 |
(1) | The amounts reflect the prorated LTIP awards based on business performance ratings of 100% and awards paid at the Named Executive Officers individual target at the assumed date of termination due to death, disability or normal retirement. The portion of the pro rata LTIP awards relating to the 20102012 and the 20112013 performance cycles are based on a December 30, 2011 Mondelēz International common stock closing price of $37.36. |
(2) | The amounts reflect the immediate vesting of all outstanding restricted stock and outstanding stock option awards as of the effective date of termination, based on a December 30, 2011 Mondelēz International common stock closing price of $37.36. |
In the event a Named Executive Officer separates due to early retirement (retirement at or after the age of 55 years, but before the age of 65 years, and with at least ten years of service with Mondelēz International), he or she could be considered for partial awards under the annual cash, long-term incentive and/or equity programs, at the discretion of Mondelēz Internationals Compensation Committee. The value of the total payments for each Named Executive Officer could range from $0 to an amount no greater than the amounts shown above under normal retirement.
Director Compensation
Our directors in 2011 were all full-time Kraft Foods Group employees and received no compensation for their services as directors.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables provide information regarding the beneficial ownership of our common stock as of November 15, 2012 by:
|
each of the individuals who currently serve as our directors; |
|
each Kraft Foods Group Named Executive Officer; and |
|
each of our shareholders whom we believe, based on the assumptions described below, beneficially own more than 5% of our outstanding common stock. |
Except as otherwise noted in the footnotes below, each person or entity identified in the table has sole voting and investment power with respect to the securities he, she or it holds. As of November 15, 2012, 592,423,613 shares of our common stock were issued and outstanding.
Name |
Beneficially
Owned Shares(1)(2) |
Deferred
Stock/ Additional Underlying Units(3) |
Total
Shares/ Interests Held |
|||||||||
Directors: |
||||||||||||
John T. Cahill |
57,121 | 97,535 | 154,656 | |||||||||
W. Anthony Vernon |
88,527 | 16,560 | 105,087 | |||||||||
Abelardo E. Bru |
| 1,840 | 1,840 | |||||||||
L. Kevin Cox |
133 | 1,840 | 1,973 | |||||||||
Myra M. Hart |
4,175 | 3,808 | 7,983 | |||||||||
Peter B. Henry |
| 2,327 | 2,327 | |||||||||
Jeanne P. Jackson |
| 1,840 | 1,840 | |||||||||
Terry J. Lundgren |
| 1,087 | 1,087 | |||||||||
Mackey J. McDonald |
1,048 | 3,808 | 4,856 | |||||||||
John C. Pope |
10,093 | (4) | 2,721 | 12,814 | ||||||||
E. Follin Smith |
| 1,840 | 1,840 | |||||||||
|
|
|
|
|
|
|||||||
Named Executive Officers: (5) |
||||||||||||
Irene B. Rosenfeld |
911,772 | (6) | | 911,772 | ||||||||
David A. Brearton |
113,758 | 2,291 | 116,049 | |||||||||
Timothy R. McLevish |
194,187 | 4,420 | 198,607 | |||||||||
Sanjay Khosla |
130,567 | | 130,567 | |||||||||
Mary Beth West |
49,461 | | 49,461 | |||||||||
All directors and executive officers as a group (23 persons) (7) |
690,457 | 199,450 | 889,907 |
(1) | Individual directors and executive officers as well as all directors and executive officers as a group beneficially own less than 1% of our issued and outstanding common stock as of November 15, 2012. |
(2) | Also includes the number of Kraft Foods Group options that are exercisable, or will become exercisable, within 60 days after November 15, 2012 of our executive officers as follows: Mr. Brearton58,557; Mr. Khosla68,680; Mr. McLevish130,555; Ms. Rosenfeld586,722; Mr. Vernon43,965; Ms. West24,099; and all of our executive officers as a group413,769. Also includes restricted stock as follows: Mr. Brearton12,712; Mr. Khosla16,246; Mr. McLevish22,139; Ms. Rosenfeld88,692; Mr. Vernon23,982; Ms. West13,243; and all of our executive officers as a group148,155. |
(3) | Includes deferred stock units and shares held in our Thrift/TIP 401(k) Plans and Kraft Foods Canada Optional Pension Plan(s)/Employee Savings Plan. Also includes deferred shares held under our Deferred Compensation Plan for Non-Employee Directors. |
(4) | Includes 100 shares of our common stock as to which Mr. Pope disclaims beneficial ownership, as the shares are held in trust for his childrens benefit. |
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(5) | These officers and Messrs. McLevish and Vernon were our Named Executive Officers in 2011. As described further under Compensation Discussion and Analysis, in connection with the Spin-Off, Mses. Rosenfeld and West and Messrs. Brearton and Khosla resigned from their positions with us and continue to serve in their current roles at Mondelēz International. For more information regarding our executive management team, see Management. |
(6) | Includes 33 shares of our common stock as to which Ms. Rosenfeld disclaims beneficial ownership, as the shares are held by her spouse. |
(7) | Includes only the persons listed in the tables of our directors and executive officers following the Spin-Off in the section entitled Management in this prospectus. |
Amount and
Nature of Beneficial Ownership (1) |
Percentage
Of Class |
|||||||
Principal Shareholders: |
||||||||
Capital Research Global Investors
(2)
|
32,861,918 | 5.6 | % | |||||
State Street Corporation
(3)
|
29,530,547 | 5.0 | % |
(1) | We based the share amounts on each principal shareholders beneficial ownership of Mondelēz International common stock as disclosed in its Schedule 13G, giving effect to the distribution ratio of one share of our common stock for every three shares of Mondelēz International common stock it held. |
(2) | Based on a review of the Schedule 13G/A Information Statement with respect to Mondelēz International common stock filed on February 9, 2012 by Capital Research Global Investors. The Schedule 13G/A discloses that Capital Research Global Investors, a division of Capital Research and Management Company, or CRMC, as a result of CRMC acting as investment adviser to various investment companies, had sole voting power as to 96,585,754 shares of Mondelēz International common stock and sole dispositive power as to 98,585,754 shares of Mondelēz International common stock, and disclaims beneficial ownership of the reported shares. |
(3) | Based on a review of the Schedule 13G Information Statement with respect to Mondelēz International common stock filed on February 9, 2012 by State Street Corporation. The Schedule 13G discloses that State Street Corporation, in its capacity as the parent holding company of certain direct and indirect subsidiaries, in such subsidiaries capacities as investment advisors or banks, had shared voting power as to 88,591,641 shares of Mondelēz International common stock and shared dispositive power as to 88,591,641 shares of Mondelēz International common stock. |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Agreements with Mondelēz International
In order to govern the ongoing relationships between Mondelēz International and us after the Spin-Off and to facilitate an orderly transition, Mondelēz International and we have entered into agreements providing for various services and rights following the Spin-Off, and under which Mondelēz International and we have agreed to indemnify each other against certain liabilities arising from our respective businesses.
With the objective of creating two separate and strong businesses and with input and advice from Mondelēz Internationals management, the Mondelēz International Board defined principles to implement the separation of the North American Grocery Business and the Global Snacks Business. These separation principles include ensuring that both Mondelēz International and we each hold the assets needed to operate our respective businesses and have total liabilities that support each of us having investment grade credit ratings.
The Mondelēz International Board charged a steering committee comprising members of Mondelēz Internationals senior management, or the Steering Committee, with overseeing the separation of the businesses in accordance with these separation principles. The Steering Committee includes both officers that have continued to serve Mondelēz International and officers that we have employed following the Spin-Off. Guided by the separation principles and input from business units and strategy, tax and legal teams, as well as outside advisors, the Steering Committee considered, among other factors, each business historic ownership and usage of assets, incurrence of liabilities, relationships with other entities and accounting treatment, as well as administrative costs and efficiencies, in determining the terms of the separation and the relationships between Mondelēz International and us following the Spin-Off.
The following summarizes the terms of the material agreements we have entered into with Mondelēz International.
Separation and Distribution Agreement
We entered into a Separation and Distribution Agreement with Mondelēz International on September 27, 2012. The Separation and Distribution Agreement sets forth our agreements with Mondelēz International regarding the principal actions to be taken in connection with the Spin-Off. It also sets forth other agreements that govern aspects of our relationship with Mondelēz International following the Spin-Off.
Internal Reorganization . The Separation and Distribution Agreement provided for the transfers of assets and assumptions of liabilities that were necessary in advance of the Distribution so that Mondelēz International and we each retained the assets of, and the liabilities associated with, the Global Snacks Business and the North American Grocery Business, respectively. In connection with the Spin-Off, we undertook a series of internal reorganization transactions so that we held the Global Snacks Business assets, liabilities and entities directly and separately from the North American Grocery Business assets, liabilities and entities. After these reorganization transactions, we transferred the Global Snacks Business assets and entities to a new wholly owned subsidiary, which we refer to as the New Snacks Company, in exchange for all of its outstanding stock and its assumption of specified liabilities. In this prospectus, we refer to this transfer of the Global Snacks Business assets, liabilities and entities to the New Snacks Company as the Contribution. Following these steps, we held only the North American Grocery Business assets, liabilities and entities, and certain specified net liabilities that we assumed as described under Allocation of Net Liabilities, with the exception of the New Snacks Company, which held only the Global Snacks Business assets, liabilities and entities, and certain specified net liabilities that we describe under Allocation of Net Liabilities. To complete the extraction of the Global Snacks Business from Kraft Foods Group, we then distributed all of the stock of the New Snacks Company to Mondelēz International, which we refer to as the Internal Distribution. We refer to these steps, including the Contribution and Internal Distribution, collectively as the Internal Reorganization.
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Allocation of Net Liabilities . The Separation and Distribution Agreement, as a general matter, allocates assets and liabilities relating to the North American Grocery Business to us and assets and liabilities relating to the Global Snacks Business to Mondelēz International. However, because it is difficult or costly to segregate or separately administer certain assets and liabilities, in order to facilitate management and final payment of identified categories of obligations, the Separation and Distribution Agreement allocates specified categories of net liabilities to either Mondelēz International or us that are not related principally to the business to which they are being allocated.
For example, the Separation and Distribution Agreement allocates to us all receivables that were outstanding at the time of the Spin-Off arising from sales of products distributed through our warehouse distribution system, a portion of which arise out of the Global Snacks Business. Similarly, the agreement allocates to us all trade payables relating to certain purchase orders for which we have confirmed receipt, vendor price and quantity of the related services or goods and that were awaiting payment at the time of the Spin-Off, including purchase orders related to the Global Snacks Business. Within 60 days after the Distribution Date, there will be a true-up between Mondelēz International and us of the net cash associated with our assumption of the trade payables and receivables related to the Global Snacks Business, our targeted cash flows and the true-up of the Canadian cash position. This true-up could result in a payment to us by Mondelēz International or a payment by us to Mondelēz International. See Unaudited Pro Forma Combined Financial Statements for more information.
Each of Mondelēz International and we assumed both known and unknown environmental liabilities related to our respective current operations. In addition, we assumed all environmental liabilities related to Mondelēz Internationals and our closed or inactive operations or divested operations that were known at the time of the Spin-Off, including certain known liabilities with respect to former operations that related to the Global Snacks Business. Liabilities related to closed, inactive or divested operations that were not known at the time of the Spin-Off generally were specifically allocated to either Mondelēz International or us.
Sharing of Liabilities . Mondelēz International and we specifically allocated all liabilities that were known at the time of the Distribution to either company. The Separation and Distribution Agreement provides for certain specific potential pre-Distribution liabilities that are not otherwise specifically allocated to either Mondelēz International or us in the Separation and Distribution Agreement to be shared by the parties. Mondelēz International and we are each responsible for a portion of these shared liabilities. The division of these shared liabilities is determined, depending on the type of shared liability, through pre-determined fixed percentages or formulas.
Intercompany Arrangements . All agreements, arrangements, commitments and understandings, including most intercompany accounts payable or accounts receivable, between Mondelēz International and its affiliates, on the one hand, and us, on the other hand, terminated effective as of the Distribution, except specified agreements and arrangements that were intended to survive the Distribution. The material agreements and arrangements that survived the Distribution are described in this section.
Representations and Warranties . In general, neither Mondelēz International nor we made any representations or warranties regarding any assets or liabilities transferred or assumed, any consents or approvals that may have been required in connection with these transfers or assumptions, the value or freedom from any lien or other security interest of any assets transferred, the absence of any defenses relating to any claim of either party or the legal sufficiency of any conveyance documents. Except as expressly set forth in the Separation and Distribution Agreement, all assets were transferred on an as is, where is basis.
Further Assurances . After the Distribution Date, Mondelēz International and we must continue to use reasonable best efforts to consummate the transactions contemplated by the Separation and Distribution Agreement and the ancillary agreements.
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Exchange of Information . Mondelēz International and we agreed to provide each other with reasonable access to information relating to the party requesting information. Mondelēz International and we also agreed to use reasonable best efforts to retain such information in accordance with our respective record retention policies as in effect on the Distribution Date or as amended after the Distribution Date in accordance with the Separation and Distribution Agreement.
Release of Claims . Mondelēz International and we each agreed to release the other and its affiliates, successors and assigns, and all persons that prior to the Distribution have been the others shareholders, directors, officers, members, agents and employees, and their respective heirs, executors, administrators, successors and assigns, from any claims against any of them that arise out of or relate to events, circumstances or actions occurring or failing to occur or any conditions existing at or prior to the time of the Distribution. These releases are subject to exceptions set forth in the Separation and Distribution Agreement.
Indemnification . Mondelēz International and we each agreed to indemnify the other and each of the others current, former and future directors, officers and employees, and each of the heirs, administrators, executors, successors and assigns of any of them, against certain liabilities incurred in connection with the Spin-Off and Mondelēz Internationals and our respective businesses. In addition, Mondelēz International agreed to indemnify us for the amount of any insurance deductible, self-insured retention or retrospective premium payable in connection with any liability arising on or before the Distribution Date (other than an asbestos cleanup/remediation liability or environmental liability), whether known or unknown as of the Distribution Date, that remains unpaid as of the Distribution Date and that would typically be covered prior to the Distribution Date under a commercial general liability (excluding any employee benefits liability or errors and omissions coverages), automobile liability, products, completed operations or similar policy of either Mondelēz International or us, which indemnity is subject to a $50 million aggregate cap in the case of certain third-party claims relating to our products. Mondelēz International also agreed to indemnify us for workers compensation liabilities as described under Employee Matters Agreement. In addition, Mondelēz International agreed to indemnify us in the event that one of our subsidiaries following the Spin-Off that is one of four joint and several guarantors of $1.0 billion of indebtedness issued by Cadbury Schweppes US Finance LLC, a subsidiary of Mondelēz International, is called upon to satisfy its obligation under the guarantee. See Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources for more information.
The amount of either partys indemnification obligations will be reduced by any insurance proceeds the party being indemnified receives. The Separation and Distribution Agreement also specifies procedures regarding claims subject to indemnification.
Rights of First Offer . The Separation and Distribution Agreement provides a right of first offer to us in the event that Mondelēz International proposes to divest specified cream cheese or processed cheese businesses, and a right of first offer to each of Mondelēz International and us in the event that the other party proposes to divest specified trademark licenses. These rights expire on the fifth anniversary of the Distribution Date. Mondelēz International and we may exercise these rights according to procedures set forth in the Separation and Distribution Agreement.
Allocation of Spin-Off Expenses . The Separation and Distribution Agreement provides that Mondelēz International will be responsible for all of its and our fees, costs and expenses incurred prior to the Distribution Date in connection with the Spin-Off. Mondelēz International and we will each pay our own fees, costs and expenses incurred following the Distribution Date in connection with the Spin-Off.
Transition Services Agreements
We have entered into three Transition Services Agreements pursuant to which Mondelēz International and we provide each other specified services on a transitional basis to help ensure an orderly transition following the Spin-Off. These services include research and development, sales and marketing, information technology,
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operations, procurement, hedging, human resources, payroll, benefits, accounting, finance, treasury and administrative services. The agreements generally provide for a term of up to two years following the Distribution Date. With certain exceptions, Mondelēz International and we expect to charge for the services we render the actual costs incurred in rendering these services, plus an arms-length markup.
Under the Master General Transition Services Agreement and the Master Information Technology Transition Services Agreement, Mondelēz International and we generally agree to use commercially reasonable efforts to continue to provide to the other the services specified in these agreements at a relative level of service consistent in all material respects with that provided in the 12 months preceding the Distribution Date. Mondelēz International and we also generally agree to use commercially reasonable efforts to end our respective needs for the transition services as soon as is reasonably possible.
Under the Master Research and Development Transition Services Agreement, Mondelēz International and we generally agree to use commercially reasonable efforts to perform and deliver to the other the services specified in project statements issued pursuant to the Master Research and Development Transition Services Agreement, in accordance with the terms of the project statements.
Master Supply Agreement
We entered into a Master Supply Agreement with Mondelēz International that provides for reciprocal manufacturing and supply arrangements. The agreement provides for a term of up to two years following the Distribution Date. Mondelēz International and we expect to charge for the goods it and we manufacture and supply the actual costs incurred in manufacturing and supplying such goods, plus an arms-length markup. In certain cases, upon the termination of a buyer-supplier relationship established under the Master Supply Agreement, the buyer may be liable for costs the supplier incurred in connection with manufacturing or supplying goods for the buyer.
Tax Sharing and Indemnity Agreement and Certain Other Indemnification Rights
We entered into a Tax Sharing and Indemnity Agreement with Mondelēz International that governs Mondelēz Internationals and our rights, responsibilities and obligations after the Spin-Off with respect to tax liabilities and benefits, tax attributes, tax contests and other tax matters regarding income taxes, other taxes and related tax returns. Among other matters, as a former subsidiary of Mondelēz International, we had, and continue to have following the Spin-Off, joint and several liability with Mondelēz International to the IRS and certain U.S. state tax authorities for Mondelēz Internationals U.S. federal income and state taxes for the taxable periods in which we were part of Mondelēz Internationals consolidated group. However, the Tax Sharing and Indemnity Agreement specifies the portion of this liability for which we will bear responsibility, and Mondelēz International agreed to indemnify us against any amounts for which we are not responsible. As reflected under the heading Unaudited Pro Forma Combined Financial Statements, the Tax Sharing and Indemnity Agreement, taking into account the applicable provisions of the Canadian Asset Transfer Agreement, provides that we will generally assume liability for and indemnify Mondelēz International against U.S. state income taxes and Canadian federal and provincial income taxes attributable to Mondelēz Internationals and our assets or operations for all tax periods prior to the Spin-Off, while Mondelēz International will indemnify us against all U.S. federal income taxes and substantially all foreign income taxes, excluding Canadian income taxes, attributable to Mondelēz Internationals and our assets or operations for all tax periods prior to the Spin-Off. See Canadian Asset Transfer Agreement. Mondelēz International and we also agreed to generally transfer related deferred tax assets or deferred tax liabilities.
The Tax Sharing and Indemnity Agreement also provides special rules for allocating tax liabilities in the event that the Distribution, together with related transactions, is not tax-free. The Tax Sharing and Indemnity Agreement provides for covenants that may restrict our ability to pursue strategic or other transactions that might
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otherwise maximize the value of our business and may discourage or delay a change of control that you may consider favorable. Though valid as between the parties, the Tax Sharing and Indemnity Agreement will not be binding on the IRS or the CRA.
Mondelēz International will also indemnify us for certain tax liabilities that might arise as a result of certain steps in the Internal Reorganization or of the receipt by us of certain payments on behalf of Mondelēz International after the Spin-Off.
Employee Matters Agreement
We entered into an Employee Matters Agreement with Mondelēz International that addresses employment, compensation and benefits matters. Subject to certain variations and exceptions, we retained or assumed employment, compensation and benefits liabilities relating to employees in the United States (including Puerto Rico) who were employed by us immediately after the Spin-Off and former employees whose last employment was with the North American Grocery Business. The Canadian Asset Transfer Agreement provides for similar arrangements in Canada. Key variations and exceptions to this general approach are described below.
In addition to retaining the liabilities (and, where applicable, related assets) associated with tax-qualified defined benefit pension plans, tax-qualified defined contribution plans and plans providing retiree medical and other welfare benefits for current and former North American Grocery Business employees, we retained or assumed these liabilities (and, where applicable, related assets) with respect to former U.S. employees of the Global Snacks Business as of the Distribution Date, other than former employees of the Cadbury business. Mondelēz International retained or assumed these liabilities (and, where applicable, related assets) for its current employees, as well as former employees of the Cadbury business.
Similarly, in addition to retaining the liabilities with respect to benefit accruals of current and former North American Grocery Business employees under nonqualified retirement and deferred compensation plans, we retained or assumed these liabilities with respect to certain former U.S. employees of the Global Snacks Business as of the Distribution Date, other than former employees of the Cadbury business and certain other former employees of the Global Snacks Business. Where a trust or corporate-owned life insurance funds these obligations, we retained or assumed those funding vehicles. Mondelēz International retained or assumed these obligations (and any associated funding vehicles) for its current employees, as well as former employees of the Cadbury business and certain other former employees of the Global Snacks Business.
Mondelēz International retained or assumed all workers compensation liabilities for all of Mondelēz Internationals and our employees with respect to injuries that occurred on or prior to the Distribution Date, except that claims that are defined by individual state workers compensation boards as cumulative trauma claims generally have been allocated pro rata based on pre- and post-Distribution service. Thus, we are generally only responsible for workers compensation liabilities for our current and future employees for injuries that occurred or will occur after the Spin-Off.
See Unaudited Pro Forma Combined Financial Statements for more information regarding the allocation of employment, compensation and benefits liabilities.
Master Ownership and License Agreement Regarding Patents, Trade Secrets and Related Intellectual Property
We entered into a Master Ownership and License Agreement Regarding Patents, Trade Secrets and Related Intellectual Property with Mondelēz International that provides for ownership, licensing and other arrangements regarding the patents, trade secrets and related intellectual property that Mondelēz International and we use in conducting our businesses.
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With certain exceptions, this agreement allocates global ownership of patents, trade secrets and know-how to Mondelēz International or us generally based on primary use, ability to defend and prosecute the intellectual property and the likelihood of developing the intellectual property in the future. Mondelēz International and we each cross-license some of our respective patents, trade secrets and know-how to the other. The cross-licenses provide the other party access to existing cross-licensed patents, trade secrets and know-how, including all cross-licensed patent applications, as well as certain patents that either party files within a specified period from the date of the agreement. Cross-licensed patents, trade secrets and know-how generally include all patents, trade secrets and know-how that both businesses currently utilize, or currently have specific plans to utilize, as well as all patents, trade secrets and know-how used in the coffee, powdered beverages, cream cheese and processed cheese businesses. The cross-licenses are generally perpetual and contain certain geographical and purpose restrictions on each partys right to practice the cross-licensed patents, trade secrets and know-how of the other party. With certain exceptions, the cross-licenses to the patents, trade secrets and know-how are royalty-free. Subject to certain restrictions, Mondelēz International and we have a limited right to grant non-exclusive sub-licenses to certain third parties under specified cross-licensed patents, trade secrets and know-how. Both Mondelēz International and we agreed not to disclose confidential information related to the cross-licensed patents, trade secrets and know-how except in specific circumstances.
Master Ownership and License Agreement Regarding Trademarks and Related Intellectual Property
We entered into a Master Ownership and License Agreement Regarding Trademarks and Related Intellectual Property with Mondelēz International that provides for ownership, licensing and other arrangements regarding the trademarks and related intellectual property that Mondelēz International and we use in conducting our businesses.
This agreement allocates ownership between Mondelēz International and us of all trademarks, domain names and certain copyrights that Mondelēz International or we owned immediately prior to the Distribution Date. The agreement generally allocates to us trademarks that primarily relate to or are primarily used in the North American Grocery Business and other specified trademarks used in the North American Grocery Business, including Kraft , Kool-Aid , Crystal Light , MiO , Cracker Barrel , Velveeta , Cheez Whiz , Oscar Mayer , Lunchables , Planters , Jell-O , Cool Whip , Miracle Whip , A.1. , Grey Poupon , Shake N Bake , Bakers and Stove Top , while generally allocating to Mondelēz International trademarks that primarily relate to or are primarily used in the Global Snacks Business and other specified trademarks used in the Global Snacks Business. The agreement also provides for split ownership of specified trademarks, including the Philadelphia , Maxwell House and Gevalia trademarks. We own the rights to Philadelphia in the United States, Canada and the Caribbean and the rights to Maxwell House and Gevalia throughout North America and Latin America, and Mondelēz International owns the rights to these trademarks in all other jurisdictions. The agreement generally allocates ownership of brand-related copyrights and domain names between Mondelēz International and us in a similar manner.
The agreement generally restricts each party for a period of ten years following the Distribution Date from filing a trademark registration application for certain specified primary trademarks that would have been allocated to the other party under the ownership allocation described above had such party filed an application or obtained a registration for that trademark in the jurisdiction prior to the Distribution Date.
Under the agreement, Mondelēz International and we each grant the other party various royalty-free licenses to use certain of its and our respective trademarks for specified products in specified jurisdictions perpetually or for a specified period following the Distribution Date. These licenses are generally royalty-free; however, certain of the licenses we are granted by Mondelēz International for trademarks used in the Tassimo business require us to pay Mondelez Canada Inc. 2.5% royalties of our net revenues for sales in Canada of the applicable products.
The agreement generally grants each of Mondelēz International and us a limited number of exclusive five-year, ten-year or perpetual licenses to use certain trademarks in jurisdictions where it or we engage in appreciable business in products branded with such trademarks prior to the Distribution Date. The agreement generally grants each of Mondelēz International and us exclusive two-year or non-exclusive one-year trademark licenses in jurisdictions where it or we engage in nominal business in products branded with such trademarks.
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Among other grants, we granted Mondelēz International licenses to use in a limited number of specified jurisdictions the Miracel/Miracle Whip , Kool-Aid , Cheez Whiz , Jell-O, MiO and Calumet trademarks perpetually, the Kraft trademark (on primarily Kraft -branded products) and Lunchables trademark for ten years following the Distribution Date and the Crystal Light trademark for five years following the Distribution Date. Among other grants, Mondelēz International granted us perpetual licenses to use the Tang trademark in the United States and Canada and the Back to Nature trademark on macaroni & cheese products in all jurisdictions and a ten-year renewable license to use the Tassimo trademark in the United States, Canada and the Caribbean. In addition to these long-term exclusive licenses, we granted Mondelēz International a non-exclusive three-year license to use the Kraft trademark for products not primarily branded with the Kraft name. These and the other trademark licenses that Mondelēz International and we granted to each other are each limited to the jurisdictions and products specified in the agreement.
The agreement contains sub-licensing and assignment restrictions, usage guidelines and reversion, quality control, cooperation, enforcement and maintenance provisions governing the trademarks that Mondelēz International and we licensed to each other. In addition, the agreement includes diversion provisions under which Mondelēz International and we agreed that neither we nor any of our affiliates will authorize or encourage the sale of branded products in jurisdictions where trademark ownership or license rights do not extend. These provisions also set forth audit procedures and liquidated damages applicable to certain material diversions of Tang , Kool-Aid and MiO products.
Canadian Asset Transfer Agreement
Kraft Canada Inc., our wholly-owned subsidiary, entered into a Canadian Asset Transfer Agreement with Mondelez Canada Inc., a wholly-owned subsidiary of Mondelēz International, that provides for the transfer of assets and the assumption of liabilities, excluding Canadian income taxes for all tax periods prior to the transfer, related to the Global Snacks Business Canadian operations. The transfer of assets and assumption of liabilities substantially follows the separation of assets and liabilities in the Separation and Distribution Agreement.
Additional Arrangements
We entered into additional agreements with Mondelēz International pursuant to which we lease to Mondelēz International warehouse, office and research and development facility space currently owned or leased by us. The agreements generally provide for a term of up to two years following the Distribution Date. We will charge Mondelēz International for the space it leases from us its specified share of the operating costs and taxes that we incur in connection with the use and operation of each property, including its specified share of billboard, association, insurance and other fees, as set forth in the agreements.
Policy and Procedures Governing Related Person Transactions
Prior to the completion of the Spin-Off, our Board adopted a written policy regarding the review, approval and ratification of transactions with related persons. This policy provides that our Governance Committee review each of Kraft Foods Groups transactions involving an amount exceeding $120,000 and in which any related person had, has or will have a direct or indirect material interest. In general, related persons are our directors and executive officers, shareholders beneficially owning more than 5% of our outstanding common stock and their immediate family members. We expect that our Governance Committee will approve or ratify only those transactions that are fair and reasonable to Kraft Foods Group and in our and our shareholders best interests and that, in the course of its review and approval or ratification of a related person transaction under this policy, it will consider, among other matters:
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the commercial reasonableness of the transaction; |
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the materiality of the related persons direct or indirect interest in the transaction; |
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whether the transaction may involve an actual, or the appearance of a, conflict of interest; |
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the impact of the transaction on the related persons independence (as defined in NASDAQ guidelines); and |
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whether the transaction would violate any provision of our ethics code or code of conduct. |
Any member of the Governance Committee who is a related person with respect to a transaction under review may not participate in the deliberations or decisions regarding the transaction. The chair of the Governance Committee will review and approve or ratify potential related person transactions when it is not practicable or desirable to delay review of a transaction until a Governance Committee meeting, and will report to the Governance Committee any transaction so approved or ratified.
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DESCRIPTION OF OTHER INDEBTEDNESS
We entered into a five-year senior unsecured revolving credit facility on May 18, 2012, with borrowing capacity of $3.0 billion. Until the consummation of the Spin-Off, Mondelēz International guaranteed our borrowings under this facility. We may borrow advances up to the aggregate amount of the unused commitments under the facility on or after May 18, 2012 and prior to the termination of the facility, which is scheduled for May 17, 2017. All committed borrowings under the facility will bear interest at a variable annual rate based on LIBOR or a defined base rate, at our election, plus an applicable margin based on the ratings of our long-term senior unsecured indebtedness. The revolving credit agreement requires us to maintain a minimum total shareholders equity (excluding accumulated other comprehensive income or losses and any income or losses recognized in connection with mark-to-market accounting in respect of pension and other retirement plans). The revolving credit agreement also contains customary representations, covenants and events of default. We intend to use the proceeds of this facility to support our working capital needs and for other general corporate purposes. As of October 1, 2012, no amounts were borrowed or outstanding under the credit facility.
On October 1, 2012, we incurred approximately $400 million of senior unsecured notes historically related to the Global Snacks Business and not allocated to us in our historical combined financial statements for which we have been and will continue to be the direct obligor. The notes have a fixed 7.55% annual interest rate and mature in June 2015. The notes are subject to certain customary covenants, including limitations on our ability, with significant exceptions, to incur subsidiary debt or debt secured by liens above a certain threshold; engage in certain sale and leaseback transactions above a certain threshold; and consolidate, merge, convey or transfer our assets substantially as an entirety. The notes are our senior unsecured obligations and rank equally in right of payment with our existing and future senior unsecured indebtedness. This debt was migrated from Mondelēz International and so we did not receive any cash proceeds from incurring this debt.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material U.S. federal income tax consequences of the exchange of Outstanding Notes for New Notes. This discussion is based upon the Code, the U.S. Treasury Regulations promulgated thereunder, administrative pronouncements and judicial decisions, all as of the date hereof and all of which are subject to change, possibly with retroactive effect. The following relates only to New Notes that are acquired in this offering in exchange for Outstanding Notes originally acquired at their initial offering for an amount of cash equal to their issue price. Unless otherwise indicated, this summary addresses only the U.S. federal income tax consequences relevant to investors who hold the Outstanding Notes and the New Notes as capital assets within the meaning of Section 1221 of the Code.
This summary does not address all of the U.S. federal income tax considerations that may be relevant to a particular holder in light of the holders individual circumstances or to holders subject to special rules under U.S. federal income tax laws, such as banks and other financial institutions, insurance companies, real estate investment trusts, regulated investment companies, tax-exempt organizations, entities and arrangements classified as partnerships for U.S. federal income tax purposes and other pass-through entities, dealers in securities or currencies, traders in securities that elect to use a mark-to-market method of accounting, persons liable for U.S. federal alternative minimum tax, U.S. holders whose functional currency is not the U.S. dollar, U.S. expatriates, and persons holding notes as part of a straddle, hedge, conversion transaction, or other integrated investment. The discussion does not address any foreign, state, local or non-income tax consequences of the exchange of Outstanding Notes for New Notes.
This discussion is for general purposes only. Holders are urged to consult their own tax advisors regarding the application of the U.S. federal income tax laws to their particular situations and the consequences under federal estate or gift tax laws, as well as foreign, state, or local laws and tax treaties, and the possible effects of changes in tax laws.
U.S. Federal Income Tax Consequences of the Exchange Offer to Holders of Outstanding Notes
The exchange of Outstanding Notes for New Notes pursuant to the exchange offer will not be a taxable transaction for U.S. federal income tax purposes. Holders of Outstanding Notes will not recognize any taxable gain or loss as a result of such exchange and will have the same adjusted issue price, tax basis, and holding period in the New Notes as they had in the Outstanding Notes immediately before the exchange. The U.S. federal income tax consequences of holding and disposing of the New Notes will be the same as those applicable to the Outstanding Notes.
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Each broker-dealer that receives New Notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Outstanding Notes where such Outstanding Notes were acquired as a result of market-making activities or other trading activities. We have agreed that for a period of 180 days after the expiration of the exchange offer, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of New Notes by brokers-dealers. New Notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an underwriter within the meaning of the Securities Act and any profit on any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act.
For a period of 180 days after the expiration of the exchange offer, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer, other than commissions or concessions of any broker-dealers, and will indemnify the holders of the notes, including any broker-dealers, against certain liabilities, including liabilities under the Securities Act. We have agreed to pay all expenses incident to the exchange offer, (including the expenses of one counsel for the holders of the notes), other than commissions or concessions of any brokers or dealers and will indemnify the holders of the notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.
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Certain legal matters with respect to the issuance and sale of the New Notes being offered hereby will be passed upon for us by Gibson, Dunn & Crutcher LLP, New York, New York. Certain matters involving the laws of Virginia will be passed upon for us by Hunton & Williams LLP, our Virginia counsel.
The financial statements as of December 31, 2011 and 2010 and for each of the three years in the period ended December 31, 2011 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
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Audited Annual Combined Financial Statements: |
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F-2 | ||||
Combined Statements of Earnings for the Years Ended December 31, 2011, 2010 and 2009 |
F-3 | |||
Combined Statements of Comprehensive Earnings for the Years Ended December 31, 2011, 2010 and 2009 |
F-4 | |||
F-5 | ||||
Combined Statements of Equity for the Years Ended December 31, 2011, 2010 and 2009 |
F-6 | |||
Combined Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009 |
F-7 | |||
F-8 | ||||
Financial Statement Schedule Valuation and Qualifying Accounts |
F-37 | |||
Unaudited Interim Condensed Combined Financial Statements: |
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Condensed Combined Statements of Earnings for the Nine Months Ended September 30, 2012 and 2011 |
F-39 | |||
F-40 | ||||
Condensed Combined Balance Sheets as of September 30, 2012 and December 31, 2011 |
F-41 | |||
F-42 | ||||
Condensed Combined Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 |
F-43 | |||
F-44 |
Kraft Foods Group, we, us and our refer to Kraft Foods Group, Inc. and its combined subsidiaries. Kraft ParentCo and parent refer to Mondelēz International, Inc. (formerly known as Kraft Foods Inc.) and its consolidated subsidiaries (which included Kraft Foods Group prior to the Spin-Off and exclude Kraft Foods Group after the Spin-Off).
Our reportable segments are Beverages (formerly known as U.S. Beverages), Cheese (formerly known as U.S. Cheese), Refrigerated Meals (formerly known as U.S. Convenient Meals), Grocery (formerly known as U.S. Grocery) and International & Foodservice (formerly known as Canada & N.A. Foodservice). Our audited annual combined financial statements refer to our segments by their former titles and our unaudited interim condensed combined financial statements refer to our segments by their current titles.
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholder of Kraft Foods Group, Inc.:
In our opinion, the accompanying combined balance sheets and the related combined statements of earnings, comprehensive earnings, equity and cash flows present fairly, in all material respects, the financial position of Kraft Foods Group, Inc. and its subsidiaries at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related combined financial statements. These financial statements are the responsibility of Kraft Foods Group, Inc.s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
April 2, 2012, except for the presentation of earnings per share described in Note 14, as to which the date is October 5, 2012
F-2
Kraft Foods Group, Inc.
Combined Statements of Earnings
For the Years Ended December 31, 2011, 2010 and 2009
(in millions)
2011 | 2010 | 2009 | ||||||||||
Net revenues |
$ | 18,655 | $ | 17,797 | $ | 17,278 | ||||||
Cost of sales |
12,761 | 11,778 | 11,281 | |||||||||
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Gross profit |
5,894 | 6,019 | 5,997 | |||||||||
Selling, general and administrative expenses |
2,973 | 3,066 | 3,031 | |||||||||
Asset impairment and exit costs |
(2 | ) | (8 | ) | (9 | ) | ||||||
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Operating income |
2,923 | 2,961 | 2,975 | |||||||||
Interest and other expense, net |
9 | 7 | 34 | |||||||||
Royalty income from affiliates |
(55 | ) | (43 | ) | (47 | ) | ||||||
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Earnings from continuing operations before income taxes |
2,969 | 2,997 | 2,988 | |||||||||
Provision for income taxes |
1,130 | 1,110 | 1,036 | |||||||||
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Earnings from continuing operations |
1,839 | 1,887 | 1,952 | |||||||||
Earnings and gain from discontinued operations, net of income taxes |
| 1,644 | 218 | |||||||||
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Net earnings |
$ | 1,839 | $ | 3,531 | $ | 2,170 | ||||||
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Per share data: | ||||||||||||
Basic and diluted earnings per share (1) : |
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Continuing operations |
$ | 3.11 | $ | 3.19 | $ | 3.30 | ||||||
Discontinued operations |
| 2.77 | 0.36 | |||||||||
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Net earnings |
$ | 3.11 | $ | 5.96 | $ | 3.66 | ||||||
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(1) |
On October 1, 2012, Kraft Foods Group issued 592 million shares of Kraft Foods Group common stock in connection with the Spin-Off. Basic and diluted earnings per common share and the average number of common shares outstanding were retrospectively restated for the number of Kraft Foods Group shares outstanding immediately following this transaction. |
See accompanying notes to the combined financial statements.
F-3
Combined Statements of Comprehensive Earnings
For the Years Ended December 31, 2011, 2010 and 2009
(in millions)
2011 | 2010 | 2009 | ||||||||||
Net earnings |
$ | 1,839 | $ | 3,531 | $ | 2,170 | ||||||
Other comprehensive earnings: |
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Currency translation adjustment |
(100 | ) | 93 | 269 | ||||||||
Pension and other benefits: |
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Net actuarial loss arising during period |
(97 | ) | (10 | ) | (84 | ) | ||||||
Reclassification adjustment for losses included in net earnings due to: |
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Amortization of experience losses and prior service costs |
15 | 13 | 6 | |||||||||
Settlement losses |
4 | | 8 | |||||||||
Tax benefit / (expense) |
22 | (1 | ) | 21 | ||||||||
Derivatives accounted for as hedging instruments: |
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Net derivative (losses) / gains |
(5 | ) | 58 | (44 | ) | |||||||
Reclassification adjustment for (gains) / losses included in net earnings |
(75 | ) | (2 | ) | 151 | |||||||
Tax benefit / (expense) |
30 | (21 | ) | (43 | ) | |||||||
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Total other comprehensive (losses) / earnings |
(206 | ) | 130 | 284 | ||||||||
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Comprehensive earnings |
$ | 1,633 | $ | 3,661 | $ | 2,454 | ||||||
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See accompanying notes to the combined financial statements.
F-4
Combined Balance Sheets as of December 31, 2011 and 2010
(in millions)
See accompanying notes to the combined financial statements.
F-5
Combined Statements of Equity
For the Years Ended December 31, 2011, 2010 and 2009
(in millions)
Parent
Company Investment |
Accumulated
Other Comprehensive Earnings/ (Losses) |
Total
Equity |
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Balances at January 1, 2009 |
$ | 17,882 | $ | (585 | ) | $ | 17,297 | |||||
Net earnings |
2,170 | | 2,170 | |||||||||
Other comprehensive earnings, net of income taxes |
| 284 | 284 | |||||||||
Net transfers to Kraft ParentCo |
(2,239 | ) | | (2,239 | ) | |||||||
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Balances at December 31, 2009 |
$ | 17,813 | $ | (301 | ) | $ | 17,512 | |||||
Net earnings |
3,531 | | 3,531 | |||||||||
Other comprehensive earnings, net of income taxes |
| 130 | 130 | |||||||||
Net transfers to Kraft ParentCo |
(4,134 | ) | | (4,134 | ) | |||||||
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Balances at December 31, 2010 |
$ | 17,210 | $ | (171 | ) | $ | 17,039 | |||||
Net earnings |
1,839 | | 1,839 | |||||||||
Other comprehensive losses, net of income taxes |
| (206 | ) | (206 | ) | |||||||
Net transfers to Kraft ParentCo |
(2,073 | ) | | (2,073 | ) | |||||||
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Balances at December 31, 2011 |
$ | 16,976 | $ | (377 | ) | $ | 16,599 | |||||
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See accompanying notes to the combined financial statements.
F-6
Combined Statements of Cash Flows
For the Years Ended December 31, 2011, 2010 and 2009
(in millions)
2011 | 2010 | 2009 | ||||||||||
CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES |
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Net earnings |
$ | 1,839 | $ | 3,531 | $ | 2,170 | ||||||
Adjustments to reconcile net earnings to operating cash flows: |
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Depreciation and amortization |
364 | 354 | 348 | |||||||||
Stock-based compensation expense |
51 | 49 | 52 | |||||||||
Deferred income tax provision |
69 | (74 | ) | (10 | ) | |||||||
Losses / (gains) on divestitures, net |
| 6 | | |||||||||
Gains on discontinued operations |
| (1,596 | ) | | ||||||||
Asset impairment and exit costs, net of cash paid |
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Other non-cash expense, net |
58 | 57 | 170 | |||||||||
Change in assets and liabilities, excluding the effects of divestitures: |
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Receivables, net |
238 | (80 | ) | (33 | ) | |||||||
Inventories, net |
(169 | ) | (69 | ) | 65 | |||||||
Accounts payable |
226 | (5 | ) | 139 | ||||||||
Other current assets |
(88 | ) | (5 | ) | 251 | |||||||
Other current liabilities |
84 | (1,329 | ) | (123 | ) | |||||||
Change in pension assets and liabilities, net |
(8 | ) | (11 | ) | (12 | ) | ||||||
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Net cash provided by operating activities |
2,664 | 828 | 3,017 | |||||||||
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CASH PROVIDED BY / (USED IN) INVESTING ACTIVITIES |
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Capital expenditures |
(401 | ) | (448 | ) | (513 | ) | ||||||
Proceeds from divestitures, net of disbursements |
| 3,698 | | |||||||||
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Net cash (used in) / provided by investing activities |
(401 | ) | 3,250 | (513 | ) | |||||||
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CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES |
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Net transfers to Kraft ParentCo and affiliates |
(2,238 | ) | (4,037 | ) | (2,282 | ) | ||||||
Long-term debt repaid |
(9 | ) | (9 | ) | (205 | ) | ||||||
Other |
(18 | ) | (32 | ) | (15 | ) | ||||||
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Net cash used in financing activities |
(2,265 | ) | (4,078 | ) | (2,502 | ) | ||||||
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Cash and cash equivalents: |
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(Decrease) / increase |
(2 | ) | | 2 | ||||||||
Balance at beginning of period |
2 | 2 | | |||||||||
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Balance at end of period |
$ | | $ | 2 | $ | 2 | ||||||
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Cash paid: |
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Interest |
$ | 10 | $ | 8 | $ | 20 | ||||||
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Income taxes |
$ | 959 | $ | 2,452 | $ | 978 | ||||||
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See accompanying notes to the combined financial statements.
F-7
Notes to Combined Financial Statements
Note 1. Background and Basis of Presentation
Background
Kraft Foods Group operates one of the largest consumer packaged food and beverage companies in North America. We manufacture and market convenient meals, refreshment beverages and coffee, cheese and other grocery products, primarily in the United States and Canada. Our product categories span all major meal occasions, both at home and in foodservice locations.
On August 4, 2011, Kraft ParentCo announced plans to create two independent public companies: the Global Snacks Business and the North American Grocery Business. To effect the separation, Kraft ParentCo will undertake a series of transactions to separate net assets and entities. Following these transactions, Kraft ParentCo will hold the Global Snacks Business, and we, Kraft Foods Group, will hold the North American Grocery Business. Kraft ParentCo will then distribute our common stock pro rata to its shareholders. After the Spin-Off, we will operate as an independent, publicly traded company.
Basis of Presentation
These combined financial statements have been prepared on a stand-alone basis and are derived from Kraft ParentCos consolidated financial statements and accounting records. The combined financial statements reflect our financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (U.S. GAAP). The North American Grocery Business consists of Kraft ParentCos current U.S. and Canadian grocery, beverages, cheese, convenient meals, Planters and Corn Nuts businesses, including the related foodservice operations and certain of the grocery operations in Puerto Rico, as well as portions of its grocery export operations from the United States and Canada.
Our combined financial statements include certain expenses of Kraft ParentCo which were allocated to us for certain functions, including general corporate expenses related to finance, legal, information technology, human resources, compliance, shared services, insurance, employee benefits and incentives and stock-based compensation. These expenses have been allocated to us on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenue, operating income or headcount. We consider the expense allocation methodology and results to be reasonable for all periods presented. However, these allocations may not be indicative of the actual expenses we would have incurred as an independent public company or of the costs we will incur in the future.
Kraft ParentCo maintains a number of benefit and stock-based compensation programs at a corporate level. Our employees participate in those programs and as such, we were allocated a portion of the expenses associated with these programs. However, our combined balance sheets do not include any Kraft ParentCo net benefit plan obligations nor Kraft ParentCo outstanding equity related to the stock-based compensation programs. Any benefit plan net liabilities that are our direct obligation, such as certain Canadian pension and North American postemployment plans, are reflected in our combined balance sheets as well as within our other operating results. See Note 9, Stock Benefit Plans, and Note 10, Pension and Other Postemployment Benefit Plans, for further description of these stock-based compensation and benefit programs.
We also generate a portion of our net revenues from sales to Kraft ParentCos subsidiaries. Included in our combined financial statements were net revenues from intercompany sales of $100 million in 2011, $79 million in 2010 and $83 million in 2009. Intercompany receivables and payables with Kraft ParentCo are reflected within parent company investment in the accompanying combined financial statements.
F-8
Kraft ParentCo and affiliates pay royalties to us under various royalty arrangements. Amounts outstanding under these arrangements are considered settled for cash at the end of each reporting period and, as such, are included in parent company investment. Royalty income from affiliates was $55 million in 2011, $43 million in 2010 and $47 million in 2009. Following the Distribution Date, we will no longer receive this royalty income because we will not retain the rights to the intellectual property underlying this royalty income.
Historically, Kraft ParentCo has provided financing, cash management and other treasury services to us. Our cash balances are swept by Kraft ParentCo and historically, we have received funding from Kraft ParentCo for our operating and investing cash needs. Cash transferred to and from Kraft ParentCo has historically been recorded as intercompany payables and receivables which are reflected in parent company investment in the accompanying combined financial statements.
Note 2. Summary of Significant Accounting Policies
Principles of Combination
The combined financial statements include our net assets and results of our operations as described above. All significant intracompany transactions and accounts within our combined businesses have been eliminated.
All significant intercompany transactions between Kraft ParentCo and us have been included in these combined financial statements. Intercompany transactions with Kraft ParentCo or its affiliates are reflected in the combined statements of cash flow as net transfers to Kraft ParentCo and its affiliates within financing activities and in the combined balance sheets within the parent company investment. The parent company investment equity balance represents Kraft ParentCos historical investment in us and the net effect of transactions with and allocations from Kraft ParentCo.
Our fiscal year end is December 31. Our operating subsidiaries report results on the last Saturday of the fiscal year. Because we report results on the last Saturday of the year, and December 31, 2011 fell on a Saturday, our 2011 results included an extra week (53 rd week) of operating results than in the prior two years which had 52 weeks. We estimate that the extra week positively impacted net revenues by approximately $225 million and operating income by approximately $63 million in 2011.
Use of Estimates
We prepare our combined financial statements in accordance with U.S. GAAP, which requires us to make accounting policy elections, estimates and assumptions that affect a number of amounts in our combined financial statements. Significant accounting policy elections, estimates and assumptions include, among others, allocation methods and allocated expenses from Kraft ParentCo, including defined benefit and stock-based compensation expenses, valuation assumptions of goodwill and intangible assets, useful lives of long-lived assets, marketing program accruals, insurance and self-insurance reserves and income taxes. We base our estimates on historical experience and other assumptions that we believe are reasonable. If actual amounts differ from estimates, we include the revisions in our combined results of operations in the period the actual amounts become known. Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a significant impact on our combined financial statements.
Foreign Currencies
We translate the results of operations of our foreign operations using average exchange rates during each period, whereas balance sheet accounts are translated using exchange rates at the end of each period. We record currency translation adjustments as a component of equity. Transaction gains and losses are recorded in earnings and were not significant for any of the periods presented.
F-9
Inventories
Inventories are stated at the lower of cost or market. We value all our inventories using the average cost method. We also record inventory allowances for overstocked and obsolete inventories due to ingredient and packaging changes.
Long-Lived Assets
Property, plant and equipment are stated at historical cost and depreciated by the straight-line method over the estimated useful lives of the assets. Machinery and equipment are depreciated over periods ranging from 3 to 20 years and buildings and building improvements over periods up to 40 years.
We review long-lived assets, including amortizable intangible assets, for impairment when conditions exist that indicate the carrying amount of the assets may not be fully recoverable. We perform undiscounted operating cash flow analyses to determine if an impairment exists. When testing for impairment of assets held for use, we group assets and liabilities at the lowest level for which cash flows are separately identifiable. If we determine an impairment exists, we calculate the loss based on estimated fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.
Software Costs
We capitalize certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use. Capitalized software costs are included in property, plant and equipment and amortized on a straight-line basis over the estimated useful lives of the software which do not exceed seven years.
Goodwill and Intangible Assets
We test goodwill and non-amortizable intangible assets for impairment at least once a year in the fourth quarter. We assess goodwill impairment risk by first performing a qualitative review of entity-specific, industry, market and general economic factors for each reporting unit. If significant potential goodwill impairment risk exists for a specific reporting unit, we apply a two-step quantitative test. The first step compares the reporting units estimated fair value with its carrying value. We estimate a reporting units fair value using a 20-year projection of discounted cash flows which incorporates planned growth rates, market-based discount rates and estimates of residual value. We used a market-based, weighted-average cost of capital of 6.8% to discount the projected cash flows of those operations. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans, industry and economic conditions and our actual results and conditions may differ over time. If the carrying value of a reporting units net assets exceeds its fair value, the second step is applied to measure the difference between the carrying value and implied fair value of goodwill. If the carrying value of goodwill exceeds its implied fair value, the goodwill is considered impaired and reduced to its implied fair value. We test non-amortizable intangible assets for impairment by comparing the fair value of each intangible asset with its carrying value. We determine fair value of non-amortizable intangible assets using planned growth rates, market-based discount rates and estimates of royalty rates. If the carrying value exceeds fair value, the intangible asset is considered impaired and is reduced to fair value.
Definite-lived intangible assets are amortized over their estimated useful lives and evaluated for impairment as long-lived assets.
Insurance and Self-Insurance
We use a combination of insurance and self-insurance for a number of risks, including workers compensation, general liability, automobile liability, product liability and our obligation for employee health care benefits. Liabilities associated with the risks are estimated by considering historical claims experience and other actuarial assumptions.
F-10
Revenue Recognition
We recognize revenues when title and risk of loss pass to customers, which generally occurs upon shipment or delivery of goods. Revenues are recorded net of consumer incentives and trade promotions and include all shipping and handling charges billed to customers. Provisions for product returns and customer allowances are also recorded as reductions to revenues within the same period that the revenue is recognized. Shipping and handling costs are classified as part of cost of sales.
Marketing and Research and Development
We promote our products with advertising, consumer incentives and trade promotions. These programs include, but are not limited to, discounts, coupons, rebates, in-store display incentives and volume-based incentives. Consumer incentive and trade promotion activities are recorded as a reduction to revenues based on amounts estimated as being due to customers and consumers at the end of a period. We base these estimates principally on historical utilization and redemption rates. For interim reporting purposes, advertising and consumer incentive expenses are charged to operations as a percentage of volume, based on estimated volume and related expense for the full year. We do not defer costs on our year-end combined balance sheet and all marketing costs are recorded as an expense in the year incurred. Advertising expense was $535 million in 2011, $540 million in 2010 and $477 million in 2009. We expense costs as incurred for product research and development. Research and development expense was $198 million in 2011, $185 million in 2010 and $194 million in 2009. We record marketing and research and development expenses within selling, general and administrative expenses.
Environmental Costs
We are subject to laws and regulations relating to the protection of the environment. We accrue for environmental remediation obligations on an undiscounted basis when amounts are probable and can be reasonably estimated. The accruals are adjusted as new information develops or circumstances change. Recoveries of environmental remediation costs from third parties are recorded as assets when recovery of those costs is deemed probable. As of December 31, 2011, we were involved in 67 active actions in the United States under the Superfund legislation (and other similar actions and legislation) related to our current operations and certain closed, inactive or divested operations for which we retain liability. We are subject to applicable multi-national, national and local environmental laws and regulations in the countries in which we do business. We have specific programs across our business units designed to meet applicable environmental compliance requirements.
As of December 31, 2011, we accrued an immaterial amount for environmental remediation. Based on information currently available, we believe that the ultimate resolution of existing environmental remediation actions and our compliance in general with environmental laws and regulations will not have a material effect on our financial condition. However, we cannot quantify with certainty the potential impact of future compliance efforts and environmental remediation actions.
Stock-based Compensation
Our employees have historically participated in Kraft ParentCos stock-based compensation plans. Stock-based compensation expense has been allocated to us based on the awards and terms previously granted to our employees. The stock-based compensation was initially measured at the fair value of the awards on the grant date and is recognized in the financial statements over the period the employees are required to provide services in exchange for the awards. The fair value of option awards is measured on the grant date using the Black-Scholes option-pricing model. The fair value of performance awards of restricted stock is based on the Kraft ParentCo stock price at the grant date and the assessed probability of meeting future performance targets. The fair value of restricted and deferred stock awards is based on the number of units granted and Kraft ParentCos stock price on the grant date. See Note 9, Stock Benefit Plans, for additional information.
F-11
Pension and Other Postemployment Benefit Plans
Kraft ParentCo provides a range of benefits to our eligible employees and retired employees. These include defined benefit pension, postretirement health care, defined contribution and multiemployer pension and medical benefits. The benefits provided under these plans have been allocated by Kraft ParentCo and may not necessarily be indicative of future performance, nor do they necessarily reflect the costs we would have incurred as an independent company for the periods presented. Pension coverage for certain employees of our Canadian operations is made available through separate plans. Local statutory requirements govern these plans. Certain pension and postemployment benefits of our Canadian operations are included in our combined financial statements. Our postemployment benefit plans cover most salaried and certain hourly employees. The cost of these plans is charged to expense over the working life of the covered employees.
Financial Instruments
As we operate primarily in North America but source our commodities on global markets and periodically enter into financing or other arrangements abroad, we use a variety of risk management strategies and financial instruments to manage commodity price, foreign currency exchange rate and interest rate risks. Our risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on our operating results. One way we do this is through actively hedging our risks through the use of derivative instruments.
Derivatives are recorded on our combined balance sheets at fair value, which fluctuates based on changing market conditions. Certain derivatives are designated as cash flow hedges and qualify for hedge accounting treatment, while others do not qualify and are marked to market through earnings. For cash flow hedges, changes in fair value are deferred in accumulated other comprehensive earnings / (losses) within equity until the underlying hedged items are recognized in net earnings. Accordingly, we record deferred cash flow hedge gains or losses in cost of sales when the related inventory is sold and in interest and other expense, net, when the related debt interest expense is recorded. Cash flows from derivative instruments are also classified in the same manner as the underlying hedged items in the combined statement of cash flows. For additional information on the location of derivative activity within our operating results, see Note 11, Financial Instruments.
To qualify for hedge accounting, a specified level of hedging effectiveness between the hedging instrument and the item being hedged must be achieved at inception and maintained throughout the hedged period. Any hedging ineffectiveness is recognized in net earnings when the change in the value of the hedge does not offset the change in the value of the underlying hedged item. We formally document our risk management objectives, strategies for undertaking the various hedge transactions, the nature of and relationships between the hedging instruments and hedged items and method for assessing hedge effectiveness. Additionally, for qualified hedges of forecasted transactions, we specifically identify the significant characteristics and expected terms of the forecasted transactions. If it becomes probable that a forecasted transaction will not occur, the hedge will no longer be effective and all of the derivative gains or losses would be recognized in earnings in the current period.
When we use financial instruments, we are exposed to credit risk that a counterparty might fail to fulfill its performance obligations under the terms of our agreement. We minimize our credit risk by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure we have with each counterparty and monitoring the financial condition of our counterparties. We also maintain a policy of requiring that all significant, non-exchange traded derivative contracts with a duration of greater than one year be governed by an International Swaps and Derivatives Association master agreement. We are also exposed to market risk as the value of our financial instruments might be adversely affected by a change in foreign currency exchange rates, commodity prices or interest rates. We manage market risk by incorporating monitoring parameters within our risk management strategy that limit the types of derivative instruments and derivative strategies we use and the degree of market risk that we hedge with derivative instruments.
F-12
Commodity cash flow hedges. We are exposed to price risk related to forecasted purchases of certain commodities that we primarily use as raw materials. We enter into commodity forward contracts primarily for coffee beans, meat products, sugar, wheat and dairy products. Commodity forward contracts generally are not subject to the accounting requirements for derivative instruments and hedging activities under the normal purchases exception. We also use commodity futures and options to hedge the price of certain input costs, including dairy products, coffee beans, meat products, wheat, corn products, soybean oils, sugar, and natural gas. Some of these derivative instruments are highly effective and qualify for hedge accounting treatment. We also sell commodity futures to unprice future purchase commitments, and we occasionally use related futures to cross-hedge a commodity exposure. We are not a party to leveraged derivatives and, by policy, do not use financial instruments for speculative purposes.
Foreign currency cash flow hedges. We use various financial instruments to mitigate our exposure to changes in exchange rates from third-party and intercompany actual and forecasted transactions. These instruments may include forward foreign exchange contracts and foreign currency options. We primarily use these instruments to hedge our exposure to the Canadian dollar.
Interest rate cash flow hedges. We use derivative instruments, including interest rate swaps, as part of our interest rate risk management strategy. As a matter of policy, we do not use highly leveraged derivative instruments for interest rate risk management. We primarily use interest rate swaps to hedge the variability of interest payment cash flows on a portion of our future debt obligations. Substantially all of these derivative instruments are highly effective and qualify for hedge accounting treatment.
Income Taxes
For purposes of the combined financial statements, our income tax expense and deferred tax balances have been estimated as if we filed income tax returns on a stand-alone basis separate from Kraft ParentCo. As a stand-alone entity, our deferred taxes and effective tax rate may differ from those in the historical periods.
We recognize tax benefits in our financial statements when our uncertain tax positions are more likely than not to be sustained upon audit. The amount we recognize is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
We recognize deferred tax assets for deductible temporary differences, operating loss carryforwards and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.
New Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (FASB) issued an amendment related to multiemployer pension plans. This amendment increases the quantitative and qualitative disclosures about an employers participation in individually significant multiemployer plans that offer pension and other postretirement benefits. The guidance is effective for fiscal years ended after December 15, 2011. The adoption of this guidance did not have a material impact on our combined financial statements as we do not participate in any material multiemployer benefit plans directly or through our participation with Kraft ParentCo benefit plans.
In September 2011, the FASB issued an amendment to simplify how entities test goodwill for impairment. We now have the option to first assess qualitative factors to determine whether it is more likely than not that goodwill may be impaired. If, after assessing the totality of events and circumstances, goodwill impairment is determined to be not likely, then performing the quantitative two-step impairment test would not be required. The new guidance also modifies goodwill evaluation during the year to make it consistent with the new annual qualitative approach. We adopted the guidance effective October 1, 2011, and incorporated the guidance in our annual goodwill impairment test.
F-13
In June 2011, the FASB issued an amendment related to statements of comprehensive income. This amendment requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This amended guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders equity. We adopted the guidance effective October 1, 2011 and we now present the components of other comprehensive income in a separate statement.
In May 2011, the FASB issued an amendment to revise certain fair value measurement and disclosure requirements. This amendment establishes common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards. These changes will be effective January 1, 2012 on a prospective basis. Early adoption is not permitted. We do not expect the adoption of this standard to have a material effect on our financial results.
In June 2009, the FASB issued new guidance on the consolidation of variable interest entities. We adopted the guidance effective January 1, 2010. This guidance increases the likelihood of an enterprise being classified as a variable interest entity. The adoption of this guidance did not have a material impact on our financial results.
Subsequent Events
We evaluated subsequent events and included all accounting and disclosure requirements related to subsequent events in our combined financial statements.
Note 3. Divestitures
Pizza Divestiture
On March 1, 2010, we completed the sale of the assets of our North American frozen pizza business (Frozen Pizza) to Nestlé USA, Inc. (Nestlé) for $3.7 billion. Our Frozen Pizza business was a component of our U.S. Convenient Meals and Canada & N.A. Foodservice segments. The sale included the DiGiorno , Tombstone and Jacks brands in the United States, the Delissio brand in Canada and the California Pizza Kitchen trademark license. It also included two Wisconsin manufacturing facilities (Medford and Little Chute) and the leases for the pizza depots and delivery trucks. Approximately 3,600 of our employees transferred with the business to Nestlé. Accordingly, the results of our Frozen Pizza business have been reflected as discontinued operations for all periods presented on the combined statements of earnings.
Pursuant to the Frozen Pizza business Transition Services Agreement, we agreed to provide certain sales, co-manufacturing, distribution, information technology, accounting and finance services to Nestlé for up to two years. As of December 31, 2011, these service agreements were substantially complete.
Summary results of operations for the Frozen Pizza business through March 1, 2010 were as follows:
For the Years
Ended
December 31, |
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2010 | 2009 | |||||||
(in millions) | ||||||||
Net revenues |
$ | 335 | $ | 1,632 | ||||
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|
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Earnings from continuing operations before income taxes |
73 | 341 | ||||||
Provision for income taxes |
(25 | ) | (123 | ) | ||||
Gain on discontinued operations, net of income taxes |
1,596 | | ||||||
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Earnings and gain from discontinued operations, net of income taxes |
$ | 1,644 | $ | 218 | ||||
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F-14
Earnings from continuing operations before income taxes exclude allocated overheads related to the Frozen Pizza business of $25 million in 2010 and $108 million in 2009. The 2010 gain on discontinued operations from the sale of the Frozen Pizza business included tax expense of $1.2 billion.
The following assets of the Frozen Pizza business were divested (in millions):
Inventories, net |
$ | 102 | ||
Property, plant and equipment, net |
317 | |||
Goodwill |
475 | |||
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Divested assets of the Frozen Pizza business |
$ | 894 | ||
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Note 4. Inventories
Inventories at December 31, 2011 and 2010 were:
2011 | 2010 | |||||||
(in millions) | ||||||||
Raw materials |
$ | 562 | $ | 534 | ||||
Work in process |
373 | 294 | ||||||
Finished product |
1,008 | 945 | ||||||
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Inventories, net |
$ | 1,943 | $ | 1,773 | ||||
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Note 5. Property, Plant and Equipment
Property, plant and equipment at December 31, 2011 and 2010 were:
2011 | 2010 | |||||||
(in millions) | ||||||||
Land and land improvements |
$ | 124 | $ | 124 | ||||
Buildings and building improvements |
1,984 | 1,945 | ||||||
Machinery and equipment |
5,764 | 5,655 | ||||||
Construction in progress |
297 | 233 | ||||||
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8,169 | 7,957 | |||||||
Accumulated depreciation |
(3,891 | ) | (3,674 | ) | ||||
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Property, plant and equipment, net |
$ | 4,278 | $ | 4,283 | ||||
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Note 6. Goodwill and Intangible Assets
Goodwill by reportable segment at December 31, 2011 and 2010 was:
2011 | 2010 | |||||||
(in millions) | ||||||||
U.S. Beverages |
$ | 1,290 | $ | 1,290 | ||||
U.S. Cheese |
3,000 | 3,000 | ||||||
U.S. Convenient Meals |
985 | 985 | ||||||
U.S. Grocery |
4,216 | 4,216 | ||||||
Canada & N.A. Foodservice |
1,825 | 1,847 | ||||||
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Goodwill |
$ | 11,316 | $ | 11,338 | ||||
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F-15
Intangible assets were $2.6 billion at December 31, 2011 and 2010 and consist principally of trademarks. During 2010 and 2009, we also had amortizable product licenses which were fully amortized and retired during 2010. The amortization expense related to the product licenses was $1 million in 2010 and in 2009.
Changes in goodwill and intangible assets consisted of:
2011 | 2010 | |||||||||||||||
Goodwill |
Intangible
Assets, at cost |
Goodwill |
Intangible
Assets, at cost |
|||||||||||||
(in millions) | ||||||||||||||||
Balance at January 1 |
$ | 11,338 | $ | 2,630 | $ | 11,747 | $ | 2,634 | ||||||||
Changes due to: |
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Frozen Pizza divestiture |
| | (475 | ) | | |||||||||||
Retirement of amortizable intangible assets |
| | | (4 | ) | |||||||||||
Foreign currency |
(22 | ) | | 66 | | |||||||||||
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Balance at December 31 |
$ | 11,316 | $ | 2,630 | $ | 11,338 | $ | 2,630 | ||||||||
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In 2011, except for changes due to foreign currency translation, there were no changes to goodwill and intangible assets. In 2010, we reduced goodwill by $475 million due to our Frozen Pizza business divestiture, which decreased the goodwill balance of the U.S. Convenient Meals segment.
In 2011, there were no impairments of goodwill or non-amortizable intangible assets. In 2011, we noted one reporting unit, Planters and Corn Nuts within our U.S. Grocery segment, which continued to be sensitive primarily to ongoing significant input cost pressure. Planters and Corn Nuts had $1,170 million of goodwill as of December 31, 2011, and its excess fair value over the carrying value of its net assets improved from 12% in 2010 to 19% in 2011. While the reporting unit passed the first step of the impairment test by a substantial margin, if its operating income were to decline significantly in the future, it would adversely affect the estimated fair value of the reporting unit. If input costs were to continue to rise, we expect to take further pricing actions as we have done in 2011. However, if we are unsuccessful in these efforts, it would decrease profitability, negatively affect the estimated fair value of the Planters and Corn Nuts reporting unit and could lead to a potential impairment in the future.
Note 7. Cost Savings Initiatives
Within our cost savings initiatives, we include certain costs along with exit and disposal costs that are directly attributable to those activities but that do not qualify for treatment as exit or disposal costs under U.S. GAAP. These costs, which we commonly refer to as other project costs or implementation costs, generally include the reorganization of operations and facilities, the discontinuance of product lines and the incremental expenses related to the closure of facilities. We believe the disclosure of these charges within our operating income provides greater transparency of the impact of these programs and initiatives on our operating results.
In connection with our cost savings initiatives in 2011, we reversed $18 million of cost savings initiative program costs across all segments. These reversals were primarily related to severance benefits that were accrued and not paid due to natural attrition or employees who accepted other open positions within Kraft ParentCo or our company.
In 2010, we recorded $33 million of charges, primarily severance costs for benefits for terminated employees, associated benefit plan costs and other related activities. These charges were recorded across all segments.
In 2009, we recorded $110 million of charges, primarily severance costs for benefits for terminated employees, associated benefit plan costs and other related activities. These charges were recorded across all segments.
F-16
Note 8. Debt
At December 31, 2011 and 2010, our debt consisted of:
As of December 31, | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Total debt |
$ | 35 | $ | 39 | ||||
Less current portion of long-term debt |
(8 | ) | (8 | ) | ||||
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Long-term debt |
$ | 27 | $ | 31 | ||||
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As of December 31, 2011 and 2010, total debt consisted entirely of capital lease obligations. The minimum future lease payments related to our capital leases in effect as of December 31, 2011 and for the following periods were (in millions):
2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | |||||
$8 | $5 | $3 | $3 | $3 | $13 |
Interest and other expense, net consisted of:
For the Years
Ended
December 31, |
||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Interest expense |
$ | 4 | $ | 3 | $ | 30 | ||||||
Other expense / (income), net |
5 | 4 | 4 | |||||||||
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Total interest and other expense, net |
$ | 9 | $ | 7 | $ | 34 | ||||||
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In 2011 and 2010 interest expense related to interest incurred on capital leases. In 2009, interest expense included interest incurred on debt which was repaid in 2009 and interest incurred on capital leases. Other expense / (income) includes primarily bank fees partially offset by interest income.
In connection with the Spin-Off, we entered into a 364-day senior unsecured revolving credit facility on March 8, 2012, with borrowing capacity of $4.0 billion. Until the consummation of the Spin-Off, Kraft ParentCo guarantees our borrowings under the facility. We may borrow advances up to the aggregate amount of the unused commitments under the facility on or after March 8, 2012 and prior to the termination of the facility, which is scheduled for March 7, 2013. All committed pro rata borrowings under the facility will bear interest at a variable annual rate based on LIBOR or a defined base rate, at our election, plus an applicable margin based on (i) for any date prior to the consummation of the Spin-Off, the ratings of Kraft ParentCos long-term senior unsecured indebtedness and (ii) for any date on or following the consummation of the Spin-Off, the ratings of our long-term senior unsecured indebtedness. We intend to use the proceeds of this facility, as necessary, in connection with our capitalization plan, to support our working capital needs and for other general corporate purposes.
Note 9. Stock Benefit Plans
Our Participation in Kraft ParentCo Incentive Plans
Kraft ParentCo maintains several incentive plans in which our executives, directors and employees participate. All awards granted under the plans are based on Kraft ParentCos common shares and, as such, are reflected in Kraft ParentCos consolidated statement of equity and not in our combined statement of equity.
Our stock-based compensation expense which was allocated from Kraft ParentCo was $51 million in 2011, $49 million in 2010 and $52 million in 2009. The expense was allocated primarily based on segment and
F-17
headcount. These amounts were based on the awards and terms previously granted to our employees, but may not reflect the equity awards or results that we would have experienced or expect to experience as an independent, publicly traded company.
Stock Options
Stock options were granted to our eligible employees at an exercise price equal to the market value of the underlying Kraft ParentCo stock on the grant date, generally become exercisable in three annual installments beginning on the first anniversary of the grant date and have a maximum term of ten years.
Employee stock options were accounted for under the fair value method of accounting and valued using a modified Black-Scholes methodology. The fair value of the stock options on the grant date is amortized to expense over the vesting period. Compensation expense related to stock options for our employees was $14 million in 2011, $13 million in 2010 and $10 million in 2009. The deferred tax benefit recorded related to this compensation expense was $4 million in 2011, $4 million in 2010 and $4 million in 2009. The unamortized compensation expense related to stock options was $19 million at December 31, 2011 and is expected to be recognized over a weighted-average period of two years. The weighted-average Black-Scholes fair value assumptions utilized by Kraft ParentCo were as follows:
Risk-Free
Interest Rate |
Expected Life |
Expected
Volatility |
Expected
Dividend Yield |
Fair Value
at Grant Date |
||||||||||||||||
2011 |
2.34% | 6 years | 18.92% | 3.72% | $ | 3.84 | ||||||||||||||
2010 |
2.82% | 6 years | 19.86% | 4.14% | $ | 3.69 | ||||||||||||||
2009 |
2.46% | 6 years | 21.36% | 4.90% | $ | 2.68 |
The risk-free interest rate represents the constant maturity U.S. government treasuries rate with a remaining term equal to the expected life of the options. The expected life is the period over which our employees are expected to hold their options. Volatility reflects historical movements in Kraft ParentCos stock price for a period commensurate with the expected life of the options. Dividend yield is estimated based on Kraft ParentCos stated dividend policy and the expected life of the options.
Stock option activity for the year ended December 31, 2011 was:
Shares Subject
to Option |
Weighted-
Average Exercise Price Per Share |
Average
Remaining Contractual Term |
Aggregate
Intrinsic Value |
|||||||||||||
Balance at January 1, 2011 |
15,186,125 | $ | 27.71 | |||||||||||||
Options granted |
4,569,541 | 31.81 | ||||||||||||||
Options exercised |
(4,954,068 | ) | 28.00 | |||||||||||||
Options cancelled |
(913,915 | ) | 29.27 | |||||||||||||
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Balance at December 31, 2011 |
13,887,683 | 28.87 | 8 years | $ | 119 million | |||||||||||
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Exercisable at December 31, 2011 |
5,285,354 | 27.21 | 7 years | $ | 53 million | |||||||||||
|
|
In February 2011, as part of Kraft ParentCos annual equity program, our eligible employees were granted 4.4 million stock options at an exercise price of $31.83. In the aggregate, our employees were granted 4.6 million stock options during 2011 at a weighted-average exercise price of $31.81.
In February 2010, as part of Kraft ParentCos annual equity program, our eligible employees were granted 4.2 million stock options at an exercise price of $29.15. In the aggregate, our employees were granted 5.1 million stock options during 2010 at a weighted-average exercise price of $29.24.
F-18
In February 2009, as part of Kraft ParentCos annual equity program, our eligible employees were granted 5.2 million stock options at an exercise price of $23.64.
The total intrinsic value of our employee options exercised was $27 million in 2011, $25 million in 2010 and $23 million in 2009. Cash received from options exercised was $136 million in 2011, $38 million in 2010 and $25 million in 2009, and was remitted to Kraft ParentCo where the equity programs are managed. The actual tax benefit realized for the tax deductions from the option exercises totaled $11 million in 2011, $17 million in 2010 and $17 million in 2009.
Restricted and Deferred Stock
Restricted and deferred stock were granted to our eligible employees by Kraft ParentCo. The shares of restricted stock generally give employees all of the rights of Kraft ParentCo shareholders, including dividend and voting rights. Holders of deferred stock do not have voting rights but receive dividend equivalents. Employees and directors may not sell, assign, pledge or otherwise encumber the shares of restricted and deferred stock, and those shares are subject to forfeiture if certain employment conditions are not met. Restricted and deferred stock generally vest on the third anniversary of the grant date.
Shares granted in connection with Kraft ParentCos long-term incentive plan for executives vest based on varying performance, market and service conditions. The unvested shares have no voting rights and do not pay dividends.
The fair value of the restricted and deferred shares on the grant date is amortized to earnings over the vesting period. We recorded compensation expense related to restricted and deferred stock of $37 million in 2011, $36 million in 2010 and $42 million in 2009. The deferred tax benefit recorded related to this compensation expense was $12 million in 2011, $11 million in 2010 and $14 million in 2009. The unamortized compensation expense related to restricted and deferred stock was $46 million at December 31, 2011 and is expected to be recognized over a weighted-average period of two years.
Restricted and deferred stock activity for the year ended December 31, 2011 was:
Number of
Shares |
Weighted-Average
Grant Date Fair Value Per Share |
|||||||
Balance at January 1, 2011 |
3,982,018 | $ | 27.84 | |||||
Granted |
1,419,603 | 31.97 | ||||||
Vested |
(1,219,053 | ) | 30.35 | |||||
Forfeited |
(369,760 | ) | 29.30 | |||||
|
|
|||||||
Balance at December 31, 2011 |
3,812,808 | 28.43 | ||||||
|
|
In January 2011, our employees were granted 0.4 million shares of stock in connection with Kraft ParentCos long-term incentive plan, and the market value per share was $31.62 on the date of grant. In February 2011, as part of Kraft ParentCos annual equity program, our eligible employees were issued 0.7 million shares of restricted and deferred stock, and the market value per restricted or deferred share was $31.83 on the date of grant. In aggregate, our employees were issued 1.4 million restricted and deferred shares during 2011, including those issued as part of Kraft ParentCos long-term incentive plan, with a weighted-average market value per share of $31.97.
In January 2010, our employees were granted 0.5 million shares of stock in connection with Kraft ParentCos long-term incentive plan, and the market value per share was $27.33 on the date of grant. In February 2010, as part of Kraft ParentCos annual equity program, our eligible employees were issued 0.7 million shares of restricted and deferred stock, and the market value per restricted or deferred share was $29.15 on the date of
F-19
grant. In aggregate, our employees were issued 1.6 million restricted and deferred shares during 2010, including those issued as part of Kraft ParentCos long-term incentive plan, with a weighted-average market value per share of $28.82.
In January 2009, our employees were granted 0.5 million shares of stock in connection with Kraft ParentCos long-term incentive plan, and the market value per share was $27.00 on the date of grant. In February 2009, as part of Kraft ParentCos annual equity program, our eligible employees were issued 1.3 million shares of restricted and deferred stock, and the market value per restricted or deferred share was $23.64 on the date of grant. In aggregate, our employees were issued 1.9 million restricted and deferred shares during 2009, including those issued as part of Kraft ParentCos long-term incentive plan, with a weighted-average market value per share of $24.68.
The weighted-average grant date fair value of restricted and deferred stock granted to our employees was $45 million, or $31.97 per restricted or deferred share, in 2011; $47 million, or $28.82 per restricted or deferred share, in 2010; and $46 million, or $24.68 per restricted or deferred share, in 2009. The vesting date fair value of restricted and deferred stock was $38 million in 2011, $33 million in 2010 and $49 million in 2009.
Note 10. Pension and Other Postemployment Benefit Plans
Our Participation in Kraft ParentCo Pension and Other Postemployment Benefit Plans
Kraft ParentCo provides defined benefit pension, postretirement health care, defined contribution, and multiemployer pension and medical benefits to our eligible employees and retirees. As such, these liabilities are not reflected in our combined balance sheets. As of the Distribution Date, we expect to record the net benefit plan obligations related to these plans and reflect them on our combined balance sheet.
Our combined statements of earnings include expense allocations for these benefits which were determined based on a review of personnel by business unit and based on allocations of corporate and other shared functional personnel. We consider the expense allocation methodology and results to be reasonable for all periods presented.
Total Kraft ParentCo benefit plan net expenses allocated to us were $497 million in 2011, $486 million in 2010 and $464 million in 2009. These costs are reflected in our cost of sales and selling, general and administrative expenses. These costs were funded through intercompany transactions with Kraft ParentCo which are now reflected within the parent company investment equity balance.
Kraft ParentCo Defined Benefit Pension Plans
Substantially all of our retired U.S. and Canadian employees receive defined benefit pension benefits through various Kraft ParentCo pension plans. Eligible active employees will also receive defined benefit pension benefits through various Kraft ParentCo pension plans in both the United States and Canada upon retirement. Our allocated expenses in connection with these plans were $261 million in 2011, $248 million in 2010 and $235 million in 2009.
Certain employees participate in various Kraft ParentCo multiemployer pension plans. These plans provide pension benefits to retirees under certain collective bargaining agreements. None of the Kraft ParentCo multiemployer plans we participate in are considered significant multiemployer pension plans. In total, Kraft ParentCo allocated costs and made contributions to these plans on our behalf in the amount of $2 million in 2011, $2 million in 2010 and $2 million in 2009.
Kraft ParentCo Postretirement Health Care Plans
Substantially all of our retired U.S. and Canadian employees receive health care and other benefits through various Kraft ParentCo postretirement health care benefit plans. Eligible active employees will also receive
F-20
postretirement health care benefits through various Kraft ParentCo postretirement plans in both the United States and Canada upon retirement. Our allocated expenses in connection with these plans were $160 million in 2011, $166 million in 2010 and $157 million in 2009.
Eligible employees also participate in various Kraft ParentCo multiemployer medical plans. These plans provide medical benefits to active employees and retirees under certain collective bargaining agreements. In total, Kraft ParentCo allocated costs and made contributions to these plans on our behalf in the amount of $20 million in 2011, $18 million in 2010 and $18 million in 2009.
Kraft ParentCo Defined Contribution Plans
Eligible employees participate in Kraft ParentCo defined contribution plans. These plans cover eligible salaried and hourly non-union and hourly union employees in the United States and Canada. The contributions and costs are primarily determined by the matching of employee contributions, as defined by the plans. In addition, eligible employees hired after December 31, 2008 automatically receive a basic contribution equal to 4.5% of their eligible compensation, as defined by the plans, since they are ineligible to participate in the Kraft ParentCo defined benefit pension plans. We were allocated charges for these defined contribution plans of $54 million in 2011, $52 million in 2010 and $52 million in 2009.
Canadian Pension Plans
Obligations and Funded Status
Certain plans in our Canadian operations (Canadian Pension Plans) are our direct obligations and have been recorded within our combined financial statements. The projected benefit obligations, plan assets and funded status of these Canadian Pension Plans at December 31, 2011 and 2010 were:
Canadian Pension Plans | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Benefit obligation at January 1 |
$ | 512 | $ | 468 | ||||
Service cost |
7 | 7 | ||||||
Interest cost |
26 | 24 | ||||||
Benefits paid |
(40 | ) | (32 | ) | ||||
Actuarial losses |
73 | 19 | ||||||
Currency |
(7 | ) | 24 | |||||
Other |
2 | 2 | ||||||
|
|
|
|
|||||
Benefit obligation at December 31 |
573 | 512 | ||||||
|
|
|
|
|||||
Fair value of plan assets at January 1 |
473 | 417 | ||||||
Actual return on plan assets |
18 | 45 | ||||||
Contributions |
24 | 22 | ||||||
Benefits paid |
(40 | ) | (32 | ) | ||||
Currency |
(5 | ) | 21 | |||||
|
|
|
|
|||||
Fair value of plan assets at December 31 |
470 | 473 | ||||||
|
|
|
|
|||||
Net pension liability recognized at December 31 |
$ | (103 | ) | $ | (39 | ) | ||
|
|
|
|
The accumulated benefit obligation for our Canadian Pension Plans, which represents benefits earned to date, was $527 million at December 31, 2011 and $467 million at December 31, 2010.
F-21
These plans had a net pension liability of $103 million at December 31, 2011 and $39 million at December 31, 2010. The amounts were reflected in our combined balance sheets at December 31, 2011 and 2010 as follows:
Canadian Pension Plans | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Prepaid pension assets |
$ | 14 | $ | 17 | ||||
Other accrued liabilities |
| (1 | ) | |||||
Accrued pension costs |
(117 | ) | (55 | ) | ||||
|
|
|
|
|||||
$ | (103 | ) | $ | (39 | ) | |||
|
|
|
|
Certain of our Canadian Pension Plans are underfunded and have accumulated benefit obligations in excess of plan assets. For these plans, the projected benefit obligations, accumulated benefit obligations and the fair value of plan assets at December 31, 2011 and 2010 were:
Canadian Pension Plans | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Projected benefit obligation |
$ | 478 | $ | 414 | ||||
Accumulated benefit obligation |
432 | 369 | ||||||
Fair value of plan assets |
360 | 358 |
For the Canadian Pension Plans, we used the following weighted-average assumptions to determine the benefit obligations at December 31:
Canadian Pension Plans | ||||||||
2011 | 2010 | |||||||
Discount rate |
4.25 | % | 5.00 | % | ||||
Expected rate of return on plan assets |
6.80 | % | 7.36 | % | ||||
Rate of compensation increase |
3.00 | % | 3.00 | % |
Year-end discount rates for these plans were developed from a model portfolio of high quality, fixed-income debt instruments with durations that match the expected future cash flows of the benefit obligations. We determine our expected rate of return on plan assets from the plan assets historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class.
Components of Net Pension Cost
Net pension cost for the years ended December 31, 2011, 2010 and 2009 included:
Canadian Pension Plans | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Service cost |
$ | 7 | $ | 7 | $ | 4 | ||||||
Interest cost |
26 | 24 | 24 | |||||||||
Expected return on plan assets |
(38 | ) | (35 | ) | (32 | ) | ||||||
Amortization: |
||||||||||||
Net loss from experience differences |
15 | 13 | 5 | |||||||||
Other expenses |
4 | | 8 | |||||||||
|
|
|
|
|
|
|||||||
Net pension cost |
$ | 14 | $ | 9 | $ | 9 | ||||||
|
|
|
|
|
|
F-22
For certain Canadian Pension Plans, we determine the expected return on plan assets within the net periodic benefit cost using a calculated market return value that recognizes the cost over a five-year period. For other Canadian Pension Plans, we determine the expected return on plan assets based on asset fair values as of the measurement date. Canadian plant closures and early retirement benefits resulted in settlement losses of $4 million in 2011 and $8 million in 2009, as reflected in other expenses above.
As of December 31, 2011, we expect to amortize an estimated $20 million of net pre-tax loss from experience differences, from accumulated other comprehensive earnings / (losses), into net periodic pension cost during 2012.
We used the following weighted-average assumptions to determine our net pension cost for the years ended December 31:
Canadian Pension Plans | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Discount rate |
5.00 | % | 5.25 | % | 7.30 | % | ||||||
Expected rate of return on plan assets |
7.36 | % | 7.36 | % | 7.37 | % | ||||||
Rate of compensation increase |
3.00 | % | 3.00 | % | 3.00 | % |
Plan Assets
The fair value of the assets in our Canadian Pension Plans at December 31, 2011 was determined using the following fair value measurements:
Total
Fair Value |
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
|||||||||||||
(in millions) | ||||||||||||||||
Asset Category |
||||||||||||||||
Non-U.S. equity securities |
$ | 38 | $ | 38 | $ | | $ | | ||||||||
Pooled fundsequity securities |
229 | | 229 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total equity securities |
267 | 38 | 229 | | ||||||||||||
Pooled fundsfixed income securities |
197 | | 197 | | ||||||||||||
Corporate bonds and other fixed income securities |
6 | | 6 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed income securities |
203 | | 203 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 470 | $ | 38 | $ | 432 | $ | | ||||||||
|
|
|
|
|
|
|
|
F-23
The fair value of the assets in our Canadian Pension Plans at December 31, 2010 was determined using the following fair value measurements:
Total
Fair Value |
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
|||||||||||||
(in millions) | ||||||||||||||||
Asset Category |
||||||||||||||||
Non-U.S. equity securities |
$ | 44 | $ | 44 | $ | | $ | | ||||||||
Pooled fundsequity securities |
242 | | 242 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total equity securities |
286 | 44 | 242 | | ||||||||||||
Pooled fundsfixed income securities |
178 | | 178 | | ||||||||||||
Corporate bonds and other fixed income securities |
6 | | | 6 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed income securities |
184 | | 178 | 6 | ||||||||||||
Other |
3 | 3 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 473 | $ | 47 | $ | 420 | $ | 6 | ||||||||
|
|
|
|
|
|
|
|
Fair value measurements
|
Level 1includes primarily non-U.S. equity securities valued using quoted prices in active markets. |
|
Level 2includes primarily pooled funds valued using net asset values of participation units held in common collective trusts, as reported by the managers of the trusts and as supported by the unit prices of actual purchase and sale transactions. Level 2 plan assets also primarily include corporate bonds and other fixed income securities, valued using independent observable market inputs, such as matrix pricing, yield curves and indices. |
|
Level 3we did not have any Level 3 plan assets at December 31, 2011. As of December 31, 2010, our Level 3 plan assets were investments in insurance contracts, which were valued based on the future stream of benefit payments discounted using prevailing interest rates. |
Changes in assets classified as Level 3 investments within our Canadian Pension Plans for the year ended December 31, 2011 included:
January 1,
2011 Balance |
Net Realized
and Unrealized Gains/(Losses) |
Net Purchases,
Issuances and Settlements |
Net Transfers
Into/(Out of) Level 3 |
Currency
Impact |
December
31,
2011 Balance |
|||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Asset Category |
||||||||||||||||||||||||
Corporate bond and other fixed income securities |
$ | 6 | $ | | $ | (6 | ) | $ | | $ | | $ | | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Level 3 investments |
$ | 6 | $ | | $ | (6 | ) | $ | | $ | | $ | |
F-24
Changes in assets classified as Level 3 investments within our Canadian Pension Plans for the year ended December 31, 2010 included:
January 1,
2010 Balance |
Net Realized
and Unrealized Gains/(Losses) |
Net Purchases,
Issuances and Settlements |
Net Transfers
Into/(Out of) Level 3 |
Currency
Impact |
December 31,
2010 Balance |
|||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Asset Category |
||||||||||||||||||||||||
Corporate bond and other fixed income securities |
$ | | $ | | $ | | $ | 6 | $ | | $ | 6 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Level 3 investments |
$ | | $ | | $ | | $ | 6 | $ | | $ | 6 |
The fair value of the assets in our Canadian Pension Plans consisted of the following asset categories at December 31, 2011 and 2010:
Canadian Pension Plans | ||||||||
Asset Category |
2011 | 2010 | ||||||
Equity securities |
57 | % | 60 | % | ||||
Fixed-income securities |
43 | % | 39 | % | ||||
Other |
| 1 | % | |||||
|
|
|
|
|||||
Total |
100 | % | 100 | % | ||||
|
|
|
|
Our investment strategy is based primarily on our expectation that equity securities will outperform fixed-income securities over the long term. Accordingly, approximately 61% of the assets in our Canadian Pension Plans are in equity securities and approximately 39% are in fixed-income securities. The strategy uses actively managed and indexed international equity securities, indexed U.S. equity securities and indexed investment grade fixed-income securities.
We attempt to maintain our target asset allocation by rebalancing between asset classes as we make contributions and monthly benefit payments.
Employer Contributions
In 2011, we contributed $22 million and our employees contributed $2 million to our Canadian Pension Plans. We make contributions to our pension plans, primarily, to the extent that they are tax deductible and do not generate an excise tax liability. Based on current tax law and minimum funding requirements, we estimate that 2012 pension contributions would be approximately $39 million. Our actual contributions may be different due to many factors, including changes in tax and other benefit laws, significant differences between expected and actual pension asset performance or interest rates or other factors.
Future Benefit Payments
The estimated future benefit payments from our Canadian Pension Plans at December 31, 2011 and for the following periods were (in millions):
2012 | 2013 | 2014 | 2015 | 2016 | 2017-2021 | |||||
$33 | $34 | $35 | $35 | $36 | $196 |
F-25
Postemployment Benefit Plans
Obligations
Certain postemployment severance and other benefit plans have been recorded within our combined financial statements. Our postemployment plans are primarily not funded. The changes in the allocated benefit obligations for these plans and the net amount accrued at December 31, 2011 and 2010 were:
2011 | 2010 | |||||||
(in millions) | ||||||||
Benefit obligation at January 1 |
$ | 26 | $ | 32 | ||||
Service cost |
2 | 2 | ||||||
Interest cost |
1 | 2 | ||||||
Benefits paid |
(15 | ) | (9 | ) | ||||
Assumption changes |
1 | (4 | ) | |||||
Actuarial (gains) / losses |
2 | 3 | ||||||
Other |
16 | | ||||||
|
|
|
|
|||||
Benefit obligation at December 31 |
$ | 33 | $ | 26 | ||||
|
|
|
|
In 2011, we recorded a Canadian postemployment plan, which was partially funded, with a net liability balance of approximately $16 million, as reflected in other above. The accrued benefit obligation was determined using a weighted-average discount rate of 3.4% in 2011 and 5.4% in 2010, an assumed ultimate annual turnover rate of 0.5% in 2011 and 2010, assumed compensation cost increases of 4.0% in 2011 and 2010 and assumed benefits as defined in the respective plans. Postemployment costs arising from actions that offer employees benefits in excess of those specified in the respective plans are charged to expense when incurred.
Components of Net Postemployment Cost
Net postemployment cost for the years ended December 31, 2011, 2010 and 2009 included:
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Service cost |
$ | 2 | $ | 2 | $ | 2 | ||||||
Interest cost |
1 | 2 | 2 | |||||||||
Amortization of net (gains) / losses |
| | 1 | |||||||||
Other expenses |
16 | | | |||||||||
|
|
|
|
|
|
|||||||
Net postemployment cost |
$ | 19 | $ | 4 | $ | 5 | ||||||
|
|
|
|
|
|
Other postemployment costs primarily relate to the establishment of the partially funded Canadian postemployment plan.
As of December 31, 2011, the estimated net gain for the postemployment benefit plans that we expected to amortize from accumulated other comprehensive earnings / (losses) into net postemployment costs during 2012 was insignificant.
F-26
Note 11. Financial Instruments
Fair Value of Derivative Instruments
The fair values of derivative instruments recorded in the combined balance sheet as of December 31, 2011 and 2010 were:
December 31, 2011 | December 31, 2010 | |||||||||||||||
Asset
Derivatives |
Liability
Derivatives |
Asset
Derivatives |
Liability
Derivatives |
|||||||||||||
(in millions) | ||||||||||||||||
Derivatives designated as hedging instruments: |
||||||||||||||||
Commodity contracts |
$ | 9 | $ | 2 | $ | 39 | $ | 4 | ||||||||
Foreign exchange contracts |
3 | | 1 | | ||||||||||||
Interest rate contracts |
| 25 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 12 | $ | 27 | $ | 40 | $ | 4 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||
Commodity contracts |
$ | 50 | $ | 68 | $ | 52 | $ | 9 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fair value |
$ | 62 | $ | 95 | $ | 92 | $ | 13 | ||||||||
|
|
|
|
|
|
|
|
We include the fair value of our asset derivatives within other current assets and the fair value of our liability derivatives within other current liabilities.
The fair values of our derivative instruments at December 31, 2011 were determined using:
Total
Fair Value of Net Asset /(Liability) |
Quoted Prices in
Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
|||||||||||||
(in millions) | ||||||||||||||||
Commodity contracts |
$ | (11 | ) | $ | (4 | ) | $ | (7 | ) | $ | | |||||
Foreign exchange contracts |
3 | | 3 | | ||||||||||||
Interest rate contracts |
(25 | ) | | (25 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivatives |
$ | (33 | ) | $ | (4 | ) | $ | (29 | ) | $ | | |||||
|
|
|
|
|
|
|
|
The fair values of our derivative instruments at December 31, 2010 were determined using:
Total
Fair Value of Net Asset / (Liability) |
Quoted Prices in
Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
|||||||||||||
(in millions) | ||||||||||||||||
Commodity contracts |
$ | 78 | $ | 78 | $ | | $ | | ||||||||
Foreign exchange contracts |
1 | | 1 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivatives |
$ | 79 | $ | 78 | $ | 1 | $ | | ||||||||
|
|
|
|
|
|
|
|
F-27
Level 2 financial assets and liabilities consist of commodity forwards, foreign exchange forwards and interest rate swaps. Commodity derivatives are valued using an income approach based on the observable market commodity index prices less the contract rate multiplied by the notional amount. Foreign currency contracts are valued using an income approach based on observable market forward rates less the contract rate multiplied by the notional amount. Our calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the observable market interest rate curve. Our calculation of the fair value of financial instruments takes into consideration the risk of nonperformance, including counterparty credit risk.
Derivative Volume
The net notional values of our derivative instruments as of December 31, 2011 and 2010 were:
2011 | 2010 | |||||||
(in millions) | ||||||||
Commodity contracts |
$ | 891 | $ | 570 | ||||
Foreign exchange contracts |
59 | 218 | ||||||
Interest rate contracts |
1,000 | |
In November 2011, we executed interest rate derivatives with $1 billion notional value to lock in a portion of the interest expense we expect to incur with a future debt issuance. In March 2012, we executed interest rate derivatives for an additional $1 billion of notional value to lock in a portion of the interest expense we expect to incur with future debt issuances.
Cash Flow Hedges
Cash flow hedge activity, net of income taxes, within accumulated other comprehensive earnings / (losses) included:
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Accumulated other comprehensive earnings / (losses) at January 1 |
$ | 32 | $ | (3 | ) | $ | (67 | ) | ||||
Transfer of realized (gains) / losses in fair value to earnings |
(46 | ) | | 93 | ||||||||
Unrealized gain / (loss) in fair value |
(4 | ) | 35 | (29 | ) | |||||||
|
|
|
|
|
|
|||||||
Accumulated other comprehensive earnings / (losses) at December 31 |
$ | (18 | ) | $ | 32 | $ | (3 | ) | ||||
|
|
|
|
|
|
The gains / (losses), net of income taxes, recognized in other comprehensive income / (loss) were:
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Commodity contracts |
$ | 16 | $ | 37 | $ | (18 | ) | |||||
Foreign exchange contracts |
(4 | ) | (2 | ) | (11 | ) | ||||||
Interest rate contracts |
(16 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | (4 | ) | $ | 35 | $ | (29 | ) | ||||
|
|
|
|
|
|
F-28
The gains / (losses), net of income taxes, reclassified from accumulated other comprehensive earnings / (losses) into earnings were:
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Commodity contracts |
$ | 52 | $ | 4 | $ | (101 | ) | |||||
Foreign exchange contracts |
(6 | ) | (4 | ) | 8 | |||||||
|
|
|
|
|
|
|||||||
Total |
$ | 46 | $ | | $ | (93 | ) | |||||
|
|
|
|
|
|
The gains / (losses) on ineffectiveness recognized in pre-tax earnings were:
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Commodity contracts |
$ | 2 | $ | (6 | ) | $ | 11 |
The gains / (losses) on the amount excluded from effectiveness testing recognized in pre-tax earnings were:
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Commodity contracts |
$ | 4 | $ | 3 | $ | |
We record (i) the pre-tax gain or loss reclassified from accumulated other comprehensive earnings / (losses) into earnings, (ii) the gain or loss on ineffectiveness and (iii) the gain or loss on the amount excluded from effectiveness testing in:
|
cost of sales for commodity contracts; |
|
cost of sales for foreign exchange contracts related to forecasted transactions |
|
interest and other expense, net for interest rate contracts |
Based on derivative contracts as of December 31, 2011 and the expected timing of forecasted transactions, we estimate unrealized losses of $4 million (net of taxes) for commodity cash flow hedges, unrealized gains of $2 million (net of taxes) for foreign currency cash flow hedges and unrealized losses of $1 million (net of taxes) for interest rate cash flow hedges to be reclassified into earnings in the next 12 months.
As of December 31, 2011, we had hedged forecasted transactions for the following durations:
|
commodity transactions for periods not exceeding the next 17 months; |
|
foreign currency transactions for periods not exceeding the next 6 months; and |
|
interest rate transactions for periods not exceeding the next 30 years and 4 months. |
Economic Hedges
Gains / (losses) recorded in earnings for economic hedges which are not designated as hedging instruments included:
Gain / (Loss) Recognized in Earnings |
Location of
Gain / (Loss) Recognized in Earnings |
|||||||||||||||
2011 | 2010 | 2009 | ||||||||||||||
(in millions) | ||||||||||||||||
Commodity contracts |
$ | 31 | $ | 36 | $ | (32 | ) | Cost of sales |
F-29
Note 12. Commitments and Contingencies
Legal Proceedings
We routinely are involved in legal proceedings, claims and governmental inspections or investigations arising in the ordinary course of our business.
On March 1, 2011, the Starbucks Coffee Company (Starbucks), without our authorization and in what we contend is a violation and breach of our agreements with Starbucks, took control of the Starbucks packaged coffee business (Starbucks CPG business) in grocery stores and other channels. The dispute is pending arbitration in Chicago, Illinois. We are seeking appropriate remedies, including but not limited to payment of the fair market value of our supply and license agreement with Starbucks relating to the Starbucks CPG business, plus the premium this agreement specifies. Starbucks has counterclaimed for unspecified damages. The arbitration proceeding is set to begin on July 11, 2012. The results of the Starbucks CPG business were included primarily in our U.S. Beverages and Canada & N.A. Foodservice segments through March 1, 2011.
While we cannot predict with certainty the results of our dispute with Starbucks or any other legal matters in which we are currently involved, we do not expect that the ultimate costs to resolve any of these matters will have a material adverse effect on our financial results.
Third-Party Guarantees
We have third-party guarantees primarily covering the long-term obligations of our vendors. As part of those transactions, we guarantee that third parties will make contractual payments or achieve performance measures. At December 31, 2011, the carrying amount of our third-party guarantees on our combined balance sheet and the maximum potential payment under these guarantees was $22 million. Substantially all of these guarantees expire at various times through 2018.
Leases
Rental expenses were $169 million in 2011, $168 million in 2010 and $178 million in 2009. As of December 31, 2011, minimum rental commitments under non-cancelable operating leases in effect at year-end were (in millions):
2012 |
2013 | 2014 | 2015 | 2016 | Thereafter | Total | ||||||
$118 | $100 | $75 | $54 | $39 | $ 117 | $503 |
Note 13. Income Taxes
Our income taxes were calculated on a separate tax return basis, although our operations have historically been included in Kraft ParentCos U.S. federal, state and foreign tax returns. Kraft ParentCos global tax model has been developed based on its entire portfolio of businesses. Accordingly, our tax results as presented are not necessarily indicative of future performance and do not necessarily reflect the results that we would have generated as an independent, publicly traded company for the periods presented.
F-30
Earnings from continuing operations before income taxes and the provision for income taxes consisted of the following for the years ended December 31, 2011, 2010 and 2009:
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Earnings from continuing operations before income taxes: |
||||||||||||
United States |
$ | 2,672 | $ | 2,704 | $ | 2,758 | ||||||
Outside United States |
297 | 293 | 230 | |||||||||
|
|
|
|
|
|
|||||||
$ | 2,969 | $ | 2,997 | $ | 2,988 | |||||||
|
|
|
|
|
|
|||||||
Provision for income taxes: |
||||||||||||
United States federal: |
||||||||||||
Current |
$ | 816 | $ | 1,000 | $ | 848 | ||||||
Deferred |
53 | (88 | ) | (15 | ) | |||||||
|
|
|
|
|
|
|||||||
869 | 912 | 833 | ||||||||||
State and local: |
||||||||||||
Current |
170 | 115 | 87 | |||||||||
Deferred |
10 | (7 | ) | (1 | ) | |||||||
|
|
|
|
|
|
|||||||
180 | 108 | 86 | ||||||||||
|
|
|
|
|
|
|||||||
Total United States |
1,049 | 1,020 | 919 | |||||||||
|
|
|
|
|
|
|||||||
Outside United States: |
||||||||||||
Current |
75 | 69 | 111 | |||||||||
Deferred |
6 | 21 | 6 | |||||||||
|
|
|
|
|
|
|||||||
Total outside United States |
81 | 90 | 117 | |||||||||
|
|
|
|
|
|
|||||||
Total provision for income taxes |
$ | 1,130 | $ | 1,110 | $ | 1,036 | ||||||
|
|
|
|
|
|
The 2010 earnings and gain from discontinued operations from the sale of the Frozen Pizza business included tax expense of $1.2 billion.
As of January 1, 2011, our unrecognized tax benefits were $329 million. If we had recognized all of these benefits, the net impact on our income tax provision would have been $190 million. Our unrecognized tax benefits were $371 million at December 31, 2011, and if we had recognized all of these benefits, the net impact on our income tax provision would have been $229 million. The amount of unrecognized tax benefits could decrease by approximately $75-$100 million during the next 12 months due to the potential resolution of certain U.S. federal and state examinations. We include accrued interest and penalties related to uncertain tax positions in our tax provision. We had accrued interest and penalties of $62 million as of January 1, 2011 and $80 million as of December 31, 2011. Our 2011 provision for income taxes included $22 million net expense for interest and penalties and we paid interest and penalties of $4 million during 2011.
F-31
The changes in our unrecognized tax benefits for the years ended December 31, 2011, 2010 and 2009 were:
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Balance at January 1 |
$ | 329 | $ | 237 | $ | 262 | ||||||
Increases from positions taken during prior periods |
34 | 3 | 27 | |||||||||
Decreases from positions taken during prior periods |
(19 | ) | (21 | ) | (65 | ) | ||||||
Increases from positions taken during the current period |
33 | 104 | 32 | |||||||||
(Decreases) / increases relating to settlements with taxing authorities |
(13 | ) | 5 | (20 | ) | |||||||
Currency / other |
7 | 1 | 1 | |||||||||
|
|
|
|
|
|
|||||||
Balance at December 31 |
$ | 371 | $ | 329 | $ | 237 | ||||||
|
|
|
|
|
|
We are regularly examined by U.S. federal, state and foreign tax authorities. The U.S. federal statute of limitations remains open for the year 2004 and onward. The U.S. Internal Revenue Service (IRS) is currently examining our 2004-2006 tax returns and we expect this examination to close during 2012. Our income tax filings are also currently under examination by tax authorities in various U.S. state jurisdictions. U.S. state jurisdictions have statutes of limitations generally ranging from three to five years. In Canada, our only significant foreign jurisdiction, the earliest open tax year is 2003 and our tax filings for 2003-2006 are currently under examination. At December 31, 2011, applicable U.S. federal income taxes and foreign withholding taxes had not been provided on approximately $815 million of accumulated earnings of foreign subsidiaries that are expected to be permanently reinvested. It is impractical for us to determine the amount of unrecognized deferred tax liabilities on these permanently reinvested earnings.
The effective income tax rate on pre-tax earnings differed from the U.S. federal statutory rate for the following reasons for the years ended December 31, 2011, 2010 and 2009:
2011 | 2010 | 2009 | ||||||||||
U.S. federal statutory rate |
35.0% | 35.0% | 35.0% | |||||||||
Increase / (decrease) resulting from: |
||||||||||||
U.S. state and local income taxes, net of federal tax benefit excluding IRS audit impacts |
3.9% | 2.7% | 2.8% | |||||||||
U.S. federal and state reserves on IRS audit settlements |
1.1% | (0.7% | ) | (0.5% | ) | |||||||
Reversal of other tax accruals no longer required |
| | (0.5% | ) | ||||||||
Domestic manufacturing deduction |
(1.7% | ) | (2.1% | ) | (1.3% | ) | ||||||
U.S. health care legislation |
| 2.6% | | |||||||||
Foreign rate differences |
(0.5% | ) | (0.8% | ) | (0.1% | ) | ||||||
Other |
0.3% | 0.3% | (0.7% | ) | ||||||||
|
|
|
|
|
|
|||||||
Effective tax rate |
38.1% | 37.0% | 34.7% | |||||||||
|
|
|
|
|
|
Our 2011 effective tax rate included net tax costs of $52 million from discrete one-time events, primarily from various U.S. federal and state tax audit developments during the year as well as the revaluation of state deferred tax assets and liabilities resulting from state tax legislation enacted in 2011.
Our 2010 effective tax rate included net tax costs of $32 million, primarily due to a $79 million write-off of deferred tax assets as a result of the U.S. health care legislation enacted in March 2010 partially offset by the federal and state impacts from the favorable resolution of a federal tax audit.
Our 2009 effective tax rate included net tax benefits of $52 million, primarily due to settlements with various state tax authorities and an agreement we reached with the IRS on specific matters related to years 2000 through 2003.
F-32
The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities consisted of the following at December 31, 2011 and 2010:
2011 | 2010 | |||||||
(in millions) | ||||||||
Deferred income tax assets: |
||||||||
Employee benefits |
$ | 143 | $ | 115 | ||||
Net operating losses |
18 | 20 | ||||||
Promotion related |
70 | 89 | ||||||
Other |
320 | 319 | ||||||
|
|
|
|
|||||
Total deferred income tax assets |
551 | 543 | ||||||
|
|
|
|
|||||
Valuation allowance |
| | ||||||
|
|
|
|
|||||
Net deferred income tax assets |
$ | 551 | $ | 543 | ||||
|
|
|
|
|||||
Deferred income tax liabilities: |
||||||||
Trade names |
$ | (952 | ) | $ | (949 | ) | ||
Property, plant and equipment |
(958 | ) | (887 | ) | ||||
Other |
(12 | ) | (60 | ) | ||||
|
|
|
|
|||||
Total deferred income tax liabilities |
(1,922 | ) | (1,896 | ) | ||||
|
|
|
|
|||||
Net deferred income tax liabilities |
$ | (1,371 | ) | $ | (1,353 | ) | ||
|
|
|
|
Note 14. Earnings Per Share
Basic and diluted earnings per share were calculated using the following:
2011 | 2010 | 2009 | ||||||||||
(in millions, except per share data) | ||||||||||||
Earnings from continuing operations |
$ | 1,839 | $ | 1,887 | $ | 1,952 | ||||||
Earnings and gain from discontinued operations, net of income taxes |
| 1,644 | 218 | |||||||||
|
|
|
|
|
|
|||||||
Net earnings |
$ | 1,839 | $ | 3,531 | $ | 2,170 | ||||||
|
|
|
|
|
|
|||||||
Basic and diluted average shares outstanding |
592 | 592 | 592 | |||||||||
Basic and diluted earnings per share: |
||||||||||||
Continuing operations |
$ | 3.11 | $ | 3.19 | $ | 3.30 | ||||||
Discontinued operations |
| 2.77 | 0.36 | |||||||||
|
|
|
|
|
|
|||||||
Net earnings |
$ | 3.11 | $ | 5.96 | $ | 3.66 | ||||||
|
|
|
|
|
|
On October 1, 2012, Kraft Foods Group issued 592 million shares of Kraft Foods Group common stock. Holders of Mondelēz International common stock received one share of Kraft Foods Group common stock for every three shares of common stock of Mondelēz International held on September 19, 2012. Basic and diluted earnings per common share and the average number of common shares outstanding were retrospectively restated for the number of Kraft Foods Group shares outstanding immediately following this transaction. The same number of shares was used to calculate basic and diluted earnings per share since no Kraft Foods Group equity awards were outstanding prior to the Spin-Off. Diluted earnings per share subsequent to the Spin-Off will reflect the potential dilution of any Kraft Foods Group outstanding stock-based awards.
Note 15. Segment Reporting
We manufacture and market food and beverage products, including convenient meals, refreshment beverages and coffee, cheese and other grocery products, primarily in the United States and Canada. We manage
F-33
and report operating results through five reportable segments. Our reportable segments are U.S. Beverages, U.S. Cheese, U.S. Convenient Meals, U.S. Grocery and Canada & N.A. Foodservice. In conjunction with the Spin-Off, we include the Planters and Corn Nuts businesses within our U.S. Grocery segment and our Puerto Rico and export operations within our Canada & N.A. Foodservice segment.
Management uses segment operating income to evaluate segment performance and allocate resources. We believe it is appropriate to disclose this measure to help investors analyze segment performance and trends. Segment operating income excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), certain components of our U.S. pension plan cost (which is a component of cost of sales and selling, general and administrative expenses) and general corporate expenses (which are a component of selling, general and administrative expenses). We exclude certain components of our U.S. pension plan cost from segment operating income because Kraft ParentCo centrally manages pension plan funding decisions and the determination of discount rate, expected rate of return on plan assets and other actuarial assumptions. Therefore, we allocate only the service cost component of our U.S. pension plan expense to segment operating income. We exclude the unrealized gains and losses on hedging activities from segment operating income in order to provide better transparency of our segment operating results. Once realized, the gains and losses on hedging activities are recorded within segment operating results. Furthermore, we centrally manage interest and other expense, net. Accordingly, we do not present these items by segment because they are excluded from the segment profitability measure that management reviews. We use the same accounting policies for the segments as those described in Note 2, Summary of Significant Accounting Policies.
Our fiscal year end is December 31. Our operating subsidiaries report results on the last Saturday of the fiscal year. Because we report results on the last Saturday of the year, and December 31, 2011 fell on a Saturday, our 2011 results included the 53 rd week of operating results. We estimate that the extra week positively impacted net revenues by approximately $225 million and operating income by approximately $63 million in 2011.
Our segment operating results consisted of:
For the Years
Ended
December 31, |
||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Net revenues: |
||||||||||||
U.S. Beverages |
$ | 3,028 | $ | 3,236 | $ | 3,081 | ||||||
U.S. Cheese |
3,832 | 3,548 | 3,632 | |||||||||
U.S. Convenient Meals |
3,337 | 3,133 | 3,032 | |||||||||
U.S. Grocery |
4,593 | 4,333 | 4,298 | |||||||||
Canada & N.A. Foodservice |
3,865 | 3,547 | 3,235 | |||||||||
|
|
|
|
|
|
|||||||
Net revenues |
$ | 18,655 | $ | 17,797 | $ | 17,278 | ||||||
|
|
|
|
|
|
F-34
For the Years
Ended
December 31, |
||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Earnings from continuing operations before income taxes: |
||||||||||||
Operating income: |
||||||||||||
U.S. Beverages |
$ | 450 | $ | 564 | $ | 511 | ||||||
U.S. Cheese |
629 | 598 | 667 | |||||||||
U.S. Convenient Meals |
319 | 268 | 234 | |||||||||
U.S. Grocery |
1,316 | 1,246 | 1,187 | |||||||||
Canada & N.A. Foodservice |
482 | 474 | 405 | |||||||||
Unrealized gains / (losses) on hedging activities |
(63 | ) | 29 | 165 | ||||||||
Certain U.S. pension plan costs |
(155 | ) | (144 | ) | (133 | ) | ||||||
General corporate expenses |
(55 | ) | (74 | ) | (61 | ) | ||||||
|
|
|
|
|
|
|||||||
Operating income |
2,923 | 2,961 | 2,975 | |||||||||
Interest and other expense, net |
(9 | ) | (7 | ) | (34 | ) | ||||||
Royalty income from affiliates |
55 | 43 | 47 | |||||||||
|
|
|
|
|
|
|||||||
Earnings from continuing operations before income taxes |
$ | 2,969 | $ | 2,997 | $ | 2,988 | ||||||
|
|
|
|
|
|
Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 24% of combined net revenues in 2011, 25% in 2010 and 24% in 2009.
On March 1, 2011, Starbucks, without our authorization and in what we contend is a violation and breach of our agreements with Starbucks, took control of the Starbucks CPG business in grocery stores and other channels. The dispute is pending arbitration in Chicago, Illinois. We are seeking appropriate remedies, including but not limited to payment of the fair market value of our supply and license agreement with Starbucks relating to the Starbucks CPG business, plus the premium this agreement specifies. Starbucks has counterclaimed for unspecified damages. The arbitration proceeding is set to begin on July 11, 2012. The results of the Starbucks CPG business were included primarily in our U.S. Beverages and Canada & N.A. Foodservice segments through March 1, 2011.
Total assets, depreciation expense and capital expenditures by segment were:
As of December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Total assets: |
||||||||||||
U.S. Beverages |
$ | 2,836 | $ | 2,512 | $ | 2,381 | ||||||
U.S. Cheese |
4,156 | 4,633 | 4,589 | |||||||||
U.S. Convenient Meals |
2,151 | 2,064 | 3,063 | |||||||||
U.S. Grocery |
7,723 | 8,029 | 7,995 | |||||||||
Canada & N.A. Foodservice |
3,194 | 3,244 | 3,108 | |||||||||
Unallocated assets (1) |
1,479 | 1,116 | 1,053 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 21,539 | $ | 21,598 | $ | 22,189 | ||||||
|
|
|
|
|
|
(1) | Unallocated assets consist primarily of deferred income taxes, centrally held property, plant and equipment, prepaid pension assets and derivative financial instrument balances. |
F-35
For the Years
Ended
December 31, |
||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Depreciation expense: |
||||||||||||
U.S. Beverages |
$ | 66 | $ | 73 | $ | 69 | ||||||
U.S. Cheese |
80 | 67 | 66 | |||||||||
U.S. Convenient Meals |
83 | 61 | 67 | |||||||||
U.S. Grocery |
97 | 98 | 92 | |||||||||
Canada & N.A. Foodservice |
38 | 38 | 36 | |||||||||
|
|
|
|
|
|
|||||||
Totalcontinuing operations |
364 | 337 | 330 | |||||||||
Discontinued operations |
| 16 | 17 | |||||||||
|
|
|
|
|
|
|||||||
Total depreciation expense |
$ | 364 | $ | 353 | $ | 347 | ||||||
|
|
|
|
|
|
For the Years
Ended
December 31, |
||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Capital expenditures: |
||||||||||||
U.S. Beverages |
$ | 121 | $ | 88 | $ | 82 | ||||||
U.S. Cheese |
72 | 88 | 72 | |||||||||
U.S. Convenient Meals |
88 | 109 | 135 | |||||||||
U.S. Grocery |
79 | 96 | 104 | |||||||||
Canada & N.A. Foodservice |
41 | 65 | 59 | |||||||||
|
|
|
|
|
|
|||||||
Totalcontinuing operations |
401 | 446 | 452 | |||||||||
Discontinued operations |
| 2 | 61 | |||||||||
|
|
|
|
|
|
|||||||
Total capital expenditures |
$ | 401 | $ | 448 | $ | 513 | ||||||
|
|
|
|
|
|
Geographic data for net revenues, long-lived assets and total assets were:
For the Years
Ended
December 31, |
||||||||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Net revenues: |
||||||||||||
United States |
$ | 16,389 | $ | 15,719 | $ | 15,443 | ||||||
Canada |
2,266 | 2,078 | 1,835 | |||||||||
|
|
|
|
|
|
|||||||
Total net revenues |
$ | 18,655 | $ | 17,797 | $ | 17,278 | ||||||
|
|
|
|
|
|
|||||||
2011 | 2010 | 2009 | ||||||||||
(in millions) | ||||||||||||
Long-lived assets: |
||||||||||||
United States |
$ | 16,750 | $ | 16,752 | $ | 17,468 | ||||||
Canada |
1,517 | 1,539 | 1,462 | |||||||||
|
|
|
|
|
|
|||||||
Total long-lived assets |
$ | 18,267 | $ | 18,291 | $ | 18,930 | ||||||
|
|
|
|
|
|
|||||||
Total assets: |
||||||||||||
United States |
$ | 19,624 | $ | 19,643 | $ | 20,343 | ||||||
Canada |
1,915 | 1,955 | 1,846 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 21,539 | $ | 21,598 | $ | 22,189 | ||||||
|
|
|
|
|
|
F-36
Valuation and Qualifying Accounts
For the Years Ended December 31, 2011, 2010 and 2009
(in millions)
Additions | ||||||||||||||||||||
Description |
Balance at
Beginning of Period |
Charged to
Costs and Expenses |
Charged to
Other Accounts |
Deductions |
Balance at
End of Period |
|||||||||||||||
(a) | (b) | |||||||||||||||||||
2011: |
||||||||||||||||||||
Allowances related to accounts receivable |
$ | 22 | $ | 5 | $ | (2 | ) | $ | 2 | $ | 23 | |||||||||
2010: |
||||||||||||||||||||
Allowances related to accounts receivable |
28 | (1 | ) | 4 | 9 | 22 | ||||||||||||||
2009: |
||||||||||||||||||||
Allowances related to accounts receivable |
33 | 7 | (1 | ) | 11 | 28 |
Notes:
(a) | Primarily related to currency translation. |
(b) | Represents charges for which allowances were created. |
F-37
Kraft Foods Group, Inc.
Computation of Ratios of Earnings to Fixed Charges
(in millions, except ratios)
Years Ended December 31, | ||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
Earnings from continuing operations before income taxes |
$ | 2,969 | $ | 2,997 | $ | 2,988 | $ | 2,181 | $ | 2,458 | ||||||||||
Add / (Deduct): |
||||||||||||||||||||
Fixed charges |
67 | 65 | 96 | 80 | 70 | |||||||||||||||
Interest capitalized, net of amortization |
1 | 1 | | (2 | ) | (3 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Earnings available for fixed charges |
$ | 3,037 | $ | 3,063 | $ | 3,084 | $ | 2,259 | $ | 2,525 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Fixed charges: |
||||||||||||||||||||
Interest incurred: |
||||||||||||||||||||
Interest expense (a) |
$ | 10 | $ | 8 | $ | 35 | $ | 26 | $ | 21 | ||||||||||
Capitalized interest |
1 | 1 | 2 | 3 | 5 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
11 | 9 | 37 | 29 | 26 | ||||||||||||||||
Portion of rent expense deemed to represent interest factor |
56 | 56 | 59 | 51 | 44 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Fixed charges |
$ | 67 | $ | 65 | $ | 96 | $ | 80 | $ | 70 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ratio of earnings to fixed charges |
45.3 | 47.1 | 32.1 | 28.2 | 36.1 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
Notes:
(a) | Excludes interest related to uncertain tax positions, which is recorded in our tax provision. |
F-38
Condensed Combined Statements of Earnings
(in millions of U.S. dollars, except per share data)
(Unaudited)
For the Three
Months
Ended September 30, |
For the Nine Months
Ended September 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net revenues |
$ | 4,606 | $ | 4,474 | $ | 13,845 | $ | 13,620 | ||||||||
Cost of sales |
3,018 | 3,110 | 9,139 | 9,193 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
1,588 | 1,364 | 4,706 | 4,427 | ||||||||||||
Selling, general and administrative expenses |
782 | 658 | 2,158 | 2,131 | ||||||||||||
Asset impairment and exit costs |
44 | (2 | ) | 156 | (2 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
762 | 708 | 2,392 | 2,298 | ||||||||||||
Interest and other expense, net |
(106 | ) | (3 | ) | (129 | ) | (6 | ) | ||||||||
Royalty income from affiliates |
13 | 14 | 41 | 37 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings before income taxes |
669 | 719 | 2,304 | 2,329 | ||||||||||||
Provision for income taxes |
199 | 302 | 763 | 891 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net earnings |
$ | 470 | $ | 417 | $ | 1,541 | $ | 1,438 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Per share data (1) : |
||||||||||||||||
Basic and diluted earnings per share |
$ | 0.79 | $ | 0.70 | $ | 2.60 | $ | 2.43 | ||||||||
|
|
|
|
|
|
|
|
(1) | On October 1, 2012, Mondelēz International distributed 592 million shares of Kraft Foods Group common stock to Mondelēz Internationals shareholders in connection with its spin-off of Kraft Foods Group. Basic and diluted earnings per common share and the average number of common shares outstanding were retrospectively restated for the number of Kraft Foods Group shares outstanding immediately following this transaction. |
See accompanying notes to the condensed combined financial statements.
F-39
Condensed Combined Statements of Comprehensive Earnings
(in millions of U.S. dollars)
(Unaudited)
For the Three Months
Ended September 30, |
For the Nine Months
Ended September 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net earnings |
$ | 470 | $ | 417 | $ | 1,541 | $ | 1,438 | ||||||||
Other comprehensive earnings / (losses): |
||||||||||||||||
Currency translation adjustment: |
||||||||||||||||
Translation adjustment |
52 | (47 | ) | 52 | (77 | ) | ||||||||||
Pension and other benefits: |
||||||||||||||||
Net actuarial (loss) / gain arising during period |
(3 | ) | 8 | (11 | ) | 8 | ||||||||||
Reclassification adjustment for losses included in net earnings due to amortization of experience losses and prior service costs |
5 | 4 | 16 | 10 | ||||||||||||
Tax expense |
(1 | ) | (4 | ) | (1 | ) | (6 | ) | ||||||||
Derivatives accounted for as hedges: |
||||||||||||||||
Net derivative (losses) / gains |
(16 | ) | 7 | (300 | ) | 19 | ||||||||||
Reclassification adjustment for losses / (gains) included in net earnings |
28 | (23 | ) | 82 | (67 | ) | ||||||||||
Tax (expense) / benefit |
(6 | ) | 7 | 83 | 18 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other comprehensive earnings / (losses) |
59 | (48 | ) | (79 | ) | (95 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive earnings |
$ | 529 | $ | 369 | $ | 1,462 | $ | 1,343 | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes to the condensed combined financial statements.
F-40
Condensed Combined Balance Sheets
(in millions of U.S. dollars)
(Unaudited)
September 30,
2012 |
December 31,
2011 |
|||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 244 | $ | | ||||
Receivables (net of allowances of $23 in 2012 and 2011) |
1,157 | 903 | ||||||
Inventories, net |
2,090 | 1,943 | ||||||
Deferred income taxes |
208 | 232 | ||||||
Other current assets |
206 | 194 | ||||||
|
|
|
|
|||||
Total current assets |
3,905 | 3,272 | ||||||
Property, plant and equipment, net |
4,211 | 4,278 | ||||||
Goodwill |
11,364 | 11,316 | ||||||
Intangible assets, net |
2,632 | 2,630 | ||||||
Other assets |
172 | 43 | ||||||
|
|
|
|
|||||
TOTAL ASSETS |
$ | 22,284 | $ | 21,539 | ||||
|
|
|
|
|||||
LIABILITIES |
||||||||
Current portion of long-term debt |
$ | 6 | $ | 8 | ||||
Accounts payable |
1,510 | 1,447 | ||||||
Accrued marketing |
458 | 575 | ||||||
Accrued employment costs |
178 | 242 | ||||||
Other current liabilities |
417 | 300 | ||||||
|
|
|
|
|||||
Total current liabilities |
2,569 | 2,572 | ||||||
Long-term debt |
9,568 | 27 | ||||||
Deferred income taxes |
2,047 | 1,603 | ||||||
Accrued pension costs |
105 | 117 | ||||||
Other liabilities |
537 | 621 | ||||||
|
|
|
|
|||||
TOTAL LIABILITIES |
14,826 | 4,940 | ||||||
Commitments and Contingencies (Note 11) |
||||||||
EQUITY |
||||||||
Parent company investment |
7,918 | 16,976 | ||||||
Accumulated other comprehensive losses |
(460 | ) | (377 | ) | ||||
|
|
|
|
|||||
TOTAL EQUITY |
7,458 | 16,599 | ||||||
|
|
|
|
|||||
TOTAL LIABILITIES AND EQUITY |
$ | 22,284 | $ | 21,539 | ||||
|
|
|
|
See accompanying notes to the condensed combined financial statements.
F-41
Condensed Combined Statements of Equity
(in millions of U.S. dollars)
(Unaudited)
Parent
Company Investment |
Accumulated
Other Comprehensive Earnings/ (Losses) |
Total
Equity |
||||||||||
Balances at December 31, 2010 |
$ | 17,210 | $ | (171 | ) | $ | 17,039 | |||||
Net earnings |
1,839 | | $ | 1,839 | ||||||||
Other comprehensive losses, net of income taxes |
| (206 | ) | $ | (206 | ) | ||||||
Net transfers to Mondelēz International |
(2,073 | ) | | $ | (2,073 | ) | ||||||
|
|
|
|
|
|
|||||||
Balances at December 31, 2011 |
$ | 16,976 | $ | (377 | ) | $ | 16,599 | |||||
Net earnings |
1,541 | | $ | 1,541 | ||||||||
Other comprehensive losses, net of income taxes |
| (79 | ) | $ | (79 | ) | ||||||
Net transfers to / from Mondelēz International |
(10,599 | ) | (4 | ) | $ | (10,603 | ) | |||||
|
|
|
|
|
|
|||||||
Balances at September 30, 2012 |
$ | 7,918 | $ | (460 | ) | $ | 7,458 | |||||
|
|
|
|
|
|
See accompanying notes to the condensed combined financial statements.
F-42
Condensed Combined Statements of Cash Flows
(in millions of U.S. dollars)
(Unaudited)
For the Nine Months
Ended September 30, |
||||||||
2012 | 2011 | |||||||
CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES |
||||||||
Net earnings |
$ | 1,541 | $ | 1,438 | ||||
Adjustments to reconcile net earnings to operating cash flows: |
||||||||
Depreciation and amortization |
261 | 269 | ||||||
Stock-based compensation expense |
39 | 39 | ||||||
Deferred income tax provision |
583 | 43 | ||||||
Asset impairments |
65 | | ||||||
Other non-cash expense, net |
128 | (28 | ) | |||||
Change in assets and liabilities: |
||||||||
Receivables, net |
(230 | ) | 87 | |||||
Inventories, net |
(144 | ) | (453 | ) | ||||
Accounts payable |
54 | 105 | ||||||
Other current assets |
(27 | ) | 17 | |||||
Other current liabilities |
(200 | ) | 533 | |||||
Change in pension and postretirement assets and liabilities, net |
(3 | ) | (5 | ) | ||||
|
|
|
|
|||||
Net cash provided by operating activities |
2,067 | 2,045 | ||||||
|
|
|
|
|||||
CASH PROVIDED BY / (USED IN) INVESTING ACTIVITIES |
||||||||
Capital expenditures |
(282 | ) | (267 | ) | ||||
Proceeds from sale of property, plant and equipment and other |
3 | | ||||||
|
|
|
|
|||||
Net cash used in investing activities |
(279 | ) | (267 | ) | ||||
|
|
|
|
|||||
CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES |
||||||||
Net repayment of short-term borrowings |
| (6 | ) | |||||
Long-term debt proceeds |
5,957 | | ||||||
Net transfers to Mondelēz International |
(7,220 | ) | (1,805 | ) | ||||
Other |
(285 | ) | 33 | |||||
|
|
|
|
|||||
Net cash used in financing activities |
(1,548 | ) | (1,778 | ) | ||||
|
|
|
|
|||||
Effect of exchange rate changes on cash and cash equivalents |
4 | | ||||||
|
|
|
|
|||||
Cash and cash equivalents: |
||||||||
Increase |
244 | | ||||||
Balance at beginning of period |
| 2 | ||||||
|
|
|
|
|||||
Balance at end of period |
$ | 244 | $ | 2 | ||||
|
|
|
|
See accompanying notes to the condensed combined financial statements.
F-43
Notes to Condensed Combined Financial Statements
(Unaudited)
Note 1. Background and Basis of Presentation
These condensed combined financial statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of Mondelēz International, Inc. (Mondelēz International, formerly known as Kraft Foods Inc.). The condensed combined financial statements reflect our financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (U.S. GAAP). We manufacture and market food and beverage products, including refrigerated meals, refreshment beverages and coffee, cheese and other grocery products, primarily in the United States and Canada.
The condensed combined balance sheet data as of December 31, 2011 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Our interim condensed combined financial statements are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. You should read these statements in conjunction with our audited combined financial statements as of December 31, 2011 and related notes thereto included in our registration statement on Form 10, which the SEC declared effective on August 17, 2012 (Form 10). It is managements opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of our financial position and operating results. Net revenues and net earnings for any interim period are not necessarily indicative of future or annual results.
Our condensed combined financial statements include certain expenses of Mondelēz International which were allocated to us for certain functions, including general corporate expenses related to finance, legal, information technology, human resources, compliance, shared services, insurance, employee benefits and incentives and stock-based compensation. These expenses have been allocated in our historical results of operations on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenue, operating income or headcount. We consider the expense allocation methodology and results to be reasonable for all periods presented. However, these allocations may not be indicative of the actual expenses we would have incurred as an independent public company or of the costs we will incur in the future, and may differ substantially from the allocations we agreed to in the various separation agreements.
Mondelēz International maintained a number of benefit programs at a corporate level. Our employees participated in those programs and, as such, we were allocated a portion of the expenses associated with those programs. Any benefit plan net liabilities that are our direct obligation, such as certain Canadian pension and North American postemployment plans, are reflected in our condensed combined balance sheets as well as within our other operating results. On October 1, 2012, we recorded $5.5 billion of net benefit plan obligations related to our pension and other postretirement benefit plans and will reflect them on our balance sheet as of December 31, 2012. Accordingly, our total net pension and postretirement benefit plan obligations were $5.6 billion as of October 1, 2012. See Note 9, Pension, Postretirement and Postemployment Benefit Plans, for further description of these benefit programs.
We also generated a portion of our net revenues from sales to Mondelēz Internationals subsidiaries. Included in our condensed combined financial statements were net revenues from intercompany sales of $23 million in the three months and $77 million in the nine months ended September 30, 2012 and $26 million in the three months and $74 million in the nine months ended September 30, 2011. Intercompany receivables and payables with Mondelēz International are reflected within parent company investment in the accompanying condensed combined financial statements.
Mondelēz International paid royalties to us under various royalty arrangements. Amounts outstanding under these arrangements are considered settled for cash at the end of each reporting period and, as such, are included
F-44
in parent company investment. Royalty income from affiliates was $13 million in the three months and $41 million in the nine months ended September 30, 2012 and $14 million in the three months and $37 million in the nine months ended September 30, 2011. Following our spin-off from Mondelēz International, we no longer receive this royalty income because we do not retain the rights to the intellectual property underlying this royalty income.
Historically, Mondelēz International provided financing, cash management and other treasury services to us. Certain cash balances were swept by Mondelēz International and historically, we received funding from Mondelēz International for our operating and investing cash needs. In advance of our spin-off from Mondelēz International, we modified some of these arrangements and retained $244 million of cash. Cash transferred to and from Mondelēz International has historically been recorded as intercompany payables and receivables which are reflected in parent company investment in the accompanying condensed combined financial statements.
New Accounting Pronouncements:
In July 2012, the Financial Accounting Standards Board issued an accounting standard update to simplify how entities test indefinite-lived intangible assets for impairment. An entity now has the option to first assess qualitative factors to determine whether it is more likely than not that the asset may be impaired. If, after assessing the totality of events and circumstances, impairment is determined to be not likely, then performing the quantitative two-step impairment test would not be required. The update is effective for annual indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. We plan to adopt the accounting standard update in the quarter ended December 31, 2012 ahead of our annual intangible asset impairment testing. The new guidance will not have an impact on our financial results but is expected to simplify the indefinite-lived intangible asset testing we do on an annual basis.
Subsequent Events:
We evaluated subsequent events and have reflected accounting and disclosure requirements related to material subsequent events in our financial statements and related notes.
Note 2. Spin-Off Transaction
On October 1, 2012, Mondelēz International created an independent public company through a spin-off of the North American grocery business to Mondelēz Internationals shareholders (Spin-Off). To effect the separation, Mondelēz International undertook a series of transactions to separate net assets and entities. As a result of these transactions, Mondelēz International now holds the global snacks business, and Kraft Foods Group is comprised of the North American grocery business. As a result of the Spin-Off, we now operate as an independent, publicly traded company. Our reportable segments are Beverages (formerly known as U.S. Beverages), Cheese (formerly known as U.S. Cheese), Refrigerated Meals (formerly known as U.S. Convenient Meals), Grocery (formerly known as U.S. Grocery) and International & Foodservice (formerly known as Canada & N.A. Foodservice).
In conjunction with the Spin-Off, on October 1, 2012, Mondelēz International distributed 592 million shares of Kraft Foods Group common stock to Mondelēz Internationals shareholders. Holders of Mondelēz International common stock received one share of Kraft Foods Group common stock for every three shares of Mondelēz International common stock held on September 19, 2012. Mondelēz International structured the distribution to be tax free to its U.S. shareholders for U.S. federal income tax purposes.
F-45
Note 3. Inventories
Inventories at September 30, 2012 and December 31, 2011 were:
September 30,
2012 |
December 31,
2011 |
|||||||
(in millions) | ||||||||
Raw materials |
$ | 607 | $ | 562 | ||||
Work in process |
331 | 373 | ||||||
Finished product |
1,152 | 1,008 | ||||||
|
|
|
|
|||||
Inventories, net |
$ | 2,090 | $ | 1,943 | ||||
|
|
|
|
Note 4. Property, Plant and Equipment
Property, plant and equipment at September 30, 2012 and December 31, 2011 were:
September 30,
2012 |
December 31,
2011 |
|||||||
(in millions) | ||||||||
Land and land improvements |
$ | 124 | $ | 124 | ||||
Buildings and building improvements |
2,016 | 1,984 | ||||||
Machinery and equipment |
5,934 | 5,764 | ||||||
Construction in progress |
285 | 297 | ||||||
|
|
|
|
|||||
8,359 | 8,169 | |||||||
Accumulated depreciation |
(4,148 | ) | (3,891 | ) | ||||
|
|
|
|
|||||
Property, plant and equipment, net |
$ | 4,211 | $ | 4,278 | ||||
|
|
|
|
Note 5. Goodwill and Intangible Assets
Goodwill by reportable segment at September 30, 2012 and December 31, 2011 was:
September 30,
2012 |
December 31,
2011 |
|||||||
(in millions) | ||||||||
Beverages |
$ | 1,290 | $ | 1,290 | ||||
Cheese |
3,000 | 3,000 | ||||||
Refrigerated Meals |
985 | 985 | ||||||
Grocery |
4,216 | 4,216 | ||||||
International & Foodservice |
1,873 | 1,825 | ||||||
|
|
|
|
|||||
Goodwill |
$ | 11,364 | $ | 11,316 | ||||
|
|
|
|
Intangible assets were $2.6 billion at September 30, 2012 and December 31, 2011 and consist principally of trademarks purchased through the acquisition of Nabisco Holdings Corp.
Changes in goodwill and intangible assets consisted of:
Goodwill |
Intangible
Assets |
|||||||
(in millions) | ||||||||
Balance at January 1, 2012 |
$ | 11,316 | $ | 2,630 | ||||
Changes due to foreign currency |
48 | 2 | ||||||
|
|
|
|
|||||
Balance at September 30, 2012 |
$ | 11,364 | $ | 2,632 | ||||
|
|
|
|
F-46
Note 6. Restructuring Program
On October 29, 2012, our Board of Directors approved a $650 million restructuring program consisting of restructuring costs, implementation costs and Spin-Off transition costs (Restructuring Program). Approximately one-half of the total Restructuring Program costs are expected to result in cash expenditures. The Restructuring Program is part of, and its costs are consistent with, a restructuring program previously announced by Mondelēz International prior to the Spin-Off. The primary objective of the Restructuring Program activities is to ensure that we are set up to operate efficiently and execute our business strategy as a stand-alone company. We have incurred $170 million of Restructuring Program costs, off which $32 million were cash expenditures in the nine months ended September 30, 2012. We expect to incur approximately $225 million of Restructuring Program costs in the last three months of 2012. In addition to approving the Restructuring Program, our Board approved related capital expenditures of $200 million. We expect to complete the program by the end of 2014.
Restructuring Costs:
We anticipate incurring approximately $490 million of restructuring charges, of which approximately $180 million are expected to be cash expenditures through 2014. These charges reflect primarily severance, asset disposals and other manufacturing-related one-time costs. We recorded one-time restructuring charges of $44 million in the three months and $156 million in the nine months ended September 30, 2012 within asset impairment and exit costs. We spent $7 million in the three months and $32 million in the nine months ended September 30, 2012 in cash, and we also recognized non-cash asset write-downs totaling $16 million in the three months and $65 million in the nine months ended September 30, 2012. At September 30, 2012, a $35 million restructuring liability was recorded within other current liabilities.
Severance
and related costs |
Asset
Write-downs |
Total | ||||||||||
(in millions) | ||||||||||||
Liability balance, January 1, 2012 |
$ | | $ | | $ | | ||||||
Charges |
91 | 65 | 156 | |||||||||
Cash spent |
(32 | ) | | (32 | ) | |||||||
Non-cash settlements |
(24 | ) | (65 | ) | (89 | ) | ||||||
|
|
|
|
|
|
|||||||
Liability balance, September 30, 2012 |
$ | 35 | $ | | $ | 35 | ||||||
|
|
|
|
|
|
Implementation Costs:
Implementation costs are directly attributable to restructuring activities; however, they do not qualify for special accounting treatment as exit or disposal activities. We believe the disclosure of implementation costs provides readers of our financial statements greater transparency to the total costs of our Restructuring Program. Through the end of 2014, we expect to incur approximately $90 million of implementation costs. To date, we recorded implementation costs of $10 million in the three months and $14 million in the nine months ended September 30, 2012 within cost of sales and selling, general and administrative expenses. These costs primarily relate to reorganization costs related to our sales function and the optimization of information systems infrastructure.
Spin-Off Transition Costs:
During the nine months ended September 30, 2012, all Spin-Off transition costs were incurred by Mondelēz International. Accordingly, we have not incurred any Spin-Off transition costs as of September 30, 2012. Subsequent to the Spin-Off, we expect to incur approximately $70 million of Spin-Off transition costs including professional service fees within the finance, legal and information system functions.
F-47
Restructuring Program Costs by Segment:
During the three and nine months ended September 30, 2012, we recorded restructuring Program costs within segment operating income as follows:
For the Three Months Ended September 30, 2012 | ||||||||||||||||
Restructuring
Costs |
Implementation
Costs |
Spin-Off
Transition Costs |
Total | |||||||||||||
(in millions) | ||||||||||||||||
Beverages |
$ | 19 | $ | 5 | $ | | $ | 24 | ||||||||
Cheese |
10 | 1 | | 11 | ||||||||||||
Refrigerated Meals |
5 | 1 | | 6 | ||||||||||||
Grocery |
8 | 2 | | 10 | ||||||||||||
International & Foodservice |
2 | 1 | | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 44 | $ | 10 | $ | | $ | 54 | ||||||||
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2012 | ||||||||||||||||
Restructuring
Costs |
Implementation
Costs |
Spin-Off
Transition Costs |
Total | |||||||||||||
(in millions) | ||||||||||||||||
Beverages |
$ | 35 | $ | 6 | $ | | $ | 41 | ||||||||
Cheese |
54 | 2 | | 56 | ||||||||||||
Refrigerated Meals |
16 | 1 | | 17 | ||||||||||||
Grocery |
30 | 3 | | 33 | ||||||||||||
International & Foodservice |
21 | 2 | | 23 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 156 | $ | 14 | $ | | $ | 170 | ||||||||
|
|
|
|
|
|
|
|
Note 7. Debt
Borrowing Arrangements:
On March 8, 2012, in connection with the Spin-Off, we entered into a $4.0 billion 364-day senior unsecured revolving credit facility that was to expire on March 7, 2013. On July 18, 2012, we effected a mandatory $2.6 billion reduction of the unused commitment under the facility, leaving us with $1.4 billion of borrowing capacity under the facility. On September 24, 2012, we terminated this facility with no amounts drawn.
On May 18, 2012, we entered into a $3.0 billion five-year senior unsecured revolving credit facility that expires on May 17, 2017. All committed borrowings under the facility will bear interest at a variable annual rate based on the London Inter-Bank Offered Rate or a defined base rate, at our election, plus an applicable margin based on the ratings of our long-term senior unsecured indebtedness. The revolving credit agreement requires us to maintain a minimum total shareholders equity (excluding accumulated other comprehensive income or losses and any income or losses recognized in connection with mark-to-market accounting in respect of pension and other retirement plans). The revolving credit agreement also contains customary representations, covenants and events of default. We intend to use the proceeds of this facility for general corporate purposes. As of September 30, 2012, no amounts were drawn on this credit facility.
Long-Term Debt:
On June 4, 2012, we issued $6.0 billion of senior unsecured notes at a weighted-average effective rate of 3.938% and transferred the net proceeds of $5.9 billion to Mondelēz International. We also recorded
F-48
approximately $260 million of deferred financing costs, including losses on hedging activities in advance of the debt issuance, which will be recognized in interest expense over the life of the notes. The general terms of the $6.0 billion notes are:
|
$1 billion notes due June 4, 2015 at a fixed, annual interest rate of 1.625%. Interest is payable semiannually beginning December 4, 2012. |
|
$1 billion notes due June 5, 2017 at a fixed, annual interest rate of 2.250%. Interest is payable semiannually beginning December 5, 2012. |
|
$2 billion notes due June 6, 2022 at a fixed, annual interest rate of 3.500%. Interest is payable semiannually beginning December 6, 2012. |
|
$2 billion notes due June 4, 2042 at a fixed, annual interest rate of 5.000%. Interest is payable semiannually beginning December 4, 2012. |
On July 18, 2012, Mondelēz International completed a debt exchange in which $3.6 billion of Mondelēz International debt was exchanged for our debt as part of the Spin-Off capitalization plan. No cash was generated from the exchange. In connection with the debt exchange, we recorded deferred tax liabilities of $411 million. The general terms of the $3.6 billion of notes are:
|
$1,035 million notes due August 23, 2018 at a fixed, annual interest rate of 6.125%. Interest is payable semiannually beginning August 23, 2012. This debt was issued in exchange for $596 million of Mondelēz Internationals 6.125% Notes due in February 2018 and $439 million of Mondelēz Internationals 6.125% Notes due in August 2018. |
|
$900 million notes due February 10, 2020 at a fixed, annual interest rate of 5.375%. Interest is payable semiannually beginning August 10, 2012. This debt was issued in exchange for an approximately equal principal amount of Mondelēz Internationals 5.375% Notes due in February 2020. |
|
$878 million notes due January 26, 2039 at a fixed, annual interest rate of 6.875%. Interest is payable semiannually beginning July 26, 2012. This debt was issued in exchange for approximately $233 million of Mondelēz Internationals 6.875% Notes due in January 2039, approximately $290 million of Mondelēz Internationals 6.875% Notes due in February 2038, approximately $185 million of Mondelēz Internationals 7.000% Notes due in August 2037 and approximately $170 million of Mondelēz Internationals 6.500% Notes due in November 2031. |
|
$787 million notes due February 9, 2040 at a fixed, annual interest rate of 6.500%. Interest is payable semiannually beginning August 9, 2012. This debt was issued in exchange for an approximately equal principal amount of Mondelēz Internationals 6.500% Notes due in 2040. |
On October 1, 2012, Mondelēz International transferred approximately $400 million of Mondelēz International 7.550% senior unsecured notes maturing in June 2015 to us to complete the key elements of the debt migration plan in connection with the Spin-Off.
Fair Value of Our Debt:
The fair value of our long-term debt was determined using Level 1 quoted prices in active markets for the publicly traded debt obligations. The aggregate fair value of our total debt was $11,056 million as compared with the carrying value of $9,574 million at September 30, 2012. At December 31, 2011, our total debt consisted of capital leases which approximated fair value.
F-49
Note 8. Stock Plans
Our Participation in Mondelēz International Incentive Plans:
Mondelēz International maintained several incentive plans in which our executives and employees and a stock compensation plan in which our non-employee directors participated. All awards granted under the plans were based on Mondelēz Internationals common shares and were reflected in Mondelēz Internationals consolidated statement of equity. The expense related to those awards was allocated to us.
Stock-based compensation expense allocated from Mondelēz International was $12 million for the three months and $39 million for the nine months ended September 30, 2012 and $14 million for the three months and $39 million for the nine months ended September 30, 2011. The expense was allocated primarily based on headcount. These amounts were based on the awards and terms previously granted to our employees, but may not reflect the equity awards nor results that we would have experienced or expect to experience as an independent, publicly traded company.
Restricted and Deferred Stock:
Restricted and deferred stock was granted to our eligible employees by Mondelēz International. The shares of restricted or deferred stock give employees and directors, in most instances, all of the rights of Mondelēz International shareholders, except that they may not sell, assign, pledge or otherwise encumber the shares. Shares of restricted and deferred stock are subject to forfeiture if certain employment conditions are not met. Restricted and deferred stock generally vests on the third anniversary of the grant date.
Shares granted to our employees in connection with Mondelēz Internationals long-term incentive plan vest based on varying performance, market and service conditions. These unvested shares have no voting rights and do not pay dividends.
In January 2012, our employees were granted 0.4 million shares of stock in connection with Mondelēz Internationals long-term incentive plan at a market value of $37.63 per share. In February 2012, as part of Mondelēz Internationals annual equity program, our eligible employees were issued 0.6 million shares of restricted and deferred stock at a market value of $38.00 per restricted or deferred share. During the nine months ended September 30, 2012, our employees were issued 0.2 million shares of additional restricted and deferred shares with a weighted average market value of $31.66 per share primarily in connection with our long-term incentive plan and awards granted in 2009 which vested during the first quarter of 2012. In aggregate, our employees were issued 1.2 million restricted and deferred shares during the nine months ended September 30, 2012, including those issued as part of Mondelēz Internationals long-term incentive plan, with a weighted-average market value per share of $36.69.
The vesting date fair value of restricted and deferred stock was $52 million during the nine months ended September 30, 2012 and $37 million during the nine months ended September 30, 2011.
Stock Options:
In February 2012, as part of Mondelēz Internationals annual equity program, our eligible employees were granted 3.6 million stock options at an exercise price of $38.00. During the nine months ended September 30, 2012, our employees were granted 0.2 million of additional stock options with a weighted-average exercise price of $38.13 per share on the date of grant. In aggregate, our employees were granted 3.8 million stock options during the nine months ended September 30, 2012 at a weighted-average exercise price of $38.00.
In connection with the Spin-Off, restricted and deferred stock awards (excluding long-term incentive plan awards) and employee stock option awards were adjusted and converted into new equity awards using a formula designed to preserve the fair value of the awards immediately prior to the Spin-Off. On October 1, 2012 immediately prior to the Spin-Off, holders of Mondelēz International restricted and deferred stock awards
F-50
received one share of Kraft Foods Group restricted or deferred shares for every three restricted or deferred shares of Mondelēz International they held prior to the Spin-Off. Holders of stock option awards received Mondelēz International stock options to purchase the same number of shares of Mondelēz International common stock at an adjusted exercise price and one new Kraft Foods Group stock option for every three Mondelēz International stock options to preserve the fair value of the overall awards granted. Long-term incentive plan awards held by our employees were converted to Kraft Foods Group awards. The underlying performance conditions for the Kraft Foods Group long-term incentive plan awards will be modified to reflect new performance targets.
Note 9. Pension, Postretirement and Postemployment Benefit Plans
Our Participation in Mondelēz International Pension and Other Postemployment Benefit Plans:
Mondelēz International provided defined benefit pension, postretirement health care, defined contribution, and multiemployer pension and medical benefits to our eligible employees and retirees.
Prior to the Spin-Off, Mondelēz International was responsible for the net benefit plan obligations associated with these plans. As such, these liabilities are not reflected in our condensed combined balance sheets. On October 1, 2012, we recorded $5.5 billion of net benefit plan obligations related to our pension and other postretirement benefit plans and will reflect them on our balance sheet as of December 31, 2012. Accordingly, our total net pension and postretirement benefit plan obligations were $5.6 billion as of October 1, 2012.
Our condensed combined statements of earnings include expense allocations for these benefits which were determined based on a review of personnel by business unit and based on allocations of corporate or other shared functional personnel. We consider the expense allocation methodology and results to be reasonable for all periods presented.
Total Mondelēz International benefit plan costs allocated to us were $177 million in the three months and $491 million in the nine months ended September 30, 2012 and $127 million in the three months and $367 million in the nine months ended September 30, 2011. These costs are reflected in our cost of sales and selling, general and administrative expenses. These costs were funded through intercompany transactions with Mondelēz International which are now reflected within the parent company investment equity balance.
Mondelēz International Defined Benefit Pension Plans:
Substantially all of our retired U.S. and Canadian employees receive defined benefit pension benefits through various Mondelēz International pension plans. Eligible active employees will also receive defined benefit pension benefits through various Mondelēz International pension plans in both the United States and Canada upon retirement. Our allocated expenses in connection with these plans were $99 million in the three months and $283 million in the nine months ended September 30, 2012 and $69 million in the three months and $188 million in the nine months ended September 30, 2011.
Mondelēz International Postretirement Health Care Plans:
Substantially all of our retired U.S. and Canadian employees receive health care and other benefits through various Mondelēz International postretirement health care benefit plans. Eligible active employees will also receive postretirement health care benefits through various Mondelēz International postretirement plans in both the United States and Canada upon retirement. Our allocated expenses in connection with these plans were $58 million in the three months and $142 million in the nine months ended September 30, 2012 and $40 million in the three months and $121 million in the nine months ended September 30, 2011.
Canadian Pension Plans
Certain plans in our Canadian operations (Canadian Pension Plans) are our direct obligations and have been recorded within our condensed combined financial statements.
F-51
Components of Net Pension Cost:
Net periodic pension cost consisted of the following for the three and nine months ended September 30, 2012 and 2011:
Canadian Pension Plans | ||||||||||||||||
For the Three Months
Ended September 30, |
For the Nine Months
Ended September 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Service cost |
$ | 1 | $ | 2 | $ | 6 | $ | 6 | ||||||||
Interest cost |
6 | 7 | 18 | 20 | ||||||||||||
Expected return on plan assets |
(8 | ) | (9 | ) | (26 | ) | (29 | ) | ||||||||
Amortization: |
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Net loss from experience differences |
4 | 4 | 14 | 10 | ||||||||||||
Settlement losses |
| 4 | | 4 | ||||||||||||
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Net pension cost |
$ | 3 | $ | 8 | $ | 12 | $ | 11 | ||||||||
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Employer Contributions:
During the nine months ended September 30, 2012, we contributed $15 million to our Canadian Pension Plans. We make contributions to our pension plans, primarily, to the extent that they are tax deductible and do not generate an excise tax liability. Based on current tax law and minimum funding requirements, we plan to make further contributions of approximately $10 million to our Canadian Pension Plans during the remainder of 2012. However, our actual contributions may differ due to many factors, including changes in tax and other benefit laws, significant differences between expected and actual pension asset performance or interest rates, or considerations related to the Spin-Off.
Note 10. Financial Instruments
See our combined financial statements for the year ended December 31, 2011 and related notes in our Form 10 for additional information on our accounting and purpose for entering into derivatives and our overall risk management strategies.
Fair Value of Derivative Instruments:
Derivative instruments were recorded at fair value in the condensed combined balance sheets as of September 30, 2012 and December 31, 2011 as follows:
September 30, 2012 | December 31, 2011 | |||||||||||||||
Asset
Derivatives |
Liability
Derivatives |
Asset
Derivatives |
Liability
Derivatives |
|||||||||||||
(in millions) | ||||||||||||||||
Derivatives designated as hedging instruments: |
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Commodity contracts |
$ | 16 | $ | 12 | $ | 9 | $ | 2 | ||||||||
Foreign exchange contracts |
| 8 | 3 | | ||||||||||||
Interest rate contracts |
| | | 25 | ||||||||||||
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$ | 16 | $ | 20 | $ | 12 | $ | 27 | |||||||||
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Derivatives not designated as hedging instruments: |
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Commodity contracts |
$ | 63 | $ | 24 | $ | 50 | $ | 68 | ||||||||
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Total fair value |
$ | 79 | $ | 44 | $ | 62 | $ | 95 | ||||||||
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The fair value of our asset derivatives is recorded within other current assets and the fair value of our liability derivatives is recorded within other current liabilities. In prior quarters, we executed interest rate derivatives to lock in a portion of the interest expense we expected to incur with a future debt issuance. Those interest rate derivatives settled at the time we issued debt during the second quarter. See Note 7, Debt, for more information on the debt issuance.
The fair value (asset / (liability)) of our derivative instruments at September 30, 2012 was determined using:
Total
Fair Value |
Quoted Prices in
Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
|||||||||||||
(in millions) | ||||||||||||||||
Commodity contracts |
$ | 43 | $ | 50 | $ | (7 | ) | $ | | |||||||
Foreign exchange contracts |
(8 | ) | | (8 | ) | | ||||||||||
Interest rate contracts |
| | | | ||||||||||||
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Total derivatives |
$ | 35 | $ | 50 | $ | (15 | ) | $ | | |||||||
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The fair value (asset / (liability)) of our derivative instruments at December 31, 2011 was determined using:
Total
Fair Value |
Quoted Prices in
Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
|||||||||||||
(in millions) | ||||||||||||||||
Commodity contracts |
$ | (11 | ) | $ | (4 | ) | $ | (7 | ) | $ | | |||||
Foreign exchange contracts |
3 | | 3 | | ||||||||||||
Interest rate contracts |
(25 | ) | | (25 | ) | | ||||||||||
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Total derivatives |
$ | (33 | ) | $ | (4 | ) | $ | (29 | ) | $ | | |||||
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Level 2 financial assets and liabilities consist of commodity forwards, foreign exchange forwards and interest rate swaps. Commodity derivatives are valued using an income approach based on the observable market commodity index prices less the contract rate multiplied by the notional amount. Foreign currency contracts are valued using an income approach based on observable market forward rates less the contract rate multiplied by the notional amount. Our calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the observable market interest rate curve. Our calculation of the fair value of financial instruments takes into consideration the risk of nonperformance, including counterparty credit risk.
Derivative Volume:
The net notional values of our derivative instruments as of September 30, 2012 and December 31, 2011 were:
Notional Amount | ||||||||
September 30,
2012 |
December 31,
2011 |
|||||||
(in millions) | ||||||||
Commodity contracts |
$ | 693 | $ | 891 | ||||
Foreign exchange contracts |
331 | 59 | ||||||
Interest rate contracts |
| 1,000 |
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Cash Flow Hedges:
Cash flow hedge activity, net of income taxes, within accumulated other comprehensive earnings / (losses) included:
For the Three Months Ended
September 30, |
For the Nine Months Ended
September 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Accumulated other comprehensive earnings / (losses) at beginning of period |
$ | (159 | ) | $ | 11 | $ | (18 | ) | $ | 32 | ||||||
Unrealized gain / (loss) in fair value |
(11 | ) | 5 | (185 | ) | 11 | ||||||||||
Transfer of realized (gains) / losses in fair value to earnings |
17 | (14 | ) | 50 | (41 | ) | ||||||||||
Transfer of realized losses in fair value from Mondelēz International |
(4 | ) | | (4 | ) | | ||||||||||
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Accumulated other comprehensive earnings / (losses) at end of period |
$ | (157 | ) | $ | 2 | $ | (157 | ) | $ | 2 | ||||||
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The unrealized gains / (losses), net of income taxes, recognized in other comprehensive earnings were:
For the Three Months Ended
September 30, |
For the Nine Months Ended
September 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Commodity contracts |
$ | (3 | ) | $ | 2 | $ | (41 | ) | $ | 14 | ||||||
Foreign exchange contracts |
(8 | ) | 3 | (8 | ) | (3 | ) | |||||||||
Interest rate contracts |
| | (136 | ) | | |||||||||||
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Total |
$ | (11 | ) | $ | 5 | $ | (185 | ) | $ | 11 | ||||||
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The gains / (losses), net of income taxes, reclassified from accumulated other comprehensive earnings / (losses) into net earnings were:
For the Three Months Ended
September 30, |
For the Nine Months Ended
September 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Commodity contracts |
$ | (15 | ) | $ | 16 | $ | (34 | ) | $ | 47 | ||||||
Foreign exchange contracts |
(1 | ) | (2 | ) | | (6 | ) | |||||||||
Interest rate contracts |
(1 | ) | | (16 | ) | | ||||||||||
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Total |
$ | (17 | ) | $ | 14 | $ | (50 | ) | $ | 41 | ||||||
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The gains / (losses) on ineffectiveness recognized in pre-tax earnings were:
For the Three Months Ended
September 30, |
For the Nine Months Ended
September 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Commodity contracts |
$ | 2 | $ | (1 | ) | $ | (1 | ) | $ | 4 | ||||||
Foreign exchange contracts |
| | | | ||||||||||||
Interest rate contracts |
| | | | ||||||||||||
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Total |
$ | 2 | $ | (1 | ) | $ | (1 | ) | $ | 4 | ||||||
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We record (i) the pre-tax gain or loss reclassified from accumulated other comprehensive earnings / (losses) into earnings and (ii) the gain or loss on ineffectiveness in:
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cost of sales for commodity contracts; |
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cost of sales for foreign exchange contracts related to forecasted transactions; and |
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interest and other expense, net for interest rate contracts and foreign exchange contracts related to intercompany loans. |
We expect to transfer unrealized losses of $12 million (net of taxes) for commodity cash flow hedges, unrealized losses of $6 million (net of taxes) for foreign currency cash flow hedges and unrealized losses of $7 million (net of taxes) for interest rate cash flow hedges to earnings during the next 12 months.
Hedge Coverage:
As of September 30, 2012, we had hedged forecasted transactions for the following durations:
|
commodity transactions for periods not exceeding the next 14 months; |
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foreign currency transactions for periods not exceeding the next 11 months; and |
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interest rate transactions for periods not exceeding the next 29 years and 8 months. |
Economic Hedges:
Gains recorded in net earnings for economic hedges which are not designated as hedging instruments included:
For the Three Months Ended
September 30, |
For the Nine Months Ended
September 30, |
Gain /(Loss)
Recognized in Earnings |
||||||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||
Commodity contracts |
61 | 5 | 60 | 39 | Cost of sales |
Note 11. Commitments and Contingencies
Legal Proceedings:
We routinely are involved in legal proceedings, claims and governmental inspections or investigations (Legal Matters) arising in the ordinary course of our business.
On March 1, 2011, the Starbucks Coffee Company (Starbucks) took control of the Starbucks packaged coffee business (Starbucks CPG business) in grocery stores and other channels. Starbucks did so without our authorization and in what we contend is a violation and breach of our license and supply agreement with Starbucks related to the Starbucks CPG business. The dispute is in arbitration in Chicago, Illinois. We are seeking appropriate remedies, including payment of the fair market value of the supply and license agreement, plus the premium this agreement specifies, prejudgment interest under New York law and attorneys fees. Starbucks has counterclaimed for damages. Testimony and post-hearing briefing in the arbitration proceeding are completed, and we await the arbitrators decision. We remain the named party in the proceeding. However, under the Separation and Distribution Agreement between Mondelēz International and us, we will direct any recovery awarded in the arbitration proceeding to Mondelēz International. Mondelēz International will reimburse us for any costs and expenses we incur in connection with the arbitration proceeding. The results of the Starbucks CPG business were included primarily in our Beverages and International & Foodservice segments through March 1, 2011.
While we cannot predict with certainty the results of our dispute with Starbucks or any Legal Matters in which we are currently involved or may in the future be involved, we do not expect that the ultimate costs to resolve any of these Legal Matters that are currently pending individually and in the aggregate will have a material adverse effect on our financial results.
F-55
Third-Party Guarantees:
We have third-party guarantees primarily covering certain long-term obligations of our vendors. As part of those transactions, we guarantee that third parties will make contractual payments or achieve performance measures. At September 30, 2012, the carrying amount of our third-party guarantees on our condensed combined balance sheet and the maximum potential payment under these guarantees was $22 million. Substantially all of these guarantees expire at various times through 2018.
As of September 30, 2012, Mondelēz International and three of its indirect wholly owned subsidiaries, including a subsidiary that became our indirect wholly owned subsidiary as a result of the Spin-Off on October 1, 2012, are joint and several guarantors of $1.0 billion of indebtedness issued by Cadbury Schweppes US Finance LLC and maturing on October 1, 2013. Under the Separation and Distribution Agreement between Mondelēz International and us, Mondelēz International has agreed to indemnify us in the event our subsidiary is called upon to satisfy its obligation under the guarantee. Accordingly, we have no obligation included on our balance sheets for this guarantee.
Note 12. Earnings Per Share
Basic and diluted earnings per share (EPS) were calculated using the following:
For the Three
Months Ended September 30, |
For the Nine
Months Ended September 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
(in millions, except per share data) | ||||||||||||||||
Net earnings |
$ | 470 | $ | 417 | $ | 1,541 | $ | 1,438 | ||||||||
Basic and diluted earnings per common share |
$ | 0.79 | $ | 0.70 | $ | 2.60 | $ | 2.43 | ||||||||
Basic and diluted average shares outstanding |
592 | 592 | 592 | 592 |
On October 1, 2012, Mondelēz International distributed 592 million shares of Kraft Foods Group common stock to Mondelēz Internationals shareholders. Holders of Mondelēz International common stock received one share of Kraft Foods Group common stock for every three shares of Mondelēz International common stock held on September 19, 2012. Basic and diluted earnings per common share and the average number of common shares outstanding were retrospectively restated for the number of Kraft Foods Group shares outstanding immediately following this transaction. The same number of shares was used to calculate basic and diluted earnings per share since no Kraft Foods Group equity awards were outstanding prior to the Spin-Off.
Note 13. Income Taxes
Our provision for income taxes was $199 million for the three months and $763 million for the nine months ended September 30, 2012 and $302 million for the three months and $891 million for the nine months ended September 30, 2011. Our effective tax rate was 29.7% for the three months and 33.1% for the nine months ended September 30, 2012 and 42.0% for the three months and 38.3% for the nine months ended September 30, 2011. Our effective tax rate included net tax benefits from discrete one-time events of $31 million for the three months and $36 million for the nine months ended September 30, 2012, which primarily related to Canadian and U.S. federal tax audit settlements. Our effective tax rate included net tax costs from discrete one-time events of $36 million for the three months and $37 million for the nine months ended September 30, 2011, which arose principally from the resolution of tax matters with U.S. federal and state tax authorities.
As of January 1, 2012, our unrecognized tax benefits were $371 million. If we had recognized all of these benefits, the net impact on our income tax provision would be $229 million. As of September 30, 2012, our unrecognized tax benefits were $267 million. If we had recognized all of these benefits, the net impact on our income tax provision would be $181 million.
F-56
We include accrued interest and penalties related to uncertain tax positions in our tax provision. As of January 1, 2012, we had $80 million of accrued interest and penalties. As of September 30, 2012, we had $48 million of accrued interest and penalties.
We do not expect a material change in the amount of unrecognized tax benefits during the next 12 months due to audit settlements or the expiration of statutes of limitations.
As of January 1, 2012, we had net deferred income tax liabilities of $1,371 million. As of September 30, 2012 we had net deferred income tax liabilities of $1,839 million, including a $411 million deferred tax liability recorded in connection with the debt exchange in which $3.6 billion of Mondelēz International debt was exchanged for our debt.
Our income tax returns are regularly examined by federal and various state and foreign tax authorities. In July 2012, Mondelēz International reached a final resolution on a federal tax audit of the 2004-2006 tax years. The U.S. federal statute of limitations remains open for all tax periods beginning with the 2007 tax year and Mondelēz International is currently under examination for the 2007-2009 tax years. Our income tax filings are also currently under examination by taxing authorities in various U.S. states. U.S. state and foreign jurisdictions have statutes of limitations generally ranging from three to five years; however, these statutes are often extended by mutual agreement with the tax authorities.
Note 14. Segment Reporting
We manufacture and market food and beverage products, including refrigerated meals, refreshment beverages and coffee, cheese and other grocery products, primarily in the United States and Canada. We manage and report operating results through five reportable segments. Our reportable segments are Beverages (formerly known as U.S. Beverages), Cheese (formerly known as U.S. Cheese), Refrigerated Meals (formerly known as U.S. Convenient Meals), Grocery (formerly known as U.S. Grocery) and International & Foodservice (formerly known as Canada & N.A. Foodservice).
Management uses segment operating income to evaluate segment performance and allocate resources. We believe it is appropriate to disclose this measure to help investors analyze segment performance and trends. Segment operating income excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), certain components of our U.S. pension plan costs (which are a component of cost of sales and selling, general and administrative expenses), and general corporate expenses (which are a component of selling, general and administrative expenses) for all periods presented. We exclude the unrealized gains and losses on hedging activities from segment operating income in order to provide better transparency of our segment operating results. Once realized, the gains and losses on hedging activities are recorded within segment operating results. We exclude certain components of our U.S. pension plan costs from segment operating income because we centrally manage pension plan funding decisions and the determination of the discount rate, expected rate of return on plan assets and other actuarial assumptions. Therefore, we allocate only the service cost component of our U.S. pension plan expense to segment operating income. Furthermore, we centrally manage interest and other expense, net. Accordingly, we do not present these items by segment because they are excluded from the segment profitability measure that management reviews.
F-57
Our segment net revenues and earnings consisted of:
For the Three Months
Ended September 30, |
For the Nine Months
Ended September 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Net revenues: |
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Beverages |
$ | 688 | $ | 687 | $ | 2,182 | $ | 2,297 | ||||||||
Cheese |
921 | 908 | 2,766 | 2,667 | ||||||||||||
Refrigerated Meals |
895 | 865 | 2,609 | 2,542 | ||||||||||||
Grocery |
1,134 | 1,084 | 3,449 | 3,313 | ||||||||||||
International & Foodservice |
968 | 930 | 2,839 | 2,801 | ||||||||||||
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Net revenues |
$ | 4,606 | $ | 4,474 | $ | 13,845 | $ | 13,620 | ||||||||
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For the Three Months
Ended September 30, |
For the Nine Months
Ended September 30, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Earnings before income taxes: |
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Operating income: |
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Beverages |
$ | 76 | $ | 101 | $ | 308 | $ | 400 | ||||||||
Cheese |
159 | 145 | 482 | 422 | ||||||||||||
Refrigerated Meals |
116 | 105 | 338 | 309 | ||||||||||||
Grocery |
302 | 315 | 1,048 | 998 | ||||||||||||
International & Foodservice |
134 | 117 | 349 | 365 | ||||||||||||
Unrealized gains / (losses) on hedging activities |
52 | (20 | ) | 58 | (51 | ) | ||||||||||
Certain U.S. pension plan costs |
(64 | ) | (42 | ) | (169 | ) | (108 | ) | ||||||||
General corporate expenses |
(13 | ) | (13 | ) | (22 | ) | (37 | ) | ||||||||
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Operating income |
762 | 708 | 2,392 | 2,298 | ||||||||||||
Interest and other expense, net |
(106 | ) | (3 | ) | (129 | ) | (6 | ) | ||||||||
Royalty income from affiliates |
13 | 14 | 41 | 37 | ||||||||||||
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Earnings before income taxes |
$ | 669 | $ | 719 | $ | 2,304 | $ | 2,329 | ||||||||
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|
On March 1, 2011, Starbucks took control of the Starbucks CPG business in grocery stores and other channels. See our discussion of legal proceedings within Note 11, Commitments and Contingencies, for additional information.
In connection with our Restructuring Program, we recorded restructuring charges of $44 million for the three months and $156 million for the nine months ended September 30, 2012. We also recorded implementation costs of $10 million for the three months and $14 million for the nine months ended September 30, 2012. We recorded the restructuring charges in operations, as a part of asset impairment and exit costs, and recorded the implementation costs in operations, as a part of cost of sales and selling, general and administrative expenses. See Note 6, Restructuring Program, for restructuring costs by segment.
Included within our segment results are intercompany sales with Mondelēz International which totaled $23 million in the three months and $77 million in the nine months ended September 30, 2012 and $26 million in the three months and $74 million in the nine months ended September 30, 2011.
F-58
ALL TENDERED OUTSTANDING NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, LETTER OF TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE AGENT AS FOLLOWS:
Deutsche Bank Trust Company Americas
By mail:
DB Services Americas, Inc.
MS JCK01-0218
5022 Gate Parkway, Suite 200
Jacksonville, FL 32256
By Overnight Mail or Courier:
DB Services Americas, Inc.
MS JCK01-0218
5022 Gate Parkway, Suite 200
Jacksonville, FL 32256
For Additional Information, Contact:
(800) 735-7777 (Option #1)
DB.Reorg@db.com
ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE SHOULD BE SENT PROMPTLY BY HAND, OVERNIGHT COURIER, OR REGISTERED OR CERTIFIED MAIL.
$9,600,000,000
Kraft Foods Group, Inc.
OFFER TO EXCHANGE
New $1,000,000,000 1.625% Notes due 2015 for $1,000,000,000 1.625% Notes due 2015
New $1,000,000,000 2.250% Notes due 2017 for $1,000,000,000 2.250% Notes due 2017
New $1,034,657,000 6.125% Notes due 2018 for $1,034,657,000 6.125% Notes due 2018
New $900,000,000 5.375% Notes due 2020 for $900,000,000 5.375% Notes due 2020
New $2,000,000,000 3.500% Notes due 2022 for $2,000,000,000 3.500% Notes due 2022
New $877,860,000 6.875% Notes due 2039 for $877,860,000 6.875% Notes due 2039
New $787,483,000 6.500% Notes due 2040 for $787,483,000 6.500% Notes due 2040
New $2,000,000,000 5.000% Notes due 2042 for $2,000,000,000 5.000% Notes due 2042
, 2012
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20: | Indemnification of Directors and Officers. |
As permitted by Virginia law, our Amended and Restated Articles of Incorporation provide that no director or officer shall be liable to us or our shareholders for monetary damages arising out of any transaction, occurrence or other course of conduct, except for liability resulting from willful misconduct or a knowing violation of criminal law or of any federal or state securities laws.
Our Amended and Restated Articles of Incorporation require us to indemnify any director or officer who was or is a party to a proceeding due to his or her status as our director or officer unless he or she engaged in willful misconduct or a knowing violation of criminal law. The SEC has informed us that, in its opinion, a provision for indemnification of liabilities incurred under the Securities Act conflicts with public policy and is unenforceable.
We have obtained policies that insure our directors and officers and those of our subsidiaries against certain liabilities they may incur in their capacity as directors and officers.
We have entered into indemnification agreements with our directors and officers who also serve as directors. These agreements contain provisions that may require us, among other things, to indemnify these directors and officers against certain liabilities that may arise because of their status or service as directors or officers.
Item 21. | Exhibits and Financial Statement Schedules |
EXPLANATORY NOTE
The exhibit index in this Amendment No. 2 to our Registration Statement on Form S-4 has been revised to restore the original exhibit numbers that appeared on our Registration Statement on Form S-4 filed with the SEC on October 5, 2012 (the Initial Filing), except that (i) the exhibits originally filed as exhibits 10.5, 10.6 and 10.7 to the Initial Filing are re-filed as exhibits 2.2, 2.3 and 2.4 in this Amendment No. 2 and (ii) the exhibits originally filed as exhibits 10.9, 10.11, 10.12, 10.13, 10.14, 10.15, 10.16, 10.17 and 10.18 to the Initial Filing have been removed from this Amendment No. 2.
The following documents are filed as exhibits hereto:
Exhibit
|
Exhibit |
|
2.1 | Separation and Distribution Agreement between Mondelēz International, Inc. (formerly known as Kraft Foods Inc.) and Kraft Foods Group, Inc., dated as of September 27, 2012.** | |
2.2 | Canadian Asset Transfer Agreement between Mondelez Canada Inc. and Kraft Canada Inc., dated as of September 29, 2012.** | |
2.3 | Master Ownership and License Agreement Regarding Patents, Trade Secrets and Related Intellectual Property between Kraft Foods Global Brands LLC, Kraft Foods Group Brands LLC, Kraft Foods UK Ltd. and Kraft Foods R&D Inc., dated as of October 1, 2012.** | |
2.4 | Master Ownership and License Agreement Regarding Trademarks and Related Intellectual Property between Kraft Foods Global Brands LLC and Kraft Foods Group Brands LLC., dated as of September 27, 2012.** |
II-1
Exhibit
|
Exhibit |
|
3.1 | Amended and Restated Articles of Incorporation of Kraft Foods Group, Inc. (incorporated by reference to Exhibit 3.1 to the Companys Registration Statement on Form 10 filed with the SEC on July 17, 2012). | |
3.2 | Amended and Restated Bylaws of Kraft Foods Group, Inc. (incorporated by reference to Exhibit 3.2 to the Companys Registration Statement on Form 10 filed with the SEC on July 17, 2012). | |
4.1 | Indenture by and between Kraft Foods Group, Inc. and Deutsche Bank Trust Company Americas, as trustee, dated as of June 4, 2012 (incorporated by reference to Exhibit 10.4 to the Companys Registration Statement on Form 10 filed with the SEC on June 21, 2012). | |
4.2 | Supplemental Indenture No. 1 by and between Kraft Foods Group, Inc., Mondelēz International, Inc. (formerly known as Kraft Foods Inc.), as guarantor, and Deutsche Bank Trust Company Americas, as trustee, dated as of June 4, 2012 (incorporated by reference to Exhibit 10.5 to the Companys Registration Statement on Form 10 filed with the SEC on June 21, 2012). | |
4.3 | Supplemental Indenture No. 2 by and between Kraft Foods Group, Inc., Mondelēz International, Inc. (formerly known as Kraft Foods Inc.), as guarantor, and Deutsche Bank Trust Company Americas, as trustee, dated as of July 18, 2012 (incorporated by reference to Exhibit 10.27 to the Companys Registration Statement on Form 10 filed with the SEC on August 6, 2012). | |
4.4 | Registration Rights Agreement dated June 4, 2012 among Kraft Foods Group, Inc., Mondelēz International, Inc. (formerly known as Kraft Foods Inc.), as initial guarantor, and Barclays Capital Inc., Citigroup Global Markets Inc., Goldman, Sachs & Co., J.P. Morgan Securities LLC and RBS Securities Inc. | |
4.5 | Registration Rights Agreement dated July 18, 2012 among Kraft Foods Group, Inc., Mondelēz International, Inc. (formerly known as Kraft Foods Inc.), as initial guarantor, and Barclays Capital Inc., Citigroup Global Markets Inc., J.P. Morgan Securities LLC and RBS Securities Inc. | |
5.1 | Opinion of Gibson, Dunn & Crutcher LLP. | |
5.2 | Opinion of Hunton & Williams LLP as to matters of Virginia law. | |
10.1 | Offer of Employment Letter between Mondelēz International, Inc. (formerly known as Kraft Foods Inc.) and John T. Cahill, dated December 3, 2011 (incorporated by reference to Exhibit 10.1 to the Companys Registration Statement on Form 10 filed with the SEC on April 2, 2012 (File No. 001-35491)). | |
10.2 | $3,000,000,000 Five-Year Revolving Credit Agreement, by and among Kraft Foods Group, Inc., Mondelēz International, Inc. (formerly known as Kraft Foods Inc.), as guarantor, the initial lenders named therein, JPMorgan Chase Bank, N.A. and Barclays Bank plc, as co-administrative agents, JPMorgan Chase Bank, N.A., as paying agent, Citibank, N.A. and The Royal Bank of Scotland plc, as co-syndication agents, and Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., HSBC Securities (USA) Inc. and Wells Fargo Bank, National Association, as co-documentation agents, dated as of May 18, 2012. | |
10.3 | Tax Sharing and Indemnity Agreement by and between Mondelēz International, Inc. (formerly known as Kraft Foods Inc.) and Kraft Foods Group, Inc., dated as of September 27, 2012. | |
10.4 | Employee Matters Agreement between Mondelēz International, Inc. (formerly known as Kraft Foods Inc.) and Kraft Foods Group, Inc., dated as of September 27, 2012. | |
10.8 | Master General Transition Services Agreement between Kraft Foods Group, Inc. and Mondelēz Global LLC, dated as of September 27, 2012.* |
II-2
Exhibit
|
Exhibit |
|
10.10 | Master Information Technology Transition Services Agreement between Kraft Foods Group, Inc. and Mondelēz Global LLC, dated as of September 27, 2012.* | |
10.19 | Kraft Foods Group, Inc. Change in Control Plan for Key Executives, adopted as of October 2, 2012. | |
10.20 | Kraft Foods Group, Inc. Deferred Compensation Plan for Non-Management Directors (incorporated by reference to Exhibit 4.3 to the Companys Registration Statement on Form S-8 filed with the SEC on September 12, 2012 (File No. 333-183867)). | |
10.21 | Kraft Foods Group, Inc. 2012 Performance Incentive Plan (incorporated by reference to Exhibit 4.3 to the Companys Registration Statement on Form S-8 filed with the SEC on September 12, 2012 (File No. 333-183868)). | |
10.22 | Form of Indemnity Agreement between Kraft Foods Group, Inc. and Non-Management Directors (incorporated by reference to Exhibit 10.24 to the Companys Registration Statement on Form 10 filed with the SEC on July 17, 2012 (File No. 001-35491)). | |
10.23 | Form of Indemnity Agreement between Kraft Foods Group, Inc. and Directors and Officers (incorporated by reference to Exhibit 10.25 to the Companys Registration Statement on Form 10 filed with the SEC on July 17, 2012 (File No. 001-35491)). | |
10.24 | Offer of Employment Letter between Mondelēz International, Inc. (formerly known as Kraft Foods Inc.) and Robert J. Gorski, dated April 25, 2012 (incorporated by reference to Exhibit 10.26 to the Companys Registration Statement on Form 10 filed with the SEC on August 6, 2012 (File No. 001-35491)). | |
10.25 | Offer of Employment Letter between Mondelēz International, Inc. (formerly known as Kraft Foods Inc.) and Kim K. W. Rucker, dated July 16, 2012. | |
12.1 | Ratio of Earnings to Fixed Charges (incorporated by reference to Exhibit 12 to the Companys Quarterly Report on Form 10-Q filed with the SEC on November 9, 2012 (File No. 00135491)). | |
21.1 | List of subsidiaries of Kraft Foods Group, Inc. (incorporated by reference to Exhibit 21.1 to the Companys Registration Statement on Form 10 filed with the SEC on July 17, 2012 (File No. 001-35491)). | |
23.1 | Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1). | |
23.2 | Consent of Hunton & Williams LLP as to matters of Virginia law (included in Exhibit 5.2). | |
23.3 | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm of Kraft Foods Group, Inc. | |
24.1 | Power of Attorney. | |
25.1 | Form T-1 Statement of Eligibility of Deutsche Bank Trust Company Americas. | |
99.1 | Form of Letter of Transmittal. | |
99.2 | Form of Notice of Guaranteed Delivery. | |
99.3 | Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. | |
99.4 | Form of Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. | |
99.5 | Instructions for Certification of Taxpayer Identification Number on IRS Form W-9. |
| Previously filed on October 5, 2012. |
| Previously filed on October 26, 2012. |
* | Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment and have been separately filed with the Securities and Exchange Commission. |
** | Kraft Foods Group, Inc. hereby agrees to furnish supplementally a copy of any omitted schedule or exhibit to such agreement to the U.S. Securities and Exchange Commission upon request. |
II-3
Item 22. | Undertakings. |
The undersigned registrant hereby undertakes:
(1) | To file, during any period in which offers or sales are being made, a posteffective amendment to this registration statement: |
(i) | To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; |
(ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement; |
(iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
(2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
(3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
(4) | That, for purposes of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however , that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
(5) | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
(i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
(ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
II-4
(iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; |
(iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
(6) | To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form S-4, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. |
(7) | To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. |
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, Kraft Foods Group, Inc., has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Northfield, State of Illinois, on the 3 rd day of December, 2012.
KRAFT FOODS GROUP, INC. | ||
By: |
/s/ Timothy R. McLevish |
|
Name: | Timothy R. McLevish | |
Title: | Executive Vice President and Chief Financial Officer |
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
Signature |
Title |
Date |
||
* W. Anthony Vernon |
Chief Executive Officer and Director (Principal Executive Officer and Director) |
December 3, 2012 | ||
/s/ Timothy R. McLevish Timothy R. McLevish |
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
December 3, 2012 | ||
* James Kehoe |
Senior Vice President, Corporate Finance (Principal Accounting Officer) |
December 3, 2012 | ||
* John T. Cahill |
Executive Chairman |
December 3, 2012 | ||
* Abelardo E. Bru |
Director |
December 3, 2012 | ||
* L. Kevin Cox |
Director |
December 3, 2012 | ||
* Myra M. Hart |
Director |
December 3, 2012 | ||
* Peter B. Henry |
Director |
December 3, 2012 | ||
* Jeanne P. Jackson |
Director |
December 3, 2012 | ||
* Terry J. Lundgren |
Director |
December 3, 2012 | ||
* Mackey J. McDonald |
Director |
December 3, 2012 | ||
* John C. Pope |
Director |
December 3, 2012 | ||
* E. Follin Smith |
Director |
December 3, 2012 | ||
/s/ Timothy R. McLevish Timothy R. McLevish |
As Attorney-In-Fact for the individuals
|
December 3, 2012 |
S-1
Exhibit 2.2
EXECUTION VERSION
CANADIAN ASSET TRANSFER AGREEMENT
BETWEEN
MONDELEZ CANADA INC.
AND
KRAFT CANADA INC.
DATED
September 29, 2012
TABLE OF CONTENTS
ARTICLE 1 - INTERPRETATION |
1 | |||||
1.01 |
Definitions | 1 | ||||
1.02 |
Headings | 7 | ||||
1.03 |
Extended Meanings | 7 | ||||
1.04 |
Statutory References | 7 | ||||
1.05 |
Currency | 7 | ||||
1.06 |
Schedules | 8 | ||||
ARTICLE 2 - CONVEYANCE |
8 | |||||
2.01 |
Conveyance of the Canadian Snack Assets | 8 | ||||
2.02 |
Canadian Grocery Assets | 10 | ||||
2.03 |
Disclaimer of Representations and Warranties | 10 | ||||
2.04 |
Consideration | 11 | ||||
2.05 |
Payment of Consideration | 11 | ||||
2.06 |
Allocation of Consideration | 11 | ||||
2.07 |
Cash Transfer | 12 | ||||
2.08 |
Misdirected Amounts and Misdirected Invoices | 13 | ||||
2.09 |
Substitution and Subrogation | 13 | ||||
2.10 |
Assumption of Canadian Snack Liabilities | 14 | ||||
2.11 |
Retention of Canadian Grocery Liabilities | 15 | ||||
2.12 |
Obligations and Liabilities Not Assumed | 17 | ||||
2.13 |
Ancillary Agreements | 17 | ||||
ARTICLE 3 - GENERAL COVENANTS |
18 | |||||
3.01 |
Waiver of Bulk Sales Laws | 18 | ||||
3.02 |
Real Property Matters | 18 | ||||
3.03 |
Intellectual Property Matters | 18 | ||||
3.04 |
Treatment of Personal Information | 18 | ||||
3.05 |
Indemnification | 19 | ||||
ARTICLE 4 - TAX MATTERS |
20 | |||||
4.01 |
Election under Subsection 85(1) of the Tax Act | 20 | ||||
4.02 |
Stated Capital | 21 | ||||
4.03 |
Transfer Taxes | 21 | ||||
4.04 |
Property Taxes | 22 | ||||
4.05 |
Excise Tax Act; Residency | 22 | ||||
ARTICLE 5 - EMPLOYEE MATTERS |
22 | |||||
5.01 |
Employees and Collective Agreements | 22 | ||||
5.02 |
Offers of Employment | 22 | ||||
5.03 |
Specified Incentive Plans | 24 |
ARTICLE 6 - PENSIONS AND BENEFITS MATTERS |
25 | |||
6.01 |
Assignment and Assumption of Registered Pension Plans | 25 | ||
6.02 |
Registered Pension Plan Transfers | 25 | ||
6.03 |
Group Registered Retirement Savings Plan | 28 | ||
6.04 |
Non-Registered Savings Plan Accounts | 28 | ||
6.05 |
Supplemental Top Up Plans | 28 | ||
6.06 |
Post-Retirement Health and Welfare Benefits | 28 | ||
6.07 |
Long-Term Disability Liabilities | 29 | ||
ARTICLE 7 - CLOSING ARRANGEMENTS AND TERMINATION |
29 | |||
7.01 |
Closing | 29 | ||
7.02 |
Survival | 29 | ||
7.03 |
Termination | 29 | ||
ARTICLE 8 - GENERAL |
29 | |||
8.01 |
Application of the Separation Agreement | 29 | ||
8.02 |
Application of the Tax Sharing Agreement | 30 | ||
8.03 |
Dispute Resolution | 31 | ||
8.04 |
Notices | 31 | ||
8.05 |
Governing Law | 32 | ||
Schedule 2.01(a): Specified Canadian Snack Assets
Schedule 2.01(e): Governmental Permits and Authorizations
Schedule 2.01(g): Contracts Related Exclusively to the Canadian Snack Business
Schedule 2.01(h): Canadian Shared Contracts
Schedule 2.01(i): Freehold Lands and Leasehold Lands
Schedule 2.01(l): Machinery and Equipment
Schedule 2.01(p): Owned Snack Intellectual Property
Schedule 2.01(q): Canadian Intercompany IP Licenses
Schedule 2.02: Specified Canadian Grocery Assets
Schedule 2.06(5): Allocation of Consideration
Schedule 2.10(a): Specified Canadian Snack Liabilities
Schedule 2.10(b): Canadian Snack Indebtedness
Schedule 2.11(a): Specified Canadian Grocery Liabilities
Schedule 2.11(b): Canadian Grocery Indebtedness
Schedule 3.02(1): Sub-leasehold Lands
Schedule 3.05(2)(b): Specified Liabilities
Schedule 5.01(1): Employees Transferring to the Purchaser
- ii -
Schedule 5.01(2): Collective Agreements
Schedule 5.03(1): Specified Incentive Plans
Schedule 6.01(1): Stand-Alone Registered Pension Plans
Schedule 6.01(2): Form of Assignment and Assumption Agreement
Schedule 6.02(1): Vendor Commingled Registered Pension Plans
- iii -
CANADIAN ASSET TRANSFER AGREEMENT
THIS AGREEMENT is made as of the Effective Time
BETWEEN
MONDELEZ CANADA INC. , a corporation incorporated under the laws of Canada (the Purchaser )
- and -
KRAFT CANADA INC. , a corporation amalgamated under the laws of Canada (the Vendor )
WHEREAS, pursuant to the Separation Agreement, SnackCo and GroceryCo have agreed to, among other things, cause their respective Subsidiaries, including the Purchaser and the Vendor, to take certain actions necessary to effect the implementation of the Internal Reorganization and the transactions contemplated by the Separation Agreement;
AND WHEREAS, the Vendor is the owner of the Canadian Snack Assets and carries on the Canadian Snack Business;
AND WHEREAS, the Vendor desires to sell and the Purchaser desires to purchase the Canadian Snack Assets and the Canadian Snack Business upon and subject to the terms and conditions set out in this Agreement.
NOW THEREFORE, in consideration of the covenants and agreements herein contained, the parties agree as follows:
ARTICLE 1INTERPRETATION
1.01 Definitions
Terms used in this Agreement that are defined in the Separation Agreement and that are not otherwise defined herein will have the same meaning herein as in the Separation Agreement; provided, however, that, unless something in the subject matter or context is inconsistent therewith, for the purposes of this Agreement, references in such definitions to Distribution Date or Distribution (when used in a temporal context) will be read as Effective Time (as defined in this Agreement). In this Agreement, unless something in the subject matter or context is inconsistent therewith:
Adjusted Pension Plan Transfer Amounts has the meaning set out in Section 6.02(5).
Agreement means this agreement, including its recitals and Schedules, as may be amended or modified from time to time.
Assumed Liabilities means all Canadian Snack Liabilities existing as of the Effective Time, other than (i) the Specified Liabilities, (ii) any liability or obligation of the Vendor not reflected (in accordance with GAAP) on the most recent balance sheet of the Vendor and any liability or obligation of the Vendor arising or assumed after the date of such balance sheet that, had it arisen or been assumed on or before such date and not discharged as of such date, would not have been reflected on such balance sheet if prepared in accordance with GAAP applied on a consistent basis, subject to any discharge of such liabilities or obligations subsequent to the date of such balance sheet, and (iii) any liability or obligation not excluded under clause (ii) above under any contract with a third party to the extent that the third party has not performed its obligations under the contract prior to the Effective Time and where such performance is to be for the benefit of the Purchaser after the Effective Time.
Business Day means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York or Toronto, Ontario are authorized or required by law to close.
Butterfly Determination Time means the time immediately before the transfer by the Vendor of all of the issued and outstanding shares of the Purchaser to 1681762 Alberta ULC (referred to in the Tax Ruling as TSub), as described in paragraph 80 of the Tax Ruling.
Butterfly Percentage means the proportion, expressed as a percentage, that the net fair market value of the business property transferred by the Vendor to Mondelez Canada Holdings ULC (referred to in the Tax Ruling as TCo), as described in paragraph 80 of the Tax Ruling, is of the net fair market value of all the business property of the Vendor, determined (i) at the Butterfly Determination Time, and (ii) using the principles set out in paragraphs 73 to 75 of the Tax Ruling (including allocating and deducting, in the manner described in paragraphs 73 and 75, the amount of the liabilities assumed by the Purchaser hereunder).
Cadbury Bonds Guarantee means the guarantee dated December 1, 2003 made by Cadbury Beverages Canada Inc. (now Kraft Canada Inc.), jointly and severally with Cadbury Schweppes Public Company Limited and Cadbury Schweppes Finance P.L.C., in favour of each holder of a note issued pursuant to the indenture dated as of September 29, 2003 between Cadbury Schweppes US Finance LLC, Cadbury Schweppes Public Company Limited, Cadbury Schweppes Finance P.L.C. and JPMorgan Chase Bank, as such indenture has been supplemented by a first supplemental indenture dated as of September 29, 2003, a second supplemental indenture dated as of December 1, 2003 and a third supplemental indenture dated as of October 6, 2010, and as it may be further supplemented or amended from time to time.
Canadian Grocery Assets means all Assets of the Vendor that constitute GroceryCo Assets, including those listed or described on Schedule 2.02, but in all cases save and except for the Canadian Snack Assets.
Canadian Grocery Business means the business and operations conducted by the Vendor at any time prior to the Effective Time that constitute part of the GroceryCo Business.
Canadian Grocery Liabilities means all Liabilities of the Vendor that constitute GroceryCo Liabilities, including those listed or described in Section 2.11, but in all cases save and except for the Canadian Snack Liabilities.
Canadian Income Tax has the meaning ascribed thereto in the Tax Sharing Agreement.
- 2 -
Canadian Intercompany IP Licenses means, collectively, the Incoming Intercompany IP Licenses and the Outgoing Intercompany IP Licenses.
Canadian Snack Assets means all Assets of the Vendor that constitute SnackCo Assets, including those Assets listed or described in Section 2.01, but, for greater certainty, excluding those Assets listed or described in Schedule 2.02.
Canadian Snack Business means the business and operations conducted by the Vendor at any time prior to the Effective Time that constitute part of the SnackCo Business.
Canadian Snack Liabilities means all Liabilities of the Vendor that constitute SnackCo Liabilities, including those listed or described in Section 2.10.
Canadian Transaction Tax has the meaning ascribed thereto in the Tax Sharing Agreement.
Cash Equivalents means all certificates of deposit and other cash equivalents and all amounts owing to the Vendor from persons related to the Vendor for purposes of the Tax Act that are due within the next 12 months or have no fixed term of repayment (other than accounts receivable and any amounts owing by any corporation or partnership described in paragraph 73(g) of the Tax Ruling).
Cash or Near Cash Property means the net fair market value of the property of the Vendor that is treated as cash or near cash property, determined (i) at the Butterfly Determination Time, and (ii) using the principles set out in paragraphs 73 to 75 of the Tax Ruling.
Closing Date means September 29, 2012.
Closing Timeline means the closing timeline setting out, with respect to the transactions contemplated by the Separation Agreement, the list of documents to be exchanged between the various parties to such agreements and the applicable terms of escrow and release of escrow, including the times at which various deliveries of documents are made and the transactions contemplated thereby become effective.
Collective Agreements has the meaning set out in Section 5.01(2).
Consideration has the meaning set out in Section 2.04.
CRA means the Canada Revenue Agency.
Effective Time means the time referred to as the effective time of this Agreement in the Closing Timeline.
Elected Amount in respect of an Elected Property means the amount agreed to by the Vendor and the Purchaser in their joint election pursuant to Section 4.01.
Elected Property means eligible property within the meaning of subsection 85(1.1) of the Tax Act in respect of which an election has been or will be made as provided in Section 4.01.
Employees has the meaning set out in Section 5.01(1).
FIN 45 Indemnity Obligation has the meaning ascribed thereto in the Tax Sharing Agreement.
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FIN 45 TSA Receivable has the meaning ascribed thereto in the Tax Sharing Agreement.
Forco Interests means the shares and partnership interests described in clauses (i) and (ii) (A) and (H) of the definition of Subsidiary Interests, and all liabilities and obligations owed to the Vendor by such entities.
Freehold Lands means the freehold real property listed or described on Schedule 2.01(i) and all rights, interests, entitlements, benefits and privileges of any nature or kind whatsoever related exclusively to such freehold real property, including all rights of way, licences or rights of occupation, easements or other similar rights of the Vendor in connection with such freehold real property.
Greencastle Obligation means all liabilities and obligations of the Vendor to or in favour of Kraft Canada Two LP under the loan agreement made as of May 22, 2001 between Greencastle Drinks Limited (now Greencastle Drinks) and Trebor Canada Inc. (now Kraft Canada Inc.), as amended pursuant to an amendment agreement dated August 21, 2012, as such loan agreement has been assigned by Greencastle Drinks to Kraft Foods North America and Asia B.V., and as subsequently assigned by Kraft Foods North America and Asia B.V. to Yellowcastle Limited, and as subsequently assigned by Yellowcastle Limited to Kraft Canada Two LP.
Incoming Intercompany IP Licenses means all licenses of Intellectual Property between any GroceryCo Entity or SnackCo Entity, as licensor, and the Vendor, as licensee, including those licenses listed in Part A of Schedule 2.01(q).
Intellectual Property means intellectual property of any nature and kind including all domestic and foreign trade-marks, business names, trade names, domain names, social media accounts and passwords, trading styles, patents, trade secrets, Software, industrial designs and copyrights, whether registered or unregistered, and all applications for registration thereof, and inventions, formulae, recipes, product formulations, processes and processing methods, technology and techniques and know-how.
Inventories means all inventories Related to the Canadian Snack Business, including all raw materials, ingredients, stores, spare parts, finished goods, work in progress and other items of inventory.
Lands means, collectively, the Freehold Lands, the Leasehold Lands and the Sub-leasehold Lands.
Leasehold Lands means the interest in the leased premises and the leases or subleases, as applicable, listed or described on Schedule 2.01(i) (which, for greater certainty, specifically excludes the Sub-leasehold Lands), together with all rights, benefits and advantages to be derived therefrom, including all improvements, appurtenances, fixtures and leasehold improvements situate on or forming part of such premises.
Non-Income Tax has the meaning ascribed thereto in the Tax Sharing Agreement.
Non-Union Employees has the meaning set out in Section 5.02(1).
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Outgoing Intercompany IP Licenses means all licenses of Intellectual Property between any GroceryCo Entity or SnackCo Entity, as licensee, and the Vendor, as licensor, including those licenses listed in Part B of Schedule 2.01(q).
Owned Snack Intellectual Property has the meaning set out in Section 2.01(p).
Owned Software means all Software Related to the Canadian Snack Business.
Pension Plan Transfer Amounts has the meaning set out in Section 6.02(3).
Personal Information means the type of information regulated by Privacy Laws and collected, retained, used or disclosed by the Vendor, including information about an identifiable individual, such as an individuals name, address, age, gender, identification number, income, family status, citizenship, employment, assets, liabilities, source of funds, payment records, credit information, personal references and health records.
Privacy Laws means all federal, provincial, municipal or other laws governing the collection, use, disclosure and storage of Personal Information, including the Personal Information Protection and Electronic Documents Act (Canada).
Purchaser Shares means 999,999 common shares in the capital of the Purchaser to be issued to the Vendor pursuant to Section 2.05(b).
Related to the Canadian Grocery Business means owned or held immediately prior to the Effective Time by the Vendor and primarily related to or primarily used in the Canadian Grocery Business.
Related to the Canadian Snack Business means owned or held immediately prior to the Effective Time by the Vendor and primarily related to or primarily used in the Canadian Snack Business.
Residual Indemnity Obligation has the meaning ascribed thereto in the Tax Sharing Agreement.
Residual TSA Receivable has the meaning ascribed thereto in the Tax Sharing Agreement.
Separation Agreement means the separation and distribution agreement dated on or about September 27, 2012 between Kraft Foods Inc. and Kraft Foods Group, Inc., as may be amended or modified from time to time.
SnackCo Brand IP has the meaning ascribed thereto in the IP Agreement (Trademark).
SnackCo Canada Cash means an amount of cash and Cash Equivalents of or standing to the credit of the Vendor immediately prior to the Effective Time such that, after giving effect to the transactions contemplated in this Agreement, the Vendor will have transferred to the Purchaser the Butterfly Percentage of the Cash or Near Cash Property.
SnackCo Incentive Plans has the meaning set out in Section 5.03(1).
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SnackCo Pension Plans has the meaning set out in Section 6.02(1).
Software means all software, including all versions thereof, and all related documentation, manuals, source code and object code, program files, data files, computer related data, field and data definitions and relationships, data definition specifications, data models, program and system logic, interfaces, program modules, routines, sub-routines, algorithms, program architecture, design concepts, system designs, program structure, sequence and organization, screen displays and report layouts, and all other material related to such software.
Specified GroceryCo Accounts Receivable means all accounts receivable of the Vendor (including all accounts receivable from any SnackCo Entity and from any GroceryCo Entity) that constitute a GroceryCo Asset under the Separation Agreement and the trade accounts receivable of the Vendor outstanding as of the Effective Time that arose from sales through the warehouse channel, whether or not such products are included in the SnackCo Business or the GroceryCo Business.
Specified Incentive Plans means those incentive plans listed or described on Schedule 5.03(1).
Specified Indemnity Obligation has the meaning ascribed thereto in the Tax Sharing Agreement.
Specified Liabilities means, collectively, that portion of the Canadian Snack Liabilities that are specifically identified on Schedule 3.05(2)(b) as being Specified Liabilities.
Specified TSA Receivable has the meaning ascribed thereto in the Tax Sharing Agreement.
Stand-Alone Registered Pension Plans has the meaning set out in Section 6.01(1).
Sublease Agreements means the subleases to be entered into between the Vendor, as sub-landlord, and the Purchaser, as sub-tenant, with respect to the entire portion of each of the respective Sub-leasehold Lands, each in such form as may be agreed between the parties thereto.
Sub-leasehold Lands means the lands listed or described on Schedule 3.02(1), together with all rights, benefits and advantages to be derived there from, including all improvements, appurtenances, fixtures and leasehold improvements situate on or forming part of such lands.
Subsidiary Interests means, collectively, (i) all of the limited partnership interests in Kraft Foods Australia Investments Limited Partnership, (ii) all of the issued and outstanding shares in the capital of (A) Kraft Australia Pty Ltd., (B) Kraft Asia Pacific (Alberta) GP ULC, (C) Kraft Holdings ULC, (D) Lowney Inc., (E) Freezer Queen Foods (Canada) Limited, (F) Neilson International Limited, (G) TCI Realty Holdings Inc., (H) Nabisco Holdings I B.V., and (I) CS Finance Inc. (including, those registered in the name of the Vendor and those held by Cadbury Schweppes Overseas Limited in trust for the Vendor), and (iii) all of the liabilities and obligations owed to the Vendor by Kraft Holdings ULC and by Kraft Asia Pacific (Alberta) GP ULC.
Tax has the meaning ascribed thereto in the Tax Sharing Agreement.
Tax Act means the Income Tax Act (Canada).
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Tax Ruling means the advance income tax rulings and opinions from the CRA dated September 5, 2012 confirming the Canadian federal income tax consequences of certain aspects of the Internal Reorganization, including all amendments or supplements thereto.
Transfer Taxes has the meaning set out in Section 4.03.
Transferred Accounts Receivable means (i) all accounts receivable of the Vendor (including all accounts receivable from any SnackCo Entity and from any GroceryCo Entity) to the extent Related to the Canadian Snack Business, and (ii) any other accounts receivable of the Vendor listed or described on Schedule 2.01(a), but in all cases save and except for the Specified GroceryCo Accounts Receivable.
Transferred Employees from Commingled Plans has the meaning set out in Section 6.02(1).
Unionized Employees has the meaning set out in Section 5.02(2).
Vendor Commingled Registered Pension Plans has the meaning set out in Section 6.02(1).
1.02 Headings
The division of this Agreement into Articles and Sections and the insertion of a table of contents and headings are for convenience of reference only and do not affect the construction or interpretation of this Agreement. The terms hereof, hereunder and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof. Unless something in the subject matter or context is inconsistent therewith, references herein to Articles, Sections and Schedules are to Articles and Sections of and Schedules to this Agreement.
1.03 Extended Meanings
In this Agreement words importing the singular number include the plural and vice versa, and words importing any gender include all genders. The term including means including without limiting the generality of the foregoing and the term third party means any Person other than the Vendor and the Purchaser.
1.04 Statutory References
In this Agreement, unless something in the subject matter or context is inconsistent therewith or unless otherwise herein provided, a reference to any statute is to that statute as now enacted or as the same may from time to time be amended, re-enacted or replaced and includes any regulations made thereunder.
1.05 Currency
Unless otherwise specified, all references to currency herein are to lawful money of Canada.
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1.06 Schedules
The following are the Schedules to this Agreement:
Schedule 2.01(a) | | Specified Canadian Snack Assets; | ||
Schedule 2.01(e) | | Governmental Permits and Authorizations; | ||
Schedule 2.01(g) | | Contracts Related Exclusively to the Canadian Snack Business; | ||
Schedule 2.01(h) | | Canadian Shared Contracts; | ||
Schedule 2.01(i) | | Freehold Lands and Leasehold Lands; | ||
Schedule 2.01(l) | | Machinery and Equipment; | ||
Schedule 2.01(p) | | Owned Snack Intellectual Property; | ||
Schedule 2.01(q) | | Canadian Intercompany IP Licenses; | ||
Schedule 2.02 | | Specified Canadian Grocery Assets; | ||
Schedule 2.06(5) | | Allocation of Consideration; | ||
Schedule 2.10(a) | | Specified Canadian Snack Liabilities; | ||
Schedule 2.10(b) | | Canadian Snack Indebtedness; | ||
Schedule 2.11(a) | | Specified Canadian Grocery Liabilities; | ||
Schedule 2.11(b) | | Canadian Grocery Indebtedness; | ||
Schedule 3.02(1) | | Sub-leasehold Lands; | ||
Schedule 3.05(2)(b) | | Specified Liabilities; | ||
Schedule 5.01(1) | | Employees Transferring to the Purchaser; | ||
Schedule 5.01(2) | | Collective Agreements; | ||
Schedule 5.03(1) | | Specified Incentive Plans; | ||
Schedule 6.01(1) | | Stand-Alone Registered Pension Plans; | ||
Schedule 6.01(2) | | Form of Assignment and Assumption Agreement; and | ||
Schedule 6.02(1) | | Vendor Commingled Registered Pension Plans. |
ARTICLE 2CONVEYANCE
2.01 Conveyance of the Canadian Snack Assets
Upon and subject to the terms and conditions of this Agreement, the Vendor hereby assigns, conveys, transfers and sets over to the Purchaser, and the Purchaser hereby accepts such assignment, conveyance and transfer, as of and with effect from the Effective Time, all of the right, title, benefit and interest of the Vendor in and to the Canadian Snack Assets. Without limiting the generality of the foregoing, the Canadian Snack Assets include all of the right, title, benefit and interest of the Vendor in and to:
(a) | the Assets listed or described on Schedule 2.01(a) (which, for the avoidance of doubt, is not a comprehensive listing of all Canadian Snack Assets and is not intended to limit the other clauses of this Section 2.01) and all other Assets that are expressly provided in this Agreement as Assets to be transferred to the Purchaser; |
(b) | the Vendors estimate, which estimate is made immediately before the Effective Time, of the SnackCo Canada Cash, to be satisfied in accordance with Section 2.07; |
(c) | the Subsidiary Interests; |
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(d) | except as otherwise provided in this Agreement, all Assets reflected as assets of the Purchaser on the SnackCo Balance Sheet and any Assets acquired by or for the Purchaser subsequent to the date of the SnackCo Balance Sheet that, had they been acquired on or before such date and owned as of such date, would have been reflected on the SnackCo Balance Sheet if prepared in accordance with GAAP applied on a consistent basis, subject to any dispositions of any such Assets subsequent to the date of the SnackCo Balance Sheet; |
(e) | all approvals, registrations, permits and authorizations issued by any Governmental Authority that relate exclusively to the Canadian Snack Business or the Canadian Snack Assets and are held in the name of the Vendor, including those listed or described on Schedule 2.01(e); |
(f) | all recoveries and other Assets (net of expenses) received by the Vendor or the Purchaser in respect of any SnackCo Action; |
(g) | all contracts and agreements that are related exclusively to the Canadian Snack Business and to which the Vendor is a party or by which the Vendor is bound or under which the Vendor has rights, including those listed or described on Schedule 2.01(g); |
(h) | subject to Section 2.01(q), the SnackCo Portion of any Shared Contract to which the Vendor is a party or by which the Vendor is bound or under which the Vendor has rights, including those listed or described on Schedule 2.01(h); |
(i) | the beneficial interest in the Freehold Lands and the legal and beneficial interest in the Leasehold Lands; |
(j) | all plant, buildings, structures, erections, improvements, appurtenances and fixtures situate on or forming part of the Lands (and all plans, surveys, specifications and appraisals in the Vendors possession or under its control relating to any of the foregoing, including all such electrical, mechanical and structural drawings related thereto as are in the possession or under the control of the Vendor); |
(k) | all fixed machinery and fixed equipment situate on or forming part of the Lands; |
(l) | all other machinery and equipment and all vehicles, tools, handling equipment, furniture, furnishings, computer hardware, Software and peripheral equipment, supplies and accessories situate on the Lands or otherwise Related to the Canadian Snack Business, including those listed or described on Schedule 2.01(l); |
(m) | the Inventories; |
(n) | all shipping and packaging materials and supplies Related to the Canadian Snack Business; |
(o) | the Transferred Accounts Receivable; |
(p) | all Intellectual Property Related to the Canadian Snack Business (the Owned Snack Intellectual Property ), including the Intellectual Property listed or described on Schedule 2.01(p); |
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(q) | the Incoming Intercompany IP Licenses to the extent related to any SnackCo Brand IP, and the Outgoing Intercompany IP Licenses to the extent related to any Owned Snack Intellectual Property (for greater certainty, the Vendor will retain all right, title, benefit and interest of the Vendor in and to (A) the Incoming Intercompany IP Licenses to the extent not related to SnackCo Brand IP, and (B) the Outgoing Intercompany IP Licenses to the extent not related to Owned Snack Intellectual Property); |
(r) | the goodwill of the Canadian Snack Business; |
(s) | subject to Section 4.04, all pre-paid expenses and deposits Related to the Canadian Snack Business including all pre-paid insurance, rent and royalties, all pre-paid property taxes and water rates, all pre-paid purchases of gas, oil and hydro, all pre-paid lease payments and all pre-paid employee items referred to in Section 5.02(3); and |
(t) | any FIN 45 TSA Receivables of the Vendor, and any Specified TSA Receivables of the Vendor with respect to a Tax that would be a Canadian Snack Liability; |
provided, however, that the Canadian Snack Assets will not include:
(i) | any Asset referred to in Sections 2.01(j), 2.01(k) or 2.01(l) respecting the Leasehold Lands or Sub-leasehold Lands where, pursuant to the lease or sublease governing the Vendors occupancy thereof, such Asset is not capable of being assigned, conveyed, transferred or set over to the Purchaser as contemplated by Section 2.01; or |
(ii) | except as set forth in Section 2.01(t), any right, title, benefit and interest of the Vendor in and to any refunds, offsets or credits of Taxes (including any Residual TSA Receivables of the Vendor). |
2.02 Canadian Grocery Assets
Notwithstanding any other provision of this Agreement to the contrary, the Vendor will retain all of the Canadian Grocery Assets.
2.03 Disclaimer of Representations and Warranties
Each of the Vendor and the Purchaser understands and agrees that, except as expressly set forth in the Separation Agreement, this Agreement, the Tax Sharing Agreement or in any other Ancillary Agreement, no party (including its Affiliates) to the Separation Agreement, this Agreement, the Tax Sharing Agreement any other Ancillary Agreement or any other agreement or document contemplated by the Separation Agreement, this Agreement, the Tax Sharing Agreement or any other Ancillary Agreement or otherwise, makes any representations or warranties relating in any way to the Assets, businesses or Liabilities transferred or assumed as contemplated hereby or thereby, to any Consent required in connection therewith, to the value or freedom from any Security Interests of, or any other matter concerning, any Assets of such party, or to the absence of any defenses or right of setoff or freedom from counterclaim with respect to any claim or other Asset,
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including any accounts receivable, of any party, or to the legal sufficiency of any assignment, document or instrument delivered hereunder to convey title to any Asset or thing of value upon the execution, delivery and filing hereof or thereof. Except as may expressly be set forth in the Separation Agreement, this Agreement, the Tax Sharing Agreement or in any other Ancillary Agreement, (a) the parties and the members of their respective Group are transferring all such Assets on an as is, where is basis, (b) the parties are expressly disclaiming any implied warranty of merchantability, fitness for a specific purpose or otherwise, (c) the respective transferees will bear the economic and legal risks that any conveyance will prove to be insufficient to vest in the transferee good and marketable title, free and clear of any Security Interest, and (d) none of the Vendor or the Purchaser (including their Affiliates) or any other Person makes any representation or warranty with respect to any information, documents or material made available in connection with the Separation or the Distribution, or the entering into of the Separation Agreement, this Agreement, the Tax Sharing Agreement or any other Ancillary Agreement or the transactions contemplated hereby or thereby, except as expressly set forth in the Separation Agreement, this Agreement, the Tax Sharing Agreement or in any other Ancillary Agreement.
2.04 Consideration
The consideration (the Consideration ) payable by the Purchaser to the Vendor for the Canadian Snack Assets will be the aggregate fair market value of the Canadian Snack Assets as at the Effective Time.
2.05 Payment of Consideration
The Consideration will be payable and satisfied in full:
(a) | as to the portion of the Consideration equal to the amount of the Assumed Liabilities, by the assumption by the Purchaser of the Assumed Liabilities; and |
(b) | as to the balance of the Consideration, by the allotment, issuance and delivery by the Purchaser to the Vendor of the Purchaser Shares. |
2.06 Allocation of Consideration
(1) The Consideration will be allocated among the assets or classes of assets that comprise the Canadian Snack Assets as to an amount equal to the fair market value of each such asset or class immediately before the Effective Time.
(2) The Assumed Liabilities assumed by the Purchaser in partial satisfaction of the Consideration will be allocated as follows:
(a) | first, to assets or classes of assets that comprise the Canadian Snack Assets and are current assets (other than Elected Property and Forco Interests), up to the fair market value thereof; |
(b) | next, to assets or classes of assets that comprise the Canadian Snack Assets and are current assets and Elected Property (other than Forco Interests), up to the elected amount in respect thereof; |
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(c) | next, to assets or classes of assets that comprise the Canadian Snack Assets (other than current assets, Elected Property and Forco Interests), up to the fair market value thereof; |
(d) | next, to assets or classes of assets that comprise the Canadian Snack Assets and are Elected Property (other than current assets and Forco Interests), up to the elected amount in respect thereof; |
(e) | next, to assets or classes of assets that comprise Forco Interests (other than Elected Property), up to the fair market value thereof; |
(f) | next, to assets or classes of assets that comprise Forco Interests and are Elected Property, up to the elected amount in respect thereof; and |
(g) | next, to assets or classes of assets that comprise the Canadian Snack Assets, to the extent not already allocated to above. |
(3) The allocation within each of Sections 2.06(2)(a) through (g) above will be pro rata to the assets or classes of assets that comprise the Canadian Snack Assets within the particular paragraph, and in no event will the amount of the Assumed Liabilities allocated to a particular asset or class of assets exceed the fair market value thereof.
(4) The Purchaser Shares will be allocated to each asset or class of assets that comprise the Canadian Snack Assets to the extent that the fair market value of the particular asset or class of assets immediately before the Effective Time exceeds any amount of the Assumed Liabilities allocated to that particular asset or class of assets as set out in Sections 2.06(2) and 2.06(3).
(5) The allocations referred to in Sections 2.06(1) to 2.06(4) will be estimated by the Vendor, acting reasonably, within 90 days after the date hereof and such allocations will be attached as Schedule 2.06(5).
(6) The Vendor and the Purchaser must each complete all tax returns, designations and elections in a manner consistent with such allocation and otherwise follow such allocation for all tax purposes on and subsequent to the Closing Date and not take any position inconsistent with such allocation. If such allocation is disputed by any taxation or other Governmental Authority, the party receiving notice of such dispute will promptly notify the other party and the parties will use their reasonable best efforts to sustain such allocation. The parties will share information and cooperate to the extent reasonably necessary to permit the transactions contemplated by this Agreement to be properly, timely and consistently reported.
2.07 Cash Transfer
The Vendors estimate of the SnackCo Canada Cash to be transferred at the Effective Time pursuant to Section 2.01(b) will be satisfied in cash, any certificates of deposit, amounts owing to the Vendor from persons related to the Vendor that are due within the next 12 months or have no fixed term of repayment (other than any amounts owing by any corporation or partnership described in paragraph 73(g) of the Tax Ruling), and other Cash Equivalents, as determined by the Vendor in its sole discretion.
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2.08 Misdirected Amounts and Misdirected Invoices
(1) Notwithstanding anything to the contrary in the Separation Agreement, where any amount in respect of a Canadian Snack Asset or the Canadian Snack Business is paid to or received by the Vendor or any of its Affiliates or their respective successors after the Effective Time, the Vendor, its Affiliates or such successor will remit such amount to the Purchaser within 30 days following the end of the month during which the applicable amount was paid or received. The parties will cooperate in good faith to effect and document such receipts and remittances in a commercially reasonable manner.
(2) Notwithstanding anything to the contrary in the Separation Agreement, where any amount in respect of a Canadian Grocery Asset or the Canadian Grocery Business is paid to or received by the Purchaser or any of its Affiliates or their respective successors after the Effective Time, the Purchaser, its Affiliates or such successor will forthwith remit such amount to the Vendor within 30 days following the end of the month during which the applicable amount was paid or received. The parties will cooperate in good faith to effect and document such receipts and remittances in a commercially reasonable manner.
(3) During the six-month period following the Closing Date, the Vendor will promptly upon receipt thereof forward to the Purchaser any invoice received by the Vendor and addressed to the Purchaser, and the Purchaser will promptly upon receipt thereof forward to the Vendor any invoice received by the Purchaser and addressed to the Vendor (any invoice described in this sentence, a Misdirected Invoice ). After such six-month period, each of the Vendor and the Purchaser will return any Misdirected Invoices received by it to the applicable vendor for correction.
2.09 Substitution and Subrogation
The conveyance of the Canadian Snack Assets to the Purchaser, its successors and permitted assigns, hereunder is with full rights of substitution and subrogation of the Purchaser, its successors and permitted assigns, to the extent possible, in and to all covenants, representations and warranties by others heretofore given or made in respect of the Canadian Snack Assets or any part thereof.
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2.10 Assumption of Canadian Snack Liabilities
Upon and subject to the terms and conditions of this Agreement, the Vendor hereby assigns to the Purchaser, and the Purchaser hereby assumes and will duly and properly perform, fulfil, pay and discharge when due, the Canadian Snack Liabilities. Without limiting the generality of the foregoing, the Canadian Snack Liabilities include all Liabilities of the Vendor to the extent relating to, arising out of or resulting from:
(a) | any matter listed or described on Schedule 2.10(a) and all other Liabilities that are expressly provided in this Agreement as Liabilities to be assumed by the Purchaser, and all obligations and liabilities of the Purchaser under this Agreement; |
(b) | the indebtedness of the Vendor listed on Schedule 2.10(b) (including any Liabilities relating to, arising out of or resulting from a claim by a holder of any such indebtedness, in its capacity as such); |
(c) | except as otherwise provided in this Agreement, the Liabilities reflected as liabilities or obligations on the SnackCo Balance Sheet, and all Liabilities arising or assumed after the date of the SnackCo Balance Sheet that, had they arisen or been assumed on or before such date and been existing obligations as of such date, would have been reflected on the SnackCo Balance Sheet if prepared in accordance with GAAP applied on a consistent basis, subject to any discharge of such Liabilities subsequent to the date of the SnackCo Balance Sheet; |
(d) | any SnackCo Action; |
(e) | all Unknown Environmental Liabilities associated with any current or former properties used in the operation of the Canadian Snack Business, including the facilities listed or described on schedule 1.2(24) of the Separation Agreement and all existing and identified Environmental Liabilities of the Vendor or any of its Predecessors relating to events or conditions occurring or arising during the period prior to the Effective Time that relate to any active facility owned or operated by any member of the SnackCo Group as of Effective Time and those set forth on schedule 1.2(14) of the Separation Agreement; |
(f) | the terminated, divested or discontinued businesses or operations of the Vendor or any of its Subsidiaries or any of their respective Predecessors that are listed or described on schedule 1.2(25) of the Separation Agreement; |
(g) | the operation or conduct of the Canadian Snack Business, as conducted at any time prior to the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such persons authority) which act or failure to act relates to the Canadian Snack Business); |
(h) | any Canadian Snack Asset; |
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(i) | any Environmental Liability resulting from any properties included in or associated with the Canadian Snack Assets (including any business, operations or properties, and any Liability resulting from off-site disposal of waste from such business, operations or properties, for which a current or future owner or operator of the Canadian Snack Assets or the Canadian Snack Business may be alleged to be responsible as a matter of Law, contract or otherwise due to such ownership or operation of the Canadian Snack Assets or the Canadian Snack Business), arising on or after the Effective Time; |
(j) | the Applicable SnackCo Proportion of any Shared Liability; |
(k) | the Greencastle Obligation; |
(l) | the Vendors obligations as a subsidiary guarantor under the Cadbury Bonds Guarantee; |
(m) | all employment and registered and unregistered pension plan Liabilities to be assumed by the Purchaser pursuant to the terms of this Agreement; |
(n) | any FIN 45 Indemnity Obligations of the Vendor, and any Specified Indemnity Obligations of the Vendor that are attributable to any tax sharing/allocation, purchase and sale, or similar agreements allocated to the SnackCo Group on schedule 1.2(16) of the Separation Agreement; and |
(o) | except as set forth in Section 2.11(m) or as otherwise expressly provided in this Agreement, and without limiting Section 2.10(n), any obligations or liabilities of the Purchaser for Taxes under the Tax Act or any other Taxes whatsoever that may be or become payable by the Purchaser. |
The Vendor and the Purchaser ascribe no value to the Canadian Snack Liabilities that are not Assumed Liabilities and agree that such Liabilities either are Specified Liabilities or have no value. In the event of any inconsistency or conflict that may arise in the application or interpretation of the foregoing provisions, for the purposes of determining what is and is not a Canadian Snack Liability, any item explicitly listed or referred to in this Section 2.10 will take priority over the Liabilities listed or described herein as being Canadian Grocery Liabilities.
2.11 Retention of Canadian Grocery Liabilities
Upon and subject to the terms and conditions of this Agreement, the Vendor will retain and will duly and properly perform, fulfil, pay and discharge when due the Canadian Grocery Liabilities. Without limiting the generality of the foregoing, the Canadian Grocery Liabilities include all Liabilities of the Vendor to the extent relating to, arising out of or resulting from:
(a) | any matter listed or described on Schedule 2.11(a) and all other Liabilities that are expressly provided in this Agreement as Liabilities to be retained by the Vendor, and all obligations and liabilities of the Vendor under this Agreement; |
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(b) | the indebtedness of the Vendor listed on Schedule 2.11(b) (including any Liabilities relating to, arising out of or resulting from a claim by a holder of any such indebtedness, in its capacity as such); |
(c) | except as otherwise provided in this Agreement, the Liabilities reflected as liabilities or obligations on the GroceryCo Balance Sheet, and all Liabilities arising or assumed after the date of the GroceryCo Balance Sheet that, had they arisen or been assumed on or before such date and been existing obligations as of such date, would have been reflected on the GroceryCo Balance Sheet if prepared in accordance with GAAP applied on a consistent basis, subject to any discharge of such Liabilities subsequent to the date of the GroceryCo Balance Sheet; |
(d) | any GroceryCo Action; |
(e) | all Known Environmental Liabilities, except for those that relate to any active facility owned or operated by any member of the SnackCo Group as of Effective Time and those set forth on schedule 1.2(14) of the Separation Agreement; |
(f) | all Unknown Environmental Liabilities associated with any current or former properties used in the operation of the Canadian Grocery Business, including the facilities listed or described on schedule 1.2(15) of the Separation Agreement; |
(g) | all Liabilities to the extent relating to, arising out of or resulting from the terminated, divested or discontinued businesses or operations of the Vendor or any of its Subsidiaries or any of their respective Predecessors that are listed or described on schedule 1.2(16) of the Separation Agreement; |
(h) | the operation or conduct of the Canadian Grocery Business, as conducted at any time prior to the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such persons authority) which act or failure to act relates to the Canadian Grocery Business); |
(i) | all employment and registered and unregistered pension plan Liabilities of the Vendor except to the extent such Liability is to be assumed by the Purchaser pursuant to the terms of this Agreement; |
(j) | any Canadian Grocery Asset; |
(k) | any Environmental Liability resulting from any properties included in or associated with the Canadian Grocery Assets (including any business, operations or properties, and any Liability resulting from off-site disposal of waste from such business, operations or properties, for which a current or future owner or operator of the Canadian Grocery Assets or the Canadian Grocery Business may be alleged to be responsible as a matter of Law, contract or otherwise due to such ownership or operation of the Canadian Grocery Assets or the Canadian Grocery Business), arising on or after the Effective Time; |
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(l) | the Applicable GroceryCo Proportion of any Shared Liability; |
(m) | any Residual Indemnity Obligations of the Vendor that relate to Canadian Income Taxes or Non-Income Tax, and any Specified Indemnity Obligations of the Vendor that are attributable to any tax sharing/allocation, purchase and sale, or similar agreements that are allocated to the GroceryCo Group on schedule 1.2(16) of the Separation Agreement; and |
(n) | except as set forth in Section 2.10(n) or as otherwise expressly provided in this Agreement, and without limiting Section 2.11(m), any obligations or liabilities of the Vendor for Taxes under the Tax Act or any other Taxes whatsoever that may be or become payable by the Vendor, including any income or corporation Taxes resulting from or arising as a consequence of the sale by the Vendor to the Purchaser of the Canadian Snack Assets and the Canadian Snack Business hereunder. |
In the event of any inconsistency or conflict that may arise in the application or interpretation of the foregoing provisions, for the purposes of determining what is and is not a Canadian Grocery Liability, any item explicitly listed or referred to in this Section 2.11 will take priority over the Liabilities listed or described herein as being Canadian Snack Liabilities.
2.12 Obligations and Liabilities Not Assumed
Except as otherwise provided in this Agreement, the Purchaser does not assume and will not be liable for any obligations or liabilities of the Vendor whatsoever.
2.13 Ancillary Agreements
The Vendor and the Purchaser each acknowledge that an Affiliate or Affiliates of each of them have entered into the Ancillary Agreements (other than this Agreement), including the Employee Matters Agreement, the IP Agreement (Non-Trademark), the IP Agreement (Trademark), the Supply Agreement, the Tax Sharing Agreement, the Transition Services Agreements and the Warehouse Agreement in connection with the implementation of the transactions contemplated by the Separation Agreement, including the Internal Reorganization. It is intended that nothing in those agreements or the Separation Agreement will effect, constitute or change the timing of (i) any transfer, assignment, conveyance or other disposition of, or any amendment, modification, supplement or other change of or to, any right, title, interest or benefit in any Asset owned or held by the Vendor, the Purchaser or any of their direct or indirect subsidiaries (including partnerships), or (ii) any transfer, assumption, forgiveness or release of, or any amendment, modification, supplement or other change of or to, any Liabilities of the Vendor, the Purchaser or any of their direct or indirect subsidiaries (including partnerships). Rather, it is intended that this Agreement would be entered into to implement the transactions set out in those agreements and the Separation Agreement as they relate to the Assets and Liabilities of the Vendor, the Purchaser and their direct and indirect subsidiaries (including partnerships). Nevertheless, to the extent that any of those agreements or the Separation Agreement create rights or obligations in respect of the Assets or Liabilities of the Vendor or the Purchaser (or any of their direct or indirect subsidiaries (including partnerships), as the case may be), the obligations and entitlements of GroceryCo or a GroceryCo Entity will, to the extent permissible, be performed or received by the Vendor (or the subsidiary of the Vendor, as the case may be) and the obligations and entitlements of SnackCo or a SnackCo Entity will, to the extent permissible, be performed or received by the Purchaser (or the subsidiary of the Purchaser, as the case may be).
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ARTICLE 3GENERAL COVENANTS
3.01 Waiver of Bulk Sales Laws
The parties hereby waive compliance with the Bulk Sales Act (Ontario) and section 6 of the Retail Sales Tax Act (Ontario) and equivalent Laws in other provinces to the extent such Laws would be applicable to the transactions contemplated by this Agreement.
3.02 Real Property Matters
(1) | At or before the Effective Time the Vendor and the Purchaser will have entered into the Sublease Agreements. |
(2) | To further evidence the assignment, transfer and conveyance of the Freehold Lands and the Leasehold Lands in Section 2.01 hereof, the Vendor and the Purchaser will enter into and deliver (i) a beneficial transfer of the Freehold Lands, and (ii) an assignment of leases in connection with the Leasehold Lands. |
(3) | At or before the Effective Time the Vendor, as grantor, and the Purchaser, as grantee, will have entered into a shared warehouse agreement with respect to a portion of the leased premises described municipally as 5801 72nd Ave. S.E., Calgary, Alberta, in such form as may be agreed between the parties thereto. |
3.03 Intellectual Property Matters
Without limiting the generality of section 4.1 of the Separation Agreement, after the Closing Date each party will, at the request of the other party, cooperate with the other party, and without any further consideration, to (i) execute and deliver, or use its reasonable best efforts to cause to be executed and delivered, restated versions of any or all of the Canadian Intercompany IP Licenses to reflect the assignment or partial assignment, as the case may be, of such Canadian Intercompany IP Licenses by the Vendor and the assumption thereof by the Purchaser hereunder, and (ii) take all such other actions as such party may reasonably be requested to take by any other party from time to time, consistent with the terms of this Agreement in order to effectuate, record or otherwise further evidence the assignment, transfer and conveyance of the Owned Snack Intellectual Property.
3.04 Treatment of Personal Information
With respect to any Personal Information conveyed to the Purchaser hereunder, the Purchaser will collect, use, disclose and store such Personal Information only in accordance with the purposes for which individual consent was obtained by the Vendor, or for which individual consent is subsequently obtained by the Purchaser, and for no other purposes. The Purchaser will take all necessary steps directed to ensuring that the collection, use, disclosure and storage by the Purchaser of such Personal Information will comply in all material respects with all Privacy Laws to the extent
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the Purchaser is required to do so, and will be subject to Purchaser privacy policies which are substantially the same as the Vendors privacy policies as at the Closing Date. Except where Personal Information that is duplicated and retained by the Vendor because individual consent was also obtained to use such Personal Information in connection with the Canadian Grocery Business (or, in the case of Personal Information of an Employee, consent was obtained to use such Personal Information in connection with the administration of such Employees employment with the Vendor), or where Personal Information is required to be retained by the Vendor to comply with Privacy Laws or the Vendors privacy policies, the Vendor will delete any Personal Information conveyed to the Purchaser hereunder.
3.05 Indemnification
(1) The Purchaser will indemnify, defend and hold harmless the Vendor and each of its current, former and future directors, officers and employees, and each of the heirs, administrators, executors, successors and assigns of any of the foregoing from and against:
(a) | the Canadian Snack Liabilities, other than the Specified Liabilities; |
(b) | the operation or conduct of any business conducted by the Purchaser at any time after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such persons authority) and from all packaging levy obligations arising out of or relating to the sale of any products by the Purchaser at any time after the Effective Time); and |
(c) | all liabilities, costs, expenses (including reasonable expenses of investigation and attorneys fees and expenses), losses, damages, assessments, settlements or judgments arising out of or incident to the imposition, assessment or assertion of any of the foregoing. |
(2) The Vendor will indemnify, defend and hold harmless the Purchaser and each of its current, former and future directors, officers and employees, and each of the heirs, administrators, executors, successors and assigns of any of the foregoing from and against:
(a) | the Canadian Grocery Liabilities; |
(b) | the Specified Liabilities; |
(c) | the operation or conduct of any business conducted by the Vendor at any time after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such persons authority)); and |
(d) | all liabilities, costs, expenses (including reasonable expenses of investigation and attorneys fees and expenses), losses, damages, assessments, settlements or judgments arising out of or incident to the imposition, assessment or assertion of any of the foregoing. |
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ARTICLE 4TAX MATTERS
4.01 Election under Subsection 85(1) of the Tax Act
(1) The parties will jointly elect under subsection 85(1) of the Tax Act with respect to the transfer of each eligible property (as defined in the Tax Act) included in the Canadian Snack Assets, except for the accounts receivable. Such election will be prepared by the Vendor and filed by the Vendor and the Purchaser in the form and manner and within the time prescribed by the Tax Act. The agreed amount in respect of each of the eligible properties transferred will be as follows:
(a) | in the case of capital property (other than depreciable property of a prescribed class) and inventory, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii) of the Tax Act; |
(b) | in the case of depreciable property of a prescribed class, an amount equal to the least of the amounts described in subparagraphs 85(1)(e)(i), (ii), and (iii) of the Tax Act; and |
(c) | in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii), and (iii) of the Tax Act. |
(2) For the purposes of the joint election referred to in Section 4.01(1)(b), the reference in subparagraph 85(1)(e)(i) of the Tax Act to the undepreciated capital cost to the taxpayer of all the property of that class immediately before the disposition will be interpreted to mean that proportion of the undepreciated capital cost to the Vendor of all of the property of that class immediately before the Effective Time that the fair market value at that time of the asset that is transferred is of the fair market value at that time of all property of that class.
(3) For the purposes of the joint elections referred to in Section 4.01(1)(c), if the Vendor so determines, the reference in subparagraph 85(1)(d)(i) of the Tax Act to 4/3 of the taxpayers cumulative eligible capital in respect of the business immediately before the disposition will be interpreted to mean the proportion of 4/3 of the Vendors cumulative eligible capital in respect of its business immediately before the transfer to the Purchaser that the transferred eligible capital property in respect of the business (based on fair market value at that time or the amount of the cumulative eligible capital that is attributable to those assets, as determined by the Vendor) is of all of the Vendors eligible capital property in respect of the business (based on fair market value at that time or the amount of the cumulative eligible capital that is attributable to those assets, as determined by the Vendor), and the Vendor and the Purchaser will so indicate in their joint election.
(4) The Purchaser will, at the request of the Vendor, jointly elect with the Vendor under corresponding provisions of applicable provincial income tax legislation with respect to the transfer of the Canadian Snack Assets. The provisions of Sections 4.01(1), 4.01(2) and 4.01(3) will apply to the making of any such provincial elections, with necessary changes.
(5) The Vendor and the Purchaser will cooperate with each other in making any amendments to the tax elections referred to in this Section 4.01 as may be required by the Vendor, and the provisions of this Section 4.01 will apply to the making of any such amended elections.
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4.02 Stated Capital
The Purchaser will add to its stated capital account maintained for its common shares an amount up to but not exceeding:
(a) | for Purchaser Shares issued as part of the Consideration for Elected Property, the aggregate agreed amounts in the election, less the amount of any consideration allocated to such Elected Property other than Purchaser Shares; and |
(b) | for all other Purchaser Shares issued by the Purchaser pursuant hereto, the fair market value of the assets for which such Purchaser Shares are issued. |
4.03 Transfer Taxes
(1) All transfer, land transfer, value added, ad-valorem , excise, sales, use, consumption, goods or services, harmonized sales, retail sales, social services, or other similar taxes or duties (collectively, Transfer Taxes ) payable under any Law on or with respect to the sale and purchase of the Canadian Snack Assets under this Agreement will be the responsibility of the party on whom such Transfer Taxes are imposed or from whom such Transfer Taxes are otherwise due under such Law, and such party will be liable for and will pay, or will cause to be paid, such Transfer Taxes. The party that is liable for a Transfer Tax as set out above will prepare and file any affidavits or returns required in connection with such Transfer Tax at its own cost and expense. To the extent that any Transfer Taxes are required to be paid by a party that is not liable for such Transfer Taxes as set out above, the party that is liable for such Transfer Taxes as set out above will reimburse, or will cause to be reimbursed, to the first-mentioned party such taxes within five Business Days of payment of such Transfer Taxes by such party. All amounts payable by the Purchaser to the Vendor hereunder do not include Transfer Taxes. The Vendor and the Purchaser agree to cooperate with each other in connection with any filings and/or applications for the deferral of any land transfer tax in connection with the transfer, assignment and conveyance of the Freehold Lands.
(2) The Vendor and the Purchaser will, at or before the Effective Time, jointly execute elections, in the prescribed form and containing the prescribed information, under subsection 167(1) of the Excise Tax Act (Canada) to have subsection 167(1.1) of the Excise Tax Act (Canada) apply and under section 75 of the Act respecting the Quebec sales tax to have section 75(1.1) of Act respecting the Quebec sales tax apply to the sale and purchase of the Canadian Snack Assets hereunder so that no tax will be payable in respect of such sale and purchase under Part IX of the Excise Tax Act (Canada) and under the Act respecting the Quebec sales tax . The Purchaser will file the elections in the manner and within the time prescribed by the relevant legislation.
(3) The Vendor and the Purchaser agree that (i) the Vendor will be responsible for accounting for any goods and services tax, harmonized sales tax and/or Quebec sales tax that form part of any receivables acquired by the Purchaser as part of its acquisition of the Canadian Snack Assets, and (ii) the transfer of such receivables will be net of any amount that is in respect of applicable goods and services tax, harmonized sales tax and/or Quebec sales tax so that the Vendor will retain the right to collect such goods and services tax, harmonized sales tax and/or Quebec sales tax. To the extent that the applicable goods and services tax, harmonized sales tax and/or Quebec sales tax on transferred receivables is paid to the Purchaser, the Purchaser will forthwith pay such amounts to the Vendor.
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4.04 Property Taxes
All property taxes imposed on or with respect to the Canadian Snack Assets for the tax year that includes the Closing Date will be the responsibility of the party on whom such property taxes are imposed or from whom such property taxes are otherwise due under applicable Law. To the extent that a party is liable for property taxes as set out above, that party will prepare and file all required tax returns incident to those taxes at its own cost and expense.
4.05 Excise Tax Act; Residency
(1) The Vendor is registered under Part IX of the Excise Tax Act (Canada) with registration numbers RT0001 89950 5945 and QST 1019023768 TQ0001. The Vendor is not a non-resident of Canada within the meaning of section 116 of the Tax Act.
(2) The Purchaser is registered under Part IX of the Excise Tax Act (Canada) with registration numbers RT0001 82426 2687 and QST 1218891752 TQ0001.
ARTICLE 5EMPLOYEE MATTERS
5.01 Employees and Collective Agreements
(1) Schedule 5.01(1) sets out the names of all employees of the Canadian Snack Business as of the Closing Date ( Employees ). No later than the Closing Date, the Vendor will provide the Purchaser with information regarding terms and conditions of employment of the Employees in effect as of the Effective Time and such other information which is required by the Purchaser in order to establish, administer and manage the Purchasers employment relationship with Employees as of and following the Effective Time, to be jointly determined by the parties acting reasonably. The Vendor may, within 15 Business Days following the Closing Date, deliver to the Purchaser an updated version of Schedule 5.01(1) as may be necessary to correct any errors thereon, any such updated Schedule to be appended to this Agreement in substitution of the then existing Schedule and the employees listed thereon will be deemed to constitute the Employees.
(2) Schedule 5.01(2) sets out all of the collective agreements ( Collective Agreements ) to which the Vendor is a party or by which it is otherwise bound, either directly or indirectly by operation of Law, with respect to the Canadian Snack Business.
5.02 Offers of Employment
(1) Effective on and after the Effective Time, the Purchaser will employ all of the Employees who are not covered by the Collective Agreements ( Non-Union Employees ) and whose names are listed on Schedule 5.01(1), on the same terms and conditions which are in effect as of the Effective Time for all hourly paid Non-Union Employees of the Vendor and, to the extent that written offers of employment have been provided to salaried Non-Union Employees of the Vendor, on the same terms and conditions which are set out in such written offers of employment with the
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Purchaser which have been extended to such salaried Non-Union Employees of the Vendor prior to the Closing Date and which have been accepted by such salaried Non-Union Employees as of the Closing Date. The Purchaser will recognize all past service of Non-Union Employees with the Vendor and, if applicable, Predecessors of the Vendor, to the extent recognized by the Vendor, for all purposes. No later than the Closing Date, the Vendor will provide the Purchaser with all written offers of employment with the Purchaser which have been extended to and accepted by salaried Non-Union Employees of the Vendor. The Purchaser will assume, accept the assignment of and continue to comply with the terms and conditions set out in all such offers of employment effective as of and following the Effective Time. The Purchaser will notify those salaried Non-Union Employees of the Vendor who do not receive written offers of employment with the Purchaser (who, for greater certainty, will be those salaried Non-Union Employees of the Vendor working at the plant level) of the transition of their employment from the Vendor to the Purchaser by notice provided to each such Employee or by the posting of such notice conspicuously in the workplace of such salaried Non-Union Employees. All Non-Union Employees who are not members of the registered pension plans listed on Schedule 6.01(1) and who are on any approved or statutory leave of absence as of the Closing Date will become employees of the Purchaser as of and following the Effective Time.
(2) With respect to Employees who are employed by the Vendor who are covered by the Collective Agreements ( Unionized Employees ), effective on and after the Effective Time, the Purchaser will be a successor employer to the Vendor of all Unionized Employees under the Collective Agreements pursuant to the provisions of applicable labour legislation and on and after the Effective Time will be bound by and observe all of the same terms, conditions, rights and obligations of the Vendor in relation to the employment of the Unionized Employees, including under the Collective Agreements.
(3) All items in respect of Employees who become employed by the Purchaser that require adjustment including premiums for unemployment insurance, Canada Pension Plan, employer health tax, applicable statutory hospitalization insurance, accrued wages, salaries and commissions and employee benefit plan payments will be appropriately adjusted to the close of business on the day immediately preceding the Effective Time.
(4) On and following the Effective Time, the Vendor will continue to be solely responsible for, fully discharge, and fully indemnify and save harmless the Purchaser with respect to, all statutory obligations and Liabilities which (i) are accrued and unpaid up to the Effective Time with respect to all Employees; or (ii) which accrue and become payable on or after the Effective Time with respect to Non-Union Employees who do not commence employment with the Purchaser. On and following the Effective Time, the Purchaser will be solely responsible for, fully discharge, and fully indemnify and save harmless the Vendor with respect to all statutory, contractual or common law obligations and Liabilities which accrue on or after the Effective Time with respect to Non-Unionized Employees who commence employment with the Purchaser and all Unionized Employees.
(5) With respect to those Employees who become employees of the Purchaser, and who have any claims under applicable workers compensation legislation as of the Effective Time, including any active Employees and any Employees who are on a leave of absence under applicable workers compensation legislation as of the Effective Time, the Purchaser will be solely responsible for, and will fully comply with and discharge, all obligations and Liabilities under applicable
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workers compensation legislation with respect to all such workers compensation claims, regardless of when the events underlying such workers compensation claims occur, and regardless of whether such workers compensation claims are open as of the Effective Time, or are opened or re-opened following the Effective Time, including the obligation to re-employ any such Employees who are on a leave of absence as of the Effective Time and to provide any accommodations which are required under applicable workers compensation legislation, human rights legislation or both. The Purchaser will assume, discharge and be liable for all claims, levies, assessments, penalties, deficiencies, Liabilities and other payments and obligations with respect to such Employees under applicable workers compensation legislation, and will fully indemnify and save harmless the Vendor for all such claims, levies, assessments, penalties, deficiencies, Liabilities and other payments and obligations, including all reasonable and documented third party costs incurred by the Vendor in relation to such claims. The Vendor will act reasonably in providing the Purchaser with any information reasonably required by the Purchaser in order to discharge the Purchasers obligations hereunder. With respect to any payments made by the Vendor after the Effective Time to any workers compensation board in relation to any Employees who become employees of the Purchaser, the Purchaser will fully indemnify and save harmless the Vendor for such payments within 30 days following the end of each quarter-end during which the applicable payment was paid by the Vendor. With respect to any payments received by the Vendor from any workers compensation board after the Effective Time in relation to any Employees who become employees of the Purchaser, the Vendor will remit such payments to the Purchaser within 30 days following the end of each quarter-end during which the applicable payment was received by the Vendor. With respect to any payments received by the Purchaser from any workers compensation board after the Effective Time in relation to any employees of the Vendor, including any Employees who do not become employees of the Purchaser, the Purchaser will remit such payments to the Vendor within 30 days following the end of each quarter-end during which the applicable payment was received by the Purchaser. The parties will act reasonably in providing the other party with any information reasonably required by the other party in order to discharge their respective payment obligations hereunder.
(6) The Vendor will transfer to the Purchaser the information contained in the complete personnel files maintained by the Vendor as of the Closing Date in respect of each of the Employees who commence employment with the Purchaser. The exchange of and access to such information will be handled in accordance with article VI of the Separation Agreement.
5.03 Specified Incentive Plans
(1) With respect to those Employees who commence employment with the Purchaser as of the Effective Time, and who are eligible to participate in a Specified Incentive Plan immediately prior to the Effective Time, the Purchaser will establish (or will arrange for another member of the SnackCo Group to establish) new incentive plans for the year ending December 31, 2012 (the SnackCo Incentive Plans ) which will be on the same terms and conditions and identical in all other respects to the Specified Incentive Plans in effect immediately prior to the Closing Date. All Employees who participated in a Specified Incentive Plan immediately prior to the Closing Date will be eligible to participate in the corresponding SnackCo Incentive Plan effective as of and following the Effective Time. For the purpose of calculating the amounts payable to an eligible Employee under a SnackCo Incentive Plan for the year ending December 31, 2012, the period between January 1, 2012 and the Closing Date in which an eligible Employee was employed by the Vendor and eligible to participate in a Specified Incentive Plan will be deemed to be service with the Purchaser.
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(2) With respect to the portion of the incentive payments under the SnackCo Incentive Plans which is determined based on the achievement of specified targets for the third quarter of 2012 (July 1 to September 30, 2012), the Vendor will be responsible for calculating the quarterly incentive payments, if any, to be paid by the Purchaser to each eligible Employee participating in the SnackCo Incentive Plans with respect to the third quarter of 2012 and will advise the Purchaser of the same when such results are known to the Vendor. The Purchaser will be responsible for paying any such quarterly incentive payments to eligible Employees who participate in the SnackCo Incentive Plans at the same time as such quarterly incentive payments are paid by the Vendor to eligible employees of the Vendor under the Specified Incentive Plans.
(3) The Purchaser will be solely responsible for all amounts payable to those Employees who commence employment with the Purchaser as of the Effective Time under the SnackCo Incentive Plans with respect to all periods ending on or after January 1, 2012. The Vendor will be solely responsible for all amounts payable to employees of the Vendor who do not commence employment with the Purchaser as of the Closing Date under a Specified Incentive Plan for all periods ending on or after January 1, 2012.
ARTICLE 6PENSIONS AND BENEFITS MATTERS
6.01 Assignment and Assumption of Registered Pension Plans
(1) The Vendor hereby assigns to the Purchaser, and the Purchaser hereby assumes from the Vendor, sponsorship and administration of the six registered pension plans listed on Schedule 6.01(1) ( Stand-Alone Registered Pension Plans ), as of and with effect from the Effective Time.
(2) The Vendor and the Purchaser will execute an assignment and assumption agreement, concurrent with the execution of this Agreement, with respect to each of the Stand-Alone Registered Pension Plans substantially in the form of the agreement attached as Schedule 6.01(2).
6.02 Registered Pension Plan Transfers
(1) Effective as of the Effective Time, the Purchaser will establish new registered pension plans as successor plans ( SnackCo Pension Plans ) to the two registered pension plans administered by the Vendor listed on Schedule 6.02(1) ( Vendor Commingled Registered Pension Plans ). Each SnackCo Pension Plan will have terms and features (including benefit accrual provisions) that are substantially identical to the corresponding Vendor Commingled Registered Pension Plan. Effective as of the Effective Time, the members of the Vendor Commingled Registered Pension Plans who are employed by the Vendor in the Canadian Snack Business as of the Closing Date, and who become employed by the Purchaser effective the Effective Time (the Transferred Employees from Commingled Plans ) will cease to actively participate in and accrue benefits under the Vendor Commingled Registered Pension Plans and will commence participation in and accrue benefits under one of the SnackCo Pension Plans. Each SnackCo Pension Plan will assume liability from the corresponding Vendor Commingled Registered Pension Plan for all benefits accrued or earned (whether or not vested) by the Transferred Employees from Vendor Commingled Registered Pension Plans, subject to applicable Laws and the completion of the transfer of assets contemplated by this Section 6.02.
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(2) The Vendor and the Purchaser acknowledge that the Vendor Commingled Registered Pension Plans are currently not fully funded, and that additional contributions are required in accordance with applicable Laws. The Purchaser will be responsible for all contributions that are required to be made under applicable Laws for periods after the Effective Time in respect of the benefits which Transferred Employees from Commingled Plans have accrued under the Vendor Commingled Registered Pension Plans, subject to the completion of the transfer of assets contemplated by this Section 6.02. All such Purchaser contributions will be made to the SnackCo Pension Plans.
(3) Immediately following the Closing Date, the Vendor will cause its actuary to calculate the value, as of the Effective Time, of the defined benefit assets to be transferred from each of the Vendor Commingled Registered Pension Plans to the corresponding SnackCo Pension Plan in respect of the benefits which Transferred Employees from Commingled Plans have accrued under the Vendor Commingled Registered Pension Plans up to the Effective Time. The asset transfer amounts will be determined in accordance with paragraph 8(b) of the Financial Services Commission of Ontarios Policy A700-200 or in accordance with Chapter XII of the Supplemental Pension Plans Act of Quebec , as applicable, using the same assumptions and valuation methodology that were used in the December 31, 2011 funding actuarial valuation reports for the Vendor Commingled Registered Pension Plans, including any necessary updates to the solvency assumptions to ensure that they are appropriate as of the Effective Time (the Pension Plan Transfer Amounts ). For greater certainty, the solvency assumptions will be those assumptions in effect as at the Effective Time and determined in accordance with the Canadian Institute of Actuaries Education Note published by the Pension Plan Financial Reporting Committee, as updated from time to time, providing guidance on assumptions for solvency and hypothetical windup valuations and in accordance with the Standards of Practice for Pension Commuted Values published by the Canadian Institute of Actuaries effective February 1, 2011, as applicable.
(4) No later than 30 days following the Closing Date, the Vendor will apply to the applicable pension regulatory authorities for consent to transfer the Pension Plan Transfer Amounts and the defined contribution account balances of Transferred Employees from Commingled Plans to the SnackCo Pension Plans. The Vendor will make a separate application in respect of the transfer of assets and liabilities from each of the Vendor Commingled Registered Pension Plans. The Vendor will cause to be prepared all applications, reports and other materials required under applicable laws to obtain such consent and will diligently pursue such applications. The Purchaser will act reasonably in providing all information reasonably requested by the Vendor in order to pursue such applications.
(5) Within 30 days of receiving the consent of the applicable pension regulatory authority to each of the applications described in this Section 6.02, the Vendor will, in respect of each Vendor Commingled Registered Pension Plan, transfer to the corresponding SnackCo Pension Plan assets in kind and in cash with a total value equal to the applicable Pension Plan Transfer Amount, adjusted as follows:
(a) | decreased by the aggregate amount of payments made from the applicable Vendor Commingled Registered Pension Plan to the Transferred Employees from Commingled Plans in order to satisfy any benefit payment obligation with respect to such members of the applicable Vendor Commingled Registered Pension Plan following the Closing Date (adjusted to reflect the applicable rate of return determined under clause (c) below), |
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(b) | decreased by the aggregate amount of charges, expenses and other costs reasonably attributable to the administration of Vendor Commingled Registered Pension Plans in respect of the benefits of Transferred Employees from Commingled Plans (adjusted to reflect the applicable rate of return determined under clause (c) below), and |
(c) | increased or decreased, as the case may be, in order to reflect the fund rate of return of the assets in the applicable Vendor Commingled Registered Pension Plan during the period from the Closing Date to the date of transfer |
(the Adjusted Pension Plan Transfer Amounts ).
In addition to the transfer of the Adjusted Pension Plan Transfer Amounts, the Vendor will, in respect of each Vendor Commingled Registered Pension Plan, transfer to the corresponding SnackCo Pension Plan the defined contribution account balances in respect of Transferred Employees from Commingled Plans.
(6) The Vendor will transfer assets in kind (rather than in cash) to the SnackCo Pension Plans, to the extent commercially reasonable. The Vendor will, prior to the date that the Pension Plan Transfer Amount (adjusted as described in Section 6.02(5)) is transferred to each SnackCo Pension Plan:
(a) | administer the assets of the Vendor Commingled Registered Pension Plans in accordance with applicable Laws; |
(b) | continue to direct the investment of the assets of the Vendor Commingled Registered Pension Plans in accordance with the terms of such plans and applicable pension legislation, and will not change the investment of assets that are allocable to the Pension Plan Transfer Amounts from the manner in which they are invested as of the Closing Date without the prior written consent of the Purchaser, which will not be unreasonably withheld; |
(c) | keep the Purchaser fully informed regarding the status of the regulatory applications described in this Section 6.02; |
(d) | promptly provide the Purchaser from time to time with information reasonably requested by the Purchaser regarding the assets, the investment performance of the assets, and the expenses charged to the assets in the Vendor Commingled Registered Pension Plans; and |
(e) | provide the Purchaser with copies of all documentation relating to the payments made from the Vendor Commingled Registered Pension Plans to the Transferred Employees from Commingled Plans, including pension election forms submitted to the Vendor or its agents by the Transferred Employees from Commingled Plans. |
- 27 -
(7) If the applicable pension regulatory authority refuses to consent to the application of the Vendor described in this Section 6.02 with respect to any Vendor Commingled Registered Pension Plan, and takes the position that it will consent if a different amount is proposed to be transferred or if a certain assumption or method of calculation is used to determine the Pension Plan Transfer Amounts, the Vendor and the Purchaser will proceed on the basis necessary to obtain the consent of such regulatory authority.
(8) Subject to the transfer of the Pension Plan Transfer Amounts, the Purchaser assumes responsibility for the benefits accrued by the Transferred Employees from Commingled Plans under the Vendor Commingled Registered Pension Plans up to the Effective Time.
(9) The Vendor and the Purchaser acknowledge that several members of the Retirement Plan for Non-Unionized Salaried Employees Former Employees of Kraft Limited (Quebec registration number 26314) will become employed by the Purchaser as of and with effect from the Effective Time. The assets and liabilities of such members which have accrued up to the Effective Time under such registered pension plan shall remain the responsibility of the Vendor pursuant to applicable pension laws and the terms of such registered pension plan.
6.03 Group Registered Retirement Savings Plan
The Vendor hereby assigns to the Purchaser, and the Purchaser hereby assumes from the Vendor, as of and with effect from the Effective Time, all of the rights, obligations and liabilities of the Vendor with respect to the group registered retirement savings plan accounts that are provided by the Vendor (a) to the Non-Union Employees and Unionized Employees, and (b) to any other individuals who are members of the Stand-Alone Registered Pension Plans.
6.04 Non-Registered Savings Plan Accounts
The Vendor hereby assigns to the Purchaser, and the Purchaser hereby assumes from the Vendor, as of and with effect from the Effective Time, all of the rights, obligations and liabilities of the Vendor with respect to the non-registered savings plan accounts that are provided by the Vendor (a) to the Non-Union Employees and Unionized Employees, and (b) to any other individuals who are members of the Stand-Alone Registered Pension Plans.
6.05 Supplemental Top Up Plans
The Vendor hereby assigns to the Purchaser, and the Purchaser hereby assumes from the Vendor, as of and with effect from the Effective Time, all of the rights, obligations and liability of the Vendor regarding the entitlements of all Employees who become employed by the Purchaser effective the Effective Time, to supplemental, unregistered top-up pension payments, including, for greater certainty, the Employees described in Section 6.02(9). The Vendor will retain all of the rights, obligations and liabilities of the Vendor regarding the supplemental, unregistered top-up pension payment entitlements of individuals previously employed by the Vendor whose employment with the Vendor ceased prior to the Effective Time.
6.06 Post-Retirement Health and Welfare Benefits
The Vendor hereby assigns to the Purchaser, and the Purchaser hereby assumes from the Vendor, as of and with effect from the Effective Time, all of the rights, obligations and liability of the Vendor with respect to post-retirement health and welfare benefit entitlements of the members of the Stand-Alone Registered Pension Plans whose employment with the Vendor ceased prior to the Effective Time. With respect to Employees who become employed by the Purchaser effective the Effective Time, the Purchaser will, in the case of Unionized Employees, provide post-retirement health and welfare benefit entitlements as required by Section 5.02(2) and, in the case of the Non-Union Employees, provide post-retirement health and welfare benefit entitlements on the same terms and conditions which are in effect as of the Effective Time as required by Section 5.02(1).
- 28 -
6.07 Long-Term Disability Liabilities
The Vendor will be exclusively responsible for the cost and administration of all long-term disability income payments that become due either before or after the Closing Date to all individuals who were employed in the SnackCo Business and were in receipt of long-term disability income payments as at the Closing Date in respect of claims arising before the Closing Date, regardless of whether such individuals become employed by the Purchaser.
ARTICLE 7CLOSING ARRANGEMENTS AND TERMINATION
7.01 Closing
The transactions contemplated by this Agreement will be completed at the Effective Time at the offices of McCarthy Tétrault LLP, Suite 5300, Toronto-Dominion Bank Tower, 66 Wellington Street West, Toronto, Ontario, Canada M5K 1E6.
7.02 Survival
The covenants of the Vendor and of the Purchaser set out in this Agreement will survive the completion of the sale and purchase of the Canadian Snack Assets herein provided for and, notwithstanding such completion, will continue in full force and effect for the benefit of the other party in accordance with the terms thereof.
7.03 Termination
This Agreement may be terminated by the written agreement of the Vendor and the Purchaser. This Agreement will terminate automatically, and without any further action or formality, upon the termination of the Separation Agreement in accordance with section 8.3 of the Separation Agreement.
ARTICLE 8GENERAL
8.01 Application of the Separation Agreement
(1) Without limiting the generality of Section 8.01(2), the following provisions of the Separation Agreement are hereby incorporated into this Agreement by reference and, unless otherwise expressly specified herein, such provisions will apply to the Vendor and the Purchaser as if fully set forth in this Agreement, mutatis, mutandis :
(a) | Section 2.2 ( Governmental Approvals and Consents; Transfers, Assignments and Assumptions Not Effected Prior to the Distribution ); |
(b) | Section 2.4 ( Novation of GroceryCo Liabilities ); |
(c) | Section 2.5 ( Novation of SnackCo Liabilities ); |
(d) | Section 4.1 ( Further Assurances ); and |
- 29 -
(e) | Article VIII ( Miscellaneous ), other than Section 8.2 ( Expenses ), Section 8.7 ( Interpretation ) and Section 8.10 ( Governing Law ) thereof. |
(2) Except as expressly provided in the Separation Agreement, this Agreement or any other Ancillary Agreement, the Vendor acknowledges that it is a member of the GroceryCo Group and the Purchaser acknowledges that it is a member of the SnackCo Group and, in each case and as such, each of the Vendor and the Purchaser is subject to, and will observe, perform and be bound by, the provisions of the Separation Agreement and any other Ancillary Agreement that are expressly stated therein to apply, or that are otherwise required by the context thereof to apply, to the Vendor, the Purchaser or both. Without limiting the generality of the foregoing, each of the Vendor and the Purchaser acknowledges and agrees that it is subject to, and will observe, perform and be bound by, the following provisions of the Separation Agreement:
(a) | Article IV ( Further Assurances; Additional Agreements ); |
(b) | Article V ( Mutual Releases; Indemnification ); |
(c) | Article VI ( Exchange of Information; Litigation Management; Confidentiality ); and |
(d) | subject to Section 8.03 of this Agreement, Article VII ( Dispute Resolution ). |
(3) In this Section 8.01, unless the context otherwise requires, references to an Article or Section will mean Articles or Sections of the Separation Agreement, and references in the material incorporated herein by reference will be references to the Separation Agreement.
8.02 Application of the Tax Sharing Agreement
(1) Without limiting the generality of Section 8.02(2) or 8.02(3) of this Agreement, Section 4.04 ( Tax Benefits ) of the Tax Sharing Agreement is hereby incorporated into this Agreement by reference and, unless otherwise expressly specified herein, such provision will apply to the Vendor and the Purchaser as if fully set forth in this Agreement, mutatis, mutandis .
(2) Except as expressly provided in the Tax Sharing Agreement, this Agreement or any other Ancillary Agreement, the Vendor acknowledges that it is a member of the GroceryCo Post-Distribution Group and the Purchaser acknowledges that it is a member of the SnackCo Post-Distribution Group. As such, the Vendor and the Purchaser acknowledge that the Purchaser is entitled to the benefits of Sections 5.03(a) and 5.04 of the Tax Sharing Agreement as they relate to Canadian Transaction Taxes imposed on the Purchaser or for which the Purchaser is liable and the Vendor is entitled to the benefits of Sections 5.03(b) and 5.04 of the Tax Sharing Agreement as they relate to Canadian Transaction Taxes imposed on the Vendor or for which the Vendor is liable.
(3) Each of the Vendor and the Purchaser is subject to, and will observe, perform and be bound by, the provisions of the Tax Sharing Agreement that are expressly stated therein to apply, or that are otherwise required by the context thereof to apply, to the Vendor, the Purchaser or both. Without limiting the generality of the foregoing, each of the Vendor and the Purchaser acknowledges and agrees that it is subject to, and will observe, perform and be bound by, the following provisions of the Tax Sharing Agreement:
- 30 -
(a) | Article VIII ( Tax Contests ), other than Section 8.02(b) ( Non-Canadian Transaction Tax Contests ) thereof and acknowledging that Section 8.02(c) ( Canadian Transaction Tax Contest ) applies between SnackCo and GroceryCo and not their Subsidiaries; |
(b) | Article IX (Payments), other than Section 9.03 ( Characterization of Payments ) thereof; and |
(c) | Article X ( Miscellaneous ), other than Section 10.11 ( Governing Law ) thereof and acknowledging that Section 10.01(d) ( Competent Authority Claims ) applies between SnackCo and GroceryCo and not their Subsidiaries. |
(4) In this Section 8.02, unless the context otherwise requires, references to an Article or Section will mean Articles or Sections of the Tax Sharing Agreement, and references in the material incorporated herein by reference will be references to the Tax Sharing Agreement.
8.03 Dispute Resolution
Notwithstanding any provision to the contrary in article VII of the Separation Agreement, any Dispute that relates primarily or exclusively to this Agreement, or a breach thereof (a Canadian Dispute ), will be resolved pursuant to the dispute resolutions provisions set forth in article VII of the Separation Agreement; provided, however, that the place of any arbitration commenced in connection therewith will be Toronto, Ontario. Notwithstanding the foregoing, in the event that a Dispute is commenced pursuant to article VII of the Separation Agreement that is substantially interconnected with or that depends substantially on the outcome of a then-pending Canadian Dispute, the Vendor and the Purchaser may, by written agreement, jointly elect to waive the provisions of this Section 8.03 and to discontinue such separate Canadian Dispute and, instead, to combine such Canadian Dispute with such other Dispute commenced pursuant to the Separation Agreement, and the place of any arbitration commenced in connection with such other Dispute will be New York City, New York.
8.04 Notices
In addition to the provisions of section 8.6 of the Separation Agreement (and section 10.08 of the Tax Sharing Agreement), any demand, notice or other communication to be given in connection with this Agreement must be given in writing and will be given by personal delivery or by electronic means of communication addressed to the recipient as follows:
To the Vendor:
Kraft Canada Inc.
95 Moatfield Drive
North York, Ontario M3B 3L6
Fax No.: (416) 441-5328
Attention : Chief Counsel
- 31 -
To the Purchaser:
Mondelez Canada Inc.
2660 Matheson Boulevard East
Mississauga, Ontario L4W 5M2
Email: susannah.riggs@mdlz.com
Attention : Chief Counsel
or to such other street address, individual or electronic communication number or address as may be designated by notice given by either party to the other. Any demand, notice or other communication given by personal delivery will be conclusively deemed to have been given on the day of actual delivery thereof and, if given by electronic communication, on the day of transmittal thereof if given during the normal business hours of the recipient and on the Business Day during which such normal business hours next occur if not given during such hours on any day. If the party giving any demand, notice or other communication knows or ought reasonably to know of any difficulties with the postal system that might affect the delivery of mail, any such demand, notice or other communication may not be mailed but must be given by personal delivery or by electronic communication.
8.05 Governing Law
This Agreement is governed by and will be construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. For the purpose of all legal proceedings this Agreement will be deemed to have been performed in the Province of Ontario.
( Signature Page Follows)
- 32 -
IN WITNESS WHEREOF the parties have executed this Agreement.
MONDELEZ CANADA INC. | ||
Per: | /s/ Rosanne Angotti | |
Name: Rosanne Angotti Title: President and Secretary |
||
KRAFT CANADA INC. | ||
Per: | /s/ Kelly MacGregor | |
Name: Kelly MacGregor Title: Assistant Secretary |
Exhibit 2.3
EXECUTION COPY
MASTER OWNERSHIP AND LICENSE AGREEMENT REGARDING
PATENTS, TRADE SECRETS AND RELATED INTELLECTUAL PROPERTY
between
KRAFT FOODS GLOBAL BRANDS LLC,
KRAFT FOODS GROUP BRANDS LLC,
KRAFT FOODS UK LTD.
and
KRAFT FOODS R&D INC.
EFFECTIVE AS OF THE DISTRIBUTION DATE
TABLE OF CONTENTS
Page | ||||
ARTICLE I DEFINITIONS |
2 | |||
Section 1.1 Table of Definitions |
2 | |||
Section 1.2 Certain Defined Terms |
4 | |||
ARTICLE II ASSIGNMENT AND OWNERSHIP OF INTELLECTUAL PROPERTY |
10 | |||
Section 2.1 Assignment and Ownership of Patents |
10 | |||
Section 2.2 Assignment and Ownership of Trade Secrets and Know-How |
11 | |||
Section 2.3 Ownership of Meridian Information |
12 | |||
Section 2.4 Ownership of R&D Suite |
13 | |||
Section 2.5 Ownership of Tassimo Intellectual Property |
13 | |||
Section 2.6 Additional Obligations Under the Other Partys Patents |
13 | |||
Section 2.7 Prior Grants |
14 | |||
Section 2.8 Further Assurances |
14 | |||
Section 2.9 Mistaken Allocations |
14 | |||
Section 2.10 Disclaimer of Representations and Warranties |
14 | |||
ARTICLE III LICENSED PATENT RIGHTS AND RESTRICTIONS, GENERALLY |
15 | |||
Section 3.1 Rights in the Non-Licensed Patents |
15 | |||
Section 3.2 Rights to Group Brands Licensed Patents |
15 | |||
Section 3.3 Rights to Global Brands Licensed Patents |
15 | |||
Section 3.4 Rights to Sublicense Licensed Patent Rights |
16 | |||
Section 3.5 Restrictions on Licensed Patent Rights Excluding LCRB and MGC |
17 | |||
Section 3.6 Restrictions on Use of Restricted Technologies |
18 | |||
Section 3.7 Restrictions on Use of Licensed Patents in Event of a Sale or Transfer |
18 | |||
Section 3.8 Required License for a Partys Business |
19 | |||
Section 3.9 Duration |
19 | |||
ARTICLE IV LICENSED TRADE SECRETS AND KNOW-HOW RIGHTS AND RESTRICTIONS, GENERALLY |
19 | |||
Section 4.1 Rights in the Non-Licensed Trade Secrets and Know-How |
20 | |||
Section 4.2 Rights to Group Brands Licensed Trade Secrets and Know-How |
20 | |||
Section 4.3 Rights to Global Brands Licensed Trade Secrets and Know-How |
20 |
i
Section 4.4 Rights to Sublicense Licensed Trade Secrets and Know-How |
20 | |||
Section 4.5 Restrictions on Licensed Trade Secrets and Know-How Excluding LCRB and MGC |
21 | |||
Section 4.6 Restrictions on Use of Restricted Technologies |
22 | |||
Section 4.7 Restrictions on Use of Licensed Trade Secrets and Know-How in Event of a Sale or Transfer |
22 | |||
Section 4.8 Required License for a Partys Business |
24 | |||
Section 4.9 Duration |
24 | |||
ARTICLE V LICENSED LCRB AND MGC RELATED INTELLECTUAL PROPERTY, RIGHTS AND RESTRICTIONS |
24 | |||
Section 5.1 LCRB Licensed Intellectual Property Rights |
24 | |||
Section 5.2 MGC Licensed Intellectual Property Rights |
28 | |||
ARTICLE VI THIRD PARTY AGREEMENTS |
31 | |||
Section 6.1 Licensed Intellectual Property Subject to Third Party Rights or Agreements |
31 | |||
Section 6.2 Indemnification by Licensee for Third Party Agreements |
32 | |||
ARTICLE VII DEVELOPMENT, PROSECUTION AND MAINTENANCE OF LICENSED INTELLECTUAL PROPERTY |
32 | |||
Section 7.1 Derivatives of Licensed Patents |
32 | |||
Section 7.2 Pipeline Invention Disclosures and Patents |
34 | |||
Section 7.3 Partys Abandonment of Licensed Patents |
35 | |||
Section 7.4 Foreign Prosecution of Licensed Patents |
36 | |||
Section 7.5 Further Assurances |
37 | |||
Section 7.6 Allocation of Patent Prosecution Costs |
37 | |||
ARTICLE VIII ENFORCEMENT AND LITIGATION OF LICENSED INTELLECTUAL PROPERTY |
39 | |||
Section 8.1 Management of Intellectual Property Claims/Litigation; Allocation of Intellectual Property Litigation Costs |
39 | |||
ARTICLE IX TERM; TERMINATION |
40 | |||
Section 9.1 Term |
41 | |||
Section 9.2 Termination |
41 | |||
Section 9.3 Effect of Termination |
41 | |||
Section 9.4 Material Breach |
41 | |||
ARTICLE X CONFIDENTIALITY |
41 | |||
Section 10.1 Confidentiality; Protection of Trade Secrets |
41 |
ii
ARTICLE XI DISPUTE RESOLUTION AND CORPORATE GOVERNANCE |
41 | |||
Section 11.1 Licensed Intellectual Property Governance |
41 | |||
Section 11.2 Intellectual Property Dispute Resolution Procedures |
41 | |||
Section 11.3 Bi-Annual Intellectual Property Review Meetings |
42 | |||
Section 11.4 Non-Intellectual Property Dispute Resolution |
43 | |||
ARTICLE XII LIMITATION OF LIABILITY |
43 | |||
Section 12.1 Limitation of Liability |
43 | |||
Section 12.2 Indemnification |
43 | |||
ARTICLE XIII MISCELLANEOUS |
44 | |||
Section 13.1 Coordination with Certain Ancillary Agreements; Conflicts |
44 | |||
Section 13.2 Canadian Exclusion |
44 | |||
Section 13.3 Affiliates and Subsidiaries |
44 | |||
Section 13.4 Expenses |
44 | |||
Section 13.5 Amendment and Modification |
44 | |||
Section 13.6 Waiver |
45 | |||
Section 13.7 Notices |
45 | |||
Section 13.8 Interpretation |
46 | |||
Section 13.9 Counting Days |
46 | |||
Section 13.10 Entire Agreement |
46 | |||
Section 13.11 No Third Party Beneficiaries |
47 | |||
Section 13.12 Governing Law |
47 | |||
Section 13.13 Assignment |
47 | |||
Section 13.14 Severability |
47 | |||
Section 13.15 Counterparts |
47 | |||
Section 13.16 Facsimile Signature |
48 |
iii
Schedules
1.2(a) |
Regions/Countries/Markets | |
1.2(b) |
Key Overlap Business | |
1.2(c) |
Defined Territory | |
1.2(d) |
LCRB | |
1.2(e) |
MGC | |
1.2(f) |
Non-Key Overlap Business | |
1.2(g) |
Amounts | |
2.1(b) |
Group Brands Licensed Patents | |
2.1(c) |
Global Brands Licensed Patents | |
2.2(b) |
Group Brands Licensed Trade Secrets and Know-How | |
2.2(c) |
Global Brands Licensed Trade Secrets and Know-How | |
2.5(a) |
Tassimo Patents | |
2.5(b) |
Tassimo Trade Secrets and Know-How | |
3.1(a) |
Group Brands Non-Licensed Patents | |
3.1(b) |
Global Brands Non-Licensed Patents | |
3.3(b) |
Cadbury Licensed Patents | |
3.5(a)(i) |
Packaging and Research Patents | |
3.6(a) |
Restricted Technologies | |
4.1(a) |
Group Brands Non-Licensed Trade Secrets and Know-How | |
4.1(b) |
Global Brands Non-Licensed Trade Secrets and Know-How | |
5.1(a)(i) |
LCRB Licensed Patents | |
5.1(a)(ii) |
LCRB Licensed Trade Secrets and Know-How | |
5.2(a)(i) |
MGC Licensed Patents | |
5.2(a)(ii) |
MGC Licensed Trade Secrets and Know-How | |
6.1 |
Third Party Agreements | |
Exhibits
|
||
A |
Tassimo IP Agreement | |
B |
Form of Patent Assignment | |
C |
Project Statement for LCRB | |
D |
Project Statement for MGC |
iv
MASTER OWNERSHIP AND LICENSE AGREEMENT REGARDING
PATENTS, TRADE SECRETS AND RELATED INTELLECTUAL PROPERTY
MASTER OWNERSHIP AND LICENSE AGREEMENT REGARDING PATENTS, TRADE SECRETS AND RELATED INTELLECTUAL PROPERTY, effective as of the Distribution Date (as defined in the Separation Agreement (as defined below)) (this Agreement ), between Kraft Foods Global Brands LLC, a Delaware limited liability company ( Global Brands ), Kraft Foods Group Brands LLC, a Delaware limited liability company ( Group Brands ), Kraft Foods UK Ltd., a company organized under the laws of the United Kingdom, and Kraft Foods R&D, Inc., a Delaware corporation.
RECITALS
A. Kraft Foods Inc., a Virginia corporation ( Kraft Foods Inc. or SnackCo ) and Kraft Foods Group, Inc., a Virginia corporation ( Kraft Foods Group, Inc. or GroceryCo ) have entered into the Separation and Distribution Agreement (the Separation Agreement ), effective as of the Distribution Date, under which Kraft Foods Inc. will distribute to the Record Holders (as defined in the Separation Agreement), on a pro rata basis, all the outstanding shares of GroceryCo Common Stock (as defined in the Separation Agreement) owned by Kraft Foods Inc. on the Distribution Date (the Distribution ).
B. Prior to the Distribution, Kraft Foods Inc., acting through itself and its direct and indirect Subsidiaries (as defined in the Separation Agreement), has conducted the GroceryCo Business (as defined in the Separation Agreement) and the SnackCo Business (as defined in the Separation Agreement). Pursuant to the Distribution, Kraft Foods Inc. is being separated into two publicly traded companies: (i) GroceryCo, which will own and conduct, directly and indirectly, the GroceryCo Business; and (ii) SnackCo, which will own and conduct, directly and indirectly, the SnackCo Business; and each party (via its respective intellectual property holding company), GroceryCo and SnackCo, shall own all right, title and interest in and to certain intellectual property.
C. In furtherance of the separation of Kraft Foods Inc. into two publicly traded companies pursuant to the Separation Agreement, Section 2.1(b) of the Separation Agreement requires GroceryCo and SnackCo to, and to cause their respective Subsidiaries to, (i) transfer to one or more members of the GroceryCo Group (as defined in the Separation Agreement) all of the right, title and interest of the SnackCo Group (as defined in the Separation Agreement) in and to all GroceryCo Assets (as defined in the Separation Agreement) and (ii) transfer to one or more members of the SnackCo Group all of the right, title and interest of the GroceryCo Group in and to all SnackCo Assets (as defined in the Separation Agreement).
D. Whereas, as part of the foregoing, GroceryCo and SnackCo, through their respective companies, Group Brands and Global Brands, desire to assign ownership of certain intellectual property from Global Brands and its and their Affiliates and Subsidiaries (including Kraft Foods UK Ltd. and Kraft Foods R&D Inc.) to Group Brands, and wherein Global Brands and Group Brands desire to license to the other party certain of its intellectual property.
1
E. Whereas, Kraft Canada Inc. and Mondelez Canada Inc. are entering into the Canadian Asset Transfer Agreement , which addresses, inter alia, the parties respective rights with respect to the Canadian Intellectual Property.
F. Pursuant to the Trademarks and Related Intellectual Property ( Trademark Agreement ), Group Brands and Global Brands have entered into an agreement which addresses, inter alia, trademarks and brand related copyrights used in the conduct of the GroceryCo Business and the SnackCo Business.
G. Pursuant to the Agreement for the License of Tassimo Intellectual Property and Provision of Services to Support the Tassimo System Arrangements ( Tassimo IP Agreement ) attached as Exhibit A , Group Brands and Global Brands have entered into an agreement governing the parties rights and obligations regarding the Tassimo Intellectual Property.
H. The parties desire to enter into this Agreement on the following terms and conditions to set forth their agreements regarding the ownership, licensing and rights to use Patents, Trade Secrets and related Intellectual Property (each as defined below) used in the conduct of the GroceryCo Business and the SnackCo Business.
I. It is intended that the transactions contemplated by this Agreement will qualify as a tax-free transaction for U.S. federal income tax purposes pursuant to Sections 355 and 368 of the Code.
AGREEMENT
In consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Table of Definitions . A capitalized term used in this Agreement and not otherwise defined in this Agreement will have the meanings ascribed to such term in the Separation Agreement. In the event that a capitalized term is defined both in this Agreement and in a different agreement (i.e., the Separation Agreement), the definition in this Agreement shall prevail. The following terms have the meanings set forth on the pages referenced below:
2
Definition |
Page | |||
ACV |
4 | |||
Agreement |
1 | |||
Aladdin IP |
4 | |||
Anaqua |
4 | |||
Annual Optional Rights Fee |
4 | |||
Black Box |
4 | |||
Bud IP |
4 | |||
Business |
5 | |||
Cadbury Licensed Patents |
5 | |||
Canadian Asset Transfer Agreement |
2 | |||
Canadian Intellectual Property |
5 | |||
Co-Manufacturer |
5 | |||
Defined Territory |
5 | |||
Derivative |
32 | |||
Derivative Patent Application |
32 | |||
Direct Entry |
5 | |||
Dispute |
42 | |||
Distribution |
1 | |||
Finished Product |
5 | |||
GCC Countries |
5 | |||
Global Brands |
1 | |||
Global Brands Licensed Patents |
5 | |||
Global Brands Licensed Trade Secrets and
|
5 | |||
Global Brands Non-Licensed Patents |
5 | |||
Global Brands Non-Licensed Trade Secrets and Know-How |
5 | |||
Global Brands Patents |
5 | |||
Global Brands Trade Secrets and Know-How |
5 | |||
GroceryCo |
1 | |||
GroceryCo Business |
1 | |||
Group Brands |
1 | |||
Group Brands Licensed Patents |
5 | |||
Group Brands Licensed Trade Secrets and
|
5 | |||
Group Brands Non-Licensed Patents |
5 | |||
Group Brands Non-Licensed Trade Secrets and
|
5 | |||
Group Brands Patents |
6 | |||
Group Brands Trade Secrets and Know-How |
6 | |||
Indemnified Parties |
32 | |||
Indemnitor |
43 | |||
Intellectual Property |
6 |
Definition |
Page | |||
Invention Disclosure |
6 | |||
Key Overlap Business |
7 | |||
Know-How |
7 | |||
Kraft Foods Group, Inc. |
1 | |||
Kraft Foods Inc. |
1 | |||
Latin American Countries |
7 | |||
LCRB |
7 | |||
LCRB Defined Territory |
7 | |||
LCRB Licensed Intellectual Property |
7 | |||
LCRB Licensed Patents |
7 | |||
LCRB Licensed Trade Secrets and Know-How |
7 | |||
LCRB Optional Market |
7 | |||
Licensed Intellectual Property |
7 | |||
Licensed Patent(s) |
7 | |||
Licensed Trade Secrets and Know-How |
7 | |||
Meridian |
8 | |||
MGC |
8 | |||
MGC Defined Territory |
8 | |||
MGC Licensed Intellectual Property |
8 | |||
MGC Licensed Patents |
8 | |||
MGC Licensed Trade Secrets and Know-How |
8 | |||
MGC Optional Market |
8 | |||
Non-Key Overlap Business |
8 | |||
Non-Licensed Patents |
8 | |||
Non-Licensed Trade Secrets and Know-How |
8 | |||
Packaging and Research Patents |
8 | |||
Patent Assignment |
9 | |||
Patents |
8 | |||
R&D Suite |
9 | |||
RDQ |
41 | |||
Regions |
9 | |||
Restricted Technologies |
9 | |||
Separation Agreement |
1 | |||
SKU |
5 | |||
SnackCo |
1 | |||
SnackCo Business |
1 | |||
Substantial Amount |
9 | |||
Substantial Presence |
9 | |||
Supplier |
9 | |||
Tassimo Intellectual Property |
9 | |||
Tassimo IP Agreement |
2 | |||
Tassimo Patents |
9 | |||
Tassimo Trade Secrets and Know-How |
9 | |||
Third Party Agreements |
9 | |||
Total Optional Rights Fee |
10 | |||
Trade Secrets |
10 | |||
Trade Secrets and Know-How |
10 | |||
Trademark Agreement |
2 | |||
Undefined Territory |
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Section 1.2 Certain Defined Terms . For purposes of this Agreement:
ACV means All Commodity Volume, which is a measure of the total annual dollar sales of all items sold within all retail stores selling food and beverage products within a geographic area. Product distribution is described as % ACV, which is a measure of the distribution of a particular product within a geographic area that is calculated by dividing (a) the total annual dollar sales of all items sold within the stores in which the particular product being measured is sold within that geography, by (b) the total ACV for that geography.
Aladdin IP means those certain Patents listed under the heading Aladdin in Schedule 2.1(b) (Group Brands Licensed Patents) and those certain associated Trade Secrets and Know-How listed under the heading Aladdin in Schedule 2.2(b) (Group Brands Licensed Trade Secrets and Know-How). For the purposes of this Agreement, Aladdin IP shall be governed by the limitations and restrictions as those of Powdered Beverages as noted in Schedule 1.2(b) and Schedule 1.2(c) .
Anaqua means the Anaqua database or any replacement or other similar or future iteration thereof, which may include information regarding: the filing, prosecution and maintenance of intellectual property; copies or drafts of Invention Disclosure forms; intellectual property filing plans or strategies; information regarding or related to patentability, freedom to operate, searches, opinions and strategies; documents prepared in connection with, related to or submitted to an applicable intellectual property office; Trade Secrets and Know-How and/or other confidential or proprietary information associated with the Patents or the GroceryCo Business and SnackCo Business; and may include information related to the former CPI database.
Annual Optional Rights Fee means the amount listed under the heading Annual Optional Rights Fee in Schedule 1.2(g) .
Black Box means a mechanism to protect proprietary technology from full technical disclosure to a third party (e.g. Co-Manufacturer or Supplier) such that the third party can use the technology without any understanding of the actual technology or the proprietary details regarding the technology. That is, the technology (the input) is sufficiently protected while providing a means for the third party to use (the output).
Bud IP means those certain Patents listed under the heading Bud in Schedule 2.1(b) (Group Brands Licensed Patents) and those certain associated Trade Secrets and Know-How listed under the heading Bud in Schedule 2.2(b) (Group Brands Licensed Trade Secrets and Know-How). For the purposes of this Agreement, Bud IP shall be governed by the limitations and restrictions as those of Coffee as noted in Schedule 1.2(b) and Schedule 1.2(c) .
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Business means the GroceryCo Business or the SnackCo Business, as the context requires.
Cadbury Licensed Patents means certain Patents that are owned by Global Brands which relate to the Cadbury business and which are identified in Schedule 3.3(b) .
Canadian Intellectual Property means those certain Patents and certain associated Trade Secrets and Know-How listed in Schedule 13.2 that are owned by Kraft Canada Inc., Mondelez Canada Inc. or an Affiliate that is domiciled in Canada.
Co-Manufacturer means a third party that converts raw materials and/or semi-finished ingredients into a Finished Product or components at a non-GroceryCo/SnackCo facility.
Defined Territory means those jurisdictions specific to each party with respect to a particular Key Overlap Business as identified on Schedule 1.2(c) .
Direct Entry by a party means the entry into a country or region for the sale of a product by such party where such product has been produced at a manufacturing facility which is majority owned and controlled by the party (or one of its Affiliates or Subsidiaries), regardless of where such manufacturing facility is located.
Finished Product means a product which undergoes no further processing and is wrapped in packaging suitable for the consumer as a stand-alone stock keeping unit or (SKU).
GCC Countries means the countries listed under the heading GCC Countries in Schedule 1.2(a) .
Global Brands Licensed Patents means those Patents that are owned by Global Brands that are listed in Schedule 2.1(c) and any Patents resulting from the Invention Disclosures or Patent applications listed therein, including any and all continuations, continuations-in-part, divisionals, reissues, reexaminations and renewals of any of the above, and any foreign counterparts of any of the foregoing, but excludes the Tassimo Patents.
Global Brands Licensed Trade Secrets and Know-How means those Trade Secrets and Know-How that are owned by Global Brands and to which Group Brands has the right to obtain a license under this Agreement, including those Trade Secrets and Know-How listed in Schedule 2.2(c) , but excludes the Tassimo Trade Secrets and Know-How.
Global Brands Non-Licensed Patents means those Patents that are owned by Global Brands that are listed in Schedule 3.1(b) and any Patents resulting from the Invention Disclosures or Patent applications listed therein, including any and all continuations, continuations-in-part, divisionals, reissues, reexaminations and renewals of any of the above, and any foreign counterparts of any of the foregoing.
Global Brands Non-Licensed Trade Secrets and Know-How means those Trade Secrets and Know-How that are owned by Global Brands and to which Group Brands does not have the right to obtain a license under this Agreement, including those Trade Secrets and Know-How listed in Schedule 4.1(b) .
Global Brands Patents means those Patents that are owned by Global Brands and includes the Global Brands Non-Licensed Patents and the Global Brands Licensed Patents.
Global Brands Trade Secrets and Know-How means those Trade Secrets and Know-How that are owned by Global Brands and includes the Global Brands Non-Licensed Trade Secrets and Know-How and the Global Brands Licensed Trade Secrets and Know-How.
Group Brands Licensed Patents means those Patents that are owned by Group Brands that are listed in Schedule 2.1(b) and any Patents resulting from the Invention Disclosures or Patent applications listed therein, including any and all continuations, continuations-in-part, divisionals, reissues, reexaminations and renewals of any of the above, and any foreign counterparts of any of the foregoing.
Group Brands Licensed Trade Secrets and Know-How means those Trade Secrets and Know-How that are owned by Group Brands and to which Global Brands has the right to obtain a license under this Agreement, including those Trade Secrets and Know-How listed in Schedule 2.2(b) .
Group Brands Non-Licensed Patents means those Patents that are owned by Group Brands that are listed in Schedule 3.1(a) and any Patents resulting from the Invention Disclosures or Patent applications listed therein, including any and all continuations, continuations-in-part, divisionals, reissues, reexaminations and renewals of any of the above, and any foreign counterparts of any of the foregoing.
Group Brands Non-Licensed Trade Secrets and Know-How means those Trade Secrets and Know-How that are owned by Group Brands and to which Global Brands does not have a right to obtain a license under this Agreement, including those Trade Secrets and Know-How listed in Schedule 4.1(a) .
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Group Brands Patents means those Patents that are owned by Group Brands and includes the Group Brands Non-Licensed Patents and the Group Brands Licensed Patents.
Group Brands Trade Secrets and Know-How means those Trade Secrets and Know-How that are owned by Group Brands and includes the Group Brands Non-Licensed Trade Secrets and Know-How and the Group Brands Licensed Trade Secrets and Know-How.
Intellectual Property means, collectively, the Patents, Trade Secrets and Know-How that are subject to this Agreement. For the purposes of this Agreement, trademarks and copyrights are not subject to this Agreement, but rather shall be governed by the Trademark Agreement or other Ancillary Agreements.
Invention Disclosure means a disclosure of an invention which:
(a) memorializes an idea, discovery, development, invention, innovation, improvement and/or idea, whether or not patentable;
(b) may be written for the purpose of allowing legal and/or business people to determine whether to file a Patent application with respect to such invention; and
(c) may be recorded with a control number in the owning partys records.
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Key Overlap Business refers to one or more of certain businesses in which both GroceryCo and SnackCo may operate as identified in Schedule 1.2(b) .
Know-How means the proprietary information, knowledge and skill required to: conduct, operate or utilize the technology associated with the GroceryCo Business or SnackCo Business; utilize or practice the Group Brands Patents or Global Brands Patents; and/or utilize or practice the Trade Secrets associated with the GroceryCo Business and SnackCo Business, including any know-how that is embodied in databases (including the Meridian, R&D Suite and Anaqua databases).
Latin American Countries means the countries listed under the heading Latin American Countries in Schedule 1.2(a) .
LCRB refers to certain Liquid Concentrate Refreshment Beverage products with characteristics as further described in Schedule 1.2(d) .
LCRB Defined Territory means those specific jurisdictions listed under the heading LCRB Defined Territory in Schedule 1.2(c) .
LCRB Licensed Intellectual Property means, collectively, the LCRB Licensed Patents and the LCRB Licensed Trade Secrets and Know-How.
LCRB Licensed Patents means those Patents that are owned by Group Brands that are listed in Schedule 5.1(a)(i) and any Patents resulting from the Invention Disclosures or Patent applications listed therein, including any and all continuations, continuations-in-part, divisionals, reissues, reexaminations and renewals of any of the above, and any foreign counterparts of any of the foregoing.
LCRB Licensed Trade Secrets and Know-How means those Trade Secrets and Know-How that are owned by Group Brands in relation to LCRB, including those Trade Secrets and Know-How listed in Schedule 5.1(a)(ii) .
LCRB Optional Market means the market listed under the heading LCRB Optional Market in Schedule 1.2(a) .
Licensed Intellectual Property means, collectively, the Licensed Patents and Licensed Trade Secrets and Know-How.
Licensed Patent(s) means, collectively, the Group Brands Licensed Patents and the Global Brands Licensed Patents.
Licensed Trade Secrets and Know-How means, collectively, the Group Brands Licensed Trade Secrets and Know-How and/or the Global Brands Licensed Trade Secrets and Know-How.
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Meridian means the Meridian formula and specification database or any replacement or other similar or future iteration thereof, which generally contains formulations; recipes; specifications; raw materials, product, packaging, nutritional, regulatory and processing technical data; manufacturing methods; vendor information and certain Trade Secrets, Know-How and/or other confidential and other proprietary information associated with the products made and/or sold or the services performed or rendered as part of the GroceryCo Business and SnackCo Business.
MGC means microgrind coffee and refers to certain products with characteristics as further described in Schedule 1.2(e) .
MGC Defined Territory means those specific jurisdictions listed under the heading MGC Defined Territory in Schedule 1.2(c) .
MGC Licensed Intellectual Property means, collectively, the MGC Licensed Patents and the MGC Licensed Trade Secrets and Know-How.
MGC Licensed Patents means those Patents that are owned by Global Brands that are listed in Schedule 5.2(a)(i) and any Patents resulting from the Invention Disclosures or Patent applications listed therein, including any and all continuations, continuations-in-part, divisionals, reissues, reexaminations and renewals of any of the above, and any foreign counterparts of any of the foregoing.
MGC Licensed Trade Secrets and Know-How means those Trade Secrets and Know-How that are owned by Global Brands in relation to MGC, including those Trade Secrets and Know-How listed in Schedule 5.2(a)(ii) .
MGC Optional Market means the market listed under the heading MGC Optional Market in Schedule 1.2(a) .
Non-Licensed Patents means, collectively, the Group Brands Non-Licensed Patents and the Global Brands Non-Licensed Patents.
Non-Licensed Trade Secrets and Know-How means, collectively, the Group Brands Non-Licensed Trade Secrets and Know-How and the Global Brands Non-Licensed Trade Secrets and Know-How.
Non-Key Overlap Business refers to certain businesses in which both GroceryCo and SnackCo may operate, including the businesses listed in Schedule 1.2(f) , but excluding any Key Overlap Business.
Packaging and Research Patents means certain Licensed Patents on Schedule 3.5(a)(i) that cover general packaging and research related innovations.
Patents means patents, design patents, patent applications, utility models, design registrations, registered industrial designs, industrial design applications, certificates of invention and other governmental grants for the protection of inventions or industrial designs anywhere in the world and all reissues, renewals, re-examinations and extensions of any of the foregoing,
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including: any Invention Disclosures, any patent applications filed on any Invention Disclosures; any continuations, continuations-in-part, divisionals and substitutions of any patent applications; any renewals, reissues, reexaminations and extensions of the foregoing patents; any patent application or patent to the extent that it claims priority from any of the foregoing patent applications or patents; any foreign counterpart of any of the foregoing patent applications or patents.
Patent Assignment means the applicable agreement entered into between an assignor and assignee which transfers, conveys and assigns ownership in and to the identified Patent(s), in substantially the form attached hereto as Exhibit B or as required by the U.S. Patent and Trademark Office, or such other foreign intellectual property office as applicable.
Regions means the Regions listed under the heading Regions in Schedule 1.2(a) .
Restricted Technologies means certain Licensed Intellectual Property on Schedule 3.6(a) that are owned by the identified party and which are subject to additional restrictions as specified herein.
R&D Suite means the database which is commonly referred to as R&D Suite, or any replacement or other similar or future iteration thereof, and is primarily used by Research, Development and Quality and generally contains the research, development, technical and business information and other confidential and proprietary information, including Trade Secrets and Know-How associated with the GroceryCo Business and SnackCo Business.
Substantial Amount means the amount listed under the heading Substantial Amount in Schedule 1.2(g) .
Substantial Presence means the amount listed under the heading Substantial Presence in Schedule 1.2(g) with respect to a particular Key Overlap Business or Non-Key Overlap Business within a specific Defined Territory.
Supplier means a third party that provides goods or services to GroceryCo and/or SnackCo, including raw materials, ingredients, packaging components or other input components needed to formulate and manufacture a Finished Product.
Tassimo Intellectual Property means, collectively, the Tassimo Patents and the Tassimo Trade Secrets and Know-How.
Tassimo Patents means those Patents that are owned by Global Brands which relate to the Tassimo business and which are identified in Schedule 2.5(a) .
Tassimo Trade Secrets and Know-How means those Trade Secrets and Know-How that are owned by Global Brands which relate to the Tassimo business and which are identified in Schedule 2.5(b) .
Third Party Agreements means those agreements with third parties that were entered into prior to the Separation that may impact the scope of ownership, license and/or use rights to the Licensed Intellectual Property as set forth in Schedule 6.1 .
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Total Optional Rights Fee means the amount listed under the heading Total Optional Rights Fee in Schedule 1.2(g) .
Trade Secrets means any information, including but not limited to, technical or non-technical data, a formula, recipe, pattern, compilation, program, device, method, technique, drawing, process or financial data, including any trade secrets that may be contained in databases (including the Meridian, R&D Suite and Anaqua databases) that: (1) is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality.
Trade Secrets and Know-How means collectively the Trade Secrets and Know-How.
Undefined Territory means those jurisdictions that are not the Defined Territory of either party.
ARTICLE II
ASSIGNMENT AND OWNERSHIP OF INTELLECTUAL PROPERTY
Section 2.1 Assignment and Ownership of Patents .
(a) Assignment of Patents to Group Brands . Global Brands hereby (and hereby causes its and their Affiliates and Subsidiaries, including Kraft Foods UK Ltd. and Kraft Foods R&D Inc. to) irrevocably assigns, transfers, conveys and delivers to Group Brands all of Global Brands (and its and their Affiliates and Subsidiaries) right, title and interest in and to the Group Brands Patents, including the right to any and all causes of action and rights of recovery for past infringement of the Group Brands Patents and the right to claim priority from the Group Brands Patents. Except as set forth in this Agreement, Global Brands (and the applicable Affiliate or Subsidiary) shall be relieved of all future obligations relating to the Group Brands Patents as a result of the Separation. Global Brands will (and shall cause any applicable Affiliate or Subsidiary to), without demanding any further consideration therefore, at the request and expense of Group Brands (except for the value of the time of Global Brands employees), do all lawful and just acts, that may be or become necessary for prosecuting, obtaining continuations, continuations-in-part and divisionals of, or reissuing or re-examining, said Group Brands Patents and for evidencing, recording and perfecting Group Brands rights to said Group Brands Patents, including but not limited to execution and acknowledgement of assignments in a form (such as the Patent Assignment) that is reasonably required for each Patent jurisdiction. Patents assigned by Kraft Foods UK Ltd. or Kraft Foods R&D Inc. to Group Brands under this Section shall be set forth in the Group Brands Licensed Patents Schedule or Group Brands Non-Licensed Patents Schedule, as applicable.
(b) Ownership of Group Brands Patents . The parties agree that Group Brands is the sole and exclusive owner as between the parties of all right, title and interest in and to the Group Brands Patents. Global Brands has no right or interest to the Group Brands Patents other than as provided by the license set forth in ARTICLE III to the Group Brands Licensed Patents identified in Schedule 2.1(b) and the license set forth in ARTICLE V to the LCRB Licensed Patents identified in Schedule 5.1(a)(i) . Except as set forth in this Agreement, Global Brands
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shall be relieved of all future obligations relating to the Group Brands Patents as of the Separation. It is anticipated by the parties that Group Brands (or its Affiliates or Subsidiaries) may continue to develop inventions and obtain Patents after the Separation that shall be owned by Group Brands and shall not be subject to any license to Global Brands unless specifically provided for herein.
(c) Ownership of Global Brands Patents . The parties agree that Global Brands hereby retains and is the sole and exclusive owner as between the parties of all right, title and interest in and to the Global Brands Patents. Group Brands has no right or interest to the Global Brands Patents other than as provided by the license set forth in ARTICLE III to the Global Brands Licensed Patents identified in Schedule 2.1(c) , the license set forth in ARTICLE V to the MGC Licensed Patents identified in Schedule 5.2(a)(i) and to the license set forth in the Tassimo IP Agreement. Except as set forth in this Agreement, Group Brands shall be relieved of all future obligations relating to the Global Brands Patents as a result of the Separation. It is anticipated by the parties that Global Brands (or its Affiliates or Subsidiaries) may continue to develop inventions and obtain Patents after the Separation that shall be owned by Global Brands and shall not be subject to license to Group Brands unless specifically provided for herein. Patents owned by Kraft Foods UK Ltd. and Kraft Foods R&D Inc. that will be licensed to Group Brands under ARTICLE III shall be set forth in the Global Brands Licensed Patents Schedule.
Section 2.2 Assignment and Ownership of Trade Secrets and Know-How .
(a) Global Brands hereby (and hereby causes its and their Affiliates and Subsidiaries to) irrevocably assigns, transfers, conveys and delivers to Group Brands all of Global Brands (and its and their Affiliates and Subsidiaries) right, title and interest in and to the Group Brands Trade Secrets and Know-How, including all priority rights under applicable international, multilateral and bilateral treaties and conventions. The right, title and interest is to be held and enjoyed by Group Brands as fully and exclusively as it would have been held and enjoyed by Global Brands had this assignment not been made. Group Brands shall have all benefits, privileges, causes of action, claims and remedies arising out of or relating to the Group Brands Trade Secrets and Know-How, the exploitation thereof, and the use and ownership of any of the Group Brands Trade Secrets and Know-How, including but not limited to: (i) any and all remedies against and for past, present or future misappropriation or unauthorized disclosure of the Group Brands Trade Secrets and Know-How; and (ii) any and all rights to enforce, settle any disputes and retain all proceeds from any such actions. Except as set forth in this Agreement, Global Brands shall be relieved of all future obligations relating to the Group Brands Trade Secrets and Know-How as a result of the Separation.
(b) Ownership of Group Brands Trade Secrets and Know-How . The parties agree that Group Brands is the sole and exclusive owner of all right, title and interest in and to the Group Brands Trade Secrets and Know-How. Global Brands has no right or interest in or to the Group Brands Trade Secrets and Know-How other than to the license set forth in ARTICLE IV to the Group Brands Licensed Trade Secrets and Know-How identified in Schedule 2.2(b) and the license set forth in ARTICLE V to the LCRB Licensed Trade Secrets and Know-How identified in Schedule 5.1(a)(ii) . It is anticipated by the parties that Group Brands (or its Affiliates or Subsidiaries) may continue to develop Trade Secrets and Know-How after the Separation that shall be owned by Group Brands and shall not be subject to license to Global Brands unless specifically provided for herein.
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(c) Ownership of Global Brands Trade Secrets and Know-How . The parties agree that Global Brands hereby retains and is the sole and exclusive owner of all right, title and interest in and to the Global Brands Trade Secrets and Know-How. Group Brands has no right or interest in or to the Global Brands Trade Secrets and Know-How other than the license set forth in ARTICLE IV to Global Brands Licensed Trade Secrets and Know-How identified in Schedule 2.2(c) , the license set forth in ARTICLE V to the MGC Licensed Trade Secrets and Know-How identified in Schedule 5.2(a)(ii) and the license set forth in the Tassimo IP Agreement. It is anticipated by the parties that Group Brands (or its Affiliates or Subsidiaries) may continue to develop Trade Secrets and Know-How after the Separation that shall be owned by Global Brands and shall not be subject to license to Group Brands unless specifically provided for herein.
Section 2.3 Ownership of Meridian Information . For the sake of convenience and given the size and overlapping nature of the technology and information contained in Meridian, the parties agree that: each party will obtain a full and complete copy of Meridian as it exists as of the Separation Date excluding Meridian information relating to the products set forth under the heading Meridian in Schedule 4.1(a) and Schedule 4.1(b) , which shall be provided solely to Group Brands or Global Brands, respectively, and each party acknowledges receipt thereof; and each party has the right to use the information contained in Meridian to make, have made, use, sell, offer for sale, import and export products in any jurisdiction around the world, subject to the restrictions set forth in this Section 2.3 and ARTICLE IV:
(a) Meridian Information owned by Group Brands . Global Brands hereby grants, conveys, transfers and assigns to Group Brands all right, title and interest with respect to the confidential and proprietary information within Meridian that: (i) relates to the Group Brands Patents or any Group Brands Trade Secrets and Know-How; and (ii) relates to the GroceryCo Business, including any SKUs sold exclusively by the GroceryCo Business as of the Date of Distribution and to the products identified under the heading Meridian in Schedule 4.1(a) , all of which shall be considered as Group Brands Trade Secrets and Know-How. Global Brands shall not have any right, title or interest in or to the Group Brands Non-Licensed Trade Secrets and Know-How.
(b) Meridian Information owned by Global Brands . The parties agree that Global Brands hereby retains and is the sole and exclusive owner of all right, title and interest in and to the confidential and proprietary information within Meridian that: (i) relates to the Global Brands Patents or any Global Brands Trade Secrets and Know-How; and (ii) relates to the SnackCo Business, including any SKUs sold exclusively by the SnackCo Business as of the Date of Distribution and to the products identified under the heading Meridian in Schedule 4.1(b) , all of which shall be considered as Global Brands Trade Secrets and Know-How. Group Brands shall not have any right, title or interest in or to the Global Brands Non-Licensed Trade Secrets and Know-How.
(c) Ownership Generally .
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(i) To the extent the information contained in Meridian that each party receives a copy of constitutes the Trade Secrets or Know-How of a party, the party who owns the underlying Trade Secrets and Know-How shall own the associated Meridian information and the same provisions governing ownership and rights to use the Trade Secrets and Know-How as set forth in ARTICLE II, ARTICLE IV and ARTICLE V shall apply to the associated Meridian information. In the event a party receives the Non-Licensed Trade Secrets and Know-How of the other party by virtue of its copy of Meridian information, such party shall have no right, title or interest in or to, nor shall have any right to exploit in any manner, such Non-Licensed Trade Secrets and Know-How of the other party.
(ii) To the extent there is an overlap between the SKUs sold by the GroceryCo Business and the SnackCo Business as of the Distribution Date, or Meridian information that relates to inactive SKUs or Meridian technical information that is common across products within both GroceryCo and SnackCo, then: (1) Group Brands shall be granted ownership of such Meridian information that predominantly relates to Processed Cheese, Cream Cheese and all Non-Key Overlap Businesses; and (2) Global Brands shall be granted ownership of such Meridian information that predominantly relates to Coffee and Powdered Beverages.
Section 2.4 Ownership of R&D Suite . For the sake of convenience and given the size and overlapping nature of the technology and information contained in R&D Suite, the parties agree that: each party will obtain a full and complete copy of the R&D Suite as it exists as of the Distribution Date; each party acknowledges receipt thereof; and each party has the right to use the information contained in R&D Suite to make, have made, use, sell, offer for sale, import and export products in any jurisdiction around the world, except :
(a) to the extent the information contained in R&D Suite constitutes the Trade Secrets or Know-How of a party, the party who owns the underlying Trade Secrets and Know-How shall own the associated R&D Suite information and the same provisions governing ownership and rights to use the Trade Secrets and Know-How as set forth in ARTICLE II, ARTICLE IV and ARTICLE V shall apply to the associated R&D Suite information. In the event a party receives the Non-Licensed Trade Secrets and Know-How of the other party by virtue of its copy of R&D Suite information, such party shall have no right, title or interest in or to, nor shall have any right to exploit in any manner, such Non-Licensed Trade Secrets and Know-How of the other party.
Section 2.5 Ownership of Tassimo Intellectual Property . The parties agree that Global Brands hereby retains and is the sole and exclusive owner as between the parties of all right, title and interest in and to the Tassimo Patents identified in Schedule 2.5(a) and the Tassimo Trade Secrets and Know-How as identified in Schedule 2.5(b) . Group Brands rights and obligations regarding its use of the Tassimo Intellectual Property are governed by the Tassimo IP Agreement.
Section 2.6 Additional Obligations Under the Other Partys Patents . Each party agrees to continue the contractual obligations of any named inventor on a Patent that was a former employee or contractor of Kraft Foods Global Brands LLC (and its and their Affiliates and Subsidiaries) prior to the Distribution, with respect to a duty to assist with the prosecution of Patents. Each party agrees to make available to the other party such inventors for interviews
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and/or testimony and to assist in good faith in further prosecution and maintenance of the Patents. Any actual and reasonable out-of-pocket expenses associated with such assistance shall be borne by the party seeking or receiving assistance, expressly excluding the value of the time of such partys personnel. In addition, the parties agree to cooperate to effect a smooth transfer of the responsibility for prosecution, maintenance and enforcement of the Patents herein assigned and licensed.
Section 2.7 Prior Grants . The parties acknowledge and agree that the assignments and licenses granted herein to the Intellectual Property are subject to any and all licenses or other rights that may have been granted by a party (or its Affiliates, Subsidiaries and its and their Predecessors) with respect to the Intellectual Property prior to the Distribution as further set forth in ARTICLE VI.
Section 2.8 Further Assurances . The parties shall, and shall cause their respective Affiliates and Subsidiaries to, execute and deliver such instruments of assignment, conveyance and transfer and take such other actions as are necessary to memorialize or perfect the assignments provided for in this ARTICLE II. The parties shall share equally in such costs associated with the filing or recording of assignments in the relevant jurisdictions, provided however that in each case above, the applicable assignee shall be solely responsible for preparing, filing and/or recording any assignment, transfer or change of name documents relating to the Intellectual Property or any other documents necessary to record ownership of the Intellectual Property in the applicable assignees name, including the Patent Assignment. The applicable assignee agrees to use reasonable efforts to promptly file with U.S. Patent and Trademark Office, or such other foreign intellectual property office as applicable, any necessary documents relating to the assignment, transfer, conveyance and delivery of title and ownership of the Intellectual Property to the assignee.
Section 2.9 Mistaken Allocations . If either party discovers that certain Intellectual Property intended by the parties to be owned by Global Brands was inadvertently listed in the Group Brands Schedules or certain Intellectual Property intended by the parties to be owned by Group Brands was inadvertently listed in the Global Brands Schedules, such party shall provide written notice to the other party and the parties thereafter shall cooperate in good faith and amend the listings in the Group Brands Schedules and Global Brands Schedules, as applicable, and assign the applicable Intellectual Property to the proper party, as mutually agreed, including providing all copies of such applicable Intellectual Property to such other party. The parties agree to share equally any incremental costs associated with assigning any such Intellectual Property to the proper party pursuant to this Section 2.9. If either party discovers that certain Intellectual Property intended by the parties to be licensed to that party or the other party, then the provisions of Section 3.8 or Section 4.8 shall apply, as applicable.
Section 2.10 Disclaimer of Representations and Warranties .
(a) Each of Global Brands (on behalf of itself and each other SnackCo Entity) and Group Brands (on behalf of itself and each other GroceryCo Entity) understands and agrees that, no party (including its and their Affiliates and Subsidiaries) to this Agreement is making any representations or warranties relating in any way to the Intellectual Property, to any Consent required in connection therewith, to the value or freedom from any Security Interests of,
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or any other matter concerning, any Intellectual Property, or to the legal sufficiency of any assignment, document or instrument delivered hereunder to convey title to any Intellectual Property upon the execution, delivery and filing hereof or thereof. Except as may expressly be set forth in this Agreement, (a) all Intellectual Property is being transferred or licensed on an as is, where is basis, (b) any implied warranty of merchantability, fitness for a specific purpose or otherwise is hereby expressly disclaimed, (c) the respective transferees shall bear the economic and legal risks that any conveyance shall prove to be insufficient to vest in the transferee good and marketable title, free and clear of any Security Interest and (d) none of the parties (including their Affiliates or Subsidiaries) to this Agreement or any other Person makes any representation or warranty with respect to any information, documents or materials made available in connection with entering into this Agreement, or the transactions contemplated hereby.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT THE ASSIGNMENTS AND LICENSES HEREIN ARE MADE ON AN AS-IS, QUITCLAIM BASIS AND THAT NEITHER PARTY NOR ANY SUBSIDIARY OF SUCH PARTY HAS MADE OR WILL MAKE ANY WARRANTY WHATSOEVER, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ENFORCEABILITY, NON-INFRINGEMENT OR VALIDITY OF PATENT CLAIMS (ISSUED OR PENDING).
ARTICLE III
LICENSED PATENT RIGHTS AND RESTRICTIONS, GENERALLY
Section 3.1 Rights in the Non-Licensed Patents . Group Brands owns all right, title and interest in and to the Group Brands Non-Licensed Patents set forth in Schedule 3.1(a) . Global Brands owns all right, title and interest in and to the Global Brands Non-Licensed Patents set forth in Schedule 3.1(b) . Neither party shall have any right, title or interest under the other partys Non-Licensed Patents.
Section 3.2 Rights to Group Brands Licensed Patents . Group Brands grants to Global Brands a perpetual, fully paid-up, royalty-free, non-exclusive and worldwide license in and to the Group Brands Licensed Patents (excluding the LCRB Licensed Patents which are governed by Section 5.1) to make, have made, use, sell, offer for sale, supply or have supplied, import or have imported, export or have exported any products or services, or practice any methods and make improvements thereon subject to the terms and conditions of this Agreement, including those restrictions set forth in this ARTICLE III and including any obligations by either party to assign or license exclusive rights to the Licensed Patents to a third party in a territory pursuant to a Third Party Agreement as set forth in ARTICLE VI. Unless expressly stated otherwise, Group Brands retains all other rights in and to the Group Brands Licensed Patents.
Section 3.3 Rights to Global Brands Licensed Patents .
(a) Global Brands grants to Group Brands a perpetual, fully paid-up, royalty-free, non-exclusive and worldwide license in and to the Global Brands Licensed Patents (excluding the MGC Licensed Patents which are governed by Section 5.2) to make, have made,
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use, sell, offer for sale, supply or have supplied, import or have imported, export or have exported any products or services, or practice any methods and make improvements thereon subject to the terms and conditions of this Agreement, including those restrictions set forth in this ARTICLE III and including any obligations by either party to assign or license exclusive rights to the Licensed Patents to a third party in a territory pursuant to a Third Party Agreement as set forth in ARTICLE VI. Unless expressly stated otherwise, Global Brands retains all other rights in and to the Global Brands Licensed Patents.
(b) Notwithstanding the above, in the event Group Brands (or its Affiliates or Subsidiaries) practices any of the Cadbury Licensed Patents as set forth on Schedule 3.3(b) , the scope of Group Brands rights to the Cadbury Licensed Patents shall be the same as Group Brands rights and obligations to the Global Brands Licensed Patents, except that Group Brands shall pay a royalty fee for the Cadbury Licensed Patents pursuant to the royalty fee set forth in Schedule 3.3(b) . In addition, and solely to the extent necessary to practice the Cadbury Patents, Group Brands shall be entitled to receive a copy of the relevant Global Brands Trade Secrets and Know-How (including all Global Brands Trade Secrets and Know-How contained within Meridian and R&D Suite) with respect to the Cadbury Licensed Patents, and such information provided shall be deemed Global Brands Licensed Trade Secrets and Know-How.
Section 3.4 Rights to Sublicense Licensed Patent Rights . Subject to this ARTICLE III, a party may only grant a sublicense under the Licensed Patents as follows:
(a) to a partys Affiliates and Subsidiaries for so long as such parties remain its Affiliates and Subsidiaries;
(b) a party shall have the right to license the Licensed Patents (excluding the LCRB Licensed Patents and MGC Licensed Patents, which are governed by Section 5.1 and Section 5.2, respectively) to Co-Manufacturers and Suppliers, with no right to grant further licenses, to make products solely for the benefit of and on behalf of itself (or its Affiliates or Subsidiaries) in any country or region:
(i) outside of the other partys Defined Territory;
(ii) within the other partys Defined Territory, subject to such other partys written consent, which shall not be unreasonably withheld, delayed or denied if reasonable confidentiality and non-disclosure measures are in place given the nature and sensitivity of the information; provided that at the end of the ten (10) year period following Separation, no such approval or consent is needed for a party to grant licenses to its Suppliers and Co-Manufacturers in the other partys Defined Territory; and
(iii) any license granted pursuant to Section 3.4(b) shall be subject to a written non-disclosure agreement between the granting party and the applicable Co-Manufacturer or Supplier, as applicable; or
(c) to a third party with whom the party has a contractual obligation pursuant to the Third Party Agreement identified in Schedule 6.1 .
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(d) Any license granted pursuant to Section 3.4 shall be subject to the confidentiality obligations as set forth in this Agreement and the Separation Agreement.
Section 3.5 Restrictions on Licensed Patent Rights Excluding LCRB and MGC . Section 3.5 applies to all Licensed Patents except the LCRB Licensed Patents and the MGC Licensed Patents which are governed by Section 5.1 and Section 5.2, respectively.
(a) Two-Year Restriction for Key Overlap Business . For a two (2) year period following the Distribution Date, neither party shall use the Licensed Patents for any Key Overlap Business within such other partys Defined Territory. At the conclusion of this two (2) year period, either party may use the Licensed Patents in a Key Overlap Business in the other partys otherwise Defined Territory via Direct Entry. However, the two (2) year restriction in Section 3.5(a) shall not apply to:
(i) Packaging and Research Patents as identified in Schedule 3.5(a)(i) ;
(ii) either partys right to practice the Licensed Patents in areas outside of any Key Overlap Business in any jurisdiction;
(iii) either partys right to practice the Licensed Patents in any Undefined Territory;
(iv) restricting Kraft Food Ingredients Corp. from selling into any country or region products for further processing by third parties; or
(v) Global Brands right to import and sell the Jacobs brand coffee in the United States as managed through Kraft North America Imports Group and at volumes at and in a manner consistent with such importation and sales prior to the Separation.
(b) Ten Year Restriction . For a ten (10) year period following the Distribution Date, neither party shall license any of the Licensed Patents to a third party for commercialization by that third party, provided , however , with respect to products produced by and in a plant owned by that party or by a 50/50 joint venture involving that party, the party may:
(i) enter into an agreement with a third party governing the distribution of such products regardless of the brand the products are marketed under, so long as the party or the third party does not sell the products into the other partys Defined Territory during any period of time where the other party has exclusive rights to such Licensed Patents; and
(ii) during the first two (2) years after the Distribution Date, sell such products to its customers, including for shipment to retail outlets in jurisdictions outside of the other partys Defined Territory; provided , however , that beginning upon the second (2 nd ) anniversary of the Distribution Date, a party may, subject to any exclusivity rights the other party may have, sell or ship such products to its customers in any country or region, including to any country within the other partys Defined Territory.
(iii) Notwithstanding the restrictions set forth in this Section 3.5(b):
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(1) Either party may, subject to the other partys consent, which shall not be unreasonably withheld, delayed or denied and subject to terms and conditions mutually agreeable to the parties, license any of the Licensed Patents to a third party, in any jurisdiction, for commercialization with or by such third party for uses in categories outside of the GroceryCo Business and the SnackCo Business.
(iv) In the event a party enters into a joint venture, such party shall comply with and be subject to the terms of Section 4.6 (Rights of First Offer) under the Separation Agreement.
(c) Limited Components and Ingredients . Notwithstanding Section 3.4 and Section 3.5, neither party shall be restricted from using a Co-Manufacturer or Supplier for certain limited components or ingredients related to the manufacturing or supplying of products that are part of or related to the Licensed Patents, provided that such party does not disclose any of the Licensed Trade Secrets and Know-How to such Co-Manufacturer or Supplier.
Section 3.6 Restrictions on Use of Restricted Technologies . Notwithstanding a partys right to sublicense under this ARTICLE III, should the practice of the Licensed Patents require use of the Restricted Technologies identified on Schedule 3.6(a) , the parties further agree not to disclose the Restricted Technologies to any third party in any geography, including Suppliers or Co-Manufacturers within ones own Defined Territory, without the written permission of the other party which cannot be unreasonably withheld, delayed or denied so long as appropriate confidentiality measures and the Black Box procedures are in place given the nature and sensitivity of the information. However, a party may disclose a particular Restricted Technology to a third party wherein such Restricted Technology was previously the subject of, or licensed under, a Third Party Agreement pursuant to ARTICLE VI.
Section 3.7 Restrictions on Use of Licensed Patents in Event of a Sale or Transfer . Upon either partys sale, transfer, assignment or other divestiture or disposition (for purposes of this Section, a transfer) of a part or the majority of any Business utilizing any Licensed Patents, the transferring party may transfer its rights to the transferee in any related Licensed Patents owned by, or licensed to, the transferring party, in any geography, provided , however ;
(a) all restrictions with respect to the Licensed Patents shall remain in force and transferee will assume, in writing, all rights, obligations and restrictions of the transferring party with respect to the Licensed Patents;
(b) transferee shall not be granted any rights in or to such Licensed Patents with respect to a Key Overlap Business and/or Non-Key Overlap Business in a Defined Territory of the other party unless, as of ninety (90) days prior to the effective date of such transfer, the transferring party has established a Substantial Presence within such Defined Territory of the other party. As between the transferee and the non-transferring party (Group Brands or Global Brands, as applicable), with respect to any Licensed Patents in a Defined Territory in which the transferring party did not achieve a Substantial Presence as of ninety (90) days prior to the effective date of such transfer, the non-transferring party shall be the sole and exclusive owner or licensee, as applicable, and the transferee shall not be granted a license, under such Licensed Patents in any such Defined Territory. Notwithstanding the terms of this Agreement, transferees rights in and to the Licensed Patents shall be fixed at the time of such transfer, with respect to such Licensed Patents, and transferee shall have no further right to enter into any markets not granted at the time of such transfer.
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(i) Notwithstanding the above Section, with respect to the Restricted Technologies, Restricted Technologies may only be transferred to the transferee for use in such Regions where such Restricted Technology is currently being used for commercial purposes in products being sold by a transferring party in such Region, and where the business being transferred has generated at least a Substantial Amount from products utilizing such Restricted Technologies.
(c) In the event the transferring party transfers any Restricted Technology, the transferring party shall ensure that the transferee that obtains such Restricted Technology agrees to be subject to those restrictions and obligations set forth herein with respect to such Restricted Technology effective as of the date of such transfer. The transferring party shall ensure that the non-transferring party is a third party beneficiary with respect to such obligations and restrictions.
(d) The restrictions set forth in this Section 3.7 shall not apply in the event that the transferee is the other party to this Agreement (i.e. the transferee is GroceryCo or SnackCo).
Section 3.8 Required License for a Partys Business . If a party discovers that certain Patents existing as of the Distribution Date that either: (a) are necessary to conduct the business of that party or (b) are necessary to perform that partys obligations under a Third Party Agreement; and were intended by the parties to be licensed by one party to the other party but were inadvertently listed in the Non-Licensed Patents, such party shall provide written notice to the other party. The parties shall cooperate in good faith, and, if the parties are reasonably satisfied that the Patents were inadvertently omitted, they shall amend the listings in the Schedules and license the Patents to the other party as applicable and provide the other party with all copies of all applicable documentation required to practice the Patents. The parties agree to share equally any incremental costs associated with licensing any such Patents to the proper party pursuant to this Section 3.8. If a party desires a license to a Patent developed post-Separation that is not considered a Licensed Patent pursuant to Section 7.1 or Section 7.2 in connection with any rights and obligations under a Third Party Agreement, then the parties shall engage in good faith negotiations to enter into an agreement governing the license and royalty terms for any such Patent.
Section 3.9 Duration . All licenses granted herein with respect to each Licensed Patent shall expire upon the expiration of the term of such Licensed Patent unless such license has been terminated earlier pursuant to this Agreement.
ARTICLE IV
LICENSED TRADE SECRETS AND KNOW-HOW RIGHTS
AND RESTRICTIONS, GENERALLY
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Section 4.1 Rights in the Non-Licensed Trade Secrets and Know-How . Group Brands owns all right, title and interest in and to the Group Brands Non-Licensed Trade Secrets and Know-How set forth in Schedule 4.1(a) and Global Brands owns all right, title and interest in and to the Global Brands Non-Licensed Trade Secrets and Know-How set forth in Schedule 4.1(b) .
Section 4.2 Rights to Group Brands Licensed Trade Secrets and Know-How . Group Brands grants to Global Brands a perpetual, fully paid-up, non-exclusive and worldwide license under the Group Brands Licensed Trade Secrets and Know-How (excluding the LCRB Licensed Trade Secrets and Know-How which are governed by Section 5.1) subject to the terms and conditions of this Agreement, including those restrictions set forth in this ARTICLE IV and including any obligations by either party to assign or license exclusive rights to the Licensed Trade Secrets and Know-How to a third party in a territory pursuant to a Third Party Agreement as set forth in ARTICLE VI. Unless expressly stated otherwise, Group Brands retains all other rights in and to the Group Brands Licensed Trade Secrets and Know-How.
Section 4.3 Rights to Global Brands Licensed Trade Secrets and Know-How . Global Brands grants to Group Brands a perpetual, fully paid-up, non-exclusive and worldwide license under the Global Brands Licensed Trade Secrets and Know-How (excluding the MGC Licensed Trade Secrets and Know-How which are governed by Section 5.2) subject to the terms and conditions of this Agreement, including those restrictions set forth in this ARTICLE IV and including any obligations by either party to assign or license exclusive rights to the Licensed Trade Secrets and Know-How to a third party in a territory pursuant to a Third Party Agreement as set forth in ARTICLE VI. Unless expressly stated otherwise, Global Brands retains all other rights in and to the Global Brands Licensed Trade Secrets and Know-How.
Section 4.4 Rights to Sublicense Licensed Trade Secrets and Know-How . Subject to this ARTICLE IV, a party may only grant a sublicense under the Licensed Trade Secrets and Know-How as follows:
(a) to a partys Affiliates and Subsidiaries for so long as such parties remain its Affiliates and Subsidiaries.
(b) a party shall have the right to license the Licensed Trade Secrets and Know-How (excluding the LCRB Licensed Trade Secrets and Know-How and MGC Licensed Trade Secrets and Know-How, which are governed by Section 5.1 and Section 5.2, respectively) to Co-Manufacturers and Suppliers, with no right to grant further licenses, to make products solely for the benefit of and on behalf of itself (or its Affiliates or Subsidiaries) in any country or region:
(i) outside of the other partys Defined Territory;
(ii) within the other partys Defined Territory, subject to such other partys written consent, which shall not be unreasonably withheld, delayed or denied if reasonable confidentiality and non-disclosure measures are in place given the nature and sensitivity of the information; provided that at the end of the ten (10) year period following the Distribution Date, no such approval or consent is needed for a party to grant licenses to its Suppliers and Co-Manufacturers in the other partys Defined Territory; and
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(iii) any license granted pursuant to Section 4.4(b) shall be subject to a written non-disclosure agreement between the granting party and the applicable Co-Manufacturer or Supplier, as applicable; or
(c) to a third party with whom the party has a contractual obligation pursuant to the Third Party Agreement identified in Schedule 6.1 .
(d) Any license granted pursuant to Section 4.4 shall be subject to the confidentiality obligations as set forth in this Agreement and the Separation Agreement.
Section 4.5 Restrictions on Licensed Trade Secrets and Know-How Excluding LCRB and MGC . Section 4.5 applies to all Licensed Trade Secrets and Know-How, except the LCRB Licensed Trade Secrets and Know-How and the MGC Licensed Trade Secrets and Know-How, which are governed by Section 5.1 and Section 5.2, respectively.
(a) Two Year Restriction For Key Overlap Business . For a two (2) year period following the Distribution Date, neither party shall use the Licensed Trade Secrets and Know-How for any Key Overlap Business within such other partys Defined Territory. At the conclusion of this two (2) year period, either party may use the Licensed Trade Secrets and Know-How in a Key Overlap Business in the other partys otherwise Defined Territory solely via Direct Entry. However, the two (2) year restriction in Section 4.5(a) shall not apply to:
(i) Trade Secrets and Know-How associated with Packaging and Research Patents;
(ii) either partys right to practice the Licensed Trade Secrets and Know-How in areas outside of any Key Overlap Business in any jurisdiction;
(iii) either partys right to practice the Licensed Trade Secrets and Know-How in any Undefined Territory;
(iv) restricting Kraft Food Ingredients Corp. from selling into any country or region products for further processing by third parties; or
(v) Global Brands right to import and sell the Jacobs brand coffee in the United States as managed through Kraft North America Imports Group and at volumes at and in a manner consistent with such importation and sales prior to the Separation.
(b) Ten Year Restriction . For a ten (10) year period following the Distribution Date, neither party shall license any of the Licensed Trade Secrets and Know-How to a third party for commercialization by that third party, provided , however , that with respect to products produced by and in a plant owned by that party or by a 50/50 joint venture involving that party, a party may:
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(i) enter into an agreement with a third party governing the distribution of such products regardless of the brand the products are marketed under, so long as the party or the third party does not sell the products into the other partys Defined Territory during any period of time where the other party has exclusive rights to such Licensed Trade Secrets and Know-How; and
(ii) during the first two (2) years after the Distribution Date, sell such products to its customers, including for shipment to retail outlets in jurisdictions outside of the other partys Defined Territory; provided , however , that beginning upon the second (2 nd ) anniversary of the Distribution Date, a party may, subject to any exclusivity rights the other party may have, sell or ship such products to its customers in any country or region, including to any country within the other partys Defined Territory.
(iii) Notwithstanding the restrictions set forth in this Section 4.5(b):
(1) Either party may, subject to the other partys consent, which shall not be unreasonably withheld, delayed or denied and subject to terms and conditions mutually agreeable to the parties, license any of the Licensed Trade Secrets and Know-How to a third party, in any jurisdiction, for commercialization with or by such third party for uses in categories outside of the GroceryCo Business and the SnackCo Business.
(2) In the event a party enters into a joint venture, such party shall comply with and be subject to the terms of Section 4.6 (Rights of First Offer) under the Separation Agreement.
(c) Limited Components and Ingredients . Notwithstanding Section 4.4 and Section 4.5, neither party shall be restricted from using a Co-Manufacturer or Supplier for certain limited components or ingredients related to the manufacturing or supplying of products that are part of or related to the Licensed Trade Secrets and Know-How, provided that such party does not disclose any of the Licensed Trade Secrets and Know-How to such Co-Manufacturer or Supplier.
Section 4.6 Restrictions on Use of Restricted Technologies . Notwithstanding a partys right to sublicense under this ARTICLE IV, neither party may disclose the Restricted Technologies to any third party, in any geography, including Suppliers or Co-Manufacturers within ones own Defined Territory, without the written permission of the other party, which cannot be unreasonably withheld, delayed or denied so long as appropriate confidentiality measures and Black Box procedures are in place given the nature and sensitivity of the information. However, a party may disclose a particular Restricted Technology to a third party wherein such Restricted Technology was previously the subject of, or licensed under, a Third Party Agreement pursuant to ARTICLE VI.
Section 4.7 Restrictions on Use of Licensed Trade Secrets and Know-How in Event of a Sale or Transfer . Upon either partys sale, transfer, assignment or other divestiture or disposition (for purposes of this Section, a transfer) of a part or the majority of any Business utilizing any Licensed Trade Secrets and Know-How, the transferring party may transfer its rights to the transferee in any related Licensed Trade Secrets and Know-How owned by, or licensed to, the transferring party, in any geography, provided , however :
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(a) all restrictions with respect to the Licensed Trade Secrets and Know-How shall remain in force and transferee will assume, in writing, all rights, obligations and restrictions of the transferring party with respect to the Licensed Trade Secrets and Know-How; and
(b) transferee shall not be granted any rights in or to such Licensed Trade Secrets and Know-How with respect to a Key Overlap Business and/or Non-Key Overlap Business in a Defined Territory of the other party unless, as of ninety (90) days prior to the effective date of such transfer, the transferring party has established a Substantial Presence within such Defined Territory of the other party. As between the transferee and the non-transferring party (Group Brands or Global Brands, as applicable), with respect to any Licensed Trade Secrets and Know-How in a Defined Territory in which the transferring party did not achieve a Substantial Presence as of ninety (90) days prior to the effective date of such transfer, the non-transferring party shall be the sole and exclusive owner or licensee, as applicable, and the transferee shall not be granted a license, under such Licensed Trade Secrets and Know-How in any such Defined Territory. Notwithstanding the terms of this Agreement, transferees rights in and to the Licensed Trade Secrets and Know-How shall be fixed at the time of such transfer, with respect to such Licensed Trade Secrets and Know-How, and transferee shall have no further right to enter into any markets not granted at the time of such transfer.
(i) Notwithstanding the above Section, with respect to the Restricted Technologies, Restricted Technologies may only be transferred to the transferee for use in such regions where such Restricted Technology is currently being used for commercial purposes and where the business being transferred has generated at least a Substantial Amount from products utilizing such Restricted Technologies.
(c) Notwithstanding the above, with respect to Trade Secrets and Know-How contained within Meridian and R&D Suite, upon either partys transfer of a part or the majority of any Business, the transferring party may only transfer those Trade Secrets and Know-How of Meridian and R&D Suite, or portion thereof, that are in use by the transferring party and are material to the business being sold, whether such Trade Secrets and Know-How are owned by or licensed to the transferring party at the time of the transfer of the transferring partys business to the transferee. The transferring party shall not provide a wholesale copy of either Meridian or R&D Suite, or any other information of the other party to which the transferring party does not have rights hereunder, to the transferee absent written consent of the other party. All other restrictions with respect to the Licensed Trade Secrets and Know-How shall apply to Meridian and R&D Suite.
(d) In the event the transferring party transfers any Restricted Technology, the transferring party shall ensure that the transferee that obtains such Restricted Technology agrees to be subject to those restrictions and obligations set forth herein with respect to such Restricted Technology effective as of the date of such transfer. The transferring party shall ensure that the non-transferring party is a third party beneficiary with respect to such obligations and restrictions.
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(e) The restrictions set forth in this Section 4.7 shall not apply in the event that the transferee is the other party to this Agreement (i.e. the transferee is GroceryCo or SnackCo).
Section 4.8 Required License for a Partys Business . If a party discovers that certain Trade Secrets and Know-How existing as of the Distribution Date that either: (a) are necessary to conduct the business of that party or (b) are necessary to perform that partys obligations under a Third Party Agreement; and were intended by the parties to be licensed by one party to the other party but were inadvertently listed in the Non-Licensed Trade Secrets and Know-How Schedules, such party shall provide written notice to the other party. The parties shall cooperate in good faith, and, if the parties are reasonably satisfied that the Trade Secrets and Know-How were inadvertently omitted, they shall amend the listings in the Schedules and license the Trade Secrets and Know-How to the other party as applicable and provide the other party with all copies of all applicable documentation required to practice the Trade Secrets and Know-How. The parties agree to share equally any incremental costs associated with licensing any such Trade Secrets and Know-How to the proper party pursuant to this Section 4.8. If a party desires a license to Trade Secrets and Know-How developed post-Separation that are not considered Licensed Trade Secrets and Know-How pursuant to Section 7.1 or Section 7.2 in connection with any rights and obligations under a Third Party Agreement, then the parties shall engage in good faith negotiations to enter into an agreement governing the license and royalty terms for any such Trade Secrets and Know-How; provided , however , a party is under no obligation to disclose Trade Secrets and Know-How developed post-Separation to the other party except as required under Section 7.1 and Section 7.2.
Section 4.9 Duration . The licenses granted above to the Licensed Trade Secrets and Know-How shall continue in perpetuity unless such license has been terminated earlier pursuant to this Agreement.
ARTICLE V
LICENSED LCRB AND MGC RELATED INTELLECTUAL PROPERTY,
RIGHTS AND RESTRICTIONS
Section 5.1 LCRB Licensed Intellectual Property Rights .
(a) Group Brands grants to Global Brands a license to the LCRB Licensed Patents identified in Schedule 5.1(a)(i) and the LCRB Licensed Trade Secrets and Know-How identified in Schedule 5.1(a)(ii) , collectively the LCRB Licensed Intellectual Property, subject to the terms and conditions of this Agreement. Global Brands may also sublicense its rights to the LCRB Licensed Intellectual Property to its and their Affiliates and Subsidiaries for so long as they remain its and their Affiliates and Subsidiaries. Group Brands retains all other rights to the LCRB Licensed Intellectual Property unless specifically provided for herein.
(i) Global Brands License to the LCRB Licensed Intellectual Property within the LCRB Defined Territory . Within the LCRB Defined Territory Global Brands shall have a perpetual, fully paid-up and royalty-free license (subject to this Section 5.1) in and to the LCRB Licensed Intellectual Property to make, have made, use, sell,
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offer for sale, supply or have supplied, import or have imported, export or have exported any products or services, or practice any methods and make improvements thereon subject to the terms and conditions of this Agreement.
(ii) Global Brands Optional Rights to LCRB Licensed Intellectual Property within the LCRB Optional Market . Within the LCRB Optional Market and subject to Global Brands payment to Group Brands of the Annual Optional Rights Fee, payable each year upfront, until the third (3 rd ) anniversary of the Distribution Date, Global Brands shall have a non-exclusive license in and to the LCRB Licensed Intellectual Property to make, have made, use, sell, offer for sale, supply or have supplied, import or have imported, export or have exported any products or services, or practice any methods and make improvements thereon subject to the terms and conditions of this Agreement. Provided Global Brands has paid and continues to pay the Annual Optional Rights Fee, for each twelve (12) month period for which an Annual Optional Rights Fee payment is made, Global Brands rights shall include the receipt of: (a) all Derivatives of the LCRB Licensed Intellectual Property, including any new intellectual property solely owned and developed by GroceryCo (or its Affiliates or Subsidiaries) directed to LCRB for use in any such countries or regions where Global Brands has rights with respect to the LCRB Licensed Intellectual Property to make, have made, use, sell, offer for sale, supply or have supplied, import or have imported, export or have exported any products or services, or practice any methods and make improvements thereon; and (b) access to the full-time equivalent employees from GroceryCo (or its Affiliates or Subsidiaries) who are knowledgeable on the LCRB Licensed Intellectual Property and who shall provide assistance and services subject to the Project Statement between the parties as set forth on Exhibit C . Upon the payment of the Total Optional Rights Fee, Global Brands shall be granted a perpetual, fully paid-up, royalty-free, non-exclusive and irrevocable license to the LCRB Licensed Intellectual Property within the LCRB Defined Territory and the LCRB Optional Market, provided , however , that upon the third (3 rd ) anniversary from the Distribution Date (regardless of whether the applicable license fees have been paid or not), Global Brands right to continue to receive, on a going forward basis, a license to any new intellectual property solely owned and developed by GroceryCo (or its Affiliates or Subsidiaries) directed to LCRB shall automatically lapse and its access rights to the full-time equivalent employees from GroceryCo (or its Affiliates or Subsidiaries) shall also terminate.
(1) Global Brands shall have the option, in its sole discretion and upon six (6) months prior written notice to cancel the optional rights to the LCRB Licensed Intellectual Property as set forth in Section 5.1(a)(ii). In the event that Global Brands elects to cancel and does not pay the full Total Optional Rights Fee, Global Brands optional rights as set forth in Section 5.1(a)(ii) shall expire at the end of such twelve (12) month period in which the last Annual Optional Rights Fee has been paid, but Global Brands shall retain a perpetual, fully paid-up, royalty-free license (subject to this Section 5.1) to the LCRB Licensed Intellectual Property within the LCRB Defined Territory and in any of the countries or regions within the LCRB Optional Market in which SnackCo has generated at least a Substantial Amount from products utilizing such LCRB Licensed Intellectual Property by the end of such last twelve (12) month period for which an Annual Optional Rights Fee payment has been paid.
(2) Notwithstanding any provision to the contrary, provided Global Brands makes payments in accordance with the terms set forth in Section 5.1(a)(ii) and
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solely with respect to new intellectual property solely owed and developed by either party (or its Affiliates or Subsidiaries), each party shall be required to disclose to the other any and all new intellectual property related to the LCRB technology for any period in which an Annual Optional Rights Fee has been made under Section 5.1(a)(ii), regardless of whether such information is in the form of an Invention Disclosure, Patent or is kept as a partys Trade Secret and Know-How.
(3) If Global Brands fails to make the initial Annual Optional Rights Fee at the time of Separation, then Global Brands shall have no rights to the LCRB Licensed Intellectual Property within the LCRB Optional Market or the right to receive any new intellectual property solely owed and developed by GroceryCo (or its Affiliates or Subsidiaries) or any right to the full-time equivalent employees from GroceryCo (or its Affiliates or Subsidiaries) as provided for in Section 5.1(a)(ii).
(4) Notwithstanding any provision to the contrary, with respect to new intellectual property related to the LCRB technology developed by a party at any time after the Total Optional Rights Fee has been paid, or at any time after the end of the last twelve (12) month period for which an Annual Optional Rights Fee payment has been paid if the Total Optional Rights Fee has not been achieved, such new intellectual property shall be owned by the developing party with no obligation or requirement to disclose such new intellectual property to the other party, provided , however , that this provision shall not affect a partys rights or obligations with respect to any Licensed Intellectual Property.
(b) Two (2) Year Exclusivity Period within the LCRB Defined Territory . Global Brands license to the LCRB Licensed Intellectual Property shall be exclusive within the LCRB Defined Territory for a two (2) year period following the Distribution Date subject to the terms and conditions of this Agreement. At the conclusion of this two (2) year period, or in the event exclusivity lapses beforehand under the terms and conditions of this Agreement, Group Brands (and its and their Affiliates and Subsidiaries) may use the LCRB Licensed Intellectual Property in any country within the LCRB Defined Territory via Direct Entry.
(c) Extended Three (3) to Ten (10) Year Exclusivity Period within the LCRB Defined Territory . Subject to Section 5.1(f), neither Group Brands (nor its Affiliates or Subsidiaries) may use the LCRB Licensed Intellectual Property in any country within the LCRB Defined Territory via a Co-Manufacturer or Supplier until the third (3 rd ) anniversary of the Distribution Date.
(i) If by the third (3 rd ) anniversary of the Distribution Date, SnackCo generates a Substantial Amount in the Philippines, GCC Countries or Latin American Countries within a twelve (12) month period from products utilizing the LCRB Licensed Intellectual Property, Global Brands license to the LCRB Licensed Intellectual Property shall continue to be exclusive in the Philippines, GCC Countries or Latin American Countries through the tenth (10 th ) anniversary from the Distribution Date with respect to Group Brands (and its and their Affiliates and Subsidiaries) ability to use the LCRB Licensed Intellectual Property in the Latin American Countries via a Co-Manufacturer or Supplier. If by the third (3 rd ) anniversary of the Distribution Date, SnackCos revenues in the Latin American Countries failed to generate a Substantial Amount within a twelve (12) month period from products utilizing the LCRB Licensed Intellectual Property, Group Brands (and its and their Affiliates and Subsidiaries) may use the LCRB Licensed Intellectual Property in the Latin American Countries via a Co-Manufacturer or Supplier subject to Section 5.1(f).
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(d) The exclusive license to Global Brands granted in Section 5.1(b) or Section 5.1(c) shall immediately lapse with respect to certain Latin American Countries, as set forth in this Section below and Group Brands (and its and their Affiliates and Subsidiaries) may use the LCRB Licensed Intellectual Property in any of such Latin America Countries via any means, including via a Co-Manufacturer or Supplier (Section 5.1(f)), in the event the following all apply:
(i) any competitor (whether by brand name or under a private label) enters into Mexico, Brazil or Argentina using substantially similar technology to LCRB;
(ii) with respect to Group Brands ability to enter into either Mexico or Caricam, if such competitor in Mexico achieves at least a five percent (5%) ACV in either Mexico; or with respect to Group Brands ability to enter into South America, such competitor in South America achieves at least a five percent (5%) ACV in either Brazil or Argentina; and
(iii) SnackCo failed to generate a Substantial Amount in Latin America within the most recent twelve (12) month period from products utilizing the LCRB Licensed Intellectual Property by the time in which a competitor has obtained entry pursuant to Section 5.1(d)(i) and Section 5.1(d)(ii).
(e) Notwithstanding the above and subject to the terms and conditions of this Agreement, neither party may sell a concentrated coffee product using the LCRB Licensed Intellectual Property in a Defined Territory of the other party with respect to the other partys coffee business until the second (2 nd ) anniversary of the Distribution Date.
(f) Neither party may license the LCRB Licensed Intellectual Property to a third party or to or with any Co-Manufacturer or Supplier provided , however , neither party shall be restricted from using a Co-Manufacturer or Supplier for certain limited components of manufacturing LCRB provided that such party does not disclose any of the LCRB Intellectual Property to such Co-Manufacturer or Supplier.
(g) Notwithstanding Section 5.1(f), a party may, with respect to products covered by or utilizing the LCRB Licensed Intellectual Property that are produced by and in a plant owned by that party:
(i) enter into an agreement with a third party governing the distribution of such products regardless of the brand the products are marketed under, so long as the party or the third party does not sell the products into the LCRB Defined Territory (in the case of GroceryCo) or any country or region that is not within its LCRB Defined Territory or its LCRB Optional Market (in the case of SnackCo) during any period of time where the other party has exclusive rights to such LCRB Licensed Intellectual Property as set forth in Section 5.1; and
(ii) during the first two (2) years after the Distribution Date, sell such products to its customers, including for shipment to retail outlets outside of the LCRB Defined Territory (in the case of GroceryCo) or within its LCRB Defined Territory and its LCRB
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Optional Market (in the case of SnackCo); provided , however , that beginning upon the second (2 nd ) anniversary of the Distribution Date, a party may, subject to any exclusivity rights the other party may have, ship such products to its customers in any country or region.
(h) GroceryCo and SnackCo shall enter into a separate supply agreement whereby GroceryCo agrees to manufacture and supply SnackCo with products or parts thereof that are covered by or utilize the LCRB Licensed Intellectual Property. The term of the separate supply agreement shall be for a term of up to five (5) years unless extended by the parties. For any new intellectual property that is developed under such separate supply agreement, ownership and licensing of such developed intellectual property shall be governed by the terms of this Agreement.
(i) For the purposes of this Section 5.1, the restrictions and limitations of LCRB do not apply to Aladdin IP or Bud IP. Aladdin IP shall be governed by the limitations and restrictions as those of Powdered Beverages as noted in Schedule 1.2(b) and Schedule 1.2(c) , and Bud IP shall be governed by the limitations and restrictions as those of Coffee as noted in Schedule 1.2(b) and Schedule 1.2(c) .
Section 5.2 MGC Licensed Intellectual Property Rights .
(a) Global Brands grants to Group Brands a license to the MGC Licensed Patents identified in Schedule 5.2(a)(i) and the MGC Licensed Trade Secrets and Know-How identified in Schedule 5.2(a)(ii) , collectively the MGC Licensed Intellectual Property, subject to the terms and conditions of this Agreement. Group Brands may also sublicense its rights to the MGC Licensed Intellectual Property to its and their Affiliates and Subsidiaries for so long as they remain its and their Affiliates and Subsidiaries. Global Brands retains all other rights to the MGC Licensed Intellectual Property unless specifically provided for herein.
(i) Group Brands License to MGC Licensed Intellectual Property within the MGC Defined Territory . Within the MGC Defined Territory, Group Brands shall have a perpetual, fully paid-up and royalty-free license (subject to this Section 5.2) in and to the MGC Licensed Intellectual Property to make, have made, use, sell, offer for sale, supply or have supplied, import or have imported, export or have exported any products or services, or practice any methods and make improvements thereon subject to the terms and conditions of this Agreement.
(ii) Group Brands Optional Rights to MGC Licensed Intellectual Property within the MGC Optional Market . Within the MGC Optional Market and subject to Group Brands payment to Global Brands of the Annual Optional Rights Fee, payable each year upfront, until the third (3 rd ) anniversary of the Distribution Date, Group Brands shall have a non-exclusive license in and to the MGC Licensed Intellectual Property to make, have made, use, sell, offer for sale, supply or have supplied, import or have imported, export or have exported any products or services, or practice any methods and make improvements thereon subject to the terms and conditions of this Agreement. Provided Group Brands has paid and continues to pay the Annual Optional Rights Fee, for each twelve (12) month period for which an Annual Optional Rights Fee payment is made, Group Brands rights shall include the receipt of: (a) all
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Derivatives of the MGC Licensed Intellectual Property, including any new intellectual property solely owned and developed by SnackCo (or its Affiliates or Subsidiaries) directed to MGC for use in any such countries or regions where Group Brands has rights with respect to the MGC Licensed Intellectual Property to make, have made, use, sell, offer for sale, supply or have supplied, import or have imported, export or have exported any products or services, or practice any methods and make improvements thereon; and (b) access to the full-time equivalent employees from SnackCo (or its Affiliates or Subsidiaries) who are knowledgeable on the MGC Licensed Intellectual Property and who shall provide assistance and services subject to the Project Statement between the parties as set forth on Exhibit D . Upon the payment of the Total Optional Rights Fee, Group Brands shall be granted a perpetual, fully paid-up, royalty-free, non-exclusive and irrevocable license to the MGC Licensed Intellectual Property within the MGC Defined Territory and LCRB Optional Market, provided , however , that upon the third (3 rd ) anniversary from the Distribution Date (regardless of whether the applicable license fees have been paid or not), Group Brands right to continue to receive, on a going forward basis, a license to any new intellectual property solely owned and developed by SnackCo (or its Affiliates or Subsidiaries) directed to MGC shall automatically lapse and its access rights to the full-time equivalent employees from SnackCo (or its Affiliates or Subsidiaries) shall also terminate.
(1) Group Brands shall have the option, in its sole discretion and upon six (6) months prior written notice to cancel the optional rights to the MGC Licensed Intellectual Property as set forth in Section 5.2(a)(ii). In the event that Group Brands elects to cancel and does not pay the full Total Optional Rights Fee, Group Brands optional rights as set forth in Section 5.2(a)(ii) shall expire at the end of such twelve (12) month period in which the last Annual Optional Rights Fee has been paid, but Group Brands shall retain a perpetual, fully paid-up, royalty-free license (subject to this Section 5.2) to the MGC Licensed Intellectual Property within the MGC Defined Territory and in any of the following countries or regions within the MGC Optional Market in which GroceryCo has generated at least a Substantial Amount from products utilizing such MGC Licensed Intellectual Property by the end of such last twelve (12) month period for which an Annual Optional Rights Fee payment has been paid.
(2) Notwithstanding any provision to the contrary, provided Group Brands makes payments in accordance with the terms set forth in Section 5.2(a)(ii), and solely with respect to new intellectual property solely owed and developed by either party (or its Affiliates or Subsidiaries), each party shall be required to disclose to the other any and all new intellectual property related to the MGC technology for any period in which an Annual Optional Rights Fee has been made, regardless of whether such information is in the form of an Invention Disclosure, Patent or is kept as a partys Trade Secret and Know-How.
(3) If Group Brands fails to make the initial Annual Optional Rights Fee on the Distribution Date, then Group Brands shall have no rights to the MGC Licensed Intellectual Property within the MGC Optional Market or the right to receive any new intellectual property solely owed and developed by SnackCo (or its Affiliates or Subsidiaries) or any right to the full-time equivalent employees from GroceryCo (or its Affiliates or Subsidiaries) as provided for in Section 5.2(a)(ii).
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(4) Notwithstanding any provision to the contrary, with respect to new intellectual property related to the MGC technology developed by a party at any time after the Total Optional Rights Fee has been paid, or at any time after the end of the last twelve (12) month period for which an Annual Optional Rights Fee payment has been paid if the Total Optional Rights Fee has not been achieved, such new intellectual property shall be owned by the developing party with no obligation or requirement to disclose such new intellectual property to the other party, provided , however , that this provision shall not affect a partys rights or obligations with respect to any Licensed Intellectual Property.
(b) Two (2) Year Exclusivity Period within the MGC Defined Territory . Group Brands license to the MGC Licensed Intellectual Property shall be exclusive within the MGC Defined Territory for a two (2) year period following the Distribution Date, subject to the terms and conditions of this Agreement. At the conclusion of this two (2) year period, or in the event exclusivity lapses beforehand under the terms and conditions of this Agreement, Global Brands (and its and their Affiliates and Subsidiaries) may use the MGC Licensed Intellectual Property within the MGC Defined Territory via Direct Entry.
(c) Extended Three (3) to Ten (10) Year Exclusivity Period within the MGC Defined Territory . Subject to Section 5.2(e), neither Global Brands (nor its Affiliates or Subsidiaries) may use the MGC Licensed Intellectual Property within the MGC Defined Territory via a Co-Manufacturer or Supplier until the third (3 rd ) anniversary of the Distribution Date.
(i) If by the third (3 rd ) anniversary of the Distribution Date, GroceryCo generates a Substantial Amount within any of the countries within the MGC Defined Territory within a twelve (12) month period from products utilizing the MGC Licensed Intellectual Property, Group Brands license to the MGC Licensed Intellectual Property shall continue to be exclusive in the MGC Defined Territory, as applicable, through the tenth (10 th ) anniversary from the Distribution Date with respect to Global Brands (and its and their Affiliates and Subsidiaries) ability to use the MGC Licensed Intellectual Property in the MGC Defined Territory via a Co-Manufacturer or Supplier. If by the third (3 rd ) anniversary of the Distribution Date, GroceryCos revenues in any country outside the Optional Rights Market failed to generate a Substantial Amount within a twelve (12) month period from products utilizing the MGC Licensed Intellectual Property, Global Brands (and its and their Affiliates and Subsidiaries) may use the MGC Licensed Intellectual Property in the MGC Defined Territory via a Co-Manufacturer or Supplier subject to Section 5.2(e).
(d) The exclusive license to Group Brands granted in Section 5.2(b) or Section 5.2(c) shall immediately lapse with respect to any country within the MGC Defined Territory, as set forth below, and Global Brands may use the MGC Licensed Intellectual Property in the particular jurisdiction via any means, including via a Co-Manufacturer or Supplier (subject to Section 5.2(e)), in the event the following all apply:
(i) any competitor (whether by brand name or under a private label) enters into a country within the MGC Defined Territory using substantially similar technology to MGC;
(ii) with respect to Global Brands ability to enter into a country within the MGC Defined Territory, such competitor achieves at least a five percent (5%) ACV in a particular country within the MGC Defined Territory; and
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(iii) GroceryCo failed to generate a Substantial Amount within a particular country within the MGC Defined Territory, within the most recent twelve (12) month period from products utilizing the MGC Licensed Intellectual Property by the time in which a competitor has obtained entry pursuant to Section 5.2(d)(i) and Section 5.2(d)(ii).
(e) Neither party may license the MGC Licensed Intellectual Property to a third party or to or with any Co-Manufacturer or Supplier, provided , however , neither party shall be restricted from using a Co-Manufacturer or Supplier for certain limited components of manufacturing MGC provided that such party does not disclose any of the MGC Intellectual Property to such Co-Manufacturer or Supplier. However, both parties may license MGC Licensed Intellectual Property to those Approved Third Parties as identified in Schedule 6.1 , provided that if Global Brands consent is required for such license, such consent shall not be unreasonably withheld, delayed or denied.
(f) Notwithstanding Section 5.2(e), a party may, with respect to products covered by or utilizing the MGC Licensed Intellectual Property that are produced by and in a plant owned by that party:
(i) enter into an agreement with a third party governing the distribution of the products regardless of the brand the products are marketed under, so long as the party or the third party does not sell the products into the MGC Defined Territory (in the case of SnackCo) or in any country or region that is not within its MGC Defined Territory or its MGC Optional Market (in the case of GroceryCo) during any period of time where the other party has exclusive rights to such MGC Licensed Intellectual Property as set forth in Section 5.2; and
(ii) during the first two (2) years after the Distribution Date, sell such products to its customers, including for shipment to retail outlets outside of the MGC Defined Territory (in the case of SnackCo) or within its MGC Defined Territory and its MGC Optional Market (in the case of GroceryCo); provided , however , that beginning upon the second (2 nd ) anniversary of the Distribution Date, a party may, subject to any exclusivity rights the other party may have, ship such products to its customers in any country or region.
(g) SnackCo and GroceryCo shall enter into a separate supply agreement whereby SnackCo agrees to manufacture and supply GroceryCo with products or parts thereof that are covered by or utilize the MGC Licensed Intellectual Property. The term of the separate supply agreement shall be for a term of up to five (5) years unless extended by the parties. For any new intellectual property that is developed under such separate supply agreement, ownership and licensing of such developed intellectual property shall be governed by the terms of this Agreement.
ARTICLE VI
THIRD PARTY AGREEMENTS
Section 6.1 Licensed Intellectual Property Subject to Third Party Rights or Agreements . Each party acknowledges the existence of Third Party Agreements and any continuing obligations and restrictions that are set forth in the Third Party Agreements and agrees that it has copies of such Third Party Agreements as it may reasonably require. To the
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extent any intellectual property is jointly owned by a party and a third party pursuant to a Third Party Agreement, this Agreement shall not be construed to convey any rights to such intellectual property that is not permissible under such Third Party Agreement. The parties agree to cooperate and to take necessary steps, within their control, to ensure each partys rights and obligations under this Agreement do not cause a party to be in breach of such Third Party Agreement. The parties further agree to cooperate and to take necessary steps, within their control, and if necessary, to effectuate the assignment or license of Licensed Intellectual Property in the specified territory pursuant to such Third Party Agreements. Except as set forth in Section 7.1 and Section 7.2, this Agreement shall not be construed as requiring a party that is not a party post-Separation to a Third Party Agreement to disclose, assign or license new intellectual property to the other party or to a third party under any such Third Party Agreement. Each party further agrees that upon becoming aware of any provision in this Agreement or in a Third Party Agreement entered into prior to the Distribution that was not identified in Schedule 6.1 that would cause a breach of either agreement, to notify the other party. The parties shall reasonably consult and cooperate with each other in connection with any such Third Party Agreement. The parties agree that this Agreement shall not be construed as making any third party a beneficiary under this Agreement.
Section 6.2 Indemnification by Licensee for Third Party Agreements . As between Group Brands and Global Brands and its and their Affiliates and Subsidiaries, the party who is the licensee of Licensed Intellectual Property that is subject to a Third Party Agreement shall indemnify, defend and hold the other party (i.e., licensor) and its and their Affiliates and Subsidiaries and each of its and their respective officers, directors, employees, shareholders, agents and representatives (collectively, the Indemnified Parties ) harmless from and against any and all Liabilities of the Indemnified Parties relating to, arising out of or resulting from any claim that the licensees use of the Licensed Intellectual Property is in breach of or otherwise runs afoul of the Third Party Agreement, including as against any claim that the licensees use of the Licensed Intellectual Property infringes, misappropriates or otherwise uses the Licensed Intellectual Property in violation of any restrictions set forth in such Third Party Agreement.
ARTICLE VII
DEVELOPMENT, PROSECUTION AND MAINTENANCE OF
LICENSED INTELLECTUAL PROPERTY
Section 7.1 Derivatives of Licensed Patents . The parties acknowledge that either party may make improvements, modifications or derivatives of the Licensed Patents ( Derivative ). Where a party seeks to file a Patent application on any such Derivative (referred to as a Derivative Patent Application ), the parties agree as follows:
(a) if a party seeks to file a Derivative Patent Application and such party believes that a claim of priority to a Licensed Patent is required, or if a party believes that such Derivative Patent Application may be rejected by the U.S. Patent and Trademark Office, or such other foreign intellectual property office in the subject jurisdiction absent common inventorship and/or ownership by one party of both the Derivative Patent Application and the Licensed Patent, then the following provisions apply:
(i) if the party is the licensee, then that party will provide a full and complete copy of the Derivative Patent Application for filing to the owner. Upon receipt of the
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application, the owner shall file or cause to be filed such application in its own name, as applicable or allowable under the law in the relevant jurisdiction, within forty-five (45) days of receipt thereof, or as otherwise mutually agreed upon between the parties. The licensee shall also consult with the owner with respect to the Patent application to the extent the Patent application may affect the validity or scope of the owners Licensed Patent(s). The owners and licensees rights in and to the Derivative Patent application (and any Patent issuing therefrom) shall be the same as their rights to the underlying Licensed Patent and on the same terms and subject to the same restrictions, or
(ii) if the party is the owner, then the owner shall file the Derivative Patent Application in its own name and shall provide a full and complete copy of the Derivative Patent Application to the licensee. The owners and licensees rights to the Derivative Patent Application (and any Patent issuing therefrom) shall be the same as their rights to the underlying Licensed Patent and on the same terms and subject to the same restrictions.
(b) Notwithstanding anything set forth in Section 7.1(a):
(i) the party who conceived of or developed the improvements, modifications or derivatives shall be responsible for the drafting and initial preparation of the Patent application.
(ii) Except with respect to improvements, modifications or derivatives of LCRB and MGC for so long as a party is paying for the licensed rights thereof subject to Section 5.1(a) and Section 5.2(a), respectively, neither party shall be prevented from making any improvements, modifications or derivatives of the Licensed Patents and retaining such Derivatives as a Trade Secret of such developing party. In the event a party maintains a Derivative as a Trade Secret, such party shall be under no obligation to disclose the Derivative to the other Party and shall have no obligation to grant any right or license to the other party hereunder with respect to any such Derivative. Further, a partys right to maintain a Derivative as such partys Trade Secret shall not prevent the other party from independently developing and preparing its own Derivatives, including filing a Derivative Patent Application on the same or substantially similar Derivative.
(iii) Except with respect to improvements, modifications or derivatives of LCRB and MGC for so long as a party is paying for the licensed rights thereof subject to Section 5.1(a) and Section 5.2(a), respectively, neither party has any obligation to disclose or provide copies to the other party any other Derivative Patent Applications or any other Patent applications that do not fall within the provisions of Section 5.1, Section 5.2, or Section 7.1(a). In other words, if either party conceives of a Derivative Patent Application wherein the party believes that no claim of priority to a Licensed Patent is necessary and/or believes that the Derivative Patent Application would not be rejected by the U.S. Patent and Trademark Office, or such other foreign intellectual property office in the subject jurisdiction based on lack of common inventorship and/or ownership with a Licensed Patent, then such Derivative Application is not subject to the requirements of this Section 7.1(a) and such party shall be under no obligation to disclose the Derivative or any associated Derivative Patent Application to the other party, and the other party has no rights to any Derivative, Derivative Patent Application or Patent issuing therefrom.
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(c) The parties agree that copies of any Derivative Patent Applications, including any non-public information regarding any Derivative or Derivative Patent Application, that are exchanged between the parties pursuant to this Section 7.1 shall be treated as confidential and shall be used solely in accordance with the terms of this Agreement and within the scope of the applicable license.
(d) The parties agree to execute any documents with respect to a Derivative Patent Application as may be required by the parties to effectuate the rights and obligations in this Section 7.1.
Section 7.2 Pipeline Invention Disclosures and Patents . Notwithstanding Section 7.1, with respect to Invention Disclosures prepared within six (6) months from the Distribution Date and Patent applications submitted or filed within eighteen (18) months from the Distribution Date, the parties agree as follows:
(a) excluding the Invention Disclosures contained on Schedule 2.1(b) and Schedule 2.1(c) , any new Invention Disclosures prepared within the first six (6) months following the Distribution Date that relate to the Key Overlap Business or new Invention Disclosures based upon research and development related to or arising out of each partys packaging or research groups, each party shall, at its own expense, provide copies of any such Invention Disclosure to the other partys IP counsel, chief scientific officer and executive in charge of the applicable business unit within thirty (30) days of the initial preparation of such Invention Disclosure. If a Patent application is filed based on such Invention Disclosure, the other party shall be granted a license in and to such Patent application (and any Patent issuing therefrom) and the applicable Patent application shall be classified as a Licensed Patent owned by the filing party with the non-filing party obtaining a license under such Patent application (and any Patent issuing therefrom) subject to and on the same terms and conditions as the party is granted to Licensed Patents within the Key Overlap Business.
(b) Excluding the scheduled Patent applications contained on Schedule 2.1(b) and Schedule 2.1(c) , for all Patent applications filed within the first six (6) months following the Distribution Date that relate to the Key Overlap Business or new Patent applications based upon research and development related to or arising out of each partys packaging or research groups, the party filing the application shall, at its own expense, provide copies of any such Patent application as filed, within thirty (30) days of such filing, together with notice of its filing date and serial number, to the other partys IP counsel, chief scientific officer and executive in charge of the applicable business unit. The non-filing party shall be granted a license in and to such Patent application (and any Patent issuing therefrom) and the applicable Patent application shall be classified as a Licensed Patent owned by the filing party with the non-filing party obtaining a license under such Patent application (and any Patent issuing therefrom) subject to and on the same terms and conditions as the party is granted to Licensed Patents within the Key Overlap Business.
(c) For Patent applications within the Key Overlap Business filed by either party after the initial six (6) months and up to and through the initial eighteen (18) months following the Distribution Date and for all Patent applications filed by either party that relate to either the Key Overlap Business or Non-Key Overlap Business and including all Patent applications based
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upon research and development related to or arising out of each partys packaging or research groups filed up to and through the initial eighteen (18) months following the Distribution Date, each party shall, at its own expense, provide copies of any such Patent application as filed, within thirty (30) days of such filing, together with notice of its filing date and serial number, to the other partys IP counsel, chief scientific officer and executive in charge of the applicable business unit. The parties shall then mutually determine whether rights to such Patent application would have been granted to the other party had the Distribution not yet occurred. In the event the parties agree that each party should have received rights in and to the Patent application and any Patent issuing therefrom, the Patent application shall be classified as a Licensed Patent owned by the filing party with the non-filing party obtaining a license under such Patent application (and any Patent issuing therefrom) subject to and on the same terms and conditions as the party is granted to Licensed Patents within the applicable Key Overlap Business and Non-Key Overlap Business.
(d) The parties agree that copies of any Invention Disclosure or Patent application, including any non-public information regarding any Invention Disclosure or Patent application, that are exchanged between the parties pursuant to this Section 7.2 shall be treated as confidential.
(e) The parties agree that the party who develops and seeks to file such Derivative Patent Application shall be responsible for the draft and preparation and associated costs of such Derivative Patent Application.
(f) The parties agree to execute any documents as may be required by the parties to effectuate the rights and obligations in this Section 7.2.
Section 7.3 Partys Abandonment of Licensed Patents .
(a) With respect to Licensed Patents owned by a party or any Invention Disclosure scheduled as a Licensed Patent or disclosed under Section 7.1, if that party decides that it is no longer interested in prosecuting and/or maintaining one or more Licensed Patents at any time, then the owner of the Licensed Patent(s) or the applicable Invention Disclosure shall give written notice to the licensee of such Licensed Patent or Invention Disclosure within three (3) months of a non-extended filing deadline for maintenance fees and annuities or within thirty (30) days of any non-extended deadline related to the prosecution of a Licensed Patent or its decision not to proceed with the preparation of a Patent application with respect to such Invention Disclosure of its intention to cease prosecution and/or maintenance, or not to proceed with an extension of the Licensed Patent and shall permit the licensee, at the licensees sole discretion, to either direct the prosecution or maintenance or proceed with the extension under the owners name but at licensees own costs and expenses, or if and only if the owner elects to abandon the entire Licensed Patent family, the licensee may continue prosecution or maintenance or proceed with the extension at its own costs and expense. If the owner elects to abandon the entire Licensed Patent family, and if the licensee elects to continue the prosecution or maintenance or to proceed with the extension, the owner of the Licensed Patent or the applicable Invention Disclosure shall execute such documents and perform such acts at the licensees expense as may be reasonably necessary to effect an assignment of such Licensed Patent or Invention Disclosure (and as applicable other Patents in the same Licensed Patent family) to the licensee in a timely manner, and more generally to permit the licensee to continue
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such prosecution and maintenance or to proceed with the extension. Any Patents and Patent applications so assigned shall not be considered Licensed Patents as of the date of such assignment. A party abandoning a Patent or Patent application pursuant to this Section 7.3(a) shall have no right, title and/or interest in and to such abandoned Patents and Patent applications, including any rights to license, exploit or practice (or exclude others from using, practicing or exploiting) in any way any such abandoned Patents and Patent applications.
(b) With respect to Licensed Patents owned by a party, if the non-owning party decides that it is no longer interested in sharing in any costs with the owner with respect to prosecuting and/or maintaining a Licensed Patent, then the licensee of the Licensed Patent shall give notice to the owner of such Licensed Patent within three (3) months of a non-extended filing deadline for maintenance fees and annuities or within thirty (30) days of any non-extended deadline related to the prosecution of a Licensed Patent of its intention to cease sharing in the expense of prosecution and/or maintenance, or with respect to an extension, of any Licensed Patent. In such case the owner may continue, at its discretion, prosecution or maintenance or proceed with the extension at its own costs and expense. Any Patents and Patent applications where the licensee ceases to participate in or share the costs of such prosecution, maintenance or extension shall not be considered Licensed Patents as of the date the licensee ceases to share in the applicable costs and the licensee shall have no right, title or interest in and to such Patents or Patent applications, including any rights to license, exploit or practice (or exclude others from using, practicing or exploiting) in any way any such Patents and Patent applications. Provided , however , that if neither party elects to continue such prosecution, maintenance or extension, or if both decide to abandon the Patent, then neither party may restrict the other from exploiting, practicing or using the applicable abandoned Licensed Patents subject to any other patent rights held by a respective party.
(c) In the event that neither party desires to further prosecute, maintain or extend a Licensed Patent in a particular jurisdiction, then the applicable Licensed Patent shall go abandoned and neither party may restrict the other from exploiting, practicing or using the applicable abandoned Licensed Patents subject to any other patent rights held by a respective party.
Section 7.4 Foreign Prosecution of Licensed Patents . With respect to Licensed Patents where the decision to file in certain foreign jurisdictions has not been determined prior to Separation, the parties shall engage in good faith discussions regarding the filing of patent applications directed to the Licensed Patents in other jurisdictions.
(a) In the event that the owner of the Licensed Patent decides that it is not interested in prosecuting one or more of the Licensed Patents in such foreign jurisdictions, then the owner of the Licensed Patent(s) shall give written notice to the non-owner within thirty (30) days of any non-extended deadline related to the filing deadline for foreign filing of a Licensed Patent and shall permit the non-owner, at the non-owners sole discretion, to either direct the prosecution under the owners name but at the non-owners own costs and expenses. With respect to each such foreign jurisdiction in which the owner elected not to participate or share in the costs of prosecuting the foreign Patent application, such foreign Patents and Patent applications shall not be considered Licensed Patents, solely with respect to the applicable foreign jurisdiction. The owner of the underlying Licensed Patent shall have no right, title and or
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interest in and to such foreign Patents and Patent applications, including any rights to license, exploit or practice (or exclude others from using, practicing or exploiting) in any way any such foreign filings, solely with respect to each such jurisdiction in which the owner did not participate and share in the costs of prosecuting the foreign Patent application.
(b) In the event the non-owner decides that it is not interested in prosecuting one or more of the Licensed Patents in such foreign jurisdictions, then such non-owner shall give notice to the owner of such Licensed Patent(s) within thirty (30) days of any non-extended deadline related to the filing deadline for foreign filing of a Licensed Patent. In such case the owner may continue prosecution, at its discretion and at its own costs and expense. With respect to each such foreign jurisdiction in which the non-owner elected not to participate or share in the costs of prosecuting the foreign Patents and Patent applications, such foreign Patents and Patent applications shall not be considered Licensed Patents, solely with respect to the applicable foreign jurisdiction. The non-owner of the underlying Licensed Patents shall have no right, title or interest in and to such foreign Patents or Patent applications, including any rights to license, exploit or practice (or exclude others from using, practicing or exploiting) in any way any such foreign Patents and Patent applications.
(c) If neither party elects to file a Licensed Patent in a foreign jurisdiction, then neither party may restrict the other from exploiting, practicing or using the applicable Licensed Patents, subject to any other patent rights held by a respective party, in each such application foreign jurisdiction in which the parties mutually elected not to file in.
(d) A partys decision to file or not to file in any particular foreign jurisdiction shall not affect either partys rights, obligations or limitations otherwise set forth in this Agreement, including with respect to the underlying Licensed Patent.
Section 7.5 Further Assurances . The parties shall, and shall cause their respective Affiliates and Subsidiaries to, execute and deliver such instruments of assignment, conveyance and transfer and take such other actions as are necessary to memorialize or perfect the assignments provided for in this ARTICLE VII. The parties shall share equally in such costs associated with the filing or recording of assignments in the relevant jurisdictions, provided however that in each case above, the applicable assignee shall be solely responsible for preparing, filing and/or recording any assignment, transfer or change of name documents relating to the Intellectual Property or any other documents necessary to record ownership of the Intellectual Property in the applicable assignees name, including the Patent Assignment. The applicable assignee agrees to use reasonable efforts to promptly file with the U.S. Patent and Trademark Office, or such other foreign intellectual property office as applicable, any necessary documents relating to the assignment, transfer, conveyance and delivery of title and ownership of the Intellectual Property to the assignee.
Section 7.6 Allocation of Patent Prosecution Costs .
(a) Unless specifically provided for in this Agreement or in one of the Ancillary Agreements incident to the Distribution, each party shall be responsible for all prosecution, maintenance and extension costs relating to each partys own Non-Licensed Patents. For purposes of this Section, prosecution costs associated with a partys Non-Licensed
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Patents shall include costs associated with any interference, opposition, derivation, reexamination, reissue or other proceeding at the U.S. Patent and Trademark Office, or such other foreign intellectual property office.
(b) Subject to each partys right to abandon Patents under Section 7.3, and subject to Section 7.6(c), with respect to the Licensed Patents, the parties agree that the cost of patent prosecution, maintenance and extensions thereof shall be shared as follows:
(i) During the initial two (2) years after Separation, the party having exclusive rights to the Licensed Patents for the Key Overlap Business in its Defined Territory shall be responsible for all costs of such prosecution, maintenance and extensions of the Patents. After the initial two (2) years from the Distribution Date, each party shall be responsible for fifty percent (50%) of the costs of prosecution, maintenance and extensions of the applicable Licensed Patents.
(ii) Beginning immediately after Distribution, each party shall be responsible for fifty percent (50%) of the costs of prosecution, maintenance and extensions of the Licensed Patents in any Undefined Territory.
(iii) Notwithstanding the above, with respect to any Licensed Patent that a third party has exclusive rights to in a particular country or region, including as provided for in any Third Party Agreement, the party (who either has the contractual relationship with such third party or who otherwise receives compensation from such third party based upon the third partys exclusive rights to the Licensed Patent) shall be responsible for all costs within such country or region relating to the prosecution, maintenance and extensions of the Licensed Patent during any period in which the third party has exclusive rights.
(c) Regarding the following categories of prosecution costs associated with the Licensed Patents, the parties further agree as follows:
(i) if a third party initiates interference, opposition, derivation, reexamination or other proceeding at the U.S. Patent and Trademark Office, or such other foreign intellectual property office regarding a Licensed Patent, the party with knowledge thereof shall notify the other party within thirty (30) days. The parties shall then engage in good faith to determine a mutually acceptable approach for responding to and managing the conduct of the third party proceeding and the costs associated with such proceeding shall be allocated as provided in Section 7.6(b).
(ii) If a party decides to initiate an interference, opposition, derivation, reexamination, reissue or other proceeding at the U.S. Patent and Trademark Office, or such other foreign intellectual property office regarding a Licensed Patent or any legal proceeding related to the validity of any Licensed Patent in a court of competent jurisdiction, than prior to initiating such proceeding, that party shall notify the other party of its intention and the parties shall engage in good faith to determine a mutually acceptable approach and the costs associated with such proceeding shall be allocated as provided in Section 7.6(b).
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ARTICLE VIII
ENFORCEMENT AND LITIGATION OF LICENSED INTELLECTUAL
PROPERTY
Section 8.1 Management of Intellectual Property Claims/Litigation; Allocation of Intellectual Property Litigation Costs .
(a) Claim from Third Party . In the event that a party learns of any claim of or alleged claim from a third party of infringement or threatened infringement of, or related to the Licensed Intellectual Property that the party in good faith believes will impair the rights to the Licensed Intellectual Property, the party with knowledge thereof shall notify the other party within thirty (30) days of such third party claim. The parties shall engage in good faith to determine a mutually acceptable response to the claim. Provided the parties mutually agree to proceed, litigation or management of the third party claim shall be according to Section 8.1(c).
(b) Initiation of Action Against Third Party . In the event that in good faith, a party believes that the actions of a third party may impair the rights of any Licensed Intellectual Property, and such party desires to send a claim letter or initiate legal action against a third party for infringement of the Licensed Intellectual Property, the party seeking to initiate such action shall notify the other party of its intent and shall engage in good faith with the other party to determine whether, and by what means any action against a third party should be instituted. Provided the parties mutually agree to proceed with the third party claim, litigation or management of the third party claim shall be according to Section 8.1(c).
(c) Control of Litigation/Strategy .
(i) Litigation or Claim in Jurisdiction Impacting Only One Party : Provided the parties mutually agree that one or the other can take action against a third party, if a party seeks to defend against or initiate a claim against a third party that relates to or might impair the use of the Licensed Intellectual Property in a jurisdiction where only the party is present or where only the party has revenues in a Business related to the particular claim, then such party shall be solely responsible for any litigation related activities and costs in such jurisdiction; provided however, that to the extent the other party must be added to any lawsuit for standing purposes and/or the other partys assistance is needed due to specific expertise or knowledge base, such other party is obliged to consent to being added as a party for standing purposes and/or to provide assistance at the litigating partys cost. Where only one party is litigating the claim and paying all costs therefore (because the other party is not impacted or because the other party has opted out pursuant to Section 8.1(e)), then all recoveries shall belong exclusively to such litigating party. Moreover, if the only reason a party is involved in the litigation is for standing purposes, then the other party shall pay all reasonable costs and expenses of such party.
(ii) Litigation or Claim in Jurisdiction Impacting Neither Party : Provided the parties mutually agree that one or the other can take action against a third party, if a party seeks to defend against or initiate such a claim against a third party that relates to or might impair the use of the Licensed Intellectual Property in a jurisdiction where neither party is present and neither party has revenues in a Business related to the particular claim, then the party
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who owns the applicable Licensed Intellectual Property shall manage the litigation in such jurisdiction and both parties shall share equally in the costs of such litigation. To the extent the licensees assistance is needed due to specific expertise or knowledge base, licensee shall be obliged to provide assistance and such costs and any recovery shall be shared equally by the parties in such jurisdiction.
(iii) Litigation or Claim in Jurisdiction Impacting Both Parties : Provided the parties mutually agree that one or the other can take action against a third party, if a party seeks to defend against or initiate a claim against a third party that relates to or might impair the use of the Licensed Intellectual Property in a jurisdiction where both parties are present or where both parties have revenues in a Business related to the particular claim, the party with the greatest aggregate revenues in such Business shall manage the litigation in such jurisdiction and the costs of litigation shall be split based upon each partys pro rata share of net revenues of the Business related to the litigation in such jurisdiction. To extent the non-controlling party must be added to any lawsuit for standing purposes and/or the non-controlling partys assistance is needed due to specific expertise or knowledge base, such non-controlling party is obliged to consent to being added as a party for standing purposes and/or to provide assistance and such costs and any recovery shall be split based upon each partys pro rata share of net revenues of the Business related to the litigation in such jurisdiction.
(d) Consents Required . The decision whether to bring, maintain or settle any such claims subject to ARTICLE VIII shall be jointly made. With respect to Licensed Intellectual Property, neither party shall or have a right to initiate any such litigation, opposition, cancellation or related legal proceedings without the consent of the other party.
(e) Opt-Out . Except where necessary for standing purposes, a party that is otherwise obligated to share in the costs associated with initiating a claim or litigation and seeks to withdraw from, or does not want to participate or share in the costs of such litigation related activities, the other party shall control the litigation and be responsible for all costs and expenses thereof. The non-participating party shall not be entitled to any recoveries related to the claim and such recoveries shall belong exclusively to the litigating party. For the purposes of this ARTICLE VIII, a party that would have opted-out of the litigation, but not for the standing requirement, such party shall be considered a non-participating party for purposes of this ARTICLE VIII solely with respect to costs, expenses and recoveries, if any.
(f) Settlement . Neither party shall commit to the settlement of any claim that may negatively impact the non-settling partys rights subject to the non-settling partys written consent, which shall not be unreasonably withheld, delayed or denied.
(g) No Obligation to Police Licensed Intellectual Property . Notwithstanding anything contained herein, neither party is obligated to monitor or police the use of the Licensed Intellectual Property by third parties other than any licenses to the Licensed Intellectual Property granted by a party (or its Affiliates or Subsidiaries) to a third party.
ARTICLE IX
TERM; TERMINATION
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Section 9.1 Term . The term of this Agreement commences on the Distribution and continues through the life of any applicable license hereunder.
Section 9.2 Termination . This Agreement may be terminated by the Kraft Foods Inc. Board at any time prior to the Distribution.
Section 9.3 Effect of Termination . In the event of any termination of this Agreement prior to the Distribution, no party (or any of its directors or officers) shall have any Liability or further obligation to any other party with respect to this Agreement.
Section 9.4 Material Breach . Neither party may unilaterally terminate this Agreement for a material breach of this Agreement by the other party, provided , however , that each party will retain any remedies for such breach that it may be entitled to in a court of law or equity.
ARTICLE X
CONFIDENTIALITY
Section 10.1 Confidentiality; Protection of Trade Secrets . Each party acknowledges and agrees that Patents and Trade Secrets and Know-How constitute proprietary and/or confidential information. Accordingly, where either party is a recipient of or licensee of the other partys Patents or Trade Secrets and Know-How, the receiving party shall use reasonable measures to protect, maintain and safeguard such information as proprietary and confidential as set forth herein and in ARTICLE VI (Exchange of Information; Litigation Management; Confidentiality) of the Separation Agreement.
Section 10.2 Privileged Information . The parties further acknowledge and agree that in furtherance of the rights and obligations in this Agreement, each party may provide or be the recipient of Privileged Information (as defined in the Separation Agreement). The exchange of Privileged Information shall be subject to ARTICLE VI (Exchange of Information; Litigation Management; Confidentiality) of the Separation Agreement.
ARTICLE XI
DISPUTE RESOLUTION AND CORPORATE GOVERNANCE
Section 11.1 Licensed Intellectual Property Governance . With respect to the Licensed Intellectual Property and the parties rights and obligations to each other as set forth herein, the parties agree to work cooperatively with each other in order to review, manage and minimize disputes between the parties. In the event the parties are unable to mutually agree upon a course of action under this Agreement, subject to the limitations herein, such dispute shall be submitted to Dispute Resolution as set forth in this ARTICLE XI.
(a) Representatives . Each party shall make available as required by this ARTICLE XI its Executive Vice President for Research Development and Quality ( RDQ ) and its Patent Counsel for the applicable business unit. In addition, at the request of a party and to the extent reasonably required due to the applicable subject matter, the parties shall make available the Vice President of RDQ for the applicable business unit and the applicable business unit counsel.
Section 11.2 Intellectual Property Dispute Resolution Procedures .
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(a) Step Process . Any controversy or claim arising out of or relating to Intellectual Property disputes, including requests by a party for access to certain Non-Licensed Patents or Non-Licensed Trade Secrets and Know-How of the other party, under this Agreement or the breach thereof (a Dispute ), shall be resolved: (i) first, by a meeting and negotiation between each partys Executive Vice President for RDQ, Patent Counsel for the applicable Business and such other business counsel and leads as deemed necessary ( e.g. , Vice President of RDQ for the business unit, RDQ IP/Strategy and the Business Counsel), where such meeting shall take place within thirty (30) days of either partys written notice of the Dispute; (ii) if such meeting and negotiations do not resolve the Dispute within thirty (30) days thereafter, each partys chief financial officer shall then meet; and (iii) if negotiations fail, such issues shall be escalated in accordance with the dispute resolution provisions of ARTICLE VII (Dispute Resolution) of the Separation Agreement.
(b) Dispute regarding Restricted Technology . Notwithstanding 11.2(a), any Dispute relating to or arising out of the Black Box procedures with respect to a Restricted Technology shall be resolved: (i) first by a meeting and negotiation between each partys Executive Vice President for RDQ, Patent Counsel for the applicable Business and such other business counsel and leads as deemed necessary ( e.g. , Vice President of RDQ for the business unit, RDQ IP/Strategy and the Business Counsel), where such meeting shall take place within thirty (30) days of either partys written notice of the Dispute; and (ii) if such meeting and negotiation does not resolve the Dispute within thirty (30) days thereafter, such Dispute shall be resolved by final and binding dispute resolution by YourEncore or such other dispute resolution party that the parties mutually agree upon.
(c) Costs . Each party shall bear its own costs, expenses and attorneys fees in pursuit and resolution of any Dispute, except if arbitration is initiated under Section 11.2(a) of this Agreement, Section 7.3 (Arbitration) of the Separation Agreement or arbitration using YourEncore, then the non-prevailing party shall pay all costs and expenses of the parties, including all arbitration and legal costs and expenses of the parties.
Section 11.3 Bi-Annual Intellectual Property Review Meetings . The parties shall, at least twice a year or as otherwise may be necessary to resolve a Dispute, hold a review meeting at one of the partys offices, or at such other place as is mutually agreed to by the parties, to review, with respect to the Licensed Intellectual Property: (i) summary of filing and grant information on new Licensed Patents (including, IDFs), maintenance and annuity decisions for the Licensed Patents, updates, decisions for foreign filings of Licensed Patents not decided prior to the Separation; (ii) abandonment of and/or transfer of ownership of or license rights in the Licensed Patents; (iii) litigation issues, including any updates or strategies on existing or proposed litigation, or implications of such existing or proposed litigation; (iv) interference, opposition, derivation, reexamination, reissue or other proceedings with the U.S. Patent and Trademark Office, or such other foreign intellectual property office as applicable; (v) patent marking requirements or any other Patent marking issues; (vi) Cadbury licensing provisions under Section 3.3(b); (vii) the disclosure to third parties of any of Confidential Information or Licensed Intellectual Property, including any Restricted Technologies and Know-How or any other Licensed Intellectual Property deemed sensitive by a party; (viii) any fees, costs and expenses associated with any of the above, including any true-up or reimbursement that may be required under this Agreement; and (ix) address such other issues as may be relevant at the time. Each
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party shall be responsible for all fees, costs and expenses with respect to its participation in such meetings. If the parties cannot resolve any outstanding issues at the meeting, then such issues shall be escalated first to the chief financial officer, and if not then resolved, the issue shall be escalated in accordance with the dispute resolution provisions of ARTICLE VII (Dispute Resolution) of the Separation Agreement, provided , however , that any Dispute relating to or arising out of a Restricted Technology shall be in accordance with Section 11.2(b).
(a) Meeting Agenda . At least two (2) weeks prior to a scheduled meeting pursuant to this Section 11.3, each party shall provide to the other a non-binding, proposed agenda with respect to the issues it is intending to discuss, including the following: (i) an overview of any issues it is intending to discuss; (ii) any issues such party is seeking to resolve; (iii) any issues that have been resolved since the prior meeting; (iv) any updates on issues that the other party was seeking; (v) any fees, costs or expenses it seeks reimbursement for or that require being trued-up; and (vi) any other information that such party may deem appropriate.
Section 11.4 Non-Intellectual Property Dispute Resolution . Either party may proceed and escalate any non-Intellectual Property Dispute under this Agreement in accordance with the dispute resolution provisions of ARTICLE VII (Dispute Resolution) of the Separation Agreement.
ARTICLE XII
LIMITATION OF LIABILITY
Section 12.1 Limitation of Liability . IN NO EVENT SHALL EITHER PARTY OR ITS SUBSIDIARIES OR AFFILIATES BE LIABLE TO THE OTHER PARTY OR ITS SUBSIDIARIES OR AFFILIATE FOR ANY DIRECT, SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THE DRAFTING OF THIS AGREEMENT, THE DIVISION OF THE BUSINESSES, OR THE ALLOCATION OF INTELLECTUAL PROPERTY THAT IS EITHER OWNED BY OR LICENSED TO THE PARTIES, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED , HOWEVER , THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT DAMAGES AVAILABLE TO EITHER PARTY UNDER APPLICABLE LAW IN THE EVENT OF A PARTYS INFRINGEMENT OF THE OTHER PARTYS INTELLECTUAL PROPERTY RIGHTS, A PARTYS VIOLATION OF THE RESTRICTIONS ON THE USE, EXPLOITATION, OBLIGATIONS, RESTRICTIONS OR SALE OF THE INTELLECTUAL PROPERTY, OR EITHER PARTYS OBLIGATIONS OF INDEMNIFICATION UNDER SECTION 6.2 OR SECTION 12.2 AND SHALL NOT LIMIT EITHER PARTYS OBLIGATIONS EXPRESSLY ASSUMED IN THIS AGREEMENT OR THE SEPARATION AGREEMENT; PROVIDED FURTHER THAT THE EXCLUSION OF PUNITIVE, EXEMPLARY OR TREBLE DAMAGES SHALL APPLY IN ANY EVENT.
Section 12.2 Indemnification . If, as between Group Brands and Global Brands (and its and their Affiliates and Subsidiaries), a party (the Indemnitor ) breaches any restriction, obligation or limitation contained herein with respect to a Restricted Technology, including any breach by a third party with respect to a Restricted Technology that is related to or arising out of the disclosure, license or sale of such Restricted Technology by the Indemnitor, the Indemnitor shall indemnify, defend and hold the Indemnified Parties harmless from and against any and all Liabilities, including any form of damages, relating to, arising out of or resulting such breach of a Restricted Technology.
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ARTICLE XIII
MISCELLANEOUS
Section 13.1 Coordination with Certain Ancillary Agreements; Conflicts . Except as otherwise expressly provided in this Agreement, in the event of any conflict or inconsistency between any provision of any of the Separation Agreement or any other Ancillary Agreements and any provision of this Agreement, this Agreement shall control over the inconsistent provisions of the Separation Agreement or any other Ancillary Agreements as to the matters specifically addressed in this Agreement. The Tax Sharing Agreement shall govern all matters (including dispute resolution and any indemnities and payments among the parties) relating to Taxes or otherwise specifically addressed in the Tax Sharing Agreement.
Section 13.2 Canadian Exclusion .
(a) In the event of a conflict between the Canadian Asset Transfer Agreement and this Agreement as to any Canadian Intellectual Property, the Canadian Asset Transfer Agreement shall control, solely with respect to such Canadian Intellectual Property.
(b) Notwithstanding any provision of this Agreement to the contrary, including Section 2.1 and Section 2.2, nothing in this Agreement shall effect, constitute or change the timing of (i) any transfer, assignment, conveyance or other disposition of, or any amendment, modification, supplement or other change of, or to, any right, title, interest or benefit in, or to the Canadian Intellectual Property, (ii) any transfer, assumption, forgiveness or release of, or any amendment, modification, supplement or other change of, or to, any Liabilities of Kraft Canada Inc., Mondelez Canada Inc. or of any of their direct or indirect subsidiaries (including partnerships) or (iii) any grant or other creation of any license, leave, authority or other permission to, or by Kraft Canada Inc. or to or by Mondelez Canada Inc. or any of their direct or indirect subsidiaries (including partnerships).
Section 13.3 Affiliates and Subsidiaries . Except as expressly set forth in this Agreement, all rights, obligations and restrictions that apply to a party shall apply equally to each of its and their Affiliates and Subsidiaries.
Section 13.4 Expenses . Except as expressly set forth in this Agreement, all fees, costs and expenses paid or incurred in connection with the performance of this Agreement, whether performed by a third party or internally, will be paid by the party incurring such fees or expenses. Global Brands will be responsible for any transfer and recordal fees related to the transfer of any Global Brands Intellectual Property to Global Brands and Group Brands will be responsible for any transfer and recordal fees related to the transfer of any Group Brands Intellectual Property to Group Brands.
Section 13.5 Amendment and Modification . This Agreement may not be amended, modified or supplemented in any manner, whether by course of conduct or otherwise, except by an instrument in writing specifically designated as an amendment hereto, signed on behalf of each party.
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Section 13.6 Waiver . No failure or delay of any party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, or any course of conduct, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the parties hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have hereunder. Any agreement on the part of any party to any such waiver shall be valid only if set forth in a written instrument executed and delivered by a duly authorized officer on behalf of such party.
Section 13.7 Notices . All notices and other communications hereunder shall be in writing and shall be deemed duly given (a) on the date of delivery if delivered personally, or if by facsimile, upon written confirmation of receipt by facsimile, e-mail or otherwise, (b) on the first Business Day following the date of dispatch if delivered utilizing a next-day service by a recognized next-day courier or (c) on the earlier of confirmed receipt or the fifth Business Day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid. All notices hereunder shall be delivered to the addresses set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:
(1) if to Kraft Foods Global Brands LLC or any other SnackCo Entity, to both:
Kraft Foods Global Brands LLC
Three Parkway North, Suite 200
Deerfield, Illinois 60015
Attention: General Counsel
Email: gerd.pleuhs@mdlz.com
with a copy (which shall not constitute notice) to:
Kraft Foods Global Brands LLC
Three Parkway North, Suite 200
Deerfield, Illinois 60015
Attention: SVP & Deputy General Counsel
Email: willie.miller@mdlz.com
(2) if to Kraft Foods Group Brands LLC or any other GroceryCo Entity, to:
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Kraft Foods Group Brands LLC
Three Lakes Drive
Northfield, Illinois 60093
Attention: General Counsel
Email: kim.rucker@kraftfoods.com
with a copy (which shall not constitute notice) to:
Kraft Foods Group Brands LLC
Three Lakes Drive
Northfield, Illinois 60093
Attention: Chief Patent Counsel
Email: clinton.hallman@kraftfoods.com
Section 13.8 Interpretation . When a reference is made in this Agreement to a Section, Article, Exhibit or Schedule such reference shall be to a Section, Article, Exhibit or Schedule of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement or in any Exhibit or Schedule are for convenience of reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Any capitalized terms used in any Schedule or Exhibit but not otherwise defined therein shall have the meaning as defined in this Agreement or the Separation Agreement. All Schedules and Exhibits annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth herein. The words include, includes, included, including, or the phrase e.g. and words of similar import when used in this Agreement shall mean including, without limitation, unless otherwise specified, and shall not be construed as terms of limitation. The word day when used in this Agreement shall mean calendar day, unless otherwise specified. Unless otherwise expressly stated, the words herein, hereof, and hereunder and other words of similar import refer to this Agreement as a whole and not to any particular Section, Subsection or other subpart.
Section 13.9 Counting Days . When calculating the time period before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is referenced in calculating such period shall be excluded (for example, if an action is to be taken within two days of a triggering event and such event occurs on a Tuesday then the action must be taken by Thursday). If the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day.
Section 13.10 Entire Agreement . This Agreement and the Separation Agreement and the other Ancillary Agreements and the Annexes, Exhibits, Schedules and Appendices hereto and thereto constitute the entire agreement, and supersede all prior written agreements, arrangements,
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communications and understandings and all prior and contemporaneous oral agreements, arrangements, communications and understandings among the parties with respect to the subject matter hereof. This Agreement shall not be deemed to contain or imply any restriction, covenant, representation, warranty, agreement or undertaking of any party with respect to the transactions contemplated hereby and thereby other than those expressly set forth herein or therein or in any document required to be delivered hereunder or thereunder. Notwithstanding any oral agreement or course of action of the parties or their representatives to the contrary, no party to this Agreement shall be under any legal obligation to enter into or complete the transactions contemplated hereby unless and until this Agreement shall have been executed and delivered by each of the parties.
Section 13.11 No Third Party Beneficiaries . Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the parties and their respective successors and permitted assigns any legal or equitable right, benefit or remedy of any nature under or by reason of this Agreement.
Section 13.12 Governing Law . This Agreement and all disputes or controversies arising out of or relating to this Agreement or the transactions contemplated hereby shall be governed by, and construed in accordance with, the internal Laws of the State of New York, without regard to the Laws of any other jurisdiction that might be applied because of the conflicts of laws principles of the State of New York (other than Section 5-1401 of the New York General Obligations Law).
Section 13.13 Assignment . Except as specifically provided in this Agreement, none of the rights, interests or obligations hereunder may be assigned or delegated, in whole or in part, by operation of law or otherwise, by any party without the prior written consent of the other parties, and any such assignment without such prior written consent shall be null and void. If any party (or any of its successors or permitted assigns) (a) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (b) shall transfer all or substantially all of its properties and/or assets to any Person, then, and in each such case, the party (or its successors or permitted assigns, as applicable) shall ensure that such Person assumes all of the obligations of such party (or its successors or permitted assigns, as applicable) under this Agreement. This Agreement shall be binding on and enure for the benefit of the successors and permitted assigns of each party.
Section 13.14 Severability . Whenever possible, each provision or portion of any provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable Law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or portion of any provision in such jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.
Section 13.15 Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same instrument and shall be effective as of the Distribution Date.
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Section 13.16 Facsimile Signature . This Agreement may be executed by facsimile signature and a facsimile signature shall constitute an original for all purposes.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives.
KRAFT FOODS GLOBAL BRANDS LLC | ||
By: | /s/ Gerhard Pleuhs | |
Name: Gerhard Pleuhs | ||
Title: Authorized Signatory | ||
KRAFT FOODS GROUP BRANDS LLC | ||
By: | /s/ Timothy R. McLevish | |
Name: Timothy R. McLevish | ||
Title: Authorized Signatory | ||
KRAFT FOODS UK LTD. | ||
By: | /s/ Gerhard Pleuhs | |
Name: Gerhard Pleuhs | ||
Title: Authorized Signatory | ||
KRAFT FOODS R&D INC. | ||
By: | /s/ Gerhard Pleuhs | |
Name: Gerhard Pleuhs | ||
Title: Authorized Signatory |
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Exhibit 2.4
EXECUTION VERSION
MASTER OWNERSHIP AND LICENSE AGREEMENT REGARDING
TRADEMARKS AND RELATED INTELLECTUAL PROPERTY
between
KRAFT FOODS GLOBAL BRANDS LLC
and
KRAFT FOODS GROUP BRANDS LLC
Dated as of September 27, 2012
TABLE OF CONTENTS
Page
ARTICLE I |
DEFINITIONS |
Section 1.1 |
Table of Definitions |
5 | ||||
Section 1.2 |
Certain Defined Terms |
6 |
ARTICLE II
ALLOCATION OF OWNERSHIP OF TRADEMARKS, BRAND-RELATED
COPYRIGHTS AND DOMAIN NAMES
Section 2.1 |
Ownership of Trademarks, Brand-Related Copyrights and Domain Names |
10 | ||||
Section 2.2 |
Disclaimer of Representations and Warranties |
14 | ||||
Section 2.3 |
Agreements regarding White-Space Registrations |
14 | ||||
Section 2.4 |
Ownership of Composite Marks |
15 | ||||
Section 2.5 |
Mistaken Allocations |
16 | ||||
Section 2.6 |
Certain Dot-Com Domain Name Arrangements |
16 | ||||
Section 2.7 |
Other Electronic Media |
17 | ||||
Section 2.8 |
Electronic Marketing with Respect to Territory |
17 | ||||
Section 2.9 |
Manufacture |
17 | ||||
Section 2.10 |
Third Party Contracts |
18 | ||||
Section 2.11 |
Exclusion of Canadian Trademarks |
18 | ||||
Section 2.12 |
Compliance with Law |
18 |
ARTICLE III
LICENSES
Section 3.1 |
License Grants by GroceryCo IPCo to SnackCo IPCo |
19 | ||||
Section 3.2 |
License Grants by SnackCo IPCo to GroceryCo IPCo |
27 | ||||
Section 3.3 |
Extension of Scope of License Grant; Sub-Brands; Protection of Perpetually Licensed Trademarks |
30 | ||||
Section 3.4 |
Reversion |
31 | ||||
Section 3.5 |
Obligation to Phase-Out Use |
32 | ||||
Section 3.6 |
License for Use in Connection with Recipe Ingredients, Consumer Websites and Social Media |
33 | ||||
Section 3.7 |
Assignment and Sublicensing |
34 | ||||
Section 3.8 |
Quality Standards and Control |
35 | ||||
Section 3.9 |
Registered User Filings and Evidence of Trademark Use |
37 | ||||
Section 3.10 |
Goodwill Arising from Use of Marks |
37 | ||||
Section 3.11 |
No Inconsistent Action |
38 | ||||
Section 3.12 |
Enforcement |
38 |
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Section 3.13 |
Maintenance of Licensed Trademarks and Monitoring Obligations |
40 | ||||
Section 3.14 |
Responsibility for Proceedings and Litigation Pending on the Distribution Date; Assumption of Control of Prosecution of Assigned Trademark Applications |
41 | ||||
Section 3.15 |
Changes Affecting the European Union |
42 | ||||
Section 3.16 |
Changes Affecting the List of Countries in Schedule A |
42 | ||||
Section 3.17 |
Permissible Fair Use |
42 |
ARTICLE IV
DIVERSION
Section 4.1 |
Diversion |
42 | ||||
Section 4.2 |
Best Practice Preventing Diversion |
43 | ||||
Section 4.3 |
Diversion Panel |
44 | ||||
Section 4.4 |
Material Diversion and Diversion Auditor |
44 | ||||
Section 4.5 |
Cooperation |
46 | ||||
Section 4.6 |
Costs of Diversion Audit |
46 | ||||
Section 4.7 |
Liquidated Damages |
47 | ||||
Section 4.8 |
Acquisition of Perpetual Trademark License |
48 | ||||
Section 4.9 |
Legal Actions |
50 |
ARTICLE V
FURTHER ASSURANCES AND ADDITIONAL COVENANTS
Section 5.1 |
Further Assurances |
50 | ||||
Section 5.2 |
Change of SnackCo Name |
51 |
ARTICLE VI
TERMINATION
Section 6.1 |
Termination |
51 | ||||
Section 6.2 |
Effect of Termination |
51 | ||||
Section 6.3 |
Agreement Otherwise Not Terminable |
51 |
ARTICLE VII
DISPUTE RESOLUTION
Section 7.1 |
Step Process |
51 | ||||
Section 7.2 |
Negotiation and Mediation |
51 | ||||
Section 7.3 |
Arbitration |
51 | ||||
Section 7.4 |
Interim Relief |
52 | ||||
Section 7.5 |
Remedies |
52 | ||||
Section 7.6 |
Expenses |
52 |
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ARTICLE VIII
MISCELLANEOUS
Section 8.1 |
Coordination with Certain Ancillary Agreements; Conflicts |
52 | ||||
Section 8.2 |
Expenses |
53 | ||||
Section 8.3 |
Amendment and Modification |
53 | ||||
Section 8.4 |
Waiver |
53 | ||||
Section 8.5 |
Notices |
53 | ||||
Section 8.6 |
Interpretation |
54 | ||||
Section 8.7 |
Entire Agreement |
54 | ||||
Section 8.8 |
No Third Party Beneficiaries; Affiliates |
54 | ||||
Section 8.9 |
Governing Law |
55 | ||||
Section 8.10 |
Assignment |
55 | ||||
Section 8.11 |
Severability |
55 | ||||
Section 8.12 |
Counterparts |
55 | ||||
Section 8.13 |
Facsimile Signature |
55 | ||||
Schedule A: List of Countries by Region
Schedule B: GroceryCo Primary Brands
Schedule C: SnackCo Primary Brands
Schedule D: GroceryCo Domain Names
Schedule E: SnackCo Domain Names
Schedule F: European Union Member States in Which Certain GroceryCo-Branded
SnackCo Products Are Actively Marketed Pursuant to Ten-Year Licenses
Schedule G-1: Assignee/Sublicensee Quality Control Obligations for Kraft Licensed Products
Schedule G-2: Assignee/Sublicensee Quality Control Obligations for Other Licensed Products
Schedule H: Birds Trademark Licence Agreement
Schedule I: Usage Guidelines for Kraft GroceryCo Trademark
Schedule J: Usage Guidelines for Back to Nature SnackCo Mark
Schedule K: No-Diversion Letter
Schedule L: Existing Third-Party Contracts Regarding Crystal Light
Schedule M: Applicable Trademark Licenses
Schedule N: Non-Customer-Facing SnackCo Entities
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MASTER OWNERSHIP AND LICENSE AGREEMENT REGARDING
TRADEMARKS AND RELATED INTELLECTUAL PROPERTY
MASTER OWNERSHIP AND LICENSE AGREEMENT REGARDING TRADEMARKS AND RELATED INTELLECTUAL PROPERTY, dated as of September 27, 2012 and effective as of the Distribution Date (as defined in the Separation Agreement (as defined below)) (this Agreement ), between Kraft Foods Global Brands LLC, a Delaware limited liability company ( SnackCo IPCo ), and Kraft Foods Group Brands LLC, a Delaware limited liability company ( GroceryCo IPCo ).
RECITALS
A. Kraft Foods Inc., a Virginia corporation ( Kraft Foods Inc . or SnackCo ) and Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ) have entered into the Separation and Distribution Agreement (the Separation Agreement ), dated as of September 27, 2012, under which Kraft Foods Inc. will distribute to the Record Holders (as defined in the Separation Agreement), on a pro rata basis, all the outstanding shares of GroceryCo Common Stock (as defined in the Separation Agreement) owned by Kraft Foods Inc. on the Distribution Date (as defined in the Separation Agreement) (the Distribution ).
B. Prior to the Distribution, Kraft Foods Inc., acting through itself and its direct and indirect Subsidiaries (as defined in the Separation Agreement), has conducted the GroceryCo Business (as defined in the Separation Agreement) and the SnackCo Business (as defined in the Separation Agreement). Pursuant to the Distribution, Kraft Foods Inc. is being separated into two publicly traded companies: (i) GroceryCo, which will own and conduct, directly and indirectly, the GroceryCo Business; and (ii) SnackCo, which will own and conduct, directly and indirectly, the SnackCo Business.
C. In furtherance of the separation of Kraft Foods Inc. into two publicly traded companies pursuant to the Separation Agreement, Section 2.1(b) of the Separation Agreement requires GroceryCo and SnackCo to, and to cause their respective Subsidiaries to, (A) transfer to one or more members of the GroceryCo Group (as defined in the Separation Agreement) all of the right, title and interest of the SnackCo Group (as defined in the Separation Agreement) in and to all GroceryCo Assets (as defined in the Separation Agreement) and (B) transfer to one or more members of the SnackCo Group all of the right, title and interest of the GroceryCo Group in and to all SnackCo Assets (as defined in the Separation Agreement).
D. In addition to such transfer of GroceryCo Assets and SnackCo Assets, the parties desire to license to each other certain Trademarks (as defined below) on both a short-term and long-term basis, taking into consideration the historic joint development of such Trademarks by the GroceryCo and SnackCo Businesses, the overlapping usage by both the GroceryCo and SnackCo Businesses in certain jurisdictions, and the needs for the Licensee (as defined below) to transition to new branding and Trademarks and exhaust existing inventory.
E. The parties desire to enter into an agreement on the following terms and conditions to set forth their agreements regarding the ownership and licensing of Trademarks used in the conduct of the GroceryCo Business and the SnackCo Business.
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AGREEMENT
In consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Table of Definitions . The following terms have the meanings set forth on the pages referenced below:
Definition |
Page | |||
Accused Party |
45 | |||
Adjusted EBITDA |
6 | |||
AEBITDA Statement |
49 | |||
Agreement |
4 | |||
Applicable Licensee |
48 | |||
Applicable Trademark License |
95 | |||
Asia Pacific Countries |
16 | |||
Blocking Notice |
16 | |||
Buy-Back |
48 | |||
Buy-Back Notice |
48 | |||
Buy-Back Option |
48 | |||
Buy-Back Payment |
48 | |||
Canadian Transfer Agreement |
6 | |||
Caribbean Countries |
6 | |||
CEE Countries |
6 | |||
CEEMA Countries |
6 | |||
Central American Countries |
6 | |||
Composite Mark |
16 | |||
CPR/INTA |
51 | |||
Customers |
42 | |||
Dispute |
51 | |||
Dispute Notice |
51 | |||
Distribution |
4 | |||
Diversion Audit |
45 | |||
Diversion Audit Report |
46 | |||
Diversion Auditor |
45 | |||
Diversion Panel |
44 | |||
European Union |
7 | |||
Exclusively Licensed Trademark |
7 | |||
Flavorburst Logo |
7 | |||
GroceryCo |
4 | |||
GroceryCo Brand IP |
7 | |||
GroceryCo Brand-Related Copyrights |
7 |
Definition |
Page | |||
GroceryCo Canada |
7 | |||
GroceryCo Domain Names |
7 | |||
GroceryCo IPCo |
4 | |||
GroceryCo Mark Binders |
8 | |||
GroceryCo Marks |
8 | |||
GroceryCo Primary Brands |
8 | |||
GroceryCo Products |
8 | |||
GroceryCo Sub-Brands |
10 | |||
GroceryCo Trade Dress |
11 | |||
GroceryCo Whitespace Jurisdictions |
14 | |||
GroceryCo-Developed Sub-Brands |
12 | |||
GroceryCo-Developed Trade Dress |
12 | |||
ICDR |
52 | |||
Infringed Party |
45 | |||
Kraft Foods Inc. |
4 | |||
Kraft GroceryCo Trademark |
8 | |||
Kraft Hexagon Logo |
8 | |||
LA ex-Caribbean Countries |
8 | |||
Large North American Customer |
8 | |||
Latin American Countries |
8 | |||
Licensed GroceryCo Copyright-Protected Materials |
25 | |||
Licensed SnackCo Copyright-Protected Materials |
30 | |||
Licensed Trademark |
8 | |||
Licensee |
8 | |||
Licensor |
8 | |||
Material Diversion |
45 | |||
MEA Countries |
8 | |||
NA Countries |
8 | |||
Near East Countries |
8 | |||
No Diversion Letter |
9 | |||
Perpetual Licensee |
9 |
5
Premier |
13 | |||
Relevant Business |
48 | |||
Repeated Diversion |
48 | |||
Separation Agreement |
4 | |||
SnackCo |
4 | |||
SnackCo Brand IP |
9 | |||
SnackCo Brand-Related Copyrights |
9 | |||
SnackCo Canada |
9 | |||
SnackCo Domain Names |
9 | |||
SnackCo IPCo |
4 | |||
SnackCo Mark Binders |
9 | |||
SnackCo Marks |
9 | |||
SnackCo Primary Brands |
9 |
SnackCo Products |
9 | |||
SnackCo Sub-Brands |
12 | |||
SnackCo Trade Dress |
12 | |||
SnackCo Whitespace Jurisdictions |
14 | |||
SnackCo-Developed Sub-Brands |
11 | |||
SnackCo-Developed Trade Dress |
11 | |||
South American Countries |
9 | |||
Split-Ownership Brands |
9 | |||
Sub-Brands |
10 | |||
Trade Dress |
10 | |||
Trademarks |
10 | |||
United States |
10 | |||
US Military Bases |
10 |
Section 1.2 Certain Defined Terms . Capitalized terms used herein without definition shall have the meanings assigned to them in the Separation Agreement. For the purposes of this Agreement:
Adjusted EBITDA shall mean earnings before interest, taxes, depreciation and amortization, each as determined in accordance with United States generally accepted accounting principles applied on a consistent basis, for the most recent trailing twelve month period, provided that the effects of any of the following shall be excluded from Adjusted EBITDA: (1) any profit or loss attributable to acquisitions or dispositions of stock or assets, (2) any intangibles/goodwill amortization charges attributable to acquisitions or dispositions of stock or assets, (3) any changes in accounting standards or practices utilized in preparing the financial statements of the Relevant Business, (4) all items of gain, loss or expense for the applicable year related to restructuring charges for the Relevant Business and (5) all items of gain, loss or expense for the year determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business.
Asia Pacific Countries means the countries listed under the heading Asia Pacific Countries in Schedule A hereto.
Canadian Transfer Agreement means the asset transfer agreement dated as of September 29, 2012 between Mondelez Canada Inc. and Kraft Canada Inc., as may be amended or modified from time to time.
Caribbean Countries means the countries listed under the heading Caribbean Countries in Schedule A hereto.
CEE Countries means the countries listed under the heading CEE Countries in Schedule A hereto.
CEEMA Countries means the CEE Countries and the MEA Countries.
Central American Countries means the countries listed under the heading Central American Countries in Schedule A hereto.
6
European Union means the member states of the European Union as at the Distribution Date and the EFTA countries as at the Distribution Date (i.e., Iceland, Liechtenstein, Norway and Switzerland).
Exclusively Licensed Trademark means any Licensed Trademark that is the subject of an exclusive license grant hereunder.
Flavorburst Logo means the composite logo that consists of kraft foods and the Flavorburst graphic that is used as at the Distribution Date in connection with the GroceryCo Business and the SnackCo Business as shown below.
GroceryCo Brand-Related Copyrights means any of the copyrights owned by Kraft Foods Inc. or any of its direct or indirect Subsidiaries immediately prior to the Distribution in any product packaging, advertising and promotional material and website and other content that relates specifically to products that are primarily branded with GroceryCo Marks, other than the copyrights mentioned in Section 2.1(d).
GroceryCo Brand IP means, collectively, the GroceryCo Marks (and the goodwill associated therewith), the GroceryCo Brand-Related Copyrights and the GroceryCo Domain Names.
GroceryCo Canada means Kraft Canada Inc.
GroceryCo Domain Names means any domain names (uniform resource locator addresses) owned by Kraft Foods Inc. or any of its direct or indirect Subsidiaries immediately prior to the Distribution that are listed on Schedule D .
GroceryCo Mark Binders means the Trademark binders dated as of the Distribution Date and labeled GroceryCo Marks that contain a listing of all of the GroceryCo Marks.
GroceryCo Marks means any of the Trademarks owned by Kraft Foods Inc. or any of its direct or indirect Subsidiaries immediately prior to the Distribution that (i) are GroceryCo Primary Brands or (ii) primarily relate to or are primarily used in the GroceryCo Business. The GroceryCo Marks include all of the Trademarks listed in the GroceryCo Mark Binders (other than any SnackCo Primary Brand listed inadvertently therein) and exclude all of the Trademarks that are listed in the SnackCo Mark Binders (other than any GroceryCo Primary Brand listed inadvertently therein).
GroceryCo Primary Brands means the brands used in the GroceryCo Business that are listed on Schedule B hereto.
7
GroceryCo Products means products produced, manufactured, advertised, promoted. marketed, distributed or sold in connection with the GroceryCo Business.
Kraft GroceryCo Trademark means the Trademarks KRAFT and KRAFT FOODS owned by Kraft Foods Inc. or any of its direct or indirect Subsidiaries immediately prior to the Distribution, including the Kraft Hexagon Logo or any successor logo adopted by GroceryCo.
Kraft Hexagon Logo means the Trademark owned by Kraft Foods Inc. or any of its direct or indirect Subsidiaries immediately prior to the Distribution that consists of Kraft bordered with a hexagon as shown below.
LA ex-Caribbean Countries means the Latin American Countries excluding the Caribbean Countries.
Large North American Customer means as at the Distribution Date one of the following Customers and any successor thereto: Wal-Mart, CostCo, Safeway, Kroger, Supervalu, and Target, and following the Distribution Date any other Person that is in the top five (5) of all food retailers in the United States.
Latin American Countries means the Caribbean Countries, the Central American Countries, Mexico and the South American Countries.
Licensed Trademark means a GroceryCo Mark or a SnackCo Mark that is licensed under this Agreement by GroceryCo IPCo or SnackCo IPCo, as the case may be, to SnackCo IPCo or GroceryCo IPCo, as applicable.
Licensee means, with reference to a Licensed Trademark, the party (or any of its successors or permitted assigns) to which such Licensed Trademark is licensed by the other party hereunder.
Licensor means, with reference to a Licensed Trademark, the party (or any of its successors or permitted assigns) which licenses a Licensed Trademark to the other party hereunder.
MEA Countries means the countries listed under the heading MEA Countries in Schedule A hereto.
NA Countries means the United States and Canada only. For the avoidance of doubt, the term NA Countries does not include Mexico.
Near East Countries means the Republic of Yemen, the Republic of Iraq, the Hashemite Kingdom of Jordan, the Syrian Arab Republic, the Lebanese Republic, Palestine, Israel and the member states of The Cooperation Council For the Arab States of the Gulf (GCC), i.e. the United Arab Emirates (consisting of the emirates: Abu Dhabi, Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah and Umm al-Quwain), the Kingdom of Bahrain, the Kingdom of Saudi Arabia, the Sultanate of Oman, the State of Qatar and the State of Kuwait.
8
No - Diversion Letter means the letter set out in Schedule K hereto.
Perpetual Licensee means a Licensee to which a perpetual license is granted pursuant to Section 3.1(c) or Section 3.2(c).
SnackCo Brand-Related Copyrights means any of the copyrights owned by Kraft Foods Inc. or any of its direct or indirect Subsidiaries immediately prior to the Distribution in any product packaging, advertising and promotional material and website and other content that relates specifically to products that are primarily branded with SnackCo Marks, other than the copyrights mentioned in Section 2.1(d).
SnackCo Canada means Mondelez Canada Inc.
SnackCo Domain Names means any of the domain names (uniform resource locator addresses) owned by Kraft Foods Inc. or any of its direct or indirect Subsidiaries immediately prior to the Distribution that are listed on Schedule E hereto.
SnackCo Brand IP means, collectively, the SnackCo Marks (and the goodwill associated therewith), the SnackCo Brand-Related Copyrights and the SnackCo Domain Names.
SnackCo Mark Binders means the Trademark binders dated as of the Distribution Date and labeled SnackCo Marks that contain a listing of all of the SnackCo Marks.
SnackCo Marks means any of the Trademarks owned by Kraft Foods Inc. or any of its direct or indirect Subsidiaries immediately prior to the Distribution that (i) are SnackCo Primary Brands or (ii) primarily relate to or are primarily used in the SnackCo Business. The SnackCo Marks include all of the Trademarks listed in the SnackCo Mark Binders (other than any GroceryCo Primary Brand listed inadvertently therein) and exclude all of the Trademarks that are listed in the GroceryCo Mark Binders (other than any SnackCo Primary Brand listed inadvertently therein).
SnackCo Primary Brands means the brands used in the SnackCo Business that are listed on Schedule C hereto.
SnackCo Products means products produced, manufactured, advertised, promoted, marketed, distributed or sold in connection with the SnackCo Business.
South American Countries means the countries listed under the heading South American Countries in Schedule A hereto.
Split-Ownership Brands means the following brands used in connection with the GroceryCo Business and the SnackCo Business: Philadelphia, Maxwell House, Gevalia, Dream Whip and Live Active.
9
Sub-Brands means a Trademark, excluding Trade Dress, used on the front of the package for purpose of naming product variants, product segments, product flavors, usage occasions and the like and used in combination with a licensed GroceryCo Primary Brand or a licensed SnackCo Primary Brand, as the case may be.
Trade Dress means the rights in the registered or unregistered characteristics of the visual appearance of a product packaging including the shape or appearance of the container, graphic design, and color scheme or design, or a combination of any of the foregoing that serve as a source identifier and are used on the package in combination with a licensed GroceryCo Primary Brand or a licensed SnackCo Primary Brand, as the case may be.
Trademarks means trademarks, service marks, trade names and other indications of origin or similar rights and all related Trade Dress, in each case, whether registered or unregistered, including all registrations and all applications to register any of the foregoing.
United States means the United States of America, excluding its territories and possessions in the Caribbean Countries. A license grant that covers the United States shall be deemed to extend to all US Military Bases as well as American Samoa and Guam.
US Military Bases means any military bases operated by the United States Government anywhere in the world.
ARTICLE II
ALLOCATION OF OWNERSHIP OF TRADEMARKS, BRAND-RELATED
COPYRIGHTS AND DOMAIN NAMES
Section 2.1 Ownership of Trademarks, Brand-Related Copyrights and Domain Names .
(a) Ownership by GroceryCo IPCo .
(i) The parties acknowledge that, as between the parties and their respective Affiliates, GroceryCo IPCo and its Affiliates are the sole and exclusive owners of the GroceryCo Brand IP and that no SnackCo Entity has any right or interest therein, subject to the licenses granted to SnackCo IPCo in the GroceryCo Brand IP under this Agreement. SnackCo IPCo hereby assigns to GroceryCo IPCo all right, title and interest of SnackCo IPCo in and to the GroceryCo Brand IP, and agrees to cause its Affiliates to assign pursuant to separate assignment agreements to GroceryCo IPCo or an Affiliate of GroceryCo IPCo designated by GroceryCo IPCo any right, title and interest of such Affiliates of SnackCo IPCo in and to the GroceryCo Brand IP.
(ii) All Sub-Brands used for GroceryCo Products and adopted by SnackCo IPCo or any of its Affiliates prior to the Distribution Date with respect to any of the GroceryCo Marks licensed hereunder ( GroceryCo Sub-Brands ) shall be owned by GroceryCo IPCo (or, pursuant to separate assignment agreements, Affiliates of GroceryCo IPCo designated by GroceryCo IPCo) and deemed to be included in the GroceryCo Marks licensed to SnackCo IPCo hereunder, and SnackCo IPCo hereby assigns to GroceryCo IPCo all right, title and interest of SnackCo IPCo in such
10
GroceryCo Sub-Brands, and agrees to cause its Affiliates to assign pursuant to separate assignment agreements to GroceryCo IPCo or an Affiliate of GroceryCo IPCo designated by GroceryCo IPCo any right, title and interest of such Affiliates of SnackCo IPCo in and to such GroceryCo Sub-Brands. Sub-Brands that are created in good faith after the Distribution Date by or on behalf of a SnackCo Entity independently from such GroceryCo Sub-Brands in connection with the use of a GroceryCo Mark licensed by GroceryCo IPCo hereunder ( SnackCo-Developed Sub-Brands ) shall be owned by SnackCo IPCo or its respective Affiliates.
(iii) All Trade Dress used for GroceryCo Products and adopted by SnackCo IPCo or any of its Affiliates prior to the Distribution Date with respect to any of the GroceryCo Marks licensed hereunder ( GroceryCo Trade Dress ) shall be owned by GroceryCo IPCo (or, pursuant to separate assignment agreements, Affiliates of GroceryCo IPCo designated by GroceryCo IPCo) and deemed to be included in the GroceryCo Marks licensed to SnackCo IPCo hereunder, and SnackCo IPCo hereby assigns to GroceryCo IPCo all right, title and interest of SnackCo IPCo in such GroceryCo Trade Dress, and agrees to cause its Affiliates to assign pursuant to separate assignment agreements to GroceryCo IPCo or an Affiliate of GroceryCo IPCo designated by GroceryCo IPCo any right, title and interest of such Affiliates of SnackCo IPCo in and to such GroceryCo Trade Dress. Any Trade Dress that is created in good faith after the Distribution Date by or on behalf of a SnackCo Entity independently from such GroceryCo Trade Dress in connection with the use of a GroceryCo Mark licensed by GroceryCo IPCo hereunder ( SnackCo-Developed Trade Dress ) and that portion of any Trade Dress that relates specifically to any SnackCo Marks shall be owned by SnackCo IPCo or its respective Affiliates.
(iv) No new GroceryCo Sub-Brands or GroceryCo Trade Dress shall be adopted and used in connection with any licensed GroceryCo Mark by SnackCo IPCo or any of its Affiliates after the Distribution Date without the prior written approval of GroceryCo IPCo, which GroceryCo IPCo may withhold in its sole discretion. SnackCo IPCo (or its Affiliates) may, without the prior written approval of GroceryCo IPCo, develop, adopt, file Trademark applications with respect to, and use, SnackCo-Developed Sub-Brands or SnackCo-Developed Trade Dress in connection with GroceryCo Marks licensed hereunder; provided that SnackCo IPCo and its Affiliates shall not file new Trademark applications that combine a licensed GroceryCo Mark with a SnackCo-Developed Sub-Brand or SnackCo-Developed Trade Dress. GroceryCo IPCo shall not hinder, aggravate or block good faith efforts of SnackCo IPCo or its Affiliates to migrate from a GroceryCo Sub-Brand or GroceryCo Trade Dress included within the license of a GroceryCo Mark to a SnackCo-Developed Sub-Brand or SnackCo-Developed Trade Dress hereunder; provided that such SnackCo-Developed Sub-Brand or SnackCo-Developed Trade Dress is not confusingly similar to the initially used GroceryCo Sub-Brand or GroceryCo Trade Dress licensed by GroceryCo IPCo hereunder.
(b) Ownership by SnackCo IPCo .
(i) The parties acknowledge that, as between the parties and their respective Affiliates, SnackCo IPCo and its Affiliates are the sole and exclusive owners of the
11
SnackCo Brand IP and that no GroceryCo Entity has any right or interest therein, subject to the licenses granted to GroceryCo IPCo in the SnackCo Brand IP under this Agreement. GroceryCo IPCo hereby assigns to SnackCo IPCo all right, title and interest of GroceryCo IPCo in and to the SnackCo Brand IP, and agrees to cause its Affiliates to assign pursuant to separate assignment agreements to SnackCo IPCo or an Affiliate of SnackCo IPCo designated by SnackCo IPCo any right, title and interest of such Affiliates of GroceryCo IPCo in and to the SnackCo Brand IP.
(ii) All Sub-Brands used for SnackCo Products and adopted by GroceryCo IPCo or any of its Affiliates prior to the Distribution Date with respect to any of the SnackCo Marks licensed hereunder ( SnackCo Sub-Brands ) shall be owned by SnackCo IPCo (or, pursuant to separate assignment agreements, Affiliates of SnackCo IPCo designated by SnackCo IPCo) and deemed to be included in the SnackCo Marks licensed to GroceryCo IPCo hereunder, and GroceryCo IPCo hereby assigns to SnackCo IPCo all right, title and interest of GroceryCo IPCo in such SnackCo Sub-Brands, and agrees to cause its Affiliates to assign pursuant to separate assignment agreements to SnackCo IPCo or an Affiliate of SnackCo IPCo designated by SnackCo IPCo any right, title and interest of such Affiliates of GroceryCo IPCo in and to such SnackCo Sub-Brands. Sub-Brands that are created in good faith after the Distribution Date by or on behalf of a GroceryCo Entity independently from such SnackCo Sub-Brands in connection with the use of a SnackCo Mark licensed by SnackCo IPCo hereunder ( GroceryCo-Developed Sub-Brands ) shall be owned by GroceryCo IPCo or its respective Affiliates.
(iii) All Trade Dress used for SnackCo Products and adopted by GroceryCo IPCo or any of its Affiliates prior to the Distribution Date with respect to any of the SnackCo Marks licensed hereunder ( SnackCo Trade Dress ) shall be owned by SnackCo IPCo (or, pursuant to separate assignment agreements, Affiliates of SnackCo IPCo designated by SnackCo IPCo) and deemed to be included in the SnackCo Marks licensed to GroceryCo IPCo hereunder, and GroceryCo IPCo hereby assigns to SnackCo IPCo all right, title and interest of GroceryCo IPCo in such SnackCo Trade Dress, and agrees to cause its Affiliates to assign pursuant to separate assignment agreements to SnackCo IPCo or an Affiliate of SnackCo IPCo designated by SnackCo IPCo any right, title and interest of such Affiliates of GroceryCo IPCo in and to such SnackCo Trade Dress. Any Trade Dress that is created in good faith after the Distribution Date by or on behalf of a GroceryCo Entity independently from such SnackCo Trade Dress in connection with the use of a SnackCo Mark licensed by SnackCo IPCo hereunder ( GroceryCo-Developed Trade Dress ) and that portion of any Trade Dress that relates specifically to any GroceryCo Marks shall be owned by GroceryCo IPCo or its respective Affiliates.
(iv) No new SnackCo Sub-Brands or SnackCo Trade Dress shall be adopted and used in connection with any licensed SnackCo Mark by GroceryCo IPCo or any of its Affiliates after the Distribution Date without the prior written approval of SnackCo IPCo, which SnackCo IPCo may withhold in its sole discretion. GroceryCo IPCo (or its Affiliates) may, without the prior written approval of SnackCo IPCo, develop, adopt, file Trademark applications with respect to, and use, GroceryCo-Developed Sub-Brands or GroceryCo-Developed Trade Dress in connection with SnackCo Marks licensed
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hereunder; provided that GroceryCo IPCo and its Affiliates shall not file new Trademark applications that combine a licensed SnackCo Mark with a GroceryCo-Developed Sub-Brand or GroceryCo-Developed Trade Dress. SnackCo IPCo shall not hinder, aggravate or block good faith efforts of GroceryCo IPCo or its Affiliates to migrate from a SnackCo Sub-Brand or SnackCo Trade Dress included within the license of a SnackCo Mark to a GroceryCo-Developed Sub-Brand or GroceryCo-Developed Trade Dress hereunder; provided that such GroceryCo-Developed Sub-Brand or GroceryCo-Developed Trade Dress is not confusingly similar to the initially used SnackCo Sub-Brand or SnackCo Trade Dress licensed by SnackCo IPCo hereunder.
(c) License split of Birds . SnackCo IPCo shall procure that Kraft Foods International, Inc. will notify Premier Ambient Products (UK) Limited ( Premier ) of its intention to assign its exclusive trademark license for the sale of dessert products under the Birds brand in Canada, which Premier has granted to Kraft Foods International, Inc. under the Trademark Licence Agreement, dated February 13, 2005 and which is attached as Schedule H hereto, to GroceryCo IPCo or another GroceryCo Entity designated by GroceryCo IPCo, and such GroceryCo Entity shall enter into a deed of adherence with Premiers affiliate Premier Foods Group Limited prior to or upon the assignment of the Birds license as set forth in section 9.1 of such Trademark Licence Agreement. Kraft Foods International, Inc. shall remain the licensee for the sale of dessert products under the Birds brand in all other licensed territories under such Trademark Licence Agreement, dated February 13, 2005. Kraft Foods International, Inc. shall also undertake reasonable efforts to obtain Premiers written consent that sublicensees may be appointed by GroceryCo IPCo (or such other designated GroceryCo Entity) in Canada and by Kraft Foods International, Inc. in all other licensed territories under such Trademark Licence Agreement, dated February 13, 2005, in each case in accordance with section 9.2 of the Trademark Licence Agreement, dated February 13, 2005.
(d) Any copyrights owned by Kraft Foods Inc. or any of its direct or indirect Subsidiaries immediately prior to the Distribution that relate specifically to a Split-Ownership Brand shall be owned, on a divided basis, by GroceryCo IPCo or its Affiliates, on the one hand, and SnackCo IPCo or its Affiliates, on the other hand, and may be used by either party or its Affiliates without a duty of accounting or other obligation to the other party; provided that any such use of such copyrights in connection with a Split-Ownership Brand shall be consistent with and limited to the territory to which SnackCo IPCos or GroceryCo IPCos ownership in and rights to use the Split-Ownership Brand extends hereunder.
(e) The parties shall, and shall cause their respective Affiliates to, execute and deliver such instruments of assignment and transfer and take such other actions as are necessary to memorialize or perfect the assignments provided for in Section 2.1(a) and Section 2.1(b). The assignee of Trademarks or other intellectual property assigned pursuant to Section 2.1(a) and Section 2.1(b), respectively, shall be responsible, at its sole cost, for filing or recording in the relevant jurisdictions assignments of the Trademarks or such other intellectual property assigned to such assignee pursuant to Section 2.1(a) or Section 2.1(b), as applicable. To the extent one party is requested by the other party to do so, such party shall reasonably assist the requesting party in complying with any formalities to memorialize or perfect the assignment of the Trademarks to the requesting party for Trademarks intended hereunder to be owned by such requesting party.
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Section 2.2 Disclaimer of Representations and Warranties . Each of SnackCo IPCo (on behalf of itself and each other SnackCo Entity) and GroceryCo IPCo (on behalf of itself and each other GroceryCo Entity) understands and agrees that no party (including its Affiliates) to this Agreement is making any representations or warranties relating in any way to the GroceryCo Brand IP or the SnackCo Brand IP assigned or licensed hereunder to any Consent required in connection therewith, to the value or freedom from any Security Interests of, or any other matter concerning, any GroceryCo Brand IP or SnackCo Brand IP, or to the legal sufficiency of any assignment, document or instrument delivered hereunder to convey title to any GroceryCo Brand IP or SnackCo Brand IP upon the execution, delivery and filing hereof or thereof. Except as may expressly be set forth in this Agreement, (a) all GroceryCo Brand IP and SnackCo Brand IP are being transferred or licensed on an as is, where is basis, (b) any implied warranty of merchantability, fitness for a specific purpose or otherwise is hereby expressly disclaimed, (c) the respective transferees shall bear the economic and legal risks that any conveyance shall prove to be insufficient to vest in the transferee good and marketable title, free and clear of any Security Interest and (d) none of the parties (including their Affiliates) to this Agreement or any other Person makes any representation or warranty with respect to any information, documents or material made available in connection with the entering into of this Agreement or the transactions contemplated hereby.
Section 2.3 Agreements regarding White-Space Registrations .
(a) Filing exclusivity for GroceryCo Primary Brands and SnackCo Primary Brands except Split-Ownership Brands . The parties acknowledge that (i) there are various jurisdictions in which GroceryCo IPCo or other GroceryCo Entities have not filed applications or obtained registrations for GroceryCo Primary Brands and in which, if filings or registrations were to have been made or obtained on the Distribution Date, would have been owned by GroceryCo IPCo as a result of the allocation of ownership of Trademarks made under this Agreement ( GroceryCo Whitespace Jurisdictions ) and (ii) there are various jurisdictions in which SnackCo IPCo or other SnackCo Entities have not filed applications or obtained registrations for SnackCo Primary Brands and in which, if filings or registrations were to have been made or obtained on the Distribution Date, would have been owned by SnackCo IPCo based on the allocation of ownership of Trademarks made under this Agreement ( SnackCo Whitespace Jurisdictions ). In order to facilitate the ability of GroceryCo IPCo to register GroceryCo Primary Brands in the GroceryCo Whitespace Jurisdictions and the ability of SnackCo IPCo to register SnackCo Primary Brands in the SnackCo Whitespace Jurisdictions during the ten-year period following the Distribution Date, each of GroceryCo IPCo and SnackCo IPCo are agreeing to the restrictions set forth in this Section 2.3 with respect to the filing of certain new Trademark applications in certain jurisdictions. For the ten-year period commencing on the Distribution Date, GroceryCo IPCo agrees that no GroceryCo Entity shall file any new Trademark applications with respect to any SnackCo Primary Brand (or any Trademark that is identical or confusingly similar thereto) in any SnackCo Whitespace Jurisdictions and SnackCo IPCo agrees that no SnackCo Entity shall file any new Trademark applications with respect to any GroceryCo Primary Brand (or any Trademark that is identical or confusingly similar thereto) in any GroceryCo Whitespace Jurisdictions. Unless expressly provided otherwise herein, the parties agree that following the ten-year exclusivity period any new Trademark sought to be registered by a SnackCo Entity shall not use or include the Kraft GroceryCo Trademark or a hexagon/racetrack design that is identical or confusingly similar to the hexagon/racetrack design incorporated in the Kraft Hexagon Logo or any successor logo adopted by GroceryCo.
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(b) Filing exclusivity for Split-Ownership Brands .
(i) No SnackCo Entity shall file during the ten-year period commencing on the Distribution Date any new Trademark applications for a Split-Ownership Brand (or any Trademark that is identical or confusingly similar thereto) in the NA Countries and the Caribbean Countries and, in the case of Maxwell House and Gevalia, in addition in the Latin American Countries;
(ii) No GroceryCo Entity shall file during the ten-year period commencing on the Distribution Date any new Trademark applications for a Split-Ownership Brand (or any Trademark that is identical or confusingly similar thereto) in territories outside the NA Countries and the Caribbean Countries and, in the case of Maxwell House and Gevalia, in the European Union and those CEE Countries which are not member states of the European Union as at the Distribution Date;
(c) By way of example related to Section 2.3(a): (i) SnackCo IPCo agrees that no SnackCo Entity shall file during the ten-year period commencing on the Distribution Date in any jurisdiction anywhere in the world any new Trademark applications with respect to the Oscar Mayer GroceryCo Primary Brand (or any Trademark that is identical or confusingly similar thereto); (ii) GroceryCo IPCo agrees that no GroceryCo Entity shall file during the ten-year period commencing on the Distribution Date in any jurisdiction anywhere in the world any new Trademark applications with respect to the Oreo SnackCo Primary Brand (or any Trademark that is identical or confusingly similar thereto); and by way of example related to Section 2.3(b): GroceryCo IPCo agrees that no GroceryCo Entity shall file during the ten-year period commencing on the Distribution Date in any jurisdiction outside the NA countries and the Caribbean Countries any new applications with respect to the Philadelphia Split-Ownership Brand (or any Trademark that is identical or confusingly similar thereto). At the tenth anniversary of the Distribution Date, the restrictions imposed under this Section 2.3 on the parties and their Affiliates with respect to filing new Trademark applications shall lapse.
(d) Notwithstanding the above, this Section 2.3 shall not prohibit any GroceryCo Entity or SnackCo Entity from filing an application for and registering any new Trademark that was independently developed after the Distribution Date by or on behalf of such GroceryCo Entity or SnackCo Entity, as the case may be; provided that such Trademark (i) is adopted and filed in good faith, (ii) is not identical or confusingly similar to a GroceryCo Primary Brand or SnackCo Primary Brand, as the case may be, owned by the other party hereunder in any jurisdiction or a Split-Ownership Brand owned by the other party hereunder in the jurisdiction in which such filing occurs, taking into account the entire Trademark as filed and the applicable respective goods and services, and (iii) would not violate the other partys rights if a third party were to make such filing in the same jurisdiction.
Section 2.4 Composite Marks .
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(a) The parties acknowledge and agree that certain GroceryCo Marks or SnackCo Marks constitute composite Trademarks (each, a Composite Mark ) a constituent element of which includes a word, logo, Sub-Brand, or slogan that constitutes a discrete Trademark that is owned by the other party. The parties acknowledge that the ownership arrangements with respect to Composite Marks to which the parties have agreed are for convenience and a partys ownership of a Composite Mark does not confer on such party any ownership interest or other rights in any such constituent element of such Composite Mark that constitutes a discrete Trademark of the other party. For example, a SnackCo Mark that constitutes a Composite Mark is Kraft Handi-Snacks and SnackCo IPCos ownership of such Composite Mark does not confer on SnackCo IPCo any ownership or other rights in the Kraft GroceryCo Trademark.
(b) A party that owns any application or registration for a Composite Mark agrees to withdraw or cancel such application or registration of such Composite Mark in any jurisdiction as soon as reasonably practicable after the other party gives written notice (a Blocking Notice ) to such party that the existence of such application or registration is blocking the other party from registering or enforcing the discrete Trademark (or variations thereof) owned by the other party that is a constituent element of such Composite Mark. The parties agree that no registrations of any Composite Mark will be renewed by the owner thereof and that any new registration sought by the owner of any Composite Mark must not include the constituent element of such Composite Mark that constitutes a discrete Trademark of the other party. A Blocking Notice may be given by a party only if such party has received a communication from the relevant trademark office, a court of competent jurisdiction or other third party regarding the existence of the block that is the subject of the Blocking Notice. For the avoidance of doubt, the parties agree that the renewal of the registration of any SnackCo Mark that constituted a component of a Composite Mark and any new Trademark sought to be registered by a SnackCo Entity that serves as a replacement for a Composite Mark, shall not use or include the Kraft GroceryCo Trademark or a hexagon/racetrack design that is identical or confusingly similar to the hexagon/racetrack design incorporated in the Kraft Hexagon Logo:
Section 2.5 Mistaken Allocations .
If, prior to the third anniversary of the Distribution Date, either party discovers that a Trademark (other than a GroceryCo Mark that is a GroceryCo Primary Brand) intended by the parties to be owned by SnackCo was inadvertently listed in the GroceryCo Mark Binders or a Trademark (other than a SnackCo Mark that is a SnackCo Primary Brand) intended by the parties to be owned by GroceryCo was inadvertently listed in the SnackCo Mark Binders, such party shall provide written notice to the other party and the parties thereafter shall cooperate in good faith and amend the listings in the GroceryCo Mark Binders and SnackCo Mark Binders, as applicable, and assign any such Trademark to the proper party, as mutually agreed. The parties agree that they shall treat any such mistakenly allocated Trademark as having been owned by the proper party as of the Distribution Date.
Section 2.6 Certain Dot-Com Domain Name Arrangements .
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(a) With respect to a domain name associated with a Split-Ownership Brand, upon either partys request, the party owning such domain name shall include on the website located at such domain name a reasonably observable hypertext link, as reasonably approved by the requesting party, to a website owned by the requesting party (or one of its Affiliates) that relates to the sale, advertising or promotion of products under the applicable Split-Ownership Brand in those jurisdictions in which such requesting party owns such Split-Ownership Brands.
(b) If the GroceryCo Business or the SnackCo Business is using on the Distribution Date a domain name that includes a Licensed Trademark that will be licensed hereunder, GroceryCo IPCo or SnackCo IPCo, as the case may be, shall have the right to continue to use such domain name until the expiration of the term of the license granted to such party hereunder for the Licensed Trademark that is included in such domain name. The party that is permitted to continue to use a domain name that includes a Licensed Trademark shall be the registered user of such domain name during the term of the license of the Licensed Trademark (subject to such partys obligation to immediately assign such domain name to the other party upon the expiration or earlier termination of the term of such license). Notwithstanding the allocation of ownership of GroceryCo Domain Names and SnackCo Domain Names pursuant to Section 2.1, the parties agree to assign domain names to the respective Licensee as necessary to give effect to the terms hereof (subject to the Licensees obligation at the end of the relevant license term to assign such domain names back to the party that owns such domain name in accordance with Section 2.1).
Section 2.7 Other Electronic Media .
The parties acknowledge and agree that a Licensee may reserve or register other electronic addresses (including with respect to social media) or similar or successor addresses in any form or media (whether now known or hereafter devised) that include a Licensed Trademark for use in connection with the SnackCo Business (in the case of SnackCo IPCo as Licensee) or GroceryCo Business (in the case of GroceryCo IPCo as Licensee), provided that the registration or reservation and use of such addresses is otherwise consistent with the terms and conditions of this Agreement, and subject to the Licensees obligation at the end of the relevant license term to assign such address back to the party that owns such Licensed Trademark in accordance with Section 2.1 (or, if not reasonably practicable to so assign, then such address shall be deregistered or unreserved by such Licensee).
Section 2.8 Electronic Marketing with Respect to Territory .
For the avoidance of doubt, the parties acknowledge and agree that advertising, promotion and marketing by a party on the internet or through any other means, media, or channel (whether now known or hereafter devised) that by its nature may reach Persons located outside the territory that such party is permitted to use a Trademark or copyright hereunder, shall not be deemed to be in violation of this Agreement provided that such advertising, promotion and marketing are not specifically targeted to or intended to encourage the sale of any products in such territory.
Section 2.9 Manufacture .
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For the avoidance of doubt, the parties acknowledge and agree that manufacture of product, packaging, or materials by or on behalf of a party in a country in which such party is not permitted to use a Trademark for such product hereunder for shipment to a country in which such party is permitted to use a Trademark for such product hereunder shall not be deemed to be in violation of this Agreement provided that such activity is not publicized by such party in such country and such product, packaging, and materials are not distributed or sold in a manner that is inconsistent with the terms and conditions of this Agreement.
Section 2.10 Third Party Contracts .
The parties acknowledge and agree that, as of the Distribution Date, a party or its Affiliate may be bound by a contract with a third party concerning the Trademarks and related intellectual property rights addressed herein. All rights granted hereunder shall be subject to such third-party contracts, and nothing in this Agreement shall require a party to be in breach of such a third-party contract. Notwithstanding the foregoing, the applicable party shall and shall cause its Affiliates, to the extent it may do so without being in breach of such third-party contract, to perform under and in connection with such third-party contracts, and to cause such third parties to perform, in a manner consistent with this Agreement and not renew or extend the term of such third-party contracts with respect to any such provisions that otherwise are in conflict with this Agreement. A party shall, upon becoming aware of any such provisions that so conflict with this Agreement, notify the other party and reasonably consult and cooperate with the other party in connection therewith. In addition, (i) the parties shall respect the other partys rights to the Trademarks and related intellectual property hereunder and shall use commercially reasonable efforts in good faith to refrain from taking actions that would reasonably be expected to materially and detrimentally impact the goodwill and reputation of the Trademarks and related intellectual property rights of the other party hereunder and (ii) except as otherwise expressly provided herein, neither party nor its Affiliates shall undertake any activity that it is aware would materially conflict with a contract or other commitment entered into as of the Distribution Date by the other party or its Affiliates with respect to products bearing Trademarks owned or licensed by such other party or its Affiliates.
Section 2.11 Exclusion of Canadian Trademarks .
GroceryCo Canada and SnackCo Canada are entering into the Canadian Transfer Agreement addressing, among other things, the parties respective ownership rights with respect to Trademarks and related intellectual property rights owned by GroceryCo Canada and by SnackCo Canada and the ownership of Trademarks and related intellectual property rights by certain Affiliates of the parties that are domiciled in Canada. In the event of a conflict between the Canadian Transfer Agreement and this Agreement, the Canadian Transfer Agreement shall control. Notwithstanding any provision of this Agreement to the contrary, including the provisions of Sections 2.1(a) and 2.1(b) hereof, nothing in this Agreement shall effect, constitute or change the timing of (i) any transfer, assignment, conveyance or other disposition of, or any amendment, modification, supplement or other change of or to, any right, title, interest or benefit in any Asset owned or held by GroceryCo Canada, SnackCo Canada or any of their direct or indirect subsidiaries (including partnerships); (ii) any transfer, assumption, forgiveness or release of, or any amendment, modification, supplement or other change of or to, any Liabilities of GroceryCo Canada, SnackCo Canada or of any of their direct or indirect subsidiaries (including partnerships); or (iii) any grant or other creation of any license, leave, authority or other permission to or by GroceryCo Canada or to or by SnackCo Canada or any of their direct or indirect subsidiaries (including partnerships).
Section 2.12 Compliance with Law .
In the event that the Law of a particular jurisdiction includes additional requirements that are necessary to prevent a Licensed Trademark hereunder from becoming invalid or
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unenforceable other than registration of a Licensed Trademark (e.g., trademark notices or marking requirements, if required by the Laws of a jurisdiction), then at the request of a party the other party shall reasonably cooperate to assist in implementing or otherwise reasonably satisfying such requirements, and the requesting party shall reimburse the other party for its reasonable costs and expenses incurred in connection therewith.
ARTICLE III
LICENSES
Section 3.1 License Grants by GroceryCo IPCo to SnackCo IPCo .
(a) Ten-Year License of Kraft GroceryCo Trademark to SnackCo IPCo . Subject to the terms and conditions of this Agreement, GroceryCo IPCo hereby grants to SnackCo IPCo from the Distribution Date until the tenth anniversary of the Distribution Date an exclusive, fully-paid, royalty-free, and nontransferable (except as expressly permitted herein) license to use and display in the following jurisdictions the Kraft GroceryCo Trademark in the same relative size or smaller on the principle display panel as used on the Distribution Date on SnackCo Products in the following product categories existing on the Distribution Date on which the Kraft GroceryCo Trademark appears on such date in such jurisdictions and on any substantially similar SnackCo Products and flankers and product line extensions of such SnackCo Products developed by or on behalf of the SnackCo Business or any member of the SnackCo Group after the Distribution Date and in connection with the production, manufacturing, advertising, promotion, marketing, distribution and sale of such SnackCo Products in such jurisdictions:
(i) cheese, including, without limitation, processed cheese, cream cheese, grated cheese, hard cheese and natural cheese in the Near East Countries, Australia and New Zealand, including the use of the GroceryCo mark Singles for processed cheese;
(ii) processed cheese in Mauritius, Mexico, Venezuela, Malaysia, Singapore and Philippines, including the use of the GroceryCo mark Singles for processed cheese;
(iii) mayonnaise in the European Union, Mexico, Venezuela, Australia and New Zealand;
(iv) salad dressing in the European Union, Australia and New Zealand;
(v) peanut butter in Australia and New Zealand;
(vi) ketchup in the European Union; and
(vii) macaroni and cheese products in Australia and New Zealand including the use of the GroceryCo Marks Kraft Mac & Cheese and Kraft Easy Mac for such products.
Notwithstanding the foregoing, if, subject to Section 3.7 of this Agreement and Section 4.6 of the Separation Agreement, any of the licenses granted in this Section 3.1(a) are assigned or otherwise transferred by the Licensee to a third party, the term of such license following such
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assignment or other transfer shall be limited to the shorter of (A) the remaining term of the original ten-year license term or (B) two years from the date of such assignment or other transfer; provided that GroceryCo IPCo shall in good faith consider in its sole discretion any requests by SnackCo IPCo to extend the two year remaining term for up to one additional year.
(b) Two-Year License of Kraft GroceryCo Trademark to SnackCo IPCo . Subject to the terms and conditions of this Agreement, GroceryCo IPCo hereby grants to SnackCo IPCo from the Distribution Date until the second anniversary of the Distribution Date, an exclusive, fully-paid, royalty-free and nontransferable license to use and display in the following jurisdictions the Kraft GroceryCo Trademark in the same relative size or smaller on the principle display panel as used on the Distribution Date on SnackCo Products in the following product categories existing on the Distribution Date on which the Kraft GroceryCo Trademark appears on such date in such jurisdictions, including such SnackCo Products that are sold in packaging sizes or flavors that are different from the packaging sizes or flavors used prior to the Distribution Date, and in connection with the production, manufacturing, advertising, promotion, marketing, distribution and sale of such SnackCo Products in such jurisdictions:
(i) cheese, including, without limitation, cream cheese, processed cheese, grated cheese, hard cheese and natural cheese in the Asia Pacific Countries (excluding (x) for all types of cheese: Australia, Indonesia and New Zealand, (y) for processed and cream cheese: Japan and (z) for processed cheese: Malaysia, Singapore and the Philippines), the European Union, the CEE Countries (other than those countries which are member states of the European Union as at the Distribution Date), the MEA Countries (excluding Mauritius and the Near East Countries), the Central American Countries, the South American Countries (excluding Venezuela) and Mexico (excluding for processed cheese); for the avoidance of doubt, any license to processed cheese under this Section 3.1(b)(i) shall include the use of the GroceryCo Mark Singles for processed cheese;
(ii) mayonnaise in the CEEMA Countries (excluding those CEE Countries which are member states of the European Union as of the Distribution Date), the Asia Pacific Countries (excluding Australia and New Zealand), the Central American Countries, and the South American Countries (excluding Venezuela);
(iii) salad dressing in Costa Rica, Philippines, Malaysia, Singapore, and Hong Kong;
(iv) peanut butter in the Asia Pacific Countries (excluding Australia and New Zealand); and
(v) macaroni and cheese products in the United Kingdom, the Republic of Ireland, Colombia, Ecuador, Peru and Panama including the use of the GroceryCo Marks Kraft Mac & Cheese and Kraft Easy Mac for such products.
(c) Perpetual License of Certain GroceryCo Marks to SnackCo IPCo . Subject to the terms and conditions of this Agreement, GroceryCo IPCo hereby grants to SnackCo IPCo as from the Distribution Date a perpetual, exclusive, fully-paid, royalty-free and nontransferable (except as expressly permitted herein) license to use and display in the following jurisdictions the
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following GroceryCo Marks on SnackCo Products existing on the Distribution Date on which such GroceryCo Marks appear on such date in such jurisdictions (except as set forth in Section 3.1(c)(v) below) and on any substantially similar SnackCo Products and flankers and product line extensions of such SnackCo Products developed by or on behalf of the SnackCo Business or any member of the SnackCo Group after the Distribution Date and in connection with the production, manufacturing, marketing, advertising, promotion, distribution and sale of such SnackCo Products in such jurisdictions:
(i) Miracel/Miracle Whip in the European Union;
(ii) Cheez Whiz in Venezuela, Philippines, and Mexico;
(iii) Calumet in the Philippines;
(iv) MiO in Puerto Rico and Virgin Islands;
(v) Kool-Aid in the Caribbean Countries on any SnackCo Products for all beverages and beverage mixes or ingredients for beverages in any form, regardless of whether the SnackCo Product existed on the Distribution Date; and
(vi) Jell-O in Mexico.
(d) Ten-Year License of Lunchables to SnackCo IPCo . Subject to the terms and conditions of this Agreement, GroceryCo IPCo hereby grants to SnackCo IPCo from the Distribution Date until the tenth anniversary of the Distribution Date an exclusive, fully-paid, royalty-free and nontransferable (except as expressly permitted herein) license to use and display in the United Kingdom and the Republic of Ireland the Lunchables GroceryCo Mark in the same relative size or smaller on the principle display panel as used on the Distribution Date on convenience meal SnackCo Products existing on the Distribution Date on which the Lunchables GroceryCo Mark appears in the United Kingdom and the Republic of Ireland in conjunction with the Dairylea SnackCo Mark on such date and on any substantially similar convenience meal SnackCo Products and flankers and product line extensions of such convenience meal SnackCo Products developed by or on behalf of the SnackCo Business or any member of the SnackCo Group after the Distribution Date and in connection with the production, manufacturing, advertising, promotion, marketing, distribution and sale of such convenience meal SnackCo Products in such jurisdictions.
(e) Two-Year License of Certain GroceryCo Marks to SnackCo IPCo . Subject to the terms and conditions of this Agreement and except as otherwise provided in Section 3.1(e)(viii), GroceryCo IPCo hereby grants to SnackCo IPCo from the Distribution Date until the second anniversary of the Distribution Date an exclusive, fully-paid, royalty-free and nontransferable license to use and display in the following jurisdictions the following GroceryCo Marks in the same relative size or smaller on the principle display panel as used on the Distribution Date on SnackCo Products existing on the Distribution Date on which such GroceryCo Marks appear on such date in such jurisdictions, including such SnackCo Products that are sold in packaging sizes or flavors that are different from the packaging sizes or flavors used prior to the Distribution Date, and in connection with the production, manufacturing, advertising, promotion, marketing, distribution and sale of such SnackCo Products in such jurisdictions:
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(i) Miracel/Miracle Whip in the Asia Pacific Countries, Panama and the CEEMA Countries (excluding those CEE Countries which are member states of the European Union as of the Distribution Date);
(ii) Kool-Aid in the LA ex-Caribbean Countries and the Asia Pacific Countries;
(iii) Cracker Barrel in the United Kingdom and the Republic of Ireland;
(iv) Bulls-Eye in Germany, the United Kingdom and Australia;
(v) Crystal Light in the Caribbean Countries (excluding Puerto Rico);
(vi) Country Time in the Caribbean Countries, Central American Countries and Asia Pacific Countries;
(vii) Yuban and Sanka in the Asia Pacific Countries (excluding Japan);
(viii) Planters for use on bar products in the United States (except that, notwithstanding the foregoing, with respect to Planters the foregoing license shall be non-exclusive and shall terminate on the first anniversary of the Distribution Date); and
(ix) Jell-O in Saudi Arabia (except that, notwithstanding the foregoing, with respect to Jell-O the foregoing license shall be non-exclusive and shall terminate on the first anniversary of the Distribution Date).
(f) Five-Year License of GroceryCo Mark Crystal Light to SnackCo IPCo in Puerto Rico . Subject to the terms and conditions of this Agreement, GroceryCo IPCo hereby grants to SnackCo IPCo from the Distribution Date until the fifth anniversary of the Distribution Date an exclusive (subject, for clarity, to Section 2.10, including the third-party contracts set forth in Schedule L hereto), fully-paid, royalty-free and nontransferable license to use and display in Puerto Rico the GroceryCo Mark Crystal Light in the same relative size or smaller on the principle display panel as used on the Distribution Date on beverage SnackCo Products existing on the Distribution Date on which the Crystal Light GroceryCo Mark appears in Puerto Rico on such date and on any substantially similar beverage SnackCo Products and flankers and product line extensions of such beverage SnackCo Products developed by or on behalf of the SnackCo Business or any member of the SnackCo Group after the Distribution Date and in connection with the production, manufacturing, advertising, promotion, marketing, distribution and sale of such beverage SnackCo Products in Puerto Rico. As of the second anniversary of this license, the GroceryCo Mark Crystal Light shall not be used in Puerto Rico for any SnackCo Products other than powdered beverages.
(g) Two-Year License of GroceryCo Marks Used for Ingredients to SnackCo IPCo . Subject to the terms and conditions of this Agreement, GroceryCo IPCo hereby grants to SnackCo IPCo from the Distribution Date until the second anniversary of the Distribution Date a fully-paid, royalty-free and nontransferable license to use and display in the following jurisdictions the following GroceryCo Marks as an ingredient indicator in the same relative size or smaller on the principle display panel as used on the Distribution Date on the SnackCo Products existing on the Distribution Date on which such GroceryCo Marks appear as an ingredient indicator on such date in such jurisdictions, including such SnackCo Products that are sold in packaging sizes or flavors that are different from the packaging sizes or flavors used prior to the Distribution Date and in connection with the production, manufacturing, advertising, promotion, marketing, distribution and sale of such SnackCo Products in such jurisdictions:
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(i) Kraft peanut butter and Kraft cheese in the United States and Canada;
(ii) Cheez Whiz in the United States and Canada; and
(iii) Planters in the United States;
The licenses granted to SnackCo IPCo in this Section 3.1(g) shall be exclusive relative to third parties in the biscuits product category, provided that the license granted in Section 3.1(g)(i) with respect to the use of Kraft cheese shall be exclusive relative to third parties in the biscuits product category and the aerosol cheese category.
(h) Three-Year License of Kraft Hexagon Logo and Flavorburst Logo for Signature Lines in SnackCo Business to SnackCo IPCo . Subject to the terms and conditions of this Agreement, GroceryCo IPCo hereby grants to SnackCo IPCo from the Distribution Date until the third anniversary of the Distribution Date a non-exclusive, fully-paid, royalty-free and nontransferable (except as expressly permitted herein) license to use and display the Kraft Hexagon Logo and/or the Flavorburst Logo, and any successor logo thereof adopted by GroceryCo, on the packaging of SnackCo Products sold anywhere in the world on which the Kraft Hexagon Logo and/or Flavorburst Logo appear on the signature line of such SnackCo Products on the Distribution Date. SnackCo Entities that use the Flavorburst Logo not only on the signature line of SnackCo Products but also on SnackCo Business related business equipment and materials shall cease such use by the third anniversary of the Distribution Date. Notwithstanding anything contained herein to the contrary, SnackCo IPCo agrees that Kraft Foods will be removed from all Distributed by and similar signature lines no later than three (3) years from the Distribution Date or such earlier date on which such removal may be required under local applicable regulations or other Laws. SnackCo IPCo shall be entitled to replace in its sole discretion the Kraft Hexagon Logo and/or the Flavorburst Logo that appear on SnackCo Products with any logo other than the Kraft Hexagon Logo or the Flavorburst Logo (or any logo identical or confusingly similar thereto) at any time within the three-years after the Distribution Date. Notwithstanding the foregoing, if, subject to Section 3.7 of this Agreement and Section 4.6 of the Separation Agreement, the license granted in this Section 3.1(h) is assigned or otherwise transferred by the Licensee to a third party, the term of such license following such assignment or other transfer shall be limited to the shorter of (A) the remaining term of the original three-year license term or (B) twelve (12) months from the date of such assignment or other transfer.
(i) Three-Year License of Kraft GroceryCo Trademark as an Umbrella Brand on SnackCo Products to SnackCo IPCo . Subject to the terms and conditions of this Agreement, GroceryCo IPCo hereby grants to SnackCo IPCo from the Distribution Date until the third anniversary of the Distribution Date a non-exclusive, fully-paid, royalty-free and nontransferable (except as expressly permitted herein) license to use and display in all jurisdictions the Kraft GroceryCo Trademark as an umbrella brand in the same relative size or smaller on the principle display panel as used on the Distribution Date on the packaging of SnackCo Products (e.g. on processed cheese in Germany and Spain, or Kraft Philadelphia or Kraft Vegemite or Kraft
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Miracel Whip). For the avoidance of doubt, when the Kraft GroceryCo Trademark is used in conjunction with a SnackCo Primary Brand or a GroceryCo Primary Brand, the Kraft GroceryCo Trademark is considered to be an umbrella brand (e.g. Kraft Philadelphia or Kraft Vegemite or Kraft Miracel Whip or Kraft Sottilette). SnackCo Entities use of the Kraft GroceryCo Trademark shall appear in the same relative size or smaller than its use on each particular product on the Distribution Date.
(j) Two-Year License of Kraft GroceryCo Trademark for Company Names of SnackCo Entities .
(i) Subject to the terms and conditions of this Agreement, GroceryCo IPCo hereby grants to SnackCo IPCo the right to grant sublicenses to SnackCo Entities that are selling SnackCo Products or that are otherwise customer facing SnackCo Entities from the Distribution Date until the second anniversary of the Distribution Date a non-exclusive, fully-paid, royalty-free and nontransferable license to use and display the Kraft GroceryCo Trademark as a constituent component of their company names existing on the Distribution Date (e.g. Kraft Foods Pakistan Limited) anywhere in the world in connection with the SnackCo Business and related business equipment and materials (e.g. letterheads, business cards, corporate websites, company signs etc.) that are reasonably required to operate the SnackCo Business; provided that, with respect to the SnackCo Entity Kraft Foods Venezuela, C.A., the term of the foregoing license shall be as set forth in Section 3.1(j)(iv). Notwithstanding the obligation to phase-out packaging, promotion or marketing materials pursuant to Section 3.5, for reasonable quantities of such business equipment and materials that display the SnackCo Entities respective company names that include the Kraft GroceryCo Trademark as a constituent component and were already printed and existing on the second anniversary of the Distribution Date, GroceryCo IPCo hereby grants to the respective SnackCo Entities a period to use and display such materials until they are fully exhausted of up to twelve (12) months following the end of the two-year license period.
(ii) SnackCo IPCo agrees that each of the SnackCo Entities that uses the Kraft GroceryCo Trademark as a constituent component of its company name as at the Distribution Date and that sells SnackCo Products or otherwise is customer facing will remove the Kraft GroceryCo Trademark from its company name no later than two (2) years from the Distribution Date, unless the new company name that it intends to adopt as a replacement for its existing name that includes the Kraft GroceryCo Trademark as a constituent component is for any reason not available for use or is challenged by a third party in the jurisdiction in which it is organized. In such an event, SnackCo IPCo shall inform GroceryCo IPCo no later than thirty (30) days prior to the end of the two-year license period about such an instance, in which case the respective SnackCo Entity shall be entitled to continue to use the Kraft GroceryCo Trademark as a constituent component of its company name in connection with the SnackCo Business and related packaging, promotion or any other materials that are reasonably required to operate the SnackCo Business for an additional period of twelve (12) months following the end of the two-year license period. At the expiration of such additional period of twelve (12) months following the end of the two-year license period, all use of the Kraft GroceryCo Trademark as a constituent component of a company name by any SnackCo Entity that sells SnackCo Products or otherwise is customer facing and all use of any such related packaging, promotion or any other materials by such SnackCo Entity shall cease.
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(iii) For the avoidance of doubt, the parties agree that SnackCo Entities that do not sell SnackCo Products or otherwise are not customer facing (e.g. dormant companies, holding companies, and intellectual property holding companies (other than Kraft Foods Global Brands LLC)) on the Distribution Date and have the Kraft GroceryCo Trademark as a constituent component in their company names anywhere in the world in connection with the SnackCo Business, including without limitation the SnackCo Entities set forth in Schedule N hereto, may retain such a company name for an indefinite period, unless such a SnackCo Entity becomes active in selling SnackCo Products or becomes otherwise customer facing in which case Section 3.1 (j)(i) and (ii) shall apply as from the date the SnackCo Entity commences selling of SnackCo Products or otherwise becomes customer facing. Without limitation to the foregoing, following the expiration dates set forth in this Section 3.1(j) and upon the reasonable request of GroceryCo IPCo, SnackCo IPCo shall reasonably cooperate with GroceryCo IPCo to remove the Kraft GroceryCo Trademark from or de-register the corporate name, d/b/a (doing business as) or the like of any member of the SnackCo Group specifically requested by GroceryCo if the existence of such name is blocking a GroceryCo Entity from incorporating, qualifying to do business, or otherwise adopting or using a company name that includes the Kraft GroceryCo Trademark; provided that such GroceryCo Entity has received a communication from the relevant government or regulatory authority that such name of such member of the SnackCo Group is blocking such name of such member of the GroceryCo Group.
(iv) The term of the license granted in Section 3.1(j)(i) with respect to the SnackCo Entity Kraft Foods Venezuela, C.A. shall be from the Distribution Date until (x) the third anniversary of the Distribution Date if GroceryCo IPCo provides notice to SnackCo IPCo within two (2) years of the Distribution Date that GroceryCo IPCo intends (through an Affiliate or other licensee) to enter the Venezuelan market (y) the fourth anniversary of the Distribution Date if GroceryCo IPCo does not provide notice to SnackCo IPCo pursuant to the foregoing (x) but provides notice to SnackCo IPCo within three (3) years from the Distribution Date that GroceryCo IPCo intends (through an Affiliate or other licensee) to enter the Venezuelan market, or (z) the fifth anniversary of the Distribution Date if neither of the foregoing (x) or (y) occurs.
(k) License Grant to GroceryCo Brand-Related Copyrights to SnackCo IPCo . Subject to the terms and conditions of this Agreement, GroceryCo IPCo hereby grants to SnackCo IPCo as from the Distribution Date a non-exclusive, fully-paid, royalty-free and nontransferable (except as expressly permitted herein) license of the GroceryCo Brand-Related Copyrights to copy, publicly display, publicly perform, distribute and prepare derivative works based on any advertising, packaging and promotion materials (and derivatives thereof) that are the subject of the GroceryCo Brand-Related Copyrights and were used or exploited by the SnackCo Business prior to the Distribution Date in connection with the advertising, promotion, marketing or sale of SnackCo Products on which any of the GroceryCo Marks licensed to SnackCo IPCo in Sections 3.1(a)-(g), Section 3.1 (i) or Section 3.1(l) appear (the Licensed GroceryCo Copyright-Protected Materials ). The term of the license of Licensed GroceryCo Copyright-Protected Materials shall be co-terminus with the license of the GroceryCo Marks used on the SnackCo Products to which the Licensed GroceryCo Copyright-Protected Materials relate and the license of Licensed GroceryCo Copyright-Protected Materials shall be exercisable in the same jurisdictions in which the related license of GroceryCo Marks is exercisable and shall be assignable by SnackCo IPCo to the same extent as the related license of GroceryCo Marks is assignable by SnackCo IPCo under this Agreement.
(l) License to Grant Sublicenses to Certain Third-Party Partners . Subject to the terms and conditions of this Agreement, GroceryCo IPCo hereby grants to SnackCo IPCo, for the term lengths set forth below (which such term lengths, for clarity, shall each be subject to Section 2.10), a fully-paid, royalty-free, nontransferable (except as expressly permitted herein) license solely to grant sublicenses to the following Persons that are licensed to use the applicable GroceryCo Marks as of the Distribution Date:
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(i) Yuban and Sanka coffee in Japan, with the right to sublicense to Ajinomoto General Foods, Inc., and for a license and sublicense term that commences on the Distribution Date and continues until, subject to Section 2.10, the date on which SnackCo IPCo and its Affiliates cease to own substantially the same or a greater percentage of Ajinomoto General Foods, Inc. as they own as of the Distribution Date;
(ii) Kraft cheese, including, without limitation, cream cheese, processed cheese, grated cheese, hard cheese and natural cheese, in Indonesia, with the right to sublicense to P.T. Kraft Ultrajaya Indonesia, and for a license and sublicense term that commences on the Distribution Date and continues until the longer of (A) the tenth anniversary of the Distribution Date or (B) subject to Section 2.10, the date on which SnackCo IPCo and its Affiliates cease to own substantially the same or a greater percentage of P.T. Kraft Ultrajaya Indonesia as they own as of the Distribution Date;
(iii) Kraft (including Kraft Philadelphia) cream cheese in Japan, with the right to sublicense to Morinaga Milk Industries Co., Ltd., and for a license and sublicense term that commences on the Distribution Date and is co-terminus with the license granted to Morinaga Milk Industries Co., Ltd.; and
(iv) Kraft, Planters and Mr. Peanut for the Biscuit Category (as defined in the technology and trademark license agreement for biscuits with Dong Suh Foods Corporation, dated December 1, 2009), in Korea, with the right to sublicense to Dong Suh Foods Corporation, and for a license and sublicense term that commences on the Distribution Date and continues until the longer of (A) the second anniversary of the Distribution Date or (B) subject to Section 2.10, the date on which SnackCo IPCo and its Affiliates cease to own substantially the same or a greater percentage of Dong Suh Foods Corporation as they own as of the Distribution Date.
For the avoidance of doubt, each license and sublicense term set forth in Section 3.1(l )(i), (ii) and (iv) above shall be subject to the provisions of the operative agreement between SnackCo IPCo (or one of its Affiliates) and the applicable sublicensee, and in the event of any inconsistent terms the provisions of such operative agreement shall control over this Section 3.1(l). Such sublicenses shall be of the same scope as the licenses of such GroceryCo Marks that have been granted under the existing license agreements with such Persons as of the Distribution Date. The license granted under this Section 3.1(l) shall be exclusive to the extent that any of the sublicenses described in the immediately preceding sentence are exclusive. The parties agree that, subject to the following sentence, P.T. Kraft Ultrajaya Indonesia is exempted from all obligations under this Agreement to change or eliminate the component Kraft in its company name P.T. Kraft Ultrajaya Indonesia during the lifetime of this joint venture except as otherwise contemplated in any agreements related to this joint venture that are in existence as of the Distribution Date. If any GroceryCo Entity has received a communication from the relevant government or regulatory authority that the name P.T. Kraft Ultrajaya Indonesia is blocking such GroceryCo Entity from incorporating, qualifying to do business, or otherwise adopting or using a company name that includes the Kraft GroceryCo Trademark, upon GroceryCo IPCos written request, SnackCo IPCo shall, subject to Section 2.10, consult with P.T. Kraft Ultrajaya Indonesia and request in good faith that P.T. Kraft Ultrajaya Indonesia reasonably cooperate with GroceryCo IPCo to remove the Kraft component in its company name, d/b/a (doing business as) or the like.
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(m) Related Logos and Tag Lines . For clarity, and unless expressly provided otherwise herein, references to a specific GroceryCo Mark that is a Licensed Trademark under this Section 3.1 shall include the logos, Sub-Brands, Trade Dress, and tag lines (other than Make Today Delicious which is owned by SnackCo IPCo) owned by a GroceryCo Entity as of the Distribution Date and used in connection with such GroceryCo Mark in any product packaging immediately prior to the Distribution Date.
(n) License of Certain GroceryCo Domain Names . Subject to the terms and conditions of this Agreement, GroceryCo IPCo hereby grants to SnackCo IPCo from the Distribution Date until the fifth anniversary of the Distribution Date a non-exclusive, fully-paid, royalty-free and nontransferable (except as expressly permitted herein) license to use the following GroceryCo Domain Names solely for the purpose of forwarding or rerouting e-mail sent to addresses of any member of the SnackCo Group that use such GroceryCo Domain Names (e.g., john.doe @kraftasia.com) as at the Distribution Date to replacement e-mail addresses of such SnackCo Group member:
(i) kraftasia.com;
(ii) krafteurope.com;
(iii) kraftintlhq.com; and
(iv) kraftla.com.
(o) Potential Two-Year License of GroceryCo Mark MiO to SnackCo IPCo in Mexico. Solely if and to the extent that GroceryCo obtains a Trademark registration in Mexico for the MiO GroceryCo Mark prior to the second anniversary of the Distribution Date, subject to the terms and conditions of this Agreement, GroceryCo IPCo hereby agrees to grant to SnackCo IPCo from the date such Trademark registration is obtained until the second anniversary of the Distribution Date an exclusive, fully-paid, royalty-free and nontransferable license to use and display in Mexico the GroceryCo Mark MiO on liquid concentrates and to enforce the MiO GroceryCo Mark against infringements as set forth in Section 3.12; provided, however, that the foregoing license in this Section 3.1(o) shall be exercised only in connection with products incorporating the technology as licensed under, and shall earlier terminate upon the lapse of the license grant to such technology as set forth in Section 5.1(d)(ii) of, the Master Ownership and License Agreement Regarding Patents, Trade Secrets and Related Intellectual Property, dated as of the Distribution Agreement, between SnackCo IPCo and GroceryCo IPCo, among other parties.
Section 3.2 License Grants by SnackCo IPCo to GroceryCo IPCo .
(a) Two-Year License of Certain SnackCo Marks to GroceryCo IPCo . Subject to the terms and conditions of this Agreement, SnackCo IPCo hereby grants to GroceryCo IPCo from the Distribution Date until the second anniversary of the Distribution date an exclusive, fully-paid, royalty-free and nontransferable license to use and display in the United States, Canada and the Caribbean Countries the following SnackCo Marks in the same relative size or smaller on the principle display panel as used on the Distribution Date on GroceryCo Products existing on the Distribution Date on which such SnackCo Marks appear on such date in such jurisdictions including such GroceryCo Products that are sold in packaging sizes or flavors that are different from the packaging sizes or flavors used prior to the Distribution Date, and in connection with the production, manufacturing, advertising, promotion, marketing, distribution and sale thereof in such jurisdictions:
Handi-Snacks and 100 Calorie Banner Design.
(b) Two-Year and Five-Year Licenses of Certain SnackCo Marks to GroceryCo IPCo . Subject to the terms and conditions of this Agreement, SnackCo IPCo hereby grants to GroceryCo IPCo for the license terms set forth below a fully-paid, royalty-free (except as set forth below) and nontransferable license to use and display in the NA Countries and the Caribbean Countries the following SnackCo Marks in the same relative size or smaller on the
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principle display panel as used on the Distribution Date in connection with the GroceryCo Tassimo business existing on the Distribution Date on which such SnackCo Marks appear on such date in the NA Countries and the Caribbean Countries including such Tassimo GroceryCo Products that are sold in packaging sizes or flavors that are different from the packaging sizes or flavors used prior to the Distribution Date, and in connection with the production, manufacturing, advertising, promotion, marketing, distribution and sale thereof in the NA Countries and the Caribbean Countries:
(i) from the Distribution Date until the second anniversary of the Distribution Date the following European coffee and chocolate brands: Café Hag, Jacobs, Kenco, Mastro Lorenzo, Milka and Suchard; and
(ii) from the Distribution Date until the fifth anniversary of the Distribution Date the following European coffee and chocolate brands: Carte Noire, Cadbury and Cadbury Caramilk; provided that the foregoing licenses to Cadbury and Cadbury Caramilk shall be limited to Canada.
that are used on products currently sold in connection with the Tassimo business conducted by the GroceryCo Business. GroceryCo Canada shall pay to SnackCo IPCo or one of its Affiliates (as designated by SnackCo IPCo) a royalty of two and a half percent (2.5%) of all net revenues of the GroceryCo Entities for sales in Canada of GroceryCo Products bearing the SnackCo Marks licensed under this Section 3.2(b). The licenses granted to GroceryCo IPCo in this Section 3.2(b) shall be exclusive in the product category: single serve hot beverages and on-demand brewing systems.
(c) Perpetual License of Certain SnackCo Marks to GroceryCo IPCo . Subject to the terms and conditions of this Agreement, SnackCo IPCo hereby grants to GroceryCo IPCo as from the Distribution Date a perpetual, exclusive (except in the case of the Sensible Solutions SnackCo Mark, which is licensed on a non-exclusive basis), fully-paid, royalty-free and nontransferable (except as expressly permitted herein) license to use and display in the following jurisdictions the following SnackCo Marks on GroceryCo Products existing on the Distribution Date on which such SnackCo Marks appear in the following jurisdictions on such date (except as set forth in Section 3.2(c)(iii) below) and on any substantially similar GroceryCo Products and flankers and product line extensions of such GroceryCo Products developed by or on behalf of the GroceryCo Business or any member of the GroceryCo Group after the Distribution Date and in connection with the production, manufacturing, advertising, promotion, marketing, distribution and sale thereof in such jurisdictions:
(i) Tang in the NA Countries on any GroceryCo Products for all beverages and beverage mixes or ingredients for beverages in any form, regardless of whether the GroceryCo Product existed on the Distribution Date;
(ii) Back to Nature on shelf stable macaroni and cheese products in all jurisdictions;
(iii) Sensible Solutions in the United States, Canada, and Caribbean Countries; provided that GroceryCo IPCo complies in all respects with SnackCos nutritional guidelines governing the use of Sensible Solutions and provides SnackCo IPCo prior written notice of any assignment or transfer of the foregoing license pursuant to Section 3.7.
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(d) Ten-Year License of SnackCo Mark Tassimo to GroceryCo IPCo in the NA Countries and Caribbean Countries . The parties agree that SnackCo IPCo shall grant to GroceryCo IPCo from the Distribution Date until the tenth anniversary of the Distribution Date (or longer, if the Tassimo Systems Agreement is renewed) an exclusive, fully-paid, royalty-free and nontransferable (except as expressly permitted otherwise) license to use and display in the NA Countries and the Caribbean Countries the SnackCo Mark Tassimo on single serve hot beverages and on-demand brewing systems. The specific terms and conditions for the use of the SnackCo Mark Tassimo by GroceryCo IPCo shall be set forth in the Tassimo IP Agreement that shall exclusively govern such use of the SnackCo Mark Tassimo by GroceryCo IPCo.
(e) Two-Year License of SnackCo Marks Used for Ingredients to GroceryCo IPCo . Subject to the terms and conditions of this Agreement, SnackCo IPCo hereby grants to GroceryCo IPCo from the Distribution Date until the second anniversary of the Distribution Date a fully-paid, royalty-free, worldwide and nontransferable license to use and display the Oreo, Chips Ahoy!, Honey Maid and Cadbury Caramilk SnackCo Marks as an ingredient indicator on GroceryCo Products in the same relative size or smaller on the principle display panel as used on the Distribution Date on which such SnackCo Marks appear as an ingredient indicator on such date in such jurisdictions, including such GroceryCo Products that are sold in packaging sizes or flavors that are different from the packaging sizes or flavors used prior to the Distribution Date, and in connection with the production, manufacturing, advertising, promotion, marketing, distribution and sale of such GroceryCo Products in such jurisdictions. The licenses granted to GroceryCo IPCo in this Section 3.2(e) shall be exclusive to the following extent: (i) the license to the Oreo and Chips Ahoy! SnackCo Marks shall be exclusive only in the following product categories: pudding, coffee, meal kits and no-bake desserts; (ii) the license to the Honey Maid SnackCo Mark shall be exclusive only in the following product category: no-bake desserts; and (iii) the license to the Cadbury Caramilk SnackCo Mark shall be exclusive only in the following product category: hot beverages (other than Tassimo single serve hot beverages and on demand brewing systems as set forth in Section 3.2(b)(ii)). For the avoidance of doubt, the licenses granted under, and the exclusivity described in, this Section 3.2(e), shall be subject to Section 2.10.
(f) Two-Year License of Oreo for Kraft Mac & Cheese to GroceryCo IPCo . Subject to the terms and conditions of this Agreement, SnackCo IPCo hereby grants to GroceryCo IPCo from the Distribution Date until the second anniversary of the Distribution Date a non-exclusive, fully-paid, royalty-free, worldwide and nontransferable license to use and display the Oreo SnackCo Mark in the same relative size or smaller on the principle display panel as used on the Distribution Date on the Oreo shaped GroceryCo Product Kraft Mac & Cheese in connection with the production, manufacturing, advertising, promotion, marketing, distribution and sale thereof.
(g) License Grant to SnackCo Brand-Related Copyright-Protected Materials to GroceryCo IPCo . Subject to the terms and conditions of this Agreement, SnackCo IPCo hereby grants to GroceryCo IPCo as from the Distribution date a non-exclusive, fully-paid, royalty-free and nontransferable (except as expressly permitted herein) license of the SnackCo Brand-Related
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Copyrights to copy, publicly display, publicly perform, distribute and prepare derivative works based on any advertising, packaging and promotion materials (and derivatives thereof) that are the subject of the SnackCo Brand-Related Copyrights and were used or exploited by the GroceryCo Business prior to the Distribution in connection with the advertising, promotion, marketing or sale of GroceryCo Products on which any of the SnackCo Marks licensed to GroceryCo in Sections 3.2(a), (b), (c) or (f) appear (the Licensed SnackCo Copyright-Protected Materials ). The term of the license of Licensed SnackCo Copyright-Protected Materials shall be co-terminus with the license of the SnackCo Marks used on the GroceryCo Products to which the Licensed SnackCo Copyright-Protected Materials relate and the license of Licensed SnackCo Copyright-Protected Materials shall be exercisable in the same jurisdictions in which the related license of SnackCo Marks is exercisable and shall be assignable by GroceryCo IPCo to the same extent as the related license of SnackCo Marks is assignable by GroceryCo IPCo under this Agreement.
(h) Related Logos and Tag Lines . For clarity, and unless expressly provided otherwise herein, references to a specific SnackCo Mark that is a Licensed Trademark under this Section 3.2 shall include the logos, Sub-Brands, Trade Dress and tag lines (excluding Make Today Delicious) owned by a SnackCo Entity as of the Distribution Date and used in connection with such SnackCo Mark in any product packaging immediately prior to the Distribution.
(i) Phase-Out for Make Today Delicious . Subject to the terms and conditions of this Agreement, SnackCo IPCo hereby grants to GroceryCo IPCo from the Distribution Date until the third anniversary of the Distribution Date a non-exclusive, fully-paid, royalty-free and non-transferable license to use and display the MAKE TODAY DELICIOUS tag line in those jurisdictions where this tag line is in use as at the Distribution Date.
Section 3.3 Extension of Scope of License Grant; Sub-Brands; Protection of Perpetually Licensed Trademarks .
(a) If a Perpetual Licensee desires to request that a perpetually Licensed Trademark be extended to a new product category to which the license of such Licensed Trademark does not then extend or if a Licensee, whose Licensed Trademark grant is for more than three (3) years, desires to adopt and use a Sub-Brand owned by GroceryCo IPCo or SnackCo IPCo, as the case may be, with respect to a Licensed Trademark with which such Sub-Brand is used by the Licensor, the Licensee may request that the Licensor extends such license to such new product category or permit the Licensee to adopt and use such Sub-Brand and that the Licensor files a Trademark application with respect to such new product category or new Sub-Brand in jurisdictions specified by the Licensee for which the Licensee would have rights hereunder, provided that the Licensor may grant or deny any such request in its sole discretion. The Licensor shall use reasonable efforts to respond to any such request within sixty (60) days. If the Licensee makes any such request to the Licensor, the Licensee, at its sole cost, shall first perform all appropriate Trademark clearance searches with respect to the new Sub-Brand or the use of such Licensed Trademark with such new product category or such Sub-Brand and provide Licensor with a complete copy of the results of and conclusions with respect to such searches at the time the Licensee makes any such request to extend a license to a new product category or to adopt and use a new Sub-Brand. If the Licensor grants such request, the Licensee shall reimburse
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the Licensor for all filing fees and other reasonable costs and expenses incurred by the Licensor in connection with filing and prosecuting any new Trademark applications with respect to a new Sub-Brand or the extension of such Licensed Trademark to such new product category and defending any challenges to the new applications or registrations that are brought against the Licensor by a third party. After granting any such request, the Licensor may withdraw or abandon any such Trademark application only for good cause and only after prior consultation with the Licensee in good faith.
(b) A Perpetual Licensee shall be entitled to request the Licensor (i) to file new Trademark applications for new goods relating to the perpetually Licensed Trademark or any Sub-Brand associated with the perpetually Licensed Trademark that was previously adopted by the Licensor in jurisdictions in which such Licensor owns such Sub-Brand hereunder or (ii) to undertake other reasonable measures relating to the protection or defense of such Licensed Trademark or Sub-Brand if and when such Trademark applications and measures are reasonably necessary to achieve the Perpetual Licensees business goals or to maintain or broaden the protection of such Licensed Trademark or Sub-Brand, in each case as permitted under this Agreement, and the Licensor shall reasonably cooperate with the Perpetual Licensee in connection with any such request. No such request to file any new Trademark application shall be made by the Perpetual Licensee unless the Perpetual Licensee, at its sole cost, shall have first performed all appropriate Trademark clearance searches with respect to the new Trademark applications requested to be filed and shall have provided the Licensor with a complete copy of the results of and conclusions with respect to such searches. The Licensor shall notify the Perpetual Licensee within sixty (60) days whether the Licensor approves the filing of the requested Trademark applications or take other measures requested by the Perpetual Licensee with respect to the protection or defense of such Licensed Trademark. Such approval shall only be denied, if the Licensor has received legal advice from a reputable outside law firm indicating that the filing of such Trademark application or the taking of such measures, if challenged by a third party, reasonably could be expected to result in litigation or opposition proceedings in which a decision adverse to the Licensor would be reached. Upon approval of the Perpetual Licensees request, the Licensor shall promptly use commercially reasonable efforts to carry out any such requests provided that the Perpetual Licensee shall reimburse the Licensor for all reasonable costs and expenses associated with filing such Trademark applications (including any costs of prosecuting such Trademark applications and defending any challenges or claims of infringement brought by third parties as a result of filing such Trademark applications) or taking the measures that Licensee may request. Licensor shall prosecute such Trademark applications and defend any such challenges or claims of infringement brought by third parties as a result of filing such Trademark applications or, if and to the extent applicable to the Licensor, otherwise adopting the applicable new Trademark or Sub-Brand in accordance with the Perpetual Licensees reasonable direction, and shall cooperate and consult with the Perpetual Licensee in connection therewith, subject to the Perpetual Licensee continuing to reimburse the Licensor for all reasonable costs and expenses incurred by the Licensor in connection therewith.
Section 3.4 Reversion . If a Licensee or its Affiliates cease the sale of products bearing a Licensed Trademark that is licensed under the
(i) ten-year license of the Kraft GroceryCo Trademark granted to SnackCo IPCo pursuant to Section 3.1(a);
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(ii) perpetual license of certain GroceryCo Marks granted to SnackCo IPCo pursuant to Section 3.1(c);
(iii) ten-year license of the Lunchables GroceryCo Mark to SnackCo IPCo pursuant to Section 3.1(d);
(iv) five-year license of the Carte Noire, Cadbury and Cadbury Caramilk SnackCo Marks granted to GroceryCo IPCo pursuant to Section 3.2(b)(ii); or
(v) perpetual license of certain SnackCo Marks granted to GroceryCo IPCo pursuant to Section 3.2(c);
in any jurisdiction to which the license of such Licensed Trademark extends, the license in such jurisdiction shall terminate and shall revert to the Licensor. Notwithstanding the foregoing, (x) the licenses referenced in Section 3.4(iv) above shall not terminate and revert to SnackCo IPCo unless GroceryCo IPCo or its Affiliates have ceased the sales of products bearing the applicable SnackCo Mark in both the United States and Canada and (y) the perpetual license for Back to Nature referenced in Section 3.4(v) above shall terminate and revert to SnackCo IPCo in all jurisdictions in its entirety if GroceryCo IPCo or its Affiliates have ceased the sales of products bearing such SnackCo Mark in the United States. If any of the foregoing events occur, the Licensee shall provide prompt written notice to the Licensor thereof and the license granted under this Agreement to such Licensed Trademark in such jurisdiction thereupon shall cease. A Licensee shall be deemed to have ceased the sale of products bearing a Licensed Trademark in a jurisdiction if such Licensee and its Affiliates has not sold products bearing such Licensed Trademark in such jurisdiction for a continuous period of twelve (12) months, unless such lack of sales is attributable to a force majeure event that is outside the reasonable control of the Licensee and its Affiliates. If a Licensor believes that a Licensed Trademark no longer is being used in connection with the sale of product by the Licensee and its Affiliates in a particular jurisdiction, the Licensor may provide written notice to the Licensee that, unless the Licensee provides to the Licensor within thirty (30) days after receipt of such notice reasonable substantiation that the Licensee or its Affiliates is continuing to sell, or is prevented by a force majeure event that is outside the reasonable control of the Licensee and its Affiliates from selling, products bearing such Licensed Trademark in the jurisdiction specified in the notice, the Licensee shall be deemed to have ceased all sales of products bearing such Licensed Trademark in such jurisdiction(s), and the license granted to the Licensee to use such Licensed Trademark in such jurisdiction shall terminate.
Section 3.5 Obligation to Phase-Out Use .
(a) Upon any termination or expiration of any license of a Licensed Trademark granted under Sections 3.1, 3.2 and 3.6, the Licensee agrees (i) to discontinue, and cause each of its Affiliates to discontinue, the production of packaging, promotion and marketing materials that display such Licensed Trademark and (ii) to cease all advertising, couponing and any other consumer-directed marketing or promotion activity making use of such Licensed Trademark. During the twelve (12) month period following any such termination or expiration of any such license of a Licensed Trademark, the Licensee shall have the right (i) to sell any finished goods bearing the Licensed Trademark held as inventory on the date of such termination or expiration and (ii) to produce products bearing such Licensed Trademark to the extent necessary to exhaust all packaging materials existing at the time of such termination or expiration and in connection therewith to use such packaging materials and sell such products as finished goods. Each party
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agrees that it and its Affiliates will not produce or authorize the production of any products or packaging materials bearing a Licensed Trademark licensed to such party with an intent that such quantities be in excess of the quantity that reasonably would be expected to be sold prior to the termination or expiration of the license of such Licensed Trademark and such party shall have no rights under this Section 3.5 following the termination or expiration of the relevant license to sell any such product or use any such packaging materials in excess of such quantity. Except as contemplated above in this Section 3.5, all use of a Licensed Trademark by the Licensee shall cease upon the termination or expiration of the license of such Licensed Trademark. For the avoidance of doubt, the rights and obligations set forth in this Section 3.5 shall apply to the sublicensees of SnackCo IPCo set forth in Section 3.1(l), subject to Section 2.10.
(b) If the Licensee intends to transition the name of a product from a Licensed Trademark to a new trademark or brand name after the expiration or termination of the Trademark license, the Licensee shall be entitled to announce such transition of a product name prior to the expiration or termination of the Trademark license in advertising, marketing and sales materials. The Licensee may announce such transition of a product name on the product packaging and shall be permitted to reasonably reduce the prominence of the logos of the Licensed Trademarks as they appear on such packaging in furtherance of such transition, provided that no so labeled products are shipped to customers or distributors after the expiration or termination of the Trademark license (except during the twelve (12) month period provided for in Section 3.5(a)). The announcement of the transition of a product name in advertising, marketing, sales materials and product packaging shall be unobtrusive and shall not denigrate or tarnish the image and reputation of the Licensed Trademark or impair or aggravate a potential market entry by the Licensor after the expiration or termination of the Trademark license.
Section 3.6 License for Use in Connection with Recipe Ingredients, Consumer Websites and Social Media .
(a) Use of Trademarks in Ingredient Lists of Recipes . For a period of two (2) years from the Distribution Date, both parties may continue to use any Trademark owned by the other party for the limited purpose of identifying ingredients in a list of ingredients in recipes existing as at the Distribution Date. Upon expiration of this license period, both parties shall remove all use of logos, fanciful fonts, and other branding of the other partys Trademarks in all ingredient lists but may continue to use the other partys word Trademark alone in ingredient lists for its recipes.
(b) Use of Trademarks in Recipe Titles and Recipe Collections . For a period of two (2) years from the Distribution Date, both parties may continue to use the other partys Trademarks in the titles of recipes or recipe collections existing as at the Distribution Date. By way of example, GroceryCo IPCo may continue to use a recipe title such as OREO Cheesecake and SnackCo IPCo may continue to use Velveeta Party Dip for two years after the Distribution Date in any media, including packaging, other print, digital, etc. Upon expiration of this license period, all such use of the other partys Trademarks in the titles of recipes or recipe collections shall cease. From the Distribution Date, neither party nor its Affiliates shall create new recipes or recipe collections using the other partys Trademarks without first obtaining the prior written consent of the other party.
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(c) Phase out of SnackCo Marks on Kraft Foods Consumer Websites/Social Media Platforms . For a period of two (2) years from the Distribution Date, GroceryCo IPCo may continue its use of the SnackCo Marks existing on the Distribution Date, including any and all package shots, on its consumer-directed U.S. and Canadian web sites and social media platforms (e.g., kraftfoods.com , kraftcanada.com , YouTube, Facebook, etc.) including tagging in recipes and site content. GroceryCo IPCos use of the SnackCo Marks for this two-year phase out period shall not expand or deviate in any material aspect from use of the SnackCo Mark on such sites existing as at the Distribution Date. Notwithstanding the foregoing, nothing in this Section 3.6 shall prevent GroceryCo IPCo from exercising its other license rights under this Agreement or shall prevent the parties from entering into a separate agreement to allow the advertising or integration of content on such sites.
Section 3.7 Assignment and Sublicensing .
Notwithstanding the restrictions as to license periods set out in Section 3.1(a), the licenses granted in Sections 3.1(a), (c), (d), (h) (to the extent permitted by applicable Law), (i) and (l), and Section 3.1(k) as it relates to Sections 3.1(a), (c), (d), (h), (i) and (l) and Section 3.2(c), and Section 3.2(g) as it relates to Sections 3.2(c), may be assigned or otherwise transferred by SnackCo IPCo and GroceryCo IPCo as Licensee, as applicable, in connection with the sale of all or substantially all of the assets or business of such party or such partys Affiliates or upon a change of control of such party or such partys Affiliates (whether by merger, stock purchase or otherwise, which shall be deemed an assignment or other transfer for purposes of this Section 3.7 and Section 3.8) or the sale of a product line (in one or more geographies) and related brand rights, subject to compliance with Section 3.8 of this Agreement and Section 4.6 of the Separation Agreement, to the extent applicable. The licenses granted in Sections 3.1(b), (e), (f) and(g) and Section 3.1(k) as it relates to Sections 3.1(b), (e), (f) and (g), and Sections 3.2(a), (b), (e) and (f) and Section 3.2(g) as it relates to Sections 3.2(a), (b), (e) and (f) shall not be assigned or otherwise transferred by SnackCo IPCo or GroceryCo IPCo as Licensee, as applicable, without the prior written consent of the other party, which consent may be withheld or delayed for any reason or no reason at all. The licenses granted in Section 3.1, 3.2 and 3.6 hereof may be sublicensed by SnackCo IPCo and GroceryCo IPCo, respectively, to their Affiliates and to any joint venture in which SnackCo IPCo or GroceryCo IPCo or an Affiliate thereof, as applicable, holds not less than a fifty percent (50%) interest, and, in the case of perpetual licenses (other than with respect to the license for Back to Nature granted pursuant to Section 3.2(c)(ii)), to third parties without consent of the other party and, in the cases of licenses other than perpetual licenses, to third parties with the prior written consent of the other party (except as otherwise provided below in this Section 3.7). Any such sublicense of licenses that are not perpetual licenses to a joint venture in which SnackCo IPCo or GroceryCo IPCo or an Affiliate, as applicable, holds less than a fifty percent (50%) interest shall require the Licensors prior written consent which shall not be unreasonably withheld or delayed. In the case of licenses that are not perpetual, the licenses granted in Section 3.1, 3.2 and 3.6 hereof may be sublicensed by SnackCo IPCo and GroceryCo IPCo to third parties without the consent of the other party in connection with the operation of the business of the Licensee and its Affiliates in the ordinary course of business, but not for the independent use of such third parties (i.e., solely as reasonably necessary for Licensee and its Affiliates to manufacture, market, and sell products, such as sublicenses for purposes of contract manufacturing but not to permit such manufacturer to distribute and sell to third parties such products). In all cases of an assignment (or other transfer) or grant of a sublicense under this
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Section 3.7 (including sublicenses existing on the Distribution Date, subject to Section 2.10), the Licensee shall ensure that the assignee or sublicensee complies with all terms and conditions of this Agreement with respect to the applicable Licensed Trademark(s), including, to the extent applicable, Section 3.8. For the avoidance of doubt, this Section 3.7 shall not apply to any assignment (or other transfer) pursuant to a third party agreement signed prior to the Distribution Date.
Section 3.8 Quality Standards and Control .
(a) The parties acknowledge that the Trademarks licensed hereunder have established valuable goodwill and that it is important to the parties that this valuable goodwill and reputation be preserved. Accordingly, the parties agree that the products with which the Licensed Trademarks are used by a party or its Affiliates, as Licensee, shall for the term of the respective Trademark license meet quality standards that are substantially equivalent to or higher than those standards maintained by Kraft Foods Inc. and its Subsidiaries immediately prior to the Distribution Date. Each party covenants and agrees that all of its and its Affiliates activities in connection with such Trademarks licensed to it by the other party will be conducted in conformity with all applicable Laws. In case a Licensed Trademark is used as an ingredient indicator on the packaging of a certain product, the Licensee shall purchase the indicated ingredient(s) from the Licensor or one of its Affiliates, or from a company designated and approved by the Licensor or one of its Affiliates.
(b) If SnackCo IPCo assigns or otherwise transfers or sublicenses under Section 3.1(a), (c) (solely with respect to Miracel/Miracle Whip or Cheez Whiz), (d) (with respect to Lunchables), or (i) to a third party any rights, the parties agree that the quality control guidelines set forth in Schedule G , as may be amended in accordance with this Section 3.8(b), will thereafter be applicable to such sublicensee or assignee and no assignment or sublicensing of any such rights by SnackCo IPCo shall be effective unless the assignee or sublicensee expressly agrees to adhere to the applicable quality control guidelines set forth in Schedule G , as may be amended in accordance with this Section 3.8(b), with respect to use of the relevant Licensed Trademarks. All use of the Back to Nature SnackCo Marks by GroceryCo IPCo shall be subject to GroceryCo IPCos compliance with the quality control guidelines applicable to such use set forth in Schedule J , as may be amended in accordance with this Section 3.8(b). A Licensor shall only provide amended quality control guidelines under this Section 3.8(b) that also are generally applicable to the Licensor and its Affiliates or their other licensees, and such amended guidelines shall not require the Licensee or its Affiliates, sublicensees or assigns to make substantial modifications to facilities or capital expenditures except to the extent required by applicable Law and shall not conflict with the express provisions of this Agreement.
(c) Each party reserves all rights of reasonable review and inspection which are necessary to monitor and confirm compliance with Sections 3.8(a) and, as applicable, 3.8(b) with respect to the Licensed Trademarks it is licensing to the other party hereunder. In addition, upon reasonable written request by the Licensor from time to time, the Licensee shall furnish to the Licensor, for its inspection, samples of products or materials that bear or are used in connection with the Licensed Trademarks and other information relating to the scope of usage of Licensed Trademarks by the Licensee thereof, including information regarding the jurisdictions in which the Licensed Trademark is then being used by the Licensee and a description of how the Licensed Trademarks are being used. The Licensor shall have the right to direct such other party
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to immediately cease any particular use of such Licensed Trademark that Licensor reasonably determines is inconsistent with the rights granted to Licensee hereunder and that has or reasonably could be expected to have a material and detrimental effect on the value, reputation or goodwill of such Licensed Trademark, or that would otherwise denigrate in any material respect the image and reputation of the Licensor, and such other party shall comply with such directions reasonably given by the Licensor in accordance with the foregoing.
(d) Form of Use of Licensed Trademarks .
(i) Prior to a Licensee changing in any material respect the font, color or label look of a Licensed Trademark (other than Trademarks that are licensed on a perpetual basis and, to the extent permitted under Sections 2.1(a)(iv) and 2.1(b)(iv), Sub-Brands and Trade Dress) that appears in the principal display panel of a product sold by the Licensee or its Affiliates, the Licensee shall obtain the prior written approval of the Licensor and such approval shall not be unreasonably withheld or delayed. In order to enable the Licensor to review whether such change intended by the Licensee of the font, color or label look of a Licensed Trademark constitutes a material deviation from the materials used by Kraft Foods Inc. and its Subsidiaries prior to the Distribution Date, the Licensee shall submit at least twenty (20) Business Days in advance of the proposed date of such use to the Licensor representative samples of advertising, promotional or marketing materials or collateral materials depicting the intended modification(s) of the Licensed Trademark for the Licensors written approval. For the avoidance of doubt, the Licensor may deny such approval in particular, if such intended change of the font, color or label look of a Licensed Trademark could jeopardize the recognition that the Licensed Trademark was used in the registered form. The Licensee shall not submit requests for changes of the Kraft GroceryCo Trademark or the Back to Nature SnackCo Mark.
(ii) All usages of the Kraft GroceryCo Trademark shall comply with the usage guidelines therefor attached as Schedule I as such usage guidelines are hereafter amended by GroceryCo IPCo in its discretion upon reasonable advance written notice to SnackCo IPCo and all usages of the Back to Nature SnackCo Mark shall comply with the Trademark usage guidelines therefor attached as Schedule J as such usage guidelines are hereafter amended by SnackCo IPCo in its discretion upon reasonable advance written notice to GroceryCo IPCo; provided that such amended usage guidelines are generally applicable to the Licensor and its Affiliates and their other licensees and do not conflict with the express provisions of this Agreement. Except for Licensed Trademarks that a Licensee uses under a perpetual license, wherever the Licensees name or logo appears on the packaging (and, where reasonably practicable on promotional or advertising materials), a legend substantially in the form of the following legend as reference to the Trademark license shall be made following any assignment of any license granted hereunder pursuant to Section 3.7 or within a reasonable time after the Licensor may request the Licensee to do so:
(insert the Licensed Trademark) is used under license from the registered trademark owner, . (insert trademark owner, city, state and country)
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(iii) In the event that the Licensor of a Licensed Trademark that is licensed to a Licensee hereunder intends to redesign, modify or otherwise alter the design of a Licensed Trademark, the Licensor shall reasonably promptly inform the Licensee in writing of the design change intended for the Licensed Trademark and whether the redesigned, modified or altered design has been or will be registered as a trademark in the jurisdiction(s) of the Licensee. Except for any redesign, modification or other alteration of the Back to Nature SnackCo logo, the Licensee shall have the option to adopt the new design of the Licensed Trademark by providing written notice to the Licensor thereof within sixty (60) days following receipt of the Licensors information letter. Adoption of the new design of the Licensed Trademark shall not prevent the Licensee from fully exhausting all packaging and promotion materials bearing the unchanged Licensed Trademark. If the Licensee opts for the new design of the Licensed Trademark, such new design shall be deemed to be a Licensed Trademark hereunder as of the date of the Licensees first use of such new design and subject to the same terms and conditions herein as are applicable to the initial Licensed Trademark that has been redesigned, modified or altered thereby. The Licensor shall inform the Licensee in writing in the event that the Back to Nature SnackCo logo generally is being redesigned, modified or otherwise altered by or under authorization from the Licensor, and the Licensee shall adopt the new design of the Back to Nature SnackCo logo following receipt of such information letter and after having exhausted all then-existing quantities of packaging and promotion materials bearing the initial Back to Nature SnackCo logo.
Section 3.9 R egistered User Filings and Evidence of Trademark Use .
To the extent a Licensee is requested by a Licensor to do so, such Licensee shall reasonably assist the Licensor, at the Licensors cost and upon its reasonable request, in complying with any formalities to properly maintain and protect the Licensors Licensed Trademark under applicable Law, including, but not limited to, executing applications for recordation of the Licensee as a registered user with the appropriate authorities (e.g. by executing a short-form trademark license consistent with this Agreement for recordal purposes) and any and all other instruments and documents as may be reasonably necessary or advisable to properly maintain and protect the interests of the Licensor in the Licensed Trademarks owned by the Licensor. For the duration of the respective Trademark license and a period of at least five (5) years thereafter, the Licensee shall keep proper records and shall preserve suitable evidence that the Licensed Trademark has been used. At any time up to five years following the termination or expiration of any Trademark license, on the Licensors request, the Licensee shall provide the Licensor promptly and in any event within fifteen (15) Business Days with documentary evidence (e.g. invoices, brochures, packaging, advertising or promotion materials related to the Licensed Trademark) that evidences proper use of the Licensed Trademark for a period of no less than five (5) years preceding the Licensors request.
Section 3.10 Goodwill Arising from Use of Marks .
Any and all goodwill arising from any Licensees or its Affiliates use of Trademarks licensed by the Licensor shall inure solely to the benefit of the Licensor and neither during the term of the respective Trademark licenses nor after their termination or expiration shall either party assert any claim to the Licensors Trademarks or such goodwill relating thereto as a result
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of the use of such Trademarks pursuant to the license granted to the Licensee hereunder. Each party agrees that all goodwill in the Licensors Trademarks licensed to the Licensee hereunder that may be held by Licensee notwithstanding the foregoing is hereby assigned by the Licensee and its Affiliates to the Licensor, without the need for any further action by any person.
Section 3.11 No Inconsistent Action .
Subject to Section 2.3, neither the Licensee nor any of its Affiliates shall knowingly or intentionally: (a) take, maintain or direct any action that is inconsistent with the Licensors ownership of the Licensed Trademarks; (b) assert any claim of right in or ownership of the Licensors Licensed Trademarks or challenge the Licensors right, title, interest in, or ownership of, its Licensed Trademarks or its registrations therefor; (c) apply for, or cause any other entity to apply for, the registration of any logo, symbol, trademark, service mark, company or corporate name, product name, domain name or a new social media account or address that does not exist as of the Distribution Date (e.g., a new Facebook or Twitter address) other than for licenses for a term of not less than ten (10) years hereunder and then in a manner that does not include the territory reserved to the Licensor in such addresses and otherwise is consistent with the territorial restrictions in this Agreement, or commercial slogan which (i) consists in whole or in part of the Licensors Licensed Trademarks that have been registered in such jurisdiction or (ii) is confusingly similar to the Licensors Licensed Trademarks that have been registered in such jurisdiction; or (d) take any action that would diminish or dilute the value, reputation or goodwill of the Licensors Licensed Trademarks or that would otherwise denigrate the image and reputation of the Licensor, tarnish the Licensors Licensed Trademarks or harm the Licensors goodwill in its Licensed Trademarks. Neither party shall take any action with an intent to diminish the value, reputation or goodwill of or that would otherwise denigrate the image and reputation of the Split-Ownership Brands, in each case in a manner that would result in a materially adverse effect on the value, ownership, or use of such Split-Ownership Brand by or to the other party in those jurisdictions in which such other party owns the Trademarks relating to such Split-Ownership Brand. For avoidance of doubt, to the extent that an exclusive license granted by a party hereunder as provided herein does not permit such party to use a Trademark for a particular purpose, such party shall not use a Trademark that is confusingly similar thereto for such purpose.
Section 3.12 Enforcement .
(a) Each Licensee will promptly notify the Licensor of any apparent infringement of, or challenge to, any Licensed Trademark licensed to the Licensee or any unfair competition, passing off, dilution or impairment or unauthorized trademark application or registration with respect thereto that comes to the attention of the Licensee. Each Licensor will promptly notify the Licensee of any apparent infringement of, or any claim by any person to any rights in, the Licensed Trademarks licensed by the Licensor that may affect the Licensees use of such Licensed Trademarks under this Agreement.
(b) Except as otherwise provided in this Section 3.12, the Licensor will at all times have the right, in its sole discretion, to take whatever steps it deems necessary or desirable to protect any Licensed Trademarks (other than Exclusively Licensed Trademarks that are licensed on a perpetual basis) from all harmful or wrongful activities of third parties. Such steps may
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include, but are not limited to, the filing and prosecution of: (i) litigation against infringement or unfair competition or passing off by third parties, (ii) opposition proceedings against applications for trademark or service mark registration for trademarks that are confusingly similar to any one or more of the Licensed Trademarks, (iii) cancellation proceedings against registration of trademarks that are confusingly similar to any one or more of the Licensed Trademarks and (iv) other appropriate administrative actions. The Licensee shall cooperate with the Licensor, at the Licensors reasonable request, in any such actions. Except as set otherwise forth in this Agreement, the Licensor shall be responsible for the Licensees reasonable costs and expenses incurred in such cooperation.
(c) Licensed Trademarks That Are Not Licensed Perpetually . In the case of an actual or alleged infringement of, or passing off, or unfair competition with respect to, any of the Exclusively Licensed Trademarks (other than an Exclusively Licensed Trademark that is licensed on a perpetual basis) by a third party within the scope of any exclusive license granted to the Licensee under this Agreement, the Licensor shall have the initial right, at its sole discretion, to bring any infringement, passing off and unfair competition litigation or proceeding. The Licensee shall have the right to participate at its own expense, including through counsel selected by the Licensee, in any such litigation or proceeding instituted by the Licensor, and the Licensor shall reasonably consult with the Licensee in connection therewith. Any monetary damages recovered in any such litigation or proceeding or through settlement shall be applied, first, in reimbursement of all expenses incurred by the Licensor in connection with bringing such litigation or proceeding and the remaining amount after reimbursement of such expenses shall be allocated as follows: (i) 25% of such amount shall be paid to Licensor and (ii) 75% of such amount shall be paid to the Licensee.
(d) If the Licensor has not (i) notified the Licensee within thirty 30 days following receipt of the Licensees notification pursuant to Section 3.12(a) that the Licensor will commence any such litigation or proceeding against an actual or alleged infringement of, or passing off, or unfair competition with respect to, any Exclusively Licensed Trademark (other than an Exclusively Licensed Trademark that is licensed on a perpetual basis) within the scope of the exclusive license granted to the Licensee and (ii) commenced such action reasonably promptly thereafter, the Licensee may commence and prosecute the litigation or proceeding against the third party at its own expense. The Licensor shall cooperate with the Licensee, at the Licensees reasonable request, in any such actions, and the Licensee shall be responsible for the Licensors reasonable expenses incurred in such cooperation. The Licensor shall have the right to participate at its own expense, including through counsel selected by the Licensor, in any such litigation or proceeding instituted by the Licensee. The Licensor agrees that any such action brought by the Licensee may be brought in the name of the Licensor if necessary for the Licensee to maintain the action. The Licensor shall promptly sign and execute all reasonably required documents to enable the Licensee to prosecute the litigation or proceeding in the name of the Licensor. Any monetary damages recovered in any such litigation or proceeding or through settlement shall be paid entirely to the Licensee.
(e) Perpetually Licensed Trademarks . Notwithstanding any provision contained herein to the contrary, in the case of any Exclusively Licensed Trademark that is exclusively licensed hereunder on a perpetual basis, the Perpetual Licensee will be solely responsible, in its sole discretion and at its own expense, for protecting such Exclusively Licensed Trademark
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within the scope of the exclusive rights granted under this Agreement in the jurisdictions in which such exclusive rights have been granted, by whatever lawful means may be necessary or appropriate, including by suit in the event that such Exclusively Licensed Trademarks are infringed, diluted, or subject to unfair competition, passing off or are challenged through opposition or other proceedings. The Perpetual Licensee may sue in the name of the Licensor if necessary to maintain standing to bring any litigation in connection with any actual or alleged infringement, unfair competition, passing off, or dilution of, or with respect to any such Exclusively Licensed Trademarks and the Licensor shall cooperate with the Perpetual Licensee in connection with any such litigation. The Licensor shall have the right to participate at its own expense, including by counsel selected by the Licensor, in any such litigation or proceeding instituted by the Licensee. The Licensor shall promptly sign and execute all reasonably required documents to enable the Perpetual Licensee to prosecute the litigation or proceeding in the name of the Licensor. Any monetary damages recovered in any such litigation or proceeding or through settlement shall be paid entirely to the Perpetual Licensee. The Perpetual Licensee shall be entitled to enter into any agreement, consent order or other resolution that relates solely to Exclusively Licensed Trademarks that are perpetually licensed to such Perpetual Licensee in a certain jurisdiction. Neither the Licensor nor the Licensee shall, however, enter into any agreement, consent order or other resolution of any claim by a third party that would materially adversely affect the other partys rights under this Agreement with respect to a Licensed Trademark that is perpetually licensed without having obtained the respective other partys written approval, which shall not be unreasonably withheld or delayed.
(f) Except as otherwise provided in Section 3.12(e), the Licensor shall at all times have the right, but not the obligation, to take whatever steps it deems necessary or desirable to defend all claims that the use of the Licensed Trademarks infringe, dilute, or constitute unfair competition or passing off with respect to the rights of a third party. The Licensee shall have the right to participate in such defense at its own expense to protect its rights under this Agreement relating to the Licensed Trademarks. Except as otherwise provided in Section 3.12(e), if the Licensee is named as a party to such a claim and the Licensor is not so named, the Licensor shall have the right to defend such action at its own expense, subject to the Licensees right to participate in such defense at its own expense. Each party shall cooperate, at the other partys reasonable request, in such defense, and the other party shall be responsible for the cooperating partys reasonable expenses incurred in such cooperation.
(g) Except as otherwise provided in Section 3.12(e), the Licensee shall not enter into any agreement, consent order or other resolution of a claim by or against a third party that affects the Licensed Trademarks without the Licensors prior written approval. To the extent the Licensors failure to approve such agreement, consent order or other resolution would result in a materially adverse effect on Licensees use of the Licensed Trademarks that are the subject thereof, Licensors approval shall not be unreasonably withheld or delayed. The Licensor shall not enter into any agreement, consent order or other resolution of any claim by a third party that would materially adversely affect the Licensees rights under this Agreement with respect to a Licensed Trademark that is not perpetually licensed without the Licensees prior written approval, which approval shall not be unreasonably withheld or delayed.
Section 3.13 Maintenance of Licensed Trademarks and Monitoring Obligations .
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(a) The Licensor agrees to use commercially reasonable efforts, consistent with its general practices with respect to its own valuable Trademarks that it uses to maintain and renew all registrations of the Licensed Trademarks that are subject to exclusive licenses granted by the Licensor hereunder as long as they remain in use by the Licensee. All expenses associated with maintaining and renewing the registrations of Licensed Trademarks that are not licensed hereunder on a perpetual basis or for a term of ten (10) years hereunder shall be borne by the Licensor. The Licensee shall reimburse the Licensor for all expenses associated with maintaining and renewing the registrations of Licensed Trademarks that are licensed (whether in whole or in part) to the Licensee hereunder on a perpetual basis or for a term of ten (10) years promptly upon receipt of a written request by the Licensor for reimbursement of such expenses that is accompanied by appropriate substantiation. The Licensee shall be responsible for monitoring the trademark applications and registrations of third parties potentially conflicting with any GroceryCo Primary Brand or SnackCo Primary Brand, as the case may be, licensed to it hereunder on a perpetual basis or for a term of ten (10) years hereunder, including paying the cost of any watch service engaged to monitor the trademark applications and registrations of third parties potentially conflicting with such GroceryCo Primary Brands or SnackCo Primary Brands, as the case may be, in any jurisdiction in which the Licensee has been granted a perpetual license or a license for a term of ten (10) years. The Licensee shall have the right to approve counsel engaged by the Licensor to maintain and prosecute Licensed Trademarks that are licensed on a perpetual basis or for a term of ten (10) years, which approval shall not be unreasonably withheld or delayed, and, in the case of Licensed Trademarks that are licensed on a perpetual basis, such counsel engaged by the Licensor shall act at the reasonable direction of the Licensee.
(b) In the event that a Trademark for a particular jurisdiction in which a party has been granted ownership rights herein requires registration of such Trademark in a jurisdiction in which the other party has ownership rights hereunder in order to register or enforce such Trademark (e.g., Guadeloupe is covered by a French or European Community registration), the latter party shall cooperate with the former to provide such former party with rights to the fullest extent contemplated by this Agreement, and the expenses of such latter party in connection therewith shall be borne by the former party. Such cooperation may include filing and prosecuting trademark applications in the former partys jurisdiction based on the latter partys registration or application, the latter party assigning any rights or trademark applications or registrations limited to the former partys Trademark in the former partys jurisdiction to the former party if permissible, or granting the former party a fully-paid, royalty-free, exclusive, sublicenseable, and transferable license to the former partys Trademark in the former partys jurisdiction (which the latter party hereby grants, if applicable), and any other reasonably practicable steps to provide the former party the equivalent of ownership hereunder with respect to the former partys applicable Trademark and jurisdiction.
Section 3.14 Responsibility for Proceedings and Litigation Pending on the Distribution Date; Assumption of Control of Prosecution of Assigned Trademark Applications .
Subject to Section 7.3 of the Separation Agreement, if a party to which a Trademark is being assigned hereunder cannot be promptly substituted as the party in interest in any proceedings or litigation pending on the Distribution Date relating to such Trademark, the party that owned such Trademark prior to the Distribution Date and is currently conducting such proceedings
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or litigation shall continue to be a party to such proceedings or litigation until the new owner of the Trademark is substituted in such proceedings or litigation, but shall follow instructions of the new owner of the Trademark with respect to the conduct of such proceedings or litigation at the cost of such new owner of the Trademark. The parties shall reasonably cooperate by executing and filing such powers of attorney and other documents as may be necessary or appropriate for GroceryCo IPCo to assume direct control and responsibility for the prosecution of all pending Trademark applications included in the GroceryCo Marks that are currently being prosecuted by a SnackCo Entity and for SnackCo IPCo to assume direct control and responsibility for the prosecution of all pending Trademark applications included in the SnackCo Marks that are currently being prosecuted by a GroceryCo Entity.
Section 3.15 Changes Affecting the European Union .
Following the admission into the European Union of any new member states after the Distribution Date, the parties agree to negotiate in good faith the geographical scope of any licenses granted under Section 3.1 that include the European Union. If following the Distribution the European Union is dissolved or otherwise ceases to exist, the parties agree to negotiate in good faith the geographical scope within the former European Union of any licenses granted under Section 3.1 that include the European Union, taking into consideration the countries in the former member states of the European Union in which the applicable GroceryCo Mark is being used and actively marketed on SnackCo Products as of the date of such dissolution (which such countries as at the Distribution Date are set forth in Schedule F hereto).
Section 3.16 Changes Affecting the List of Countries in Schedule A .
If following the Distribution for any reason whatsoever, the list of countries set forth in Schedule A becomes incorrect or if the allocation of certain countries to a certain group of countries in Schedule A is modified or if new countries are established or if two or more countries merge or extent the territory of trademark protection into the territory of another country, the parties shall negotiate in good faith the impact of such an event, if any, and the geographical scope of Trademark licenses affected by such an event.
Section 3.17 Permissible Fair Use .
For purposes of clarity nothing in this Agreement shall preclude any uses of a Trademark or, subject to Section 2.3, any application or registration that otherwise would constitute permissible fair use or not violate the other partys rights if a third party were to make such use.
ARTICLE IV
DIVERSION
Section 4.1 Diversion .
(a) GroceryCo IPCo and its Affiliates will not, and will not authorize or encourage any distributor or customer (collectively Customers ) to:
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(i) sell products that are branded with a Split-Ownership Brand in any jurisdiction in which the other party owns such Split-Ownership Brand; or
(ii) sell products that are branded with a Licensed Trademark in any jurisdiction to which the license granted by SnackCo IPCo to GroceryCo IPCo does not extend.
GroceryCo IPCo and its Affiliates will each use commercially reasonable efforts to notify their Customers in the NA Countries, Mexico, and the Caribbean Countries, through a letter substantially in the form of the No-Diversion Letter, that any such sale by them of such products would infringe the Trademark rights and other rights and obligations of SnackCo IPCo and/or its Affiliates. Neither GroceryCo IPCo nor any of its Affiliates will sell any products that are branded with such Split-Ownership Brand or a Licensed Trademark, or sell such products to a Customer knowing (or where it ought reasonably to have known) that that Customer intends to sell such products, in a jurisdiction in which GroceryCo IPCo or its Affiliates are not entitled to sell such products.
(b) SnackCo IPCo and its Affiliates will not, and will not authorize or encourage any Customer to:
(i) sell products that are branded with a Split-Ownership Brand in any jurisdiction in which the other party owns such Split-Ownership Brand; or
(ii) sell products that are branded with a Licensed Trademark in any jurisdiction to which the license granted by GroceryCo IPCo to SnackCo IPCo does not extend.
SnackCo IPCo and its Affiliates will each use commercially reasonable efforts to notify their Customers in the NA Countries, Mexico, and the Caribbean Countries, through a letter substantially in the form of the No-Diversion Letter, that any such sale by them of such products would infringe the Trademark rights and other rights and obligations of GroceryCo IPCo and/or its Affiliates. Neither SnackCo IPCo nor any of its Affiliates will sell any products that are branded with such Split-Ownership Brand or a Licensed Trademark, or sell such products to a Customer knowing (or where it ought reasonably to have known) that that Customer intends to sell such products, in a jurisdiction in which SnackCo IPCo or its Affiliates are not entitled to sell such products.
Section 4.2 Best Practice Preventing Diversion .
With respect to products that are sold or distributed by or under the direction of the future export organizations of GroceryCo IPCo or SnackCo IPCo, or their respective Affiliates, subject to Section 4.1, each party and its Affiliates shall review orders incoming from its Customers to see whether the quantities or frequency of such orders provide indicia that a Customer intends to divert products into a jurisdiction in violation of Section 4.1. In order to combat diversion of product in violation of Section 4.1, the parties shall apply best practices for preventing diversion, consistent with such best practices in place today employed by the current export organization of Kraft Foods Inc. or its Affiliates as of the Distribution Date (including (i) conducting due diligence on potential Customers prior to the first shipment, (ii) stickering products sold to
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foreign destinations, where customary and appropriate, (iii) shipping products to final destinations of Customers, where customary and appropriate, (iv) ensuring regulatory compliance of products with destination markets and (v) including in its Customer contracts a no-diversion clause substantially the same as the no-diversion clause set forth in Kraft Foods Inc.s or its Affiliates Customer contracts immediately prior to the Distribution). Neither party nor any of its Affiliates may prohibit any Customer located in the European Union from carrying out unsolicited product orders that the Customer has received from a Person in a European Union member state for delivery and consumption in a European Union member state which is not supplied by the Customer.
Section 4.3 Diversion Panel .
(a) Within fourteen (14) days following the Distribution Date and for a period of two (2) years as of the Distribution Date, the parties shall establish and operate a panel consisting of one senior representative from each of GroceryCo and SnackCo (the Diversion Panel ) who will discuss and review actual or potential cases of product diversion in violation of Section 4.1 that either party considers sufficiently substantial to be brought to the attention of the other party. Upon such a case being raised to the Diversion Panel, the party whose Customers are suspected to have caused or to intend to cause diversion of product shall promptly initiate reasonable investigations into the root cause, duration and scope of the diversion case reported and make good faith efforts to prevent occurrence or recurrence of diversion of product. The party which is obliged to investigate a diversion case that was reported by the other party shall regularly update the other party in the Diversion Panel meetings, and outside these meetings in writing, on the progress and the findings of the investigation and on the implementation of remediation measures to prevent diversion of product. The Diversion Panel shall ordinarily meet in person once a quarter. In addition, either party may request an extraordinary Diversion Panel meeting, in which case the Diversion Panel shall meet no later than ten (10) Business Days following the receipt by the other party of the request for such an extraordinary Diversion Panel meeting. The review by the Diversion Panel of an actual or potential diversion case shall not prevent the party affected by diversion from pursuing any legal action against the other party or its Customers.
(b) After two (2) years following the Distribution Date, the parties shall no longer meet quarterly as provided in Section 4.3(a). Both parties, however, will continue to appoint a senior representative and reasonably cooperate, and cause such senior representative to communicate and reasonably cooperate with the senior representative of the other party as reasonably requested by such other party, in order to continue to use good faith efforts to prevent occurrence or recurrence of diversion of any product in violation of Section 4.1 and will meet upon request of either party, if a party believes substantial diversion has occurred or will occur in violation of Section 4.1 to resolve issues prior to involving a Diversion Auditor.
Section 4.4 Material Diversion and Diversion Auditor .
(a) If in a partys reasonable opinion the value of products branded with the perpetually Licensed Trademarks Tang, Kool-Aid, Jell-O or MiO (solely if and to the extent a Trademark registration is obtained in Latin America for the MiO GroceryCo Mark) that were diverted in violation of Section 4.1 is material (being understood to mean that the estimated value of such diverted or intended to be diverted products is no less than five (5)
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million US Dollars of net revenues to the selling party over the course of one calendar year aggregated across all applicable jurisdictions (by way of example, three (3) million US Dollars of Tang into Mexico and two (2) million US Dollars of Tang into Puerto Rico), as adjusted for inflation each year following the Distribution Date by the percentage increase (or decrease) of the All Items Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor (or any successor of such consumer price index)) ( Material Diversion ), the party affected by such Material Diversion (the Infringed Party ) shall promptly bring such case to the attention of the Diversion Panel. The Infringed Party shall also be entitled to instruct a reputable independent public accountant working on an hourly or flat fee basis and does not receive a contingency fee or other bounty or bonus fee (the Diversion Auditor ) to conduct a review of the orders, books and records (to the extent relating to the brands that are the subject of the Material Diversion at issue) of the party whose Customers are suspected to have caused diversion of product (the Accused Party ); provided that the Diversion Auditor shall be at the time of its selection one of the four (4) largest accounting firms in the NA Countries (which as of the Distribution Date would be Deloitte, Ernst & Young, KPMG, or PwC). Once a Diversion Auditor is selected with respect to an actual or suspected Material Diversion pursuant to this Section 4.4, such Diversion Auditor may not be replaced with respect to such actual or suspected Material Diversion. Through such audit ( Diversion Audit ), the Diversion Auditor shall be required to reach a determination on whether the Accused Party was actively or passively facilitating Material Diversion. If the Accused Party has admitted actively or passively facilitating Material Diversion or the Diversion Auditor concludes on a balance of probabilities that the Accused Party was actively or passively facilitating Material Diversion, the Accused Partys liability for Material Diversion affecting the Infringed Party shall be considered proven.
(b) Subject to Sub-Section 4.4(c) below, if the Diversion Auditor (i) is unable to reasonably conclude on a balance of probabilities that the Accused Party was actively or passively facilitating Material Diversion and (ii) has reasonably found indicia suggesting the Accused Partys active or passive facilitation of Material Diversion, a rebuttable presumption shall arise that the Accused Party has actively or passively facilitated Material Diversion and the Accused Party shall bear the burden of proving to the reasonable satisfaction of the Diversion Auditor that it did not actively or passively facilitate Material Diversion affecting the Infringed Party. If the Accused Party fails to discharge its burden of proof, then the Accused Party shall be deemed to have facilitated Material Diversion affecting the Infringed Party and the same shall be noted in the Diversion Audit Report. If the Accused Party succeeds in discharging its burden of proof, then the Diversion Auditor shall determine that the Accused Party was not facilitating Material Diversion affecting the Infringed Party and the same shall be noted in the Diversion Audit Report.
(c) If the Accused Partys Customer that is suspected to have caused Material Diversion is a Large North American Customer and the Accused Party has proven to the reasonable satisfaction of the Diversion Auditor that
(i) the Accused Party has sent the Customer a No-Diversion letter pursuant to Section 4.1; and
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(ii) such Customer ships products that is the subject of a Material Diversion into the Infringed Partys jurisdiction(s) in such quantities (up to ten percent (10%) of the Accused Partys sales of such products to such Customer) that would not raise suspicions to a reasonably diligent business person; and
(iii) the Accused Party has credibly assured that it did not know that such Customer has caused or intended to cause Material Diversion;
then the net revenues of the Accused Party related to sales to such Large North American Customer shall not be included in the calculation of the total net revenues of diverted product for the purposes of assessing whether the net revenue threshold set forth in Section 4.4(a) for a Material Diversion has been met; provided, however, that the Infringed Party shall continue to otherwise retain all available legal rights to pursue a claim against the Accused Party or such Large North American Customer for trademark infringement.
Section 4.5 Cooperation .
The Accused Party shall cooperate with the Diversion Auditor in good faith throughout the Diversion Audit and shall disclose all orders, books, records and other information (including but not limited to interviews with employees of the Accused Party) to the extent relating to the brands that are the subject of the Material Diversion at issue and reasonably necessary to enable the Diversion Auditor to reach a determination on the questions within the scope of the Diversion Audit. At the end of the Diversion Audit, the Diversion Auditor shall issue a written audit report (the Diversion Audit Report ) detailing the findings, observations and determinations of the Diversion Auditor concerning the matters within the scope of the Diversion Audit. The Diversion Audit Report shall contain (inter alia) an estimate or the exact amount of the value of any diverted product in violation of Section 4.1. In no case may the Diversion Audit Report contain sensitive business data of the Accused Party (which information the Infringed Party shall ensure the Diversion Auditor agrees in writing to maintain confidential and not use for any other purpose). The draft of the Diversion Audit Report shall first be sent by the Diversion Auditor to the Accused Party who shall have thirty (30) calendar days from receipt thereof in which to review the draft Diversion Audit Report and lodge in writing with the Diversion Auditor any objections to the findings, observations or determinations therein contained. If the Accused Party lodges any such objections within such thirty (30) calendar day period, the Diversion Auditor shall consider such objections in good faith within fifteen (15) Business Days following receipt thereof and shall make such amendments (if any) to the draft Diversion Audit Report as he in his absolute discretion sees fit. The Diversion Auditor shall then send the final version of the Diversion Audit Report to both parties. In the absence of manifest error, the findings of the Diversion Auditor in the Diversion Audit Report shall be final and binding upon the parties.
Section 4.6 Costs of Diversion Audit .
The costs of a Diversion Audit shall be borne by the party that commissioned the Diversion Auditor, unless the Accused Party has admitted, or the Diversion Audit Report has concluded in accordance with this Article IV that the Accused Party has actively or passively
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facilitated Material Diversion. In such a case, the Accused Party shall reimburse the party that commissioned the Diversion Auditor all costs and reasonable expenses of such Diversion Audit within fourteen (14) days following the receipt of the corresponding invoice.
Section 4.7 Liquidated Damages .
(a) The parties acknowledge and agree that (i) in the event of Material Diversion, the amount of actual damages sustained by the Infringed Party would be impossible or extremely difficult to calculate, (ii) for each additional case of Material Diversion, the damage to the Infringed Party would increase on an exponential (and not linear) basis, due to the effect on the product brand and associated goodwill and reputation and (iii) the amounts required to be paid in the event of Material Diversion, as set forth in Sections 4.7(b) and (c), are a reasonable estimation of the probable damages likely to be sustained by the Infringed Party in such event. Accordingly, the parties agree that in the event of Material Diversion, (x) certain payments shall be made pursuant to and in accordance with the terms of Sections 4.7(b) and (c), as liquidated damages and not a penalty, and (y) the payments set forth in Section 4.7(b) and (c) are not intended to compel the other partys performance hereunder or constitute a penalty or punitive damages for any purpose.
(b) If Material Diversion has been, admitted by the Accused Party, or confirmed in the Diversion Audit Report in accordance with this Article IV:
(i) for the first time, the Accused Party shall pay a liquidated damages amount equal to 2x (two times) the estimated gross profit the Infringed Party has lost from the Accused Partys actively or passively facilitating Material Diversion pursuant to the findings in the Diversion Audit Report, which estimated gross profit shall be determined by the amount of product subject to the Material Diversion, as reflected in the Diversion Audit Report, multiplied by the average gross profit margin of the Infringed Party for such product (or equivalent product) for the preceding calendar year;
(ii) for the second time, the Accused Party shall pay a liquidated damages amount equal to 3x (three times) the estimated gross profit the Infringed Party has lost from the Accused Partys actively or passively facilitating Material Diversion pursuant to the findings in the Diversion Audit Report, which estimated gross profit shall be determined by the amount of product subject to the Material Diversion, as reflected in the Diversion Audit Report, multiplied by the average gross profit margin of the Infringed Party for such product (or equivalent product) for the preceding calendar year; and
(iii) for all further admitted or confirmed cases of facilitation of Material Diversion:
(1) the Accused Party shall pay a liquidated damages amount equal to 3x (three times) the estimated gross profit the Infringed Party has lost from the Accused Partys actively or passively facilitating Material Diversion pursuant to the findings in the Diversion Audit Report, which estimated gross profit shall be determined by the amount of product subject to the Material Diversion, as reflected in the Diversion Audit Report, multiplied by the average gross profit margin of the Infringed Party for such product (or equivalent product) for the preceding calendar year; and
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(2) the Infringed Party shall have the right to, in lieu of such liquidated damages, acquire the business pursuant to Section 4.8.
(c) The Accused Party shall render such liquidated damages payments to the Infringed Party no later than thirty (30) calendar days following the receipt of the corresponding invoice of the Infringed Party.
Section 4.8 Acquisition of Perpetual Trademark License .
(a) If the Infringed Party has been affected at least three times by admitted or confirmed facilitation of Material Diversion by the same Accused Party of the same product in the jurisdiction(s) described in Schedule M hereto within ten years ( Repeated Diversion ), the Infringed Party shall have the option, in lieu of liquidated damages under Section 4.7(b)(iii)(1), to terminate the Applicable Trademark License (as defined in Schedule M hereto) (the Buy-Back Option ) upon (i) provision of written notice (the Buy-Back Notice ) to such Accused Party and to the Licensee under the Applicable Trademark License (the Applicable Licensee ) and (ii) payment to the Applicable Licensee (the Buy-Back Payment ) of an amount equal to six (6) times Adjusted EBITDA for the relevant business conducted under the Applicable Trademark Licenses (the Relevant Business ). The foregoing (i) and (ii) shall be deemed the Buy-Back . At a minimum the assets to be transferred as part of the Relevant Business will include, to the extent related to the products in the territories subject to the Applicable Trademark License and requested by the Infringed Party in its discretion:
(i) Trademark rights to brand(s) (e.g., Tang or Jell-O & Kool-Aid) and all exclusively related Sub-Brands and Trade Dress;
(ii) Rights to any brand-specific web domains or social media accounts or addresses (facebook, twitter accounts, etc.);
(iii) Rights (on a non-exclusive basis if shared with other brands) to any patents and trade secrets (including recipes and formulas) specifically related to the brand(s)
(iv) Rights to any GroceryCo Brand-Related Copyrights or SnackCo Brand-Related Copyrights, as the case may be, specifically related to the brands;
(v) Any brand-specific manufacturing equipment (dedicated production or packaging lines, molds, tooling, etc.), as desired by the Infringed Party;
(vi) Existing finished product and packaging inventories, which should equal no less than the average inventory for the twelve (12) month period immediately preceding the effective date of the Buy-Back;
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(vii) A license to use the other partys Trademarks, Sub-Brands and Trade Dress utilized on existing inventory for up to twelve (12) months following the effective date of the Buy-Back;
(viii) Customer lists with SKU-level pricing, trade spending details and volumes by customer and customer contact details;
(ix) All marketing materials related exclusively to the Related Business, including advertising, promotional, and sales and training materials;
(x) Assignment of any contracts related to sub-licensing of Trademarks or any product-related governmental permits;
(xi) Assignment of all marketing, sales, distribution, and other agreements exclusively related to the Related Business; and
(xii) Transitional services as reasonably needed by the Infringed Party for up to six (6) months after the effective date of the Buy-Back at fully allocated costs plus a 6% markup.
For the avoidance of doubt, the assets and liabilities subject to the Buy-Back Option will not include any cash, debt, payables, or receivables.
(b) Within thirty (30) Business Days of receipt of a Buy-Back Notice, the Applicable Licensee shall deliver to the Infringed Party a written statement calculating Adjusted EBITDA and the amount of the Buy-Back Payment (the AEBITDA Statement ) together with the most recent annual and interim financial statements for the Relevant Business. The Applicable Licensee (i) shall make reasonably available to the Infringed Party upon reasonable advance notice prior to the Infringed Partys acceptance of the AEBITDA Statement any additional financial statements and any work papers that were used by the Applicable Licensee in preparation of the AEBITDA Statement and (ii) shall respond promptly to the Infringed Partys requests for additional information with respect to the Adjusted EBITDA calculation. The AEBITDA Statement shall not be binding upon the Infringed Party if the Infringed Party timely exercises its right to dispute the AEBITDA Statement in accordance with the procedures set forth in Section 4.8(c) below.
(c) If the Infringed Party objects to an AEBITDA Statement, the Infringed Party shall deliver a statement of objection (including reasonable details of such objection) to the Applicable Licensee within fifteen (15) Business Days after receiving such AEBITDA Statement. The Infringed Party and the Applicable Licensee shall use reasonable efforts to promptly resolve any objection. If the Infringed Party and the Applicable Licensee do not obtain a final resolution within fifteen (15) Business Days after the Applicable Licensee has received the Infringed Partys statement of objections, the Infringed Party and the Applicable Licensee shall select a mutually acceptable independent public accountant that is working on an hourly or flat fee basis and does not receive a contingency fee or other bounty or bonus fee. Such accountant shall be instructed to determine the final amount of the Buy-Back Payment within twenty (20) Business Days of the date of its appointment. The Applicable Licensee shall revise the AEBITDA Statement if necessary and as appropriate to reflect the resolution of any objections thereto, if
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any, pursuant to this Section 4.8(c). The determination of such accountant shall be set forth in writing and shall be conclusive and binding upon the Infringed Party and the Applicable Licensee. The fees and expenses of such accountant shall be borne equally by the Applicable Licensee and the Infringed Party.
(d) Following election of the Buy-Back Option and termination of the Applicable Trademark Licenses, the Applicable Licensee shall use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable to consummate and make effective the Buy-Back Option.
(e) Notwithstanding the foregoing, the Buy-Back Option shall not extend to the MiO GroceryCo Mark.
Section 4.9 Legal Actions .
Nothing in this Article IV shall prevent a party affected by diversion of product in violation of Section 4.1 from, subject to Section 4.4(c) and Article VII (as applicable), initiating suitable legal actions against the other party or its Customers in order to seek compensation, or to ban, hinder or avoid any form of such diversion of product; provided, however, that the liquidated damages set out in Section 4.7 above shall be the sole and exclusive monetary remedy of the Infringed Party in respect of facilitation by the Accused Party of any Material Diversion.
ARTICLE V
FURTHER ASSURANCES AND ADDITIONAL COVENANTS
Section 5.1 Further Assurances .
(a) In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties shall use its reasonable best efforts on and after the Distribution Date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable Law, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement.
(b) Without limiting the foregoing, each party shall cooperate with the other party, and without any further consideration, but at the expense of the requesting party, to (i) execute and deliver, or use its reasonable best efforts to cause to be executed and delivered, all instruments, including any instruments of conveyance, assignment and transfer as such party may reasonably request to execute and deliver to the other party, (ii) make, or cause to be made, all filings with, and to obtain, or cause to be obtained, all Consents, approvals or authorizations of, any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument and (iii) take all such other actions as such party may reasonably be requested to take by any other party from time to time, consistent with the terms of this Agreement in order to effectuate the provisions and purposes of this Agreement and the transfers of the GroceryCo Marks and the SnackCo Marks and the other transactions contemplated hereby and thereby.
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Section 5.2 Change of SnackCo Name . SnackCo IPCo agrees that, as soon as practicable (and in any event within five (5) days) after the Distribution, SnackCo shall cause to be filed with the Secretary of State of the states in which SnackCo is organized or is doing business, an amendment to its certificate of incorporation or qualification to do business to change its name to a new name that does not include Kraft.
ARTICLE VI
TERMINATION
Section 6.1 Termination . This Agreement shall terminate automatically upon any termination of the Separation Agreement by the Kraft Foods Inc. Board at any time prior to the Distribution.
Section 6.2 Effect of Termination . In the event of any termination of this Agreement prior to the Distribution, no party (or any of its directors or officers) shall have any Liability or further obligation to any other party with respect to this Agreement.
Section 6.3 Agreement Otherwise Not Terminable .
Except as and to the extent expressly set forth in this Agreement, this Agreement and the rights granted herein may not be terminated (including as a result of breach of this Agreement) without the express written consent of the parties hereto.
ARTICLE VII
DISPUTE RESOLUTION
Section 7.1 Step Process . Any controversy or claim arising out of or relating to this Agreement, or the breach thereof (a Dispute ), shall be resolved: (a) first, by negotiation and then by mediation as provided in Section 7.2; and (b) then, if negotiation and mediation fail, by binding arbitration as provided in Section 7.3. Each party agrees on behalf of itself and each member of its respective Group that the procedures set forth in this Article VII shall be the exclusive means for resolution of any Dispute. The initiation of mediation or arbitration hereunder will toll the applicable statute of limitations for the duration of any such proceedings.
Section 7.2 Negotiation and Mediation . If either party serves written notice of a Dispute upon the other party (a Dispute Notice ), the parties will first attempt to resolve such Dispute by direct discussions and negotiation. If a Dispute is not resolved within forty five (45) days, the parties will attempt to settle the dispute by mediation under the current Center for Public Resources/International Trademark Association ( CPR/INTA ) Model Procedure for Mediation of Trademark and Unfair Competition Disputes. The mediator will be selected from the CPR/INTA Panel of neutrals in accordance with its selection process. If a good faith attempt by the parties to select from this Panel does not result in the selection of an available suitable mediator, the parties will ask CPR to further assist in the selection in accordance with its standard selection process using other panels.
Section 7.3 Arbitration .
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(a) If mediation conducted pursuant to Section 7.2 fails to resolve the Dispute within forty five (45) days of the demand for mediation, either party shall have the right to commence arbitration. In that event, the Dispute shall be resolved by final and binding arbitration administered by the International Centre for Dispute Resolution (the ICDR ) in accordance with its International Arbitration Rules. The place of arbitration shall be New York City, New York. Any Dispute concerning the propriety of the commencement of the arbitration shall be finally settled by such arbitration. Judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof or having jurisdiction over the relevant party or its Assets.
(b) The number of arbitrators shall be three. The claimant shall designate an arbitrator in its request for arbitration and the respondent shall designate an arbitrator in its answer to the request for arbitration. When the two co-arbitrators have been appointed, they shall have 21 days to select the chair of the arbitral tribunal, and if they are unable to do so, the ICDR shall appoint the chair by use of the list method.
Section 7.4 Interim Relief . The parties acknowledge and agree that a party would suffer irreparable harm from a breach by the other party of this Agreement, and that remedies other than injunctive relief may not fully compensate or adequately protect the non-breaching party for or from such a violation. Therefore, at any time during the pendency of a Dispute between the parties, either party has the right to apply to any court of competent jurisdiction for interim relief, including pre-arbitration attachments or injunctions, necessary to preserve the parties rights or to maintain the parties relative positions until such time as the arbitration award is rendered or the Dispute is otherwise resolved. During the pendency of any Dispute and/or any such interim relief proceeding, the parties shall continue to perform all obligations under this Agreement.
Section 7.5 Remedies . The arbitrators shall have no authority or power to limit, expand, alter, amend, modify, revoke or suspend any condition or provision of this Agreement nor any right or power to award punitive, exemplary or treble (or other multiple) damages.
Section 7.6 Expenses . Each party shall bear its own costs, expenses and attorneys fees in pursuit and resolution of any Dispute; provided, however, that, in the event of any arbitration pursuant to Section 7.3, the non-prevailing party shall bear both parties costs and expenses incurred in connection with such arbitration (including reasonable attorneys fees and the fees of any arbitrator).
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Coordination with Certain Ancillary Agreements; Conflicts . Except as otherwise expressly provided in this Agreement, in the event of any conflict or inconsistency between any provision of any of the Separation Agreement or any other Ancillary Agreements and any provision of this Agreement, this Agreement shall control over the inconsistent provisions of the Separation Agreement or any other Ancillary Agreements as to the matters specifically addressed in this Agreement. For the avoidance of doubt, the Tax Sharing Agreement shall govern all matters (including dispute resolution and any indemnities and payments among the parties) relating to Taxes or otherwise specifically addressed in the Tax Sharing Agreement.
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Section 8.2 Expenses . Except as expressly set forth in this Agreement, all fees, costs and expenses paid or incurred in connection with the performance of this Agreement, whether performed by a third party or internally, will be paid by the party incurring such fees or expenses. For the avoidance of doubt, (a) SnackCo IPCo will be responsible for any transfer and recordal fees related to the transfer of any SnackCo Brand IP to SnackCo IPCo and (b) GroceryCo IPCo will be responsible for any transfer and recordal fees related to the transfer of any GroceryCo Brand IP to GroceryCo IPCo.
Section 8.3 Amendment and Modification . This Agreement may not be amended, modified or supplemented in any manner, whether by course of conduct or otherwise, except by an instrument in writing specifically designated as an amendment hereto, signed on behalf of each party.
Section 8.4 Waiver . No failure or delay of any party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, or any course of conduct, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the parties hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have hereunder. Any agreement on the part of any party to any such waiver shall be valid only if set forth in a written instrument executed and delivered by a duly authorized officer on behalf of such party.
Section 8.5 Notices . All notices and other communications hereunder shall be in writing and shall be deemed duly given (a) on the date of delivery if delivered personally, or if by facsimile, upon written confirmation of receipt by facsimile, e mail or otherwise, (b) on the first Business Day following the date of dispatch if delivered utilizing a next-day service by a recognized next-day courier or (c) on the earlier of confirmed receipt or the fifth Business Day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid. All notices hereunder shall be delivered to the addresses set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:
(i) | if to SnackCo IPCo or any other SnackCo Entity, to: |
Mondelēz International, Inc.
Address 1: Three Parkway North, Deerfield, Illinois, 60015, U.S.A.
Attention: General Counsel
with a copy (which shall not constitute notice) to:
Mondelēz International, Inc.
Address 1: Three Parkway North, Deerfield, Illinois, 60015, U.S.A.
Attention: Chief Trademark Counsel
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(ii) | if to GroceryCo IPCo or any other GroceryCo Entity, to: |
Kraft Foods Group
Address 1: Three Lakes Drive, Northfield, Illinois, 60093, U.S.A.
Attention: General Counsel
with a copy (which shall not constitute notice) to:
Kraft Foods Group
Address 1: Three Lakes Drive, Northfield, Illinois, 60093, U.S.A.
Attention: Chief Trademark Counsel
Section 8.6 Interpretation . When a reference is made in this Agreement to a Section, Article, Annex or Schedule such reference shall be to a Section, Article, Annex or Schedule of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement or in any Schedule to this Agreement are for convenience of reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Any capitalized terms used in any Schedule, Annex or Exhibit but not otherwise defined therein shall have the meaning as defined in this Agreement or the Separation Agreement. All Schedules, Annexes and Exhibits annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth herein. The word including and words of similar import when used in this Agreement shall mean including, without limitation, unless otherwise specified. The word day when used in this Agreement shall mean calendar day, unless otherwise specified.
Section 8.7 Entire Agreement . This Agreement and the Separation Agreement and the other Ancillary Agreements and the Annexes, Exhibits, Schedules and Appendices hereto and thereto constitute the entire agreement, and supersede all prior written agreements, arrangements, communications and understandings and all prior and contemporaneous oral agreements, arrangements, communications and understandings among the parties with respect to the subject matter hereof. This Agreement shall not be deemed to contain or imply any restriction, covenant, representation, warranty, agreement or undertaking of any party with respect to the transactions contemplated hereby and thereby other than those expressly set forth herein or therein or in any document required to be delivered hereunder or thereunder. Notwithstanding any oral agreement or course of action of the parties or their representatives to the contrary, no party to this Agreement shall be under any legal obligation to enter into or complete the transactions contemplated hereby unless and until this Agreement shall have been executed and delivered by each of the parties.
Section 8.8 No Third Party Beneficiaries; Affiliates . Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the parties hereto and their respective successors and permitted assigns any legal or equitable right, benefit or remedy of any nature under or by reason of this Agreement. Without limitation to the foregoing, and for clarity, (i) references to Affiliates of a party herein does not render such Affiliates a party to this Agreement, (ii) each party hereto shall be responsible for providing to its Affiliates pursuant to separate agreements or other arrangements any rights or benefits that such Affiliates may enjoy as a result of this Agreement and (iii) each party hereto shall be responsible for causing its Affiliates to comply with the applicable provisions of this Agreement.
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Section 8.9 Governing Law . This Agreement and all disputes or controversies arising out of or relating to this Agreement or the transactions contemplated hereby shall be governed by, and construed in accordance with, the internal Laws of the State of New York, without regard to the Laws of any other jurisdiction that might be applied because of the conflicts of laws principles of the State of New York (other than Section 5-1401 of the New York General Obligations Law).
Section 8.10 Assignment . Subject to Section 3.7, and except as expressly permitted in this Section 8.10, this Agreement or any of the rights, interests or obligations hereunder or thereunder may not be assigned or otherwise transferred or delegated, in whole or in part, by operation of law or otherwise, by any party or its Affiliates without the prior written consent of the other party, which shall not be unreasonably withheld or delayed, and any such assignment without such prior written consent shall be null and void. Subject to Section 3.7, a party and its Affiliates shall be permitted, without the prior written consent of the other party, to assign or otherwise transfer (a) any Trademarks (and corresponding copyrights) that it or its Affiliates own and that are subject to this Agreement and such partys and its Affiliates rights, interests or obligations hereunder with respect thereto, or (b) its or their rights, interests or obligations hereunder to any successor to all or substantially all of the business or assets of such party and its Affiliates; provided that in each of the foregoing (a) and (b) any such assignee or transferee expressly assumes in writing (with the other party named as an intended third-party beneficiary thereof) all of the obligations of such party under this Agreement. Notwithstanding the foregoing, in the event that SnackCo IPCo or one of its Affiliates assigns or otherwise transfers the Back to Nature SnackCo Marks, and a contract that SnackCo IPCo or an Affiliate of SnackCo IPCo is a party to provides that the license to GroceryCo IPCo is to continue pursuant to a new license agreement to be entered by GroceryCo IPCo (or one of its Affiliates) with respect to the Back to Nature SnackCo Marks in connection with such assignment or other transfer, GroceryCo IPCo (or such designated Affiliate) shall enter into such license agreement if such new license is on substantially the same terms and conditions contained herein with respect thereto or shall use commercially reasonable efforts to enter into such license agreement if such license agreement seeks to alter the terms hereof, and the license granted under Section 3.2(c)(ii) solely with respect to such SnackCo Marks shall terminate immediately upon GroceryCo IPCo (or such designated Affiliate) entering into such new license. This Agreement shall be binding on and enure for the benefit of the successors and permitted assigns of each party.
Section 8.11 Severability . Whenever possible, each provision or portion of any provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable Law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or portion of any provision in such jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.
Section 8.12 Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.
Section 8.13 F acsimile Signature . This Agreement may be executed by facsimile signature and a facsimile signature shall constitute an original for all purposes.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives.
KRAFT FOODS GLOBAL BRANDS LLC |
||
By: | /s/ Gerhard Pleuhs | |
Name: Gerhard Pleuhs | ||
Title: Authorized Signatory |
KRAFT FOODS GROUP BRANDS LLC |
||
By: | /s/ Timothy R. McLevish | |
Name: Timothy R. McLevish | ||
Title: Authorized Signatory |
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Exhibit 10.8
EXECUTION VERSION
MASTER GENERAL TRANSITION SERVICES AGREEMENT
between
Kraft Foods Group, Inc.
and
Mondelēz Global LLC
Dated as of September 27, 2012
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
MASTER GENERAL TRANSITION SERVICES AGREEMENT
This Master General Transition Services Agreement (this Agreement ) is entered into as of the Distribution Date, as defined in the Separation Agreement (as defined below), (the Effective Date ) between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability ( SnackCo ).
WHEREAS, GroceryCo and SnackCos parent company are parties to that certain Separation Agreement dated as of the Distribution Date (the Separation Agreement );
WHEREAS, pursuant to the Separation Agreement, the parties agreed to separate Kraft Foods Inc. into two companies: (a) GroceryCo, which will own and conduct, directly and indirectly, the GroceryCo Business; and (b) SnackCo, which will own and conduct, directly and indirectly, the SnackCo Business (the Separation );
WHEREAS, in connection with the transactions contemplated by the Separation Agreement and in order to ensure a smooth transition following the Separation, each party desires that the other party provide, or cause its Affiliates or contractors to provide, certain transition services (other than (a) information technology services, which services will be governed under the Master Information Technology Transition Services Agreement dated as of the Distribution Date, and (b) research and development transition services, which services will be governed under the Research and Development Agreement dated as of the Distribution Date) in exchange for the consideration stated in this Agreement and in accordance with the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the services to be provided hereunder will be specified in separate Project Statements (as further defined below) that will set forth the scope of the services to be provided as well as the party who will provide the services (the Supplier as further defined herein) to the other party (the Buyer as further defined herein); and
WHEREAS, each party in its capacity as a Buyer wishes to receive such specified transition services for use in connection with its Business in order to ensure a smooth transition following the Separation and services as Buyer may select, and each party in its capacity as a Supplier has agreed to provide such services in accordance with the terms specified herein.
NOW, THEREFORE, in consideration of the mutual agreements contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, GroceryCo and SnackCo agree as follows:
1. Definitions. The following terms have the meanings indicated:
1.1 Allocated Cost has the meaning set forth in Section 5.2.
1.2 Buyer means with respect to a Service specified in a Project Statement, the party receiving such Service as specified in the Project Statement.
1.3 Buyer Data means data relating to the operation of the Business of Buyer in the possession or control of Supplier.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.4 Canadian Buyer has the meaning set forth in Section 10.1.
1.5 Canadian Supplier has the meaning set forth in Section 10.1.
1.6 Change of Control means any: (A) event or series of events through which any person or group (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), becomes, or obtains rights (whether by means or warrants, options or otherwise) to become, the beneficial owner (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more than 50% of the outstanding common stock of a party or any of its subsidiaries; (B) merger, consolidation or acquisition of or involving a party or any of its subsidiaries; (C) sale of any material amount of the assets of a party or any of its subsidiaries (including by a sale of stock or other securities of any such subsidiary); or (D) similar transaction or business combination involving a party or any of its subsidiaries or their business or capital units or assets.
1.7 Confidential Information has the meaning set forth in Section 9.1.
1.8 Contractor has the meaning set forth in Section 3.3.
1.9 Dispute has the meaning set forth in Section 10.2.
1.10 Employee Matters Agreement means the Employee Matters Agreement between the parties dated as of the Distribution Date.
1.11 Maximum Transition Period means the two-year period beginning on the Effective Date.
1.12 New Service means a Service not provided or supplied by Kraft Foods Inc., its subsidiaries and/or its Contractors for the Business of Buyer during the 12 months preceding the Effective Date.
1.13 Project Statement has the meaning set forth in Section 2.1.
1.14 Representative means an Affiliate, Contractor or other Person providing Services hereunder on behalf of Supplier.
1.15 Services means collectively the Identified Services, any Menu Services and any Additional Services described in mutually agreed Project Statements.
1.16 Services Manager has the meaning set forth in Section 3.1.
1.17 Supplier means with respect to a Service specified in a Project Statement, the party providing such Service as specified in the Project Statement.
1.18 Term has the meaning set forth in Section 7.1.
1.19 Transition Period means the maximum period of time set forth in the applicable Project Statement for a Service, as such Transition Period may be adjusted by mutual written agreement of the parties from time to time; provided , however , that in no event will the Transition Period exceed the date that is two years from the Effective Date.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Other capitalized terms have the meanings set forth elsewhere in this Agreement. Any capitalized terms used but not defined in this Agreement have the meanings given to them in the Separation Agreement.
2. Transition Services.
2.1 Project Statements. The scope of each agreed upon Service to be provided under the terms of this Agreement will be set forth in a Project Statement substantially in the form set forth in Annex A (a Project Statement ), including, as applicable, (i) the party that is the Supplier of the Service and the party that is the Buyer of the Service, (ii) a timeline for such Service, (iii) the location of such Service (including any Canada Services), (iv) each partys Services Manager for such Project Statement, (v) any details regarding the Allocated Cost for such Service, (vi) payment terms, and (vii) any specifications applicable to such Service, if different from the specifications defined in this Agreement. No Project Statement will be binding or effective unless signed by both parties. Supplier will provide, or cause one or more of its Representatives to provide, to Buyer the Services described in executed Project Statements in accordance therewith and subject to the terms and conditions of this Agreement.
2.2 Identified Services. Each Project Statement entered into as of the Effective Date is attached to this Agreement in Annex B , and the Services identified in such Project Statements are referred to in this Agreement, collectively, as the Identified Services . Supplier agrees, on the terms and subject to the conditions of this Agreement, to provide, or cause one or more of its Representatives to provide, to Buyer each of the Identified Services for the applicable Transition Period indicated in each applicable Project Statement attached hereto in Annex B , and Buyer agrees to purchase and pay for the Identified Services as provided for in Section 5.
2.3 Menu Services. If Buyer desires to receive any services that are not Identified Services but that are listed on the menu of services available upon request as set forth in Annex C ( Menu Services ), Buyer will provide Supplier with a reasonably detailed written request for such proposed services. Within 30 days following such request, Supplier will, to the extent feasible, provide a good faith estimate of the costs, timing and resources required to provide such Menu Services, including a good faith summary of any costs or effects to other Services, equipment, systems, personnel or resources being provided to Buyer ( Resulting Linked Effects ). The parties will then promptly negotiate in good faith the terms of a Project Statement by which the proposed Menu Services would be provided under this Agreement. Supplier agrees to take commercially reasonable efforts to provide the proposed Menu Services to the extent not unduly burdensome in light of Suppliers resource constraints and obligations, subject to the following conditions: (i) if the requested Menu Services could be obtained from other commercial service providers in a commercially reasonable manner, then Supplier will have the right, in its sole and absolute discretion, to decline to provide such Menu Services; (ii) Supplier will not be obligated to perform any Menu Services unless Buyer agrees to pay the Allocated Cost for such Menu Services, including any Allocated Costs associated with Resulting Linked Effects; and (iii) in no event will the Transition Period for any Menu Service extend beyond the Maximum Transition Period.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.4 Additional Services.
(a) If Buyer desires to receive any services that are not Identified Services or Menu Services, or that represent a significant or material change to an Identified Service or a Menu Service, Buyer will provide Supplier with a reasonably detailed written request for such proposed services (the Additional Services ) (such request sufficiently detailed to enable Supplier to weigh the risks and assess the feasibility of such request and attempt to estimate the resources and effort required to provide such proposed services). Within 30 days following such request, Supplier will, to the extent reasonably feasible, assess the request in good faith and provide notice of whether it will endeavor to provide the requested Additional Service. If Supplier does not respond to such request within 30 days following such request, then Supplier will be deemed to have refused such request.
(b) If a requested Additional Service is reasonably necessary to effect the Separation of the GroceryCo and SnackCo Businesses then Supplier will accept the request to provide the proposed Additional Service if it can feasibly provide such Additional Service without undue burden in light of Suppliers resource constraints and obligations. Supplier will have no obligation to provide an Additional Service or to provide the Additional Service under any specific terms, and may decline to provide such requested Additional Service in its sole and absolute discretion, if any of the following apply: (i) the requested Additional Service is not reasonably necessary to effect the Separation of the GroceryCo and SnackCo Businesses; (ii) the requested Additional Service is not a Service that was provided or supplied by Kraft Foods Inc. and/or its subsidiaries for the Business of Buyer during the 12 months preceding the Effective Date; (iii) the requested Additional Service could be obtained from other commercial service providers in a commercially reasonable manner; (iv) Buyer will not agree to pay the Allocated Cost for such Additional Services, including any Allocated Costs associated with Resulting Linked Effects; or (v) the Transition Period for the requested Additional Service extends beyond the Maximum Transition Period.
(c) If Supplier accepts a request to provide an Additional Service, it will, to the extent reasonably feasible, provide a good faith estimate of the fees, timing and resources required to provide such Additional Services, including a good faith summary of any Resulting Linked Effects. The parties will then promptly negotiate in good faith a Project Statement by which the proposed Additional Services would be provided under this Agreement.
2.5 Disputes over requested Services . In the event that Buyer alleges that Supplier (or a proposed Supplier) has violated its obligation to consider or provide a requested Service hereunder, or has acted in bad faith in negotiating the terms applicable to a Service such Dispute will be subject to arbitration in accordance with Section 10.2(c).
2.6 Financial obligation . In providing the Services, Supplier and its Representatives will not be obligated to perform any of the following actions unless Buyer agrees to pay the fully Allocated Cost of such actions and the performance of such actions is reasonably within the control of Supplier and its Representatives: (i) maintain the employment of any specific employee; (ii) purchase, lease or license any additional equipment or software, except any replacement for existing equipment owned by Supplier and necessary to provide the Services pursuant to the terms of this Agreement; (iii) pay any costs related to the conversion of the Buyer Data from one format to another; or (iv) pay any costs necessary to integrate Buyers systems for purposes of receiving the Services.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.7 Means of providing Services. Supplier will, in its sole discretion, determine the means and resources used to provide the Services in accordance with its business judgment and subject to Section 4. Supplier will have sole discretion and responsibility for staffing, instructing and compensating its personnel and third parties who perform the Services.
2.8 Access to facilities and equipment. To the extent reasonably required to perform the Services hereunder, Buyer will provide (or, as necessary, will cause its Representatives to provide) Supplier with reasonable access to and use of Buyers applicable facilities and equipment.
2.9 Cooperation; consulting . Supplier and Buyer will use reasonable efforts to assist and cooperate with one another in the timely and orderly transfer of all matters that support or relate to the functions that are the subject of any Services. Buyer acknowledges that some Services to be provided under this Agreement require instructions and information from Buyer, which Buyer will provide to Supplier sufficiently in advance in order to enable Supplier or its Representatives to provide or procure such Services in a timely manner. Supplier will not be liable for any delays resulting from or caused by Buyers failure to provide such instructions or information in a timely manner, and Buyer will pay any reasonable additional costs or expenses, including labor, resulting therefrom. Buyer will provide all information reasonably required or requested by Supplier to perform its obligations under this Agreement. Except as otherwise specified for Menu Services, the cost for hourly consulting services provided by Supplier personnel included in Allocated Costs for any Services will be billed at $150 per hour plus reasonable, out-of-pocket expenses.
2.10 Inability to perform Services . In the event that Supplier will be unable to perform Services as required by this Agreement for any reason whatsoever, the parties will cooperate, and Supplier will use its commercially reasonable efforts, to restore the affected Services as soon as possible. The foregoing is without prejudice to any rights and remedies Buyer may have in connection with such failure to perform.
3. Personnel.
3.1 Services Managers . Each party will each select a separate services manager (a Services Manager ) for each Project Statement, with each such Services Manager to be identified in the applicable Project Statement, to act as its primary contact person for the provision or receipt, as applicable, of the Services hereunder. All communications relating to the provision of the Services will be directed to the Services Manager of the other party. The Services Managers of the parties will meet periodically, no less than quarterly, to discuss the status of the Services.
3.2 Supplier personnel . Except as otherwise set forth in the Separation Agreement or the Employee Matters Agreement, for the avoidance of doubt, this Agreement does not impose an obligation on Supplier to second or procure the secondment to Buyer of any employee or other personnel in connection with the provision of the Services. The parties agree that such
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
employees of Supplier and its Affiliates providing Services are employees, contract employees or secondees of Supplier or its Affiliates. All labor matters relating to any employees of Supplier and its Affiliates will be within the exclusive direction, control and supervision of Supplier and its Affiliates, and Buyer will take no action affecting such matters, and Supplier will have the sole right to exercise all authority with respect to the employment, termination, assignment, and compensation of such Supplier personnel; provided , however , that Supplier agrees to use commercially reasonable efforts to maintain sufficient personnel and facilities necessary to provide the Services. Supplier will be solely responsible for the payment of all salary and benefits, social security taxes, unemployment compensation tax, workers compensation tax, other employment taxes or withholdings and premiums and remittances with respect to employees of Supplier and its Affiliates used to provide Services, and all Supplier personnel providing Services under this Agreement will be deemed to be employees or representatives solely of Supplier for purposes of all compensation and employee benefits and not to be employees, representatives or agents of Buyer.
3.3 Contractors. The Services may be provided in whole or in part by (a) Affiliates of Supplier, or (b) third party contractors or subcontractors (a Contractor ) capable of providing the required level of service set forth in Section 4.
(a) If Supplier wishes to use a Contractor to provide Services for the benefit of Buyer that has not provided similar services to the Businesses during the 12 months preceding the Effective Date (a New Contractor ), then Supplier will ensure that such New Contractor agrees in writing to be bound by the relevant terms and conditions of this Agreement. Without limiting the foregoing, Supplier will ensure that the New Contractor enters into a written confidentiality agreement on terms with respect to the Confidential Information of Buyer and its Affiliates that are substantially similar to and at least as protective of such Confidential Information as the terms of Section 9 of this Agreement.
(b) Supplier will take all commercially reasonable efforts to ensure that Services are not interrupted or materially disrupted in connection with the transition of provision of Services to any Contractor, including a New Contractor. Supplier will not be responsible for delays in the provision of Services arising from Buyers failure to respond promptly to reasonable requests or information provided by Supplier or caused by terms or negotiations requested by Buyer.
(c) If and to the extent that any failure, delay or other problem in connection with the Services (or any part thereof) is caused by the act or omission of a Contractor: (i) Supplier will not be in breach of this Agreement or otherwise liable to Buyer as a result of such failure, delay or other problem; (ii) Supplier will use commercially reasonable efforts to exercise and enforce its rights and remedies (if any) against the Contractor such that the failure, delay or other problem is remedied as soon as reasonably practicable and its impact on the Services and its Business is minimized; and (iii) Supplier will pay (or procure the payment) to Buyer such portion of any monetary compensation paid to Supplier by a Contractor in respect of any damages caused by the act or omission of that Contractor as relates to any damage suffered by Buyer or its Business as a result of that act or omission (in the event Contractor is found obligated to pay less than all compensation necessary to make whole both Supplier and Buyer, then Supplier and Buyer will split the compensation on a pro-rata basis consistent with each partys portion of the total damages suffered).
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
3.4 Compliance with Policies; Safety of Personnel . Buyer acknowledges that Supplier has instituted and will continue to institute and revise a variety of policies and procedures for its provision of Services. All Services must be reasonably capable of being performed in a manner that is consistent with the policies and procedures of Supplier, including those relating to antitrust laws and health, safety, labor, employment and environmental laws and otherwise in compliance with applicable law. Supplier will use reasonable efforts to provide Buyer with advance written notice in the event it believes any Service is not consistent with such policies or procedures where the same would materially affect the Services to be provided. To the extent Services are performed on site, Supplier will be permitted to withdraw any personnel providing Services at that time if Supplier has a reasonable opinion that such personnel face any risk to their personal safety and prior written notice (to the extent possible) has been given to Buyer.
3.5 Retention of Supplier personnel. If, during the Term, Buyer hires, retains or otherwise engages any employee, Contractor or other personnel of Supplier, Supplier will not be in breach of this Agreement or otherwise liable to Buyer to the extent such hiring, retention or engagement impairs or affects the ability of Supplier to provide the Services hereunder (or any part thereof), including any failure, delay or other non-compliance with any requirements relating to the Services resulting therefrom.
4. Service Standards.
4.1 Service levels. (a) Supplier will use commercially reasonable efforts to continue to provide those Services being supplied for Buyers Business as of the Effective Date at a relative service level consistent in all material respects with that provided to Buyers Business in the 12 months preceding the Effective Date; or (b) Supplier will use commercially reasonable efforts to provide New Services consistent with the specifications, if any, set forth in an applicable Project Statement. For any work performed on premises of Buyer, Supplier and its personnel will comply with all reasonable security, confidentiality, safety and health policies of Buyer (as applicable) if and to the extent Buyer informs Supplier of such policies in writing. In the event of a failure to meet such general service levels, Supplier will endeavor to identify and resolve the cause of the deficiency. If such issue remains unresolved for more than 30 days Buyer may refer the matter for resolution in accordance with Section 10.2.
4.2 Exceptions. It will not be deemed to be a breach of this Agreement if Supplier fails to meet the service standards set forth in this Section 4 because of (i) the failure of Buyer to cooperate with or provide information, services or decisions to Supplier as required hereunder, (ii) failure caused by any act or omission of Buyer or its facilities, equipment, hardware or software, (iii) changes reasonably deemed to be required by changes in law, technology or the availability of reasonably commercially available products and services, (iv) changes otherwise permitted hereunder, (v) demands on, or changes to, the relevant systems, processes or personnel, provided Supplier expends commercially reasonable efforts to attempt to correct the situation within a reasonable period of time, (vi) failures by third party service providers not directly retained by Supplier, (vii) a Contractors failure to perform (subject to Section 3.3(c)(ii)), or (viii) Force Majeure as further provided in Section 10.2(b).
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
4.3 No warranty . O THER THAN AS PROVIDED IN THIS S ECTION 4, S UPPLIER DOES NOT MAKE ANY WARRANTY WITH RESPECT TO THE S ERVICES , WHETHER EXPRESS OR IMPLIED , AND SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES , WHETHER OF MERCHANTABILITY , SUITABILITY , FITNESS FOR A PARTICULAR PURPOSE , OR OTHERWISE FOR SAID S ERVICES .
5. Payment for Services.
5.1 Costs and charges. Supplier will charge Buyer the Allocated Cost for the Services provided hereunder.
5.2 Calculation of Allocated Cost. Allocated Cost means the fully allocated cost for providing Services calculated in a manner consistent with past practice, including the following (to the extent allocable to the provision of the Services): (a) the cost of licenses for software or other intellectual property (or other cost associated with obtaining rights to use software or intellectual property), including any termination, transfer, sublicensing, access, upgrade or conversion fees, (b) the cost of maintenance and support, including user support, (c) the fully loaded cost of personnel, (d) the cost of equipment, (e) the cost of disaster recovery services and backup services, (f) the cost of facilities and space, (g) the cost of supplies (including consumables), (h) the cost of utilities (HVAC, electricity, gas, etc.), (i) the cost of networking and connectivity, (j) the cost of legal fees associated with any advice, activities or agreements related to the foregoing areas, (k) any reasonable out-of-pocket expenses incurred by Supplier with third parties (including Contractors) in connection with the provision of Services (including one-time set-up costs, license fees, costs to enter into third party agreements, costs to exit third party agreements, termination fees, and other costs incurred in connection with Contractors engaged in compliance with this Agreement), and (l) the cost of personnel retained, displaced or transferred (excluding severance costs for Supplier employees). Travel expenses must be reasonable and incurred in accordance with Suppliers normal travel policy. Overhead allocations must be calculated consistently with Suppliers practice as then generally used by Supplier in its applicable, respective geographic business. Allocated Costs will be subject to a mark-up of five percent (the Mark-Up ), except for (i) materials and services provided by third parties, (ii) fees charged by third parties, and (iii) out-of-pocket expenses paid to third parties.
5.3 Invoices and payment. Supplier will provide Buyer with monthly invoices reflecting: (i) the Services provided during the preceding month, (ii) the Allocated Cost owed for such Services provided during the preceding month, and (iii) any other charges incurred during the preceding month under the terms of this Agreement. Invoices will be sent in a format and containing a level of detail reasonably sufficient for Buyer to determine the accuracy of the computation of the amount charged and that such amount is being calculated in a manner consistent with this Agreement. Reasonable documentation will be provided for all out-of-pocket expenses consistent with Suppliers practices. All amounts will be due and payable within 60 days of the date of invoice; provided, however, that with respect to any material purchases identified in a Project Statement or other attachment, such amounts will be due and payable in advance of the date that such Services are provided as set forth therein. Upon Buyers reasonable request, Supplier (or Canadian Supplier, as applicable) will provide explanations,
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
answer questions, and provide additional documentation regarding invoiced amounts. Unless otherwise specifically agreed in writing by the parties hereto, all payments due hereunder will be made by wire transfer of immediately available funds to the accounts set forth in Annex D (or such other account as may be designated in writing from time to time by Supplier).
5.4 Taxes.
(a) All amounts to be paid to Supplier (or Canadian Supplier, as applicable) under this Agreement are exclusive of any applicable taxes required by law to be collected from Buyer (including withholding, sales, use, excise or services tax, which may be assessed on the provision of the Services under this Agreement). If a withholding, sales, use, excise, services or similar tax is assessed on the provisions of any of the Services under this Agreement, Buyer (or a Canadian Affiliate, as applicable) will pay directly or reimburse or indemnify Supplier (or Canadian Supplier, as applicable) for such tax. The parties agree to cooperate with each other in determining the extent to which any tax is due and owing under the circumstances, and will provide and make available to each other any resale certificate, information regarding out of state use of materials, services or sale, and other exemption certificates or information reasonably requested by either party. The parties further agree to work together to structure the provision of the Services to eliminate or minimize applicable transfer taxes, including but not limited to, itemizing on invoices each Service provided to Buyer.
(b) In addition to any amounts otherwise payable pursuant to this Agreement, Buyer will be responsible for any and all sales, use, excise, services or similar taxes imposed on the provision of goods and services by Supplier or its Representatives to Buyer pursuant to this Agreement ( Sales Taxes ) and will either (i) remit such Sales Taxes to Supplier (and Supplier will remit the amounts so received to the applicable taxing authority), or (ii) provide Supplier with a certificate or other proof, reasonably acceptable to Supplier, evidencing an exemption from liability for such Sales Taxes. For the avoidance of doubt, all amounts under this Agreement are expressed exclusive of Sales Taxes.
5.5 Other expenses. After the Effective Date, except as otherwise specified in this Agreement, each party hereto will pay its own legal, accounting, out-of-pocket and other expenses incident to this Agreement and to any action taken by such party in carrying this Agreement into effect.
5.6 Interest payable on amounts past due . All late payments due under this Agreement will bear interest at a rate equal to the annualized interest rate at prime (as published in the Wall Street Journal from time to time) plus three percentage points, from the invoice due date to the date of payment. If Buyer disputes any portion of any invoice, Buyer must notify Supplier in writing of the nature and the basis of the dispute within 60 days after the date of the applicable invoice, after which time Buyer will have waived any rights to dispute such amount.
5.7 Audit . Supplier will keep reasonably detailed records, consistent with past practice, for any expenses that constitute a component upon which the price for Services is determined. Supplier will maintain the records in accordance with its then-current record retention policies. At reasonable intervals during the Term and for two years thereafter, Buyer personnel will, upon no less than five business days prior notice, or, if critical, upon reasonable
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
shorter notice under the circumstances, have access to the records for the purpose of verifying the invoices submitted to Buyer hereunder notwithstanding the termination of any Project Statement. The costs of all such audits will be borne by Buyer. The confidentiality provisions in Section 9 of this Agreement will govern all audits by Buyer.
6. Proprietary Rights.
6.1 Equipment. Except with respect to those items of equipment, systems, tools, facilities and other resources allocated to Buyer pursuant to the Separation Agreement, all equipment, systems, tools, facilities and other resources used by Supplier and any of its Affiliates in connection with the provision of Services hereunder will remain the property of Supplier and its Affiliates and, except as otherwise provided in this Agreement, will at all times be under the sole direction and control of Supplier and its Affiliates.
6.2 Intellectual property. To the extent Supplier or its Representatives use any know-how, processes, technology, trade secrets or other intellectual property owned by or licensed to Supplier or any of its Representatives ( IP ) in providing the Services, such IP (other than such IP licensed to Supplier by Buyer or its Affiliates) and any derivative works of, or modifications or improvements to, such IP conceived or created as part of the provision of Services ( Improvements ) will, as between the parties, remain the sole property of Supplier unless such Improvements were specifically created for Buyer or its Affiliates pursuant to a specific Service as specifically indicated in a Project Statement. The applicable party will and hereby does assign to the applicable owner designated above, and agrees to assign automatically in the future upon first recordation in a tangible medium or first reduction to practice, all of such partys right, title and interest in and to all Improvements, if any. All rights not expressly granted herein are reserved. Notwithstanding the foregoing, if there is any conflict between the terms of this Section 6.2 and specific terms of the Separation Agreement, then the terms of the Separation Agreement will prevail.
7. Term and Termination.
7.1 Term. Buyer will use commercially reasonable efforts to end its need to use the Services as soon as reasonably possible after the Effective Date; provided , however , that, Supplier will not be required to provide the Services later than the Maximum Transition Period or any earlier applicable Transition Period. This Agreement starts on the Effective Date and ends on the earlier of termination of all Services, unless sooner terminated by the parties in accordance with Section 7.3 (the Term ).
7.2 Termination of a Service.
(a) Buyer may elect to terminate a Service at any time by providing Supplier with written notice prior to the effective date of termination of such Service. The amount of notice provided will be reasonable and in no event shorter than (i) 90 days, (ii) any longer required notice period specified in a Project Statement, and (iii) any greater minimum notice period as may be provided under applicable arrangements with Contractors. Following receipt of such notice (the Services Termination Notice ), Supplier will provide, not later than 30 days following Suppliers receipt of the Services Termination Notice, to Buyer written notice
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
regarding the impact of such termination on any other Services, including a good faith summary of any Resulting Linked Effects. In the event that Buyer still wishes to proceed with termination, then (A) Buyer will provide Supplier with written notice thereof, (B) the affected Services, including those linked Services identified by Supplier, will terminate effective at the end of the notice period, and (C) Supplier will not be liable for any Resulting Linked Effects arising from such terminations whether included in the prior good faith summary or otherwise.
(b) Buyer also may elect to terminate a Service upon at least 30 days notice to Supplier if Supplier notifies Buyer (as provided in Section 10.9) that it plans to use a New Contractor to perform any of the Services, and Supplier does not, within 30 days after the notice, commit not to use the New Contractor.
(c) Without prejudice to any other rights or remedies of Buyer, Buyer may also elect to terminate a Service at any time, upon written notice to Supplier, if (i) Supplier will have failed to perform any of its material obligations under this Agreement relating to such Service, (ii) Buyer has notified Supplier in writing of such failure, and (iii) for a period of 30 days after receipt by Supplier of written notice of such failure, such failure will not have been cured.
(d) Supplier may terminate a Service, upon written notice to Buyer, with respect to any Service for which Buyer fails to pay an amount when due hereunder
(e) if such amount remains unpaid for a period of 30 days after receipt by Buyer of written notice of such failure.
(f) A Service will terminate automatically at the end of its applicable Transition Period, or if no Transition Period is specified, at the end of the Maximum Transition Period.
7.3 Termination of Agreement. Either party may terminate this Agreement and all Services immediately without notice if (i) the other files for bankruptcy protection or has an involuntary petition for bankruptcy filed against it, becomes unable to pay its bills, sell or transfers property to creditors, dissolves or liquidates, has a liquidator or receiver appointed by a court, or is a party of any other similar legal proceedings, if in any such case termination is permitted by applicable law, or (ii) there occurs any Change of Control with respect to the other party.
7.4 No abandonment for Dispute . In the event of a pending Dispute between the parties, Supplier will not have the right to suspend, withhold, interrupt or terminate any Service involved in such Dispute, including for breach of this Agreement, unless and until an arbitrator or tribunal sanctioned under Section 10.2 authorizes or orders such interruption or termination. Supplier acknowledges and agrees that it will be fully compensated by money damages alone for, and will not be irreparably harmed by, providing Services during the pendency of any Dispute. In the event that Supplier threatens to stop performing Services in connection with a Dispute other than as permitted in this Section 7.4, Buyer will be entitled to an order for injunctive relief against Supplier. Supplier agrees that such an abandonment would result in irreparable injury to Buyer, that Buyer would have no adequate remedy at law, and that Supplier will not oppose Buyers motion for continuation of the Services or the entry of an order compelling performance by the Supplier of its obligations under this Agreement.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
7.5 Costs upon termination. Upon any termination, Buyer will pay all amounts outstanding for Services provided by Supplier or its Contractors. Any termination of Services will be final, and monthly charges will be appropriately prorated. Buyer will be liable for all out-of-pocket costs, stranded costs or other costs incurred by Supplier that are not otherwise recoupable by Supplier in connection with termination or winding up of terminated Services, including (a) costs under third-party contracts for services, software or other items, including breakage fees or termination fees, (b) costs relating to any of Suppliers personnel which are affected by termination of a Service, (excluding severance costs for Supplier employees), (c) fees associated with facilities, hardware or equipment affected by the terminated Service including fees related to terminated leases, (d) costs relating to or in connection with the termination of any related or linked Services, including any Resulting Linked Effects, and (e) costs of any materials or third-party services that, before notice of termination, Supplier paid for or obligated itself to pay for in connection with providing the Services, if and to the extent that Supplier cannot through reasonable commercial efforts obtain a refund for or terminate its obligation to pay for such materials and services.
7.6 Return of materials. The parties will, at the disclosing partys request and upon termination of this Agreement, use all reasonable efforts to return to the other party or destroy all documents and materials in tangible form, and permanently erase all data in electronic form, containing any Confidential Information. Notwithstanding the foregoing, the parties hereto acknowledge that certain systems utilized by Supplier may not permit the purging or deletion of data, and in such case Supplier agrees to maintain copies of affected Buyer data for the minimum amount of time permitted by such systems and not to use such data for any other purposes.
7.7 Data return. Upon termination of a Service for any reason, Supplier will promptly provide Buyer with a copy of any Buyer Data relating to such terminated Service (excluding any Buyer Data that has previously been provided to Buyer or that is otherwise already in the possession of Buyer). Buyer Data will be provided in its then current form, in an electronic format and media to be reasonably agreed upon by the parties. The foregoing obligation of Supplier is absolute, and Supplier will not be entitled to withhold such Buyer Data for any reason, including due to Buyers breach of this Agreement (provided that in the case Buyer is in breach of this Agreement, that Buyer pays Supplier prior to delivery for any reasonable costs incurred by Supplier to comply with Buyers data copy request). Upon providing Buyer with an electronic media copy of the Buyer Data, Supplier will have no further responsibility with respect to such data, including maintaining a backup or archive for Buyer, except as otherwise expressly provided in a Project Statement.
7.8 Access to personnel. When this Agreement or a Service terminates for whatever reason, Supplier will provide Buyer or its designee for a period of three months with reasonable access to personnel and information relating to the provision of the discontinued Service(s) in order to facilitate the future performance by Buyer of such Service(s); provided that nothing in the foregoing will require Supplier to maintain or retain any particular personnel, systems, software or data and the access granted hereunder will be to such resources that Supplier retains in its ordinary course of business.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
8. Indemnity, Limitation of Liability and Mitigation of Damages.
8.1 Limit of liability. Neither party nor any of its Affiliates will be liable to the other party or for any special, punitive, consequential, incidental or exemplary damages (including lost or anticipated revenues or profits relating to the same and attorneys fees) arising from any claim relating to this Agreement or any of the Services to be provided under this Agreement or the Project Statements, or the performance of or failure to perform such partys obligations under this Agreement or the Project Statements, whether such claim is based on warranty, contract, tort (including negligence or strict liability) or otherwise, and regardless of whether such damages are foreseeable or an authorized representative of such party is advised of the possibility or likelihood of such damages.
8.2 Maximum liability. Except with respect to (a) a breach of the confidentiality obligations set forth in Section 9 or (b) Suppliers unjustified refusal to perform its obligations under this Agreement, the aggregate liability of Supplier arising out of or in connection with this Agreement will be limited by each specific Service, such that the aggregate liability of Supplier arising out of or in connection with each specific Service will not exceed an amount equal to the aggregate amount of fees (which fees will exclude any pass-through costs of Contractors) paid or payable for such specific Service under this Agreement.
8.3 Mitigation of damages. In addition, the parties will, in all circumstances, use commercially reasonable efforts to mitigate and otherwise minimize damages, whether direct or indirect, due to, resulting from or arising in connection with any failure to comply fully with the obligations under this Agreement.
8.4 Buyer indemnity. Buyer agrees to indemnify, defend and hold Supplier and each of its Representatives harmless against all damages, claims, actions, fines, penalties, expenses or costs (including court costs and reasonable attorneys fees) (collectively, Liabilities ) attributable to any third-party claims asserted against Supplier or its Representatives to the extent arising from or relating to any breach of this Agreement resulting from the negligence or willful malfeasance of Buyer, any of its Representatives or any of its or their respective employees, officers or directors. The limitations in Sections 8.1 and 8.2 do not apply to Buyers indemnification and defense obligations under this Section 8.4.
8.5 Supplier indemnity. Supplier agrees to indemnify, defend and hold Buyer and each of its Representatives harmless against all Liabilities attributable to any third-party claims to the extent arising from or relating to (a) the provision of Services under this Agreement resulting from the negligence or willful malfeasance of Supplier, any of its Representatives or any of its or their respective employees, officers or directors, or (b) the failure of Supplier or its Affiliates to perform the Services in accordance with the standards set forth in Section 4 (subject to the limitations and exceptions in Section 3.3(c) and 4.2). The limitations in Sections 8.1 and 8.2 do not apply to Suppliers indemnification obligations under this Section 8.5.
8.6 Indemnity procedure. All claims for indemnification under this Section 8 will be made in accordance with the procedures set forth in Article V of the Separation Agreement.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
9. Confidentiality.
9.1 Each party will, and will cause its Representatives and their officers, directors, employees and agents to, hold as confidential and not disclose to any other party all information received by it under this Agreement that relates to the other partys business or that relates to the other partys activities or deliverables under this Agreement ( Confidential Information ). Confidential Information includes: (a) this Agreement and its terms and conditions; (b) the IP and Improvements; (c) the Buyer Data; and (d) any information obtained or reviewed by a party in the course of reviewing the other partys records in accordance with this Agreement. When a party discloses any of its Confidential Information to the other party it will make reasonable efforts to mark the information as Confidential, but any failure to mark the information as Confidential will not cause the information to lose its status as Confidential Information nor will it relieve the receiving party of its obligations under this Section 9 with respect to that information.
9.2 Notwithstanding Section 9.1, each party may: (a) disclose the other partys Confidential Information if legally compelled to do so, provided that it promptly informs the other party of the required disclosure; (b) disclose this Agreement as reasonably necessary in connection with efforts to resolve a Dispute; and (c) disclose this Agreement to third parties for strategic due diligence purposes if the third party has signed a confidentiality agreement covering the disclosure.
9.3 Confidential Information does not include any information that: (a) is or becomes publicly known through no fault of the receiving party; (b) is known to the receiving party before disclosure under this Agreement, as documented by business records (and ownership of such information has not been allocated to the disclosing party pursuant to the Separation Agreement); (c) is disclosed to the receiving party by a third party having no obligation of confidentiality to the disclosing party; or (d) is independently developed by the receiving party without use of the disclosing partys Confidential Information as documented by reasonable evidence.
9.4 The parties obligations under this Section 9 will continue for five years after the termination of this Agreement, except that to the extent that any Confidential Information constitutes a trade secret, the receiving partys obligations with respect to that Confidential Information will continue for five years or for such period as the information remains trade secret, whichever is longer.
10. General.
10.1 Canadian matters.
(a) For greater certainty and without limiting any other provision of this Agreement, the parties acknowledge and agree that the Identified Services may be provided by a Canadian Affiliate of the Supplier (each, a Canadian Supplier ) for any one or more Canadian Affiliates of Buyer (each, a Canadian Buyer ).
(b) The applicable Canadian Supplier will possess all of the rights and obligations of Supplier that relate to the Services to be performed by such Canadian Supplier. The applicable Canadian Buyer will possess all of the rights and obligations of Buyer that relate to the Services to be performed for such Canadian Buyer.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(c) For greater certainty and without limiting any other provision of this Agreement, the Supplier or Canadian Supplier, as applicable, that provides Services to a Canadian Buyer will directly invoice the applicable Canadian Buyer in respect of such Services, and Buyer will cause the applicable Canadian Buyer to make payment for any Services provided to such Canadian Buyer directly to the Supplier or Canadian Supplier of such Services, as applicable.
(d) Without limiting the generality of Section 5.4, the Allocated Cost for Canadian Services will be exclusive of applicable GST/HST, QST and PST. Any Canadian Supplier will invoice applicable GST/HST, QST and PST. Any Canadian Buyer will withhold from payments to the applicable Supplier or Canadian Supplier any amounts required by law.
10.2 Dispute resolution. Any controversy or claim arising out of or relating to this Agreement (a Dispute ), will be resolved: (i) first, by negotiation with the possibility of mediation as provided in subsection (a) below; and (ii) then, if negotiation and mediation fail, as provided in subsection (b) below. The procedures set forth in this Section 10.2 will be the exclusive means for resolution of any Dispute. The initiation of mediation or arbitration will not toll applicable statutes of limitation or repose unless the parties otherwise agree in writing.
(a) Negotiation and mediation. If either party serves written notice of a Dispute upon the other party (a Dispute Notice ), the parties will first attempt to resolve the Dispute by direct discussions between representatives of the parties who have authority to settle the Dispute. In the event the Dispute is not resolved within 15 days by the initial representatives to whom the matter is referred, the Dispute will be escalated for resolution to the CFO of each party. If the parties agree, they may also attempt to resolve the Dispute through mediation administered by a mutually agreed upon mediator.
(b) Arbitration or litigation . If a Dispute is not resolved within 45 days after the service of a Dispute Notice, the Dispute will be resolved through arbitration under clause (i) below, except that if the Dispute involves infringement, other violation, validity, enforceability, or ownership of intellectual property rights, either party may initiate litigation under clause (ii) below.
(i) Arbitration .
(1) Any arbitration will be administered by the International Centre for Dispute Resolution (the ICDR ) in accordance with its International Arbitration Rules and before a panel of three arbitrators having experience or expertise in the subject matter of the Dispute. The claimant will designate an arbitrator in its request for arbitration and the respondent will designate an arbitrator in its answer to the request for arbitration. When the two co-arbitrators have been appointed, they will have 21 days to select a third arbitrator who will serve as the chair of the arbitral tribunal, and if they are unable to do so, the ICDR will appoint the
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
chair by use of the list method. The place of arbitration will be New York, New York. Judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof or having jurisdiction over the relevant party or its assets.
(2) Interim relief . At any time during or before the arbitration of a Dispute between the parties, either party may initiate litigation seeking interim relief, including pre-arbitration attachments or injunctions, necessary to preserve the parties rights or to maintain the parties relative positions pending completion of the arbitration.
(3) Procedures and remedies in arbitration . In the arbitration, each party will be entitled to reasonable, expedited discovery of documents and information that relate specifically to the substance of the Dispute, but no depositions or third party discovery will be conducted. At least seven days before the hearing, each party will provide the other with a written position statement and copies of all evidence that it intends to produce at the hearing. The parties will treat as confidential all discussions and submissions made in connection with the arbitration proceeding, and all non-public documents and information produced or submitted in the proceeding. The arbitrators decision will be in writing, rendered no more than 60 days after the date on which the arbitration panel is selected. The arbitrators will have no authority or power to limit, expand, alter, amend, modify, revoke or suspend any condition or provision of this Agreement nor any right or power to award punitive, exemplary or treble (or other multiple) damages.
(ii) Litigation . Any litigation that may be initiated in lieu of arbitration, as provided above, will be brought only in the United States District Court for the Southern District of New York or in the state courts located in that District. The parties consent to jurisdiction and venue in those courts. The parties waive the right to a jury in any such litigation.
(c) Arbitration for Service request Disputes . In the event of a dispute involving a denied or disputed request for a Service as provided in Section 2.5 or under an applicable Project Statement, any arbitration under subsection (b) will be submitted collectively once per month to, and heard before, Bain & Company, or if such accounting firm shall decline to act or is not, at the time of submission thereto, independent of SnackCo or GroceryCo, to another arbitrator from any mutually agreed upon accounting firm (the Service Dispute Arbitrator ). The arbitration will be limited solely to the issues of (i) whether the requested Service is reasonably necessary to effect the Separation of the GroceryCo and SnackCo Businesses or Supplier is otherwise obligated under the terms of this Agreement to provide the requested Service, and (ii) the reasonableness of the proposed terms for such Services. Each party will use commercially reasonably efforts to cause the Service Dispute Arbitrator to decide not later than 30 days after submission of the particular matter to the Service Dispute Arbitrator. Except as otherwise provided in this Section 10.2(c), the provisions in Section 10.2(b) will apply to any arbitration under this Section 10.2(c).
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(d) Arbitration for pricing Disputes . In the event of a dispute regarding the amount charged to Buyer for any Service, including calculation of Allocated Costs associated with a Service or a claim that the amount charged is not consistent with the terms of this Agreement, any arbitration under subsection (b) will be submitted collectively once per month to and heard before Ernst & Young LLP, or if such accounting firm shall decline to act or is not, at the time of submission thereto, independent of SnackCo or GroceryCo, to another arbitrator from any mutually agreed upon accounting firm (the Pricing Dispute Arbitrator ). The arbitration will be limited solely to the issues of price and cost calculations. Except as otherwise provided in this Section 10.2(d), the provisions in Section 10.2(b) will apply to any arbitration under this Section 10.2(d). Each party will use commercially reasonably efforts to cause the Pricing Dispute Arbitrator to decide not later than 30 days after submission of the particular matter to the Pricing Dispute Arbitrator.
(e) Expenses . The parties will equally share the fees charged for any mediators services and will bear their own internal expenses incurred in connection with resolving a Dispute. If any Dispute is resolved through arbitration or litigation, the prevailing party will be entitled to recover, from the other party, the reasonable out of pocket expenses that it incurred in connection with the arbitration or litigation, including attorneys fees, arbitrator fees and expert witness fees.
10.3 Force Majeure. Supplier will not be liable for any failure of performance attributable to acts or events (including war, terrorist activities, conditions or events of nature, industry wide supply shortages, civil disturbances, work stoppage, power failures, failure of telephone lines and equipment, fire and earthquake, or any law, order, proclamation, regulation, ordinance, demand or requirement of any governmental authority) beyond its reasonable control which impair or prevent in whole or in part performance by Supplier hereunder ( Force Majeure ). If Supplier is unable to perform its obligations hereunder as a result of a Force Majeure event, Supplier will, as promptly as reasonably practicable, give notice of the occurrence of such event to Buyer and will use commercially reasonable efforts to resume the Services at the earliest practicable date; provided, however, that upon any failure of Supplier to provide Services under this Section 10.3, Buyer, in its sole discretion, may terminate its receipt of such Service effective upon notice to Supplier and will not be obligated to pay for Services not performed by Supplier due to an event of Force Majeure.
10.4 Relationship of parties. Except as specifically provided herein, neither party will act or represent or hold itself out as having authority to act as an agent or partner of the other party, or in any way bind or commit the other party to any obligations. Nothing contained in this Agreement will be construed as creating a partnership, joint venture, agency, trust or other association of any kind, each party being individually responsible only for its obligations as set forth in this Agreement.
10.5 Assignment . Either party may assign its rights and obligations under this Agreement to a controlled Affiliate, without the prior written consent of the non-assigning party.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Either party may assign its rights and obligations under this Agreement to a third party provider, upon prompt notice to and the approval of the non-assigning party, with such approval not to be unreasonably withheld or delayed. No other assignment of a partys rights and obligations under this Agreement may be made without the non-assigning partys prior written consent. In the event of any assignment of a partys rights and obligations under this Agreement, the assigning party nonetheless will remain responsible for the performance of all of its obligations under this Agreement.
10.6 No third-party beneficiaries. This Agreement is for the sole benefit of the parties to this Agreement and does not benefit or create any right or case of action for any other persons other than Representatives entitled to indemnification under Section 8.
10.7 Entire agreement; no reliance; amendment . This Agreement (including all annexes or other attachments) is the entire agreement with respect to its subject matter, and any prior agreements, oral or written, are no longer effective. In deciding whether to enter into this Agreement, the parties have not relied on any representations, statements, or warranties other than those explicitly contained in this Agreement. No changes to this Agreement are valid unless in writing, signed by both parties.
10.8 Waiver. Except as otherwise specifically provided elsewhere in this Agreement, neither party waives any rights under this Agreement by delaying or failing to enforce them.
10.9 Notices. Except as may otherwise be provided in a Project Statement, all notices under this Agreement will be in writing, sent by hand delivery, by FedEx or other commercial overnight courier, or by email, directed to the address or email address set forth below. Notices sent by hand delivery, by FedEx or other commercial overnight courier are effective upon receipt. Notices sent by email are effective upon transmission, provided that the sender does not receive any indication that the email has not been successfully transmitted.
If to GroceryCo: | ||||||||
Three Lakes Drive | ||||||||
Northfield, IL 60093 | ||||||||
Attn: | General Counsel | |||||||
Email: | kim.rucker@kraftfoods.com |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
If to SnackCo: | ||||||||
Three Parkway North, Suite 200 | ||||||||
Deerfield, IL 60015 | ||||||||
Attn: | General Counsel | |||||||
Email: | gerd.pleuhs@mdzl.com |
10.10 Counterparts. This Agreement may be executed in counterparts. Facsimile signatures are binding.
10.11 Severability. If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, such invalidity or unenforceability will not affect any other provision of this Agreement. Upon such determination that a provision is invalid or unenforceable, the parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible.
10.12 Interpretation . The headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. The provisions of this Agreement will be construed according to their fair meaning and neither for nor against either party irrespective of which party caused such provisions to be drafted. The terms include and including do not limit the preceding terms. Each reference to $ or dollars is to United States dollars. Each reference to days is to calendar days.
10.13 Governing law. This Agreement will be governed by and construed in accordance with New York law.
10.14 Precedence . If there is any conflict between the terms of this Agreement and specific terms of the Separation Agreement, then the terms of this Agreement will prevail. If there is any conflict between the terms of this Agreement, the Separation Agreement and the terms of any Project Statement, the terms of the Project Statement will prevail.
10.15 Survival. Sections 1, 5.3, 5.4, 5.5 5.6, 5.7, 6, 7.4, 7.5, 7.6, 7.7, 7.8, 8, 9 and 10 will survive any termination or expiration of this Agreement.
(Signature Page Follows)
- 19 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
KRAFT FOODS GROUP, INC. | MONDELĒZ GLOBAL LLC | |||||||
By: |
/s/ Timothy R. McLevish |
By: |
/s/ Gerhard Pleuhs |
|||||
Its: |
Authorized Signatory |
Its: |
Authorized Signatory |
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex | A: Form of Project Statement | |
Annex | B: Project Statements | |
B.1: Human Resources, Payroll and Benefits | ||
B.2: Accounting, Finance and Treasury | ||
B.3: Operations | ||
B.4: Retailer Programs, Consumer Programs/Services, Marketing/CIS | ||
B.5: Procurement and Hedging Services | ||
Annex | C: Menu Services | |
C.1: Human Resources, Payroll and Benefits | ||
C.2: Accounting, Finance and Treasury | ||
C.3: Operations | ||
C.4: Retailer Programs, Consumer Programs/Services, Marketing/CIS | ||
C.5: Procurement and Hedging Services | ||
Annex | D: Wire Transfer Information |
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ANNEXES TO
MASTER GENERAL TRANSITION SERVICES AGREEMENT
between
Kraft Foods Group, Inc.
and
Mondelēz Global LLC
Dated as of September 27, 2012
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
TABLE OF ANNEXES
Annex |
Title |
|
A |
Form of Project Statement | |
B |
Project Statements entered into as of the Distribution Date | |
B.1 Human Resources, Payroll and Benefits | ||
B.2 Accounting, Finance and Treasury | ||
B.3 Operations | ||
B.4 Joint CRM Programs, Consumer Programs / Services, Marketing / CIS | ||
B.5 Procurement and Hedging | ||
B.6 Product, Platform, or Process Development and Management | ||
C |
Menu Services | |
C.1 Human Resources, Payroll and Benefits | ||
C.2 Accounting, Finance and Treasury | ||
C.3 Operations | ||
C.4 Joint CRM Programs, Consumer Programs / Services, Marketing / CIS | ||
C.5 Procurement and Hedging | ||
C.6 Product, Platform, or Process Development and Management | ||
D |
Wire Transfer Information |
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex A
Form of Project Statement
This document is a Project Statement as defined in the Master General Transition Services Agreement ( Master Agreement ) dated as of , 2012 between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ). This Project Statement is an annex to, and is incorporated and subject to, the Master Agreement. Once signed by both parties, this Project Statement becomes part of the Master Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Master Agreement.
1. | Description of Services. |
Service |
Supplier |
Transition
Period
|
Country(ies)
of Service |
Charges and
Payment |
||||
2. | Details of Services. |
2.1 [ Scope and specifications of Services . [ IF NEEDED BEYOND THE DESCRIPTION IN SECTION 1 ABOVE, LIST DETAILS FOR THE SCOPE OF SERVICES, INCLUDING ANY APPLICABLE SPECIFICATIONS .]]
2.2 [ Deliverables . [ IF NEEDED, LIST ANY SPECIFIC DELIVERABLES .]]
2.3 Services Manager . GroceryCos Services Manager will initially be [ NAME ], and SnackCos Services Manager will initially be [ NAME ]. 1 A party may change its Services Manager upon prior written notice to the other party.
2.4 [ Details regarding Allocated Cost . [ IF NEEDED, LIST ANY DETAILS REGARDING THE ALLOCATED COST FOR ANY SERVICES IDENTIFIED ABOVE .]]
3. | Additional terms. |
3.1 Term . This Project Statement will become effective upon [ insert effective date of Project Statement ] and will terminate as indicated above in Section 1 under the caption Transition Period, unless terminated earlier as provided in the Master Agreement.
1 |
Note : To the extent the Services Managers vary by Identified Services, as shown in the table above, then a column will be added to the table identifying each Services Manager for each Identified Service. |
- A - 1 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
3.2 Entire agreement; precedence. This Project Statement will supplement and/or modify the Master Agreement by and between GroceryCo and SnackCo with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Master Agreement, this Project Statement will prevail. All other terms and conditions of the Master Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Master Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
3.3 Amendments . No changes to this Project Statement are valid unless in writing, signed by both parties.
[ NOTE : IF NEEDED, LIST ADDITIONAL TERMS SUCH AS LIMITS OF LIABILITY. ]
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Project Statement Distribution Date above written.
MONDELĒZ GLOBAL LLC | KRAFT FOODS GROUP, INC. | |||||||
By: |
|
By: |
|
|||||
Its: |
|
Its: |
|
- A - 2 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex B
Project Statements entered into as of the Distribution Date
Annex |
Category of Identified Services |
|
B.1 | Human Resources, Payroll and Benefits | |
B.2 | Accounting, Finance and Treasury | |
B.3 | Operations | |
B.4 | Joint CRM Programs, Consumer Programs / Services, Marketing / CIS | |
B.5 | Procurement and Hedging | |
B.6 | Product, Platform, or Process Development and Management |
- B - 1 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex B.1
Project Statement
Human Resources, Payroll and Benefits
This document is a Project Statement as defined in the Master General Transition Services Agreement ( Master Agreement ) dated as of the Effective Date between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ). This Project Statement is an annex to, and is incorporated and subject to, the Master Agreement. Once signed by both parties, this Project Statement becomes part of the Master Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Master Agreement.
1. | Description of Services. |
Service |
Supplier |
Transition
|
Country(ies)
|
Charges and Payment |
||||||
A. |
GroceryCo will continue to hold and manage the Canada registered pension plan assets in the co-mingled plans as per regulatory requirement, until the later of the date of regulatory approval by FSCO or subsequent transfer of assets to SnackCos plans. The assets cannot legally be transferred to SnackCos plans until regulatory approval is received.
Management of the pension plan assets in the co-mingled plans will include, but not be limited to:
Pension plans Investment Manager(s) fees
Pension plans Custodial Services (CIBC) fees
Pension plans Financial Statements Preparation and External Audits fees
Consulting and legal fees
Internal administration budget recovery
Other ad-hoc fees |
GroceryCo (to be provided by GroceryCo employees in the U.S. and Canada) | Effective Date through the later of FSCO approval or subsequent transfer of assets | Canada |
Charges that have historically been paid out of plan assets such as Investment Manager fees, Custodial Services fees, administration recovery and Financial Statements Preparation & Audit fees will continue to be charged directly to the co-mingled plans assets. SnackCo will reimburse GroceryCo for SnackCos pro-rata portion of legally required charges that are not allowed to be charged directly to the co-mingled plans assets. |
-B.1 - 1 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
B. | Residential relocation administrative services, including tax filings, tax deductions and other related administrative matters; for clarity, these Services involve only administrative actions and do not involve Supplier providing actual residential relocation services | SnackCo (U.S.) | Up to two years from the Effective Date | U.S., Canada and Puerto Rico |
Allocated Cost, subject to the Mark-Up |
|||||
C. | Administration of payments and tax coordination and management for expatriate services, including payment of payroll, direct and indirect compensation and assignment related bonuses for expatriates; Supplier (SnackCo) will process such payments using bank accounts designated by Buyer (GroceryCo) upon which Supplier (SnackCo) may draw | SnackCo (U.S.) | Up to two years from the Effective Date | U.S., Canada and Puerto Rico |
Allocated Cost, subject to the Mark-Up |
|||||
D. | Payroll administration and payroll process support | SnackCo (U.S.) | Up to two years from the Effective Date | U.S., Canada and Puerto Rico |
Allocated Cost, subject to the Mark-Up |
|||||
E. | Stock plan administration and process support | SnackCo (U.S.) | Up to two years from the Effective Date | U.S., Canada and Puerto Rico |
Allocated Cost, subject to the Mark-Up |
|||||
F. | Payroll tax administration and process support | SnackCo (U.S.) | Up to two years from the Effective Date | U.S., Canada and Puerto Rico |
Allocated Cost, subject to the Mark-Up |
|||||
G. | Payroll deduction remittance administration | SnackCo (U.S.) | Up to two years from the Effective Date | U.S., Canada and Puerto Rico |
Allocated Cost, subject to the Mark-Up |
2. | Details of Services. |
2.1 Services Manager . GroceryCos Services Manager for Item A in Section 1 above will initially be [ * * * ]. GroceryCos Services Manager for all other Services will initially be [ * * * ]. SnackCos Services Manager for Item A in Section 1 above will initially be [ * * * ]. SnackCos Services Manager for all other Services will initially be [ * * * ]. A party may change any of its Services Managers upon prior written notice to the other party.
2.2 Outsourcing of Services. Notwithstanding anything to the contrary contained in this Project Statement or in the Master Agreement, SnackCo, in its capacity as Supplier for the Services identified in Section 1 above, may, in its sole discretion: (a) outsource the provision of any and all of such Services, provided that, (i) SnackCo has first provided GroceryCo with not less than six months prior written notice of SnackCos intention to outsource any of such Services, together with an estimate of the costs for such Services following outsourcing, and (ii) SnackCo provides GroceryCo with updates no less than monthly as to the timing and status of
- B.1 - 2 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
the outsourcing and the estimated costs for such Services following outsourcing; and (b) with respect to any Services provided from the San Antonio, Texas facilities, Supplier may provide such Services at one or more of Suppliers other facilities, and Buyer acknowledges and agrees that the charges and payments associated with such a change in facilities may be increased and will be payable by Buyer.
3. | Additional terms. |
3.1 Term . This Project Statement will become effective upon the Effective Date and will terminate as indicated above in Section 1 under the caption Transition Period, unless terminated earlier as provided in the Master Agreement.
3.2 Entire agreement; precedence. This Project Statement will supplement and/or modify the Master Agreement by and between GroceryCo and SnackCo with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Master Agreement, this Project Statement will prevail. All other terms and conditions of the Master Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Master Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
3.3 Amendments . No changes to this Project Statement are valid unless in writing, signed by both parties.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Effective Date.
MONDELĒZ GLOBAL LLC | KRAFT FOODS GROUP, INC. | |||||||
By: |
|
By: |
|
|||||
Its: |
|
Its: |
|
- B.1 - 3 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex B.2
Project Statement
Accounting, Finance and Treasury
This document is a Project Statement as defined in the Master General Transition Services Agreement ( Master Agreement ) dated as of the Effective Date between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ). This Project Statement is an annex to, and is incorporated and subject to, the Master Agreement. Once signed by both parties, this Project Statement becomes part of the Master Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Master Agreement.
1. | Description of Services. |
- B.2 - 1 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
C. |
Accounts Receivable services, as further described in Exhibit A attached to this Project Statement | GroceryCo | Up to two years from the Effective Date | U.S. and Canada | Neither party will charge or be responsible for any charges or other costs for any reason in connection with providing these Services | |||||
D. |
Accounts Payable services, as further described in Exhibit B attached to this Project Statement | SnackCo | Up to two years from the Effective Date | U.S. and Canada | See Exhibit B. | |||||
E. |
Third Quarter 2012 and Year-End 2012 Close Cooperation: For all accounting, human resources and information systems matters related to the close of the quarter ended September 30, 2012, the cutover if systems for the one-month period following the Effective Date, and as needed for the 2012 year close, GroceryCo and SnackCo accounting and finance personnel will cooperate, and GroceryCo personnel will provide office space and access in its Northfield, Illinois and Don Mills, Ontario facilities to SnackCo employees, as identified by the Service Managers, in order to assist in such cooperation. The parties will also cooperate to furnish one another with required information technology resources and access, including, but not limited to:
Financial systems access
Information systems support (service delivery)
For the avoidance of doubt, in Canada, it is expected that similar arrangements concerning cooperation and access, also without charge, will be put in place and executed. |
GroceryCo or SnackCo (as applicable) | Up to two months from the Effective Date; notwithstanding the two-month period identified above, the parties may mutually agree to extend this arrangement through February 28, 2013 in connection with the closing for the year ended December 31, 2012 | U.S. and Canada | Neither party will charge or be responsible for any charges or other costs for any reason in connection with providing these Services | |||||
F. |
Canadian sales tax services | GroceryCo | Effective Date through December 31, 2012 | Canada | Allocated Cost, subject to the Mark-Up | |||||
G. |
Canadian Finance Pension & Benefit Finance, Accounting & Administration
SnackCo to use its commercially reasonable efforts to:
Provide finance, accounting and administration services related to Pension and Benefits, at the direction of GroceryCo |
SnackCo | Up to one year from the Effective Date | Canada | Allocated Cost, subject to the Mark-Up |
- B.2 - 2 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
SnackCo to assist, at GroceryCos direction, in knowledge transfer regarding past practices and procedures to GroceryCo personnel or third party providers
SnackCo to provide ad hoc consulting regarding Canadian Finance Pension & Benefit Finance, Accounting & Administration matters
SnackCos obligation to provide the above referenced services is limited to 1) the use of the two currently designated specialists it employs (or their replacements if any) and 2) that delivery of the services to GroceryCo not adversely impact its own business and or operations |
2. | Details of Services. |
2.1 Services Manager . GroceryCos Services Manager for Item F in Section I above will initially be [ * * * ]. GroceryCos Services Manager for all other Services will initially be [ * * * ]. SnackCos Services Manager for Item F in Section I above will initially be [ * * * ]. SnackCos Services Manager for all other Services will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. The Service Managers will meet on a quarterly basis. During such quarterly meetings, Suppliers Service Manager will, among other things, inform Buyers Service Manager of any planned outsourcing of Services.
3. | Additional terms. |
3.1 Term . This Project Statement will become effective upon the Effective Date and will terminate as indicated above in Section 1 under the caption Transition Period, unless terminated earlier as provided in the Master Agreement.
3.2 Entire agreement; precedence. This Project Statement will supplement and/or modify the Master Agreement by and between GroceryCo and SnackCo with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Master Agreement, this Project Statement will prevail. All other terms and conditions of the Master Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Master Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
3.3 Amendments . No changes to this Project Statement are valid unless in writing, signed by both parties.
- B.2 - 3 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Project Statement Effective Date above written.
MONDELĒZ GLOBAL LLC |
KRAFT FOODS GROUP, INC. |
|||||
By: |
|
By: |
|
|||
Its: |
|
Its: |
|
- B.2 - 4 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit A
to Project Statement for Accounting, Finance and Treasury
Accounts Receivable Services
1. | Warehouse-Invoiced Customers: GroceryCo will provide Accounts Receivable Services ( ARS ) to SnackCo in the United States and Canada for warehouse-invoiced customers for invoices outstanding as of the Effective Date , which will be collected by GroceryCo, and the funds held by GroceryCo, as further stipulated in the Separation Agreement. |
2. | For mistaken payments, following the Effective Date, for 90 days for the U.S. and 180 days for Canada: |
a. | GroceryCo will process payments mistakenly made to it by customers for SnackCo accounts receivable and will remit these payments to SnackCo. |
b. | GroceryCo customers payments mistakenly made to SnackCo will similarly be processed by SnackCo, and will remit these payments to GroceryCo. |
3. | From and after the date that is 90 days following the Effective Date (for the U.S.) and 180 days following the Effective Date (for Canada), any payments mistakenly made (A) to GroceryCo by customers for SnackCo products or (B) to SnackCo by customers for GroceryCo products will, in each case, be returned to the applicable customer. |
4. | ARS will include: |
a. | Customer deduction management for discounts, allowances, and trade promotions. |
b. | Other related services necessary to process accounts receivable, consistent with past practice. |
- B.2 - 5 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit B
to Project Statement for Accounting, Finance and Treasury
Accounts Payable Services
1. | Matched Accounts Payable ( MAP ) for the U.S. and Canada, attributable to SnackCo as of the Effective Date, will be processed by SnackCo and paid by GroceryCo using bank accounts designated by GroceryCo upon which SnackCo may draw. |
a. | MAP consists of received vendor invoices which have a corresponding purchase order, and notice has been received of delivery of the product / service which is the subject of the vendor invoice. |
b. | Exception: Foreign currency (currencies other than U.S. and Canadian dollars) denominated MAP will be paid out of SnackCo accounts. |
2. | Open SnackCo accounts payable (including, but not limited to, GRIR and FI invoices), as of the Effective Date for which the product / service has been received but which lack full documentation as described in item 1a above, will not be paid by GroceryCo and SnackCo may not access the designated bank accounts put in place for MAPs. SnackCo will be fully responsible for processing and paying all open SnackCo accounts payable. |
3. | Travel & Entertainment ( T&E ) and procurement card charges for the U.S. and Canada incurred following the Effective Date, attributable to GroceryCo employees , will be processed by SnackCo and paid using GroceryCo funds , including: |
a. | Payments to be made to the applicable credit card company will be processed as an account payable using bank accounts designated by GroceryCo upon which SnackCo may draw. |
b. | T&E payments made directly to employees using bank accounts designated by GroceryCo upon which SnackCo may draw. |
c. | T&E and procurement card charges incurred but not submitted and paid prior to the Effective Date, will after the Effective Date become the responsibility of the post-split employer of record (i.e., SnackCo or GroceryCo, as applicable). |
4. | SnackCo will process accounts payable consistent with past practice, including bank reconciliations, on behalf of GroceryCo as of the Effective Date and for up to two years thereafter: |
a. | SnackCo will pay vendors drawing upon GroceryCo funds using bank accounts designated by GroceryCo. |
b. | SnackCo will use commercially reasonable efforts to collect vendor net debit balances. SnackCo will not be responsible for uncollectibles. |
c. | SnackCo will charge GroceryCo at Allocated Cost, subject to the Mark Up, for such services. |
d. | SnackCo will be responsible for managing legal requirements, including, but not limited to, payments, with respect unclaimed property. |
5. | SnackCo will use its commercially reasonable efforts to provide consulting services and otherwise cooperate with GroceryCo for up to two years after the Effective Date should GroceryCo wish to outsource the accounts payable function or set up its own capability. Charges will be at Allocated Cost, subject to the Mark Up. |
- B.2 - 6 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex B.3
Project Statement
Operations
This document is a Project Statement as defined in the Master General Transition Services Agreement ( Master Agreement ) dated as of the Effective Date between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ). This Project Statement is an annex to, and is incorporated and subject to, the Master Agreement. Once signed by both parties, this Project Statement becomes part of the Master Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Master Agreement.
1. | Description of Services. |
Service |
Supplier |
Transition
|
Country(ies)
|
Charges and
|
||||||
A. |
North American Customs and other import-related services, as further described in Exhibit A | GroceryCo and SnackCo |
Effective Date through
June 30, 2013 |
U.S. and Canada | Allocated Cost, subject to the Mark-Up | |||||
B. |
Transportation Services currently performed, as further described in Exhibit B | GroceryCo | Effective Date through June 30, 2013 | U.S. | Allocated Cost, subject to the Mark-Up |
2. | Details of Services. |
2.1 Services Manager for Customs and Import-related Services . GroceryCos Services Manager will initially be [ * * * ], and SnackCos Services Manager will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. The Services Managers of the parties will meet periodically and no less than monthly, to discuss the status of the Services.
2.2 Services Manager for Transportation Services . GroceryCos Services Manager will initially be [ * * * ], and SnackCos Services Manager will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. The Services Managers of the parties will meet periodically and no less than monthly, to discuss the status of the Services.
3. | Additional terms. |
3.1 Term . This Project Statement will become effective upon the Effective Date and will terminate as indicated above in Section 1 under the caption Transition Period, unless terminated earlier as provided in the Master Agreement.
- B.3 - 1 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
3.2 Entire agreement; precedence. This Project Statement will supplement and/or modify the Master Agreement by and between GroceryCo and SnackCo with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Master Agreement, this Project Statement will prevail. All other terms and conditions of the Master Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Master Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
3.3 Amendments . No changes to this Project Statement are valid unless in writing, signed by both parties.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Effective Date.
MONDELĒZ GLOBAL LLC |
KRAFT FOODS GROUP, INC. |
|||||
By: |
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- B.3 - 2 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT A
North American Customs and Other Import-related Services
Notwithstanding anything set forth on this Exhibit A, nothing herein shall require any party to perform any services that would be a violation of any applicable law.
1. Scope and specifications of Services. Through June 30, 2013, GroceryCo shall provide to SnackCo and SnackCo shall provide to GroceryCo certain customs and import-related services as set forth herein.
Supplier agrees to cooperate with Buyer and provide Buyer with accurate, sufficient and timely information in its possession in order for Buyer to conduct its import operations and to exercise reasonable care (as set forth in 19 U.S.C. § 1484) to enter, classify and determine the value of goods imported by Buyer and any other information necessary for Buyer to comply with U.S. Customs and Border Protection regulations and to exercise reasonable care and due diligence to achieve compliance with Canada Border Services Agency regulations.
Buyer agrees to cooperate with Supplier and provide Supplier with accurate, sufficient and timely information in its possession in order for Supplier to conduct its import operations and to exercise reasonable care (as set forth in 19 U.S.C. § 1484) to enter, classify and determine the value of goods imported by Supplier and any other information necessary for Supplier to comply with U.S. Customs and Border Protection regulations and to exercise reasonable care and due diligence to achieve compliance with Canada Border Services Agency regulations.
2. Services by Supplier. The Services Supplier will provide to Buyer under this Project Statement may include, but will not be limited to:
2.1. | Provision of consulting services, information, training, and documentation necessary for Buyer to: |
2.1.1. | Import goods into the United States and Canada; |
2.1.2. | Create, file, and submit documents necessary to import goods into the United States and Canada, including: |
2.1.2.1. | Importer Security Filings |
2.1.2.2. | 7501 entry documentation |
2.1.2.3. | FDA Prior Notice submissions |
2.1.2.4. | Compliance auditing and post-entry amendments |
2.1.2.5. | B-3 entries |
2.1.2.6. | B-13 export declarations |
2.1.2.7. | B-2 entry amendments; |
2.1.3. | Perform FDA hold and release management; |
2.1.4. | File drawback claims; |
- B.3 - 3 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.1.5. | Coordinate the transport or storage of merchandise, including merchandise carried or held under bond; |
2.1.6. | Coordinate inspection of goods, as necessary, by CBP and other governmental regulators; |
2.1.7. | Comply with other agency requirements ( e.g. , FDA, DOAG, etc.) prior to importation, including procuring licenses and permits; |
2.1.8. | Create and submit documentation necessary for trade program or special tariff classification eligibility; |
2.1.9. | Support and comply with other special programs ( e.g. , IREP, Quotas, AMPS program maintenance, CBSA regulations (D-memoranda); |
2.1.10. | Handle the administration and management of a customs compliance group. |
2.2. | To the extent necessary, communicate and coordinate with freight forwarders and transportation service providers; |
2.3. | To the extent necessary, communicate and coordinate with Customs brokers. |
3. | Services by Buyer . Buyer agrees to provide Supplier with all necessary Services and support for Supplier to achieve compliance with Canada Border Services Agency and Canada Food Inspection Agency regulations. Such Services may include, but will not be limited to, those Services listed in Paragraph 2 of this Agreement applicable to Suppliers importation of goods into Canada. |
4. | Buyer Indemnity . Buyers indemnification obligations in Section 8.4 of the Agreement will include all damages, claims, actions, fines, penalties, expenses or costs (including court costs and reasonable attorneys fees) attributable to any third-party claims (including claims or demands by U.S. Customs and Border Protection) arising from or relating to the provision of Services under this Project Statement to the extent that such damages, claims, actions, fines, penalties, expenses, or costs arise from the negligent or willful failure of Buyer, or any of its employees, officers or directors, to provide Supplier with accurate, sufficient and timely information in its possession in order for Supplier to exercise reasonable care (as set forth in 19 U.S.C. § 1484) to enter, classify and determine the value of goods imported by Supplier and to provide any other information necessary to U.S. Customs and Border Protection and to exercise reasonable care and due diligence to achieve compliance with Canada Border Services Agency regulations. This provision survives the termination or expiration of the Agreement. |
- B.3 - 4 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
5. | Supplier Indemnity . Suppliers indemnification obligations in Section 8.5 of the Agreement will include all damages, claims, actions, fines, penalties, expenses or costs (including court costs and reasonable attorneys fees) attributable to any third-party claims (including claims or demands by U.S. Customs and Border Protection) to the extent that such damages, claims, actions, fines, penalties, expenses, or costs arise from the negligent or willful failure of Supplier, or any of its employees, officers or directors, to provide Buyer with accurate, sufficient and timely information in its possession in order for Buyer to exercise reasonable care (as set forth in 19 U.S.C. § 1484) to enter, classify and determine the value of goods imported by Buyer and to provide any other information necessary to U.S. Customs and Border Protection and to exercise reasonable care and due diligence to achieve compliance with Canada Border Services Agency regulations. This provision survives the termination or expiration of the Agreement. |
- B.3 - 5 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT B
Transportation Services
Supplier: GroceryCo
Duration: Effective Date through June 30, 2013
Location: Services provided at GroceryCos Madison, Wisconsin, facility, which may change at Suppliers discretion
Cost/Charges: Allocated Cost, subject to the Mark Up
1. | GroceryCo will provide, in accordance with past practices: |
A. | Capacity Planning, including routing guide management and maintenance, forecasting, monitor lane and carrier compliance, carrier scorecards, input rates into the Oracle Transportation Management module (OTM), planning for surge versus base |
B. | Carrier claims management, freight pay systems, and audit services for unload/detention, and all other activities (Non-trade Customer Payables) currently supported under Transportations functional responsibility |
C. | Fleet Management, including safety training and communications, trailer graphics management, and asset renewal management. Certain Services furnished today may relate to legal matters such as Department of Transportation compliance and Environmental Protection Agency compliance, which GroceryCo may elect not to provide under this Agreement. |
D. | Load Management and Customer Service, including shipment and mode optimization, load exception management, and customer returns |
E. | Transportation Performance reporting (KPIs). |
F. | Center of Excellence services, including: |
i. | Best practices and project management; |
ii. | Business process management; |
iii. | Best practices, procedural support and project management for Transportation systems (OTM, SHIPS, Terra, FTI, etc.) and project within the supply chain related to Transportation management; |
iv. | Process and configuration support for Transportation systems for U.S., Canadian and Brazil Users; and |
v. | Project consulting and oversight of Transportation solutions globally |
- B.3 - 6 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
G. | Productivity projects: GroceryCo may identify productivity projects to benefit SnackCo, and the parties may agree to enter into a separate Project Statement to execute one or more such programs |
2. | Training services: Transportation |
A. | GroceryCo employees will provide training in the items listed above to facilitate SnackCos development of a stand-alone transportation department. This may entail: |
i. | GroceryCo employees working in SnackCo systems for purposes of training and/or execution of daily business needs, with SnackCo to provide such employees the required access. The listing of individuals to be granted access and the systems/modules allowed to be agreed in writing. |
ii. | If mutually agreed between the parties, SnackCo employees may have occasion to perform work in the GroceryCo system. While the primary objective will be to expedite training, this may also benefit GroceryCo, with GroceryCo to provide such employees the required access. The listing of individuals to be granted access and the systems/modules allowed to be agreed in writing. |
iii. | For the avoidance of doubt, at the end of the duration period, all SnackCo employees being trained under this Agreement will no longer be housed in GroceryCos Madison, Wisconsin facility. |
B. | GroceryCo employees may assist in the recruiting and interviewing of employees who will staff the SnackCo Transportation Group, with SnackCo personnel making the hiring and compensation decisions. |
3. | Establishment of SnackCo Transportation Department. |
A. | Up to 35 professionals will be trained in agreed upon functions by GroceryCo. |
- B.3 - 7 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex B.4
Project Statement
Joint CRM Programs, Consumer Programs / Services, Marketing / CIS
This document is a Project Statement as defined in the Master General Transition Services Agreement ( Master Agreement ) dated as of the Effective Date between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ). This Project Statement is an annex to, and is incorporated and subject to, the Master Agreement. Once signed by both parties, this Project Statement becomes part of the Master Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Master Agreement.
1. | Description of Services. |
1.1 | Description of Joint CRM Programs Services. |
Service |
Supplier |
Transition
|
Country(ies)
|
Charges and
|
||||||
A. |
Joint Canadian Retailer Programs, as further described on Exhibit A , attached hereto | See Exhibit A | Through December 31, 2012 | Canada | See Exhibit A | |||||
B. |
Joint U.S. Retailer Programs, as further described on Exhibit B , attached hereto | See Exhibit B | Through December 31, 2012 | U.S. | See Exhibit B | |||||
C. |
Administration of joint GroceryCo and SnackCo U.S. foodservice customer incentive programs, promotions and other corporate trade programs, which in each case are in effect on the Effective Date and that will continue to be effective after Effective Date, pursuant to which GroceryCo will make required payments to foodservice customers based on total purchases made from GroceryCo and SnackCo | GroceryCo | Effective Date through earlier of December 31, 2012, or termination of joint retailer and/or foodservice customers incentive programs in effect as of the Effective Date | U.S. | SnackCo will reimburse GroceryCo for SnackCos pro-rata portion of the payments made based on sales | |||||
D. |
To the extent GroceryCo, with respect to foodservice, (i) provides any of the following services to the SnackCo business prior to and continuing after the Effective Date, (ii) owns or operates any related electronic data interface systems, or (iii) is the contracting party with third party providers for such services listed below or electronic data interface systems, then GroceryCo will continue to provide such services and access to SnackCo to such electronic data interface systems for the following: | GroceryCo | Up to two years from the Effective Date | U.S. and Canada | Allocated Cost, subject to the Mark Up |
- B.4 - 1 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Customer activity tracking
Customer rebates
Promotion settlements
Accruals by customer for rebates and promotions
Payments to sales agencies |
||||||||||
E. | Canadian Retailer Arrangements, as further described in Exhibit C , attached hereto | See Exhibit C | Up to two years from the Effective Date | Canada | See Exhibit C | |||||
F. | Promotion and execution of the 2013 and 2014 Kraft Nabisco Golf Championships | GroceryCo | Effective Date through June 30, 2014 | U.S. | SnackCo to pay a portion of the net expenses of the Golf Championships (event costs less advertising and sponsorship revenues), pro rata, based on the benefits SnackCo receives at the events (e.g., SnackCos signage share, guest passes, pavilion seating, etc.) | |||||
G. |
GroceryCo and SnackCo will cooperate to provide the other party with consulting services for(i) sales systems, (ii) SAP master data, (iii) sales (non-competitive), and (iv) sales finance | GroceryCo or SnackCo (as applicable) | Up to six months from the Effective Date | U.S. and Canada | $150 per hour or Allocated Cost, subject to the Mark Up, at the sole election of Supplier | |||||
H. |
GroceryCo and SnackCo will cooperate to provide the other party with consulting services for customer post-audit defense recovery | GroceryCo or SnackCo (as applicable) | Up to two years from the Effective Date | Canada | $150 per hour or Allocated Cost, subject to the Mark Up, at the election of Supplier |
- B.4 - 2 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.2 | Description of Consumer Programs Services. |
Service |
Supplier |
Transition
|
Country(ies)
|
Charges and
|
||||||
A. |
Replication of consumer recipe data and assistance in transferring consumer website information to SnackCo website and data systems | GroceryCo | Up to two years from the Effective Date | U.S. and Canada | Allocated Cost, subject to the Mark Up | |||||
B. |
Administration and maintenance of SnackCo consumer promotions, whether in effect at or planned prior to and continuing after the Effective Date, including a continued use of external vendor [ * * * ]. for coupon processing and coupon data management services as per Exhibit D, attached hereto | GroceryCo | Up to two years from the Effective Date | U.S. | Allocated Cost, subject to the Mark Up | |||||
C. |
Administration, maintenance and continued participation, consistent with plans in place as of the Effective Date, in advertising vehicles, including, but not limited to:
Food and Family, Whats Cooking and Questce Quimijot magazines (including inclusion of SnackCo recipes), and
Online banner advertisements appearing on the Kraft Foods website. |
GroceryCo | Effective Date through December 31, 2012 | U.S. and Canada | Allocated Cost, subject to the Mark Up |
- B.4 - 3 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.3 | Description of Marketing Data Services. |
Service |
Supplier |
Transition
|
Country(ies)
|
Charges and
|
||||||
A. |
Customer / foodservice sales and marketing database, web site management, and social media | GroceryCo | Up to two years from the Effective Date | U.S. and Canada | Allocated Cost, subject to the Mark Up | |||||
B. |
Supplier [ * * * ] will provide the following syndicated services to Buyer [ * * * ], which provision of services is contingent upon receiving the prior consent of The Nielsen Company B.V. (Nielsen) pursuant to [ * * * ].
Set forth below are different value added services [ * * * ].
[ * * * ] |
GroceryCo | Effective Date through December 31, 2012 | Canada |
SnackCo will reimburse GroceryCo for SnackCos pro-rata portion of the payments made based on fourth quarter 2012 syndicated portion to Nielsen. A one-time payment will be made by SnackCo to GroceryCo for these services at the end of the Transition Period. |
- B.4 - 4 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Individuals from Nielsen team who support analysis, day to day questions and train people.
[ * * * ]
|
||||||||||
C. | Sales Incentive Program (SIP) Data Share. To facilitate the full execution and completion of the 2012 Sales Incentive Program, GroceryCo and SnackCo will share select sales finance information. The Sales Finance FP&A group for each of GroceryCo and SnackCo will share their respective results with the other company. The information to be shared will contain Net Revenue and Marginal Contribution results by customer (CBT) and category (RC) with applicable comparisons to plan and prior year. This information would continue to be shared until 2012 results have been actualized, through January 31, 2013. | GroceryCo and SnackCo (as applicable) | Effective Date through January 31, 2012 | U.S. and Canada | Allocated Cost, subject to the Mark Up |
- B.4 - 5 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.4 | Description of Kraft Parmesan Brand Marketing Services in Japan. |
Service |
Supplier |
Transition
|
Country(ies)
|
Charges and
|
||||||
A. |
SnackCo will provide GroceryCo with the following marketing services with regard to Kraft Parmesan Brand in Japan:
Development of brand strategies, short/long term IMC plans
Consumer insight
Market data analysis/Retail Audit
NPD/QI
Packaging development
ABL promotion (Media)
Web-marketing
Consumer and trade promotion
Pricing strategy
Consulting and preparation of brand P&L, forecasting and tracking of revenue and spending
Management and coordination of advertising agency work in Japan. |
SnackCo | Up to two years from the Effective Date | Japan | Allocated Cost, subject to the Mark Up |
2. | Details of Services. |
2.1 | Services Manager for Joint CRM Programs . |
(a) | GroceryCos Services Manager for Item A in Section 1.1 above will initially be [ * * * ]. SnackCos Services Manager for Item A in Section 1.1 above will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. |
(b) | GroceryCos Services Manager for Item B in Section 1.1 above will initially be [ * * * ]. SnackCos Services Manager for Item B in Section 1.1 above will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. |
(c) | GroceryCos Services Manager for Item C in Section 1.1 above will initially be [ * * * ]. SnackCos Services Manager for Item C in Section 1.1 above will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. |
(d) | GroceryCos U.S. Services Manager for Item D in Section 1.1 above will initially be [ * * * ]. SnackCos U.S. Services Manager for Item D in Section 1.1 above will initially be [ * * * ]. GroceryCos Canada Services Manager for Item D in Section 1.1 above will initially be [ * * * ]. SnackCos Canada Services Manager for Item D in Section 1.1 above will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. |
- B.4 - 6 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(e) | GroceryCos Services Manager for Item E in Section 1.1 above will initially be [ * * * ]. SnackCos Services Manager for Item E in Section 1.1 above will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. |
(f) | GroceryCos Services Manager for Item F in Section 1.1 above will initially be [ * * * ]. SnackCos Services Manager for Item F in Section 1.1 above will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. |
(g) | GroceryCos U.S. Services Manager for Item G in Section 1.1 above will initially be [ * * * ]. SnackCos U.S. Services Manager for Item G in Section 1.1 above will initially be [ * * * ]. GroceryCos Canada Services Manager for Item G in Section 1.1 above will initially be [ * * * ]. SnackCos Canada Services Manager for Item G in Section 1.1 above will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. |
(h) | GroceryCos U.S. Services Manager for Item H in Section 1.1 above will initially be [ * * * ]. SnackCos U.S. Services Manager for Item H in Section 1.1 above will initially be [ * * * ]. GroceryCos Canada Services Manager for Item H in Section 1.1 above will initially be [ * * * ]. SnackCos Canada Services Manager for Item H in Section 1.1 above will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. |
2.2 | Services Manager for Consumer Programs Services . |
(a) | GroceryCos U.S. Services Manager for Item A in Section 1.2 above will initially be [ * * * ]. SnackCos U.S. Services Managers for Item A in Section 1.2 above will initially be [ * * * ] and [ * * * ]. GroceryCos Canada Services Manager for Item A in Section 1.2 above will initially be [ * * * ]. SnackCos Canada Services Manager for Item A in Section 1.2 above will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. |
(b) | GroceryCos Services Managers for Item B in Section 1.2 above will initially be [ * * * ] and [ * * * ]. SnackCos Services Manager for Item B in Section 1.2 above will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. |
(c) | GroceryCos U.S. Services Manager for Item C in Section 1.2 above will initially be [ * * * ]. SnackCos U.S. Services Managers for Item C in Section 1.2 above will initially be [ * * * ] and [ * * * ]. GroceryCos Canada Services Manager for Item C in Section 1.2 above will initially be [ * * * ]. SnackCos Canada Services Manager for Item C in Section 1.2 above will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. |
- B.4 - 7 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.3 | Services Manager for Marketing Data Services . |
(a) | GroceryCos U.S. Services Manager for Item A in Section 1.3 above will initially be [ * * * ]. SnackCos U.S. Services Manager for Item A in Section 1.3 above will initially be [ * * * ]. GroceryCos Canada Services Manager for Item A in Section 1.3 above will initially be [ * * * ]. SnackCos Canada Services Manager for Item A in Section 1.3 above will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. |
(b) | GroceryCos U.S. Services Manager for Item B in Section 1.3 above will initially be [ * * * ]. SnackCos U.S. Services Manager for Item B in Section 1.3 above will initially be [ * * * ]. GroceryCos Canada Services Manager for Item B in Section 1.3 above will initially be [ * * * ]. SnackCos Canada Services Manager for Item B in Section 1.3 above will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. |
(c) | GroceryCos U.S. Services Manager for Item C in Section 1.3 above will initially be [ * * * ]. SnackCos U.S. Services Manager for Item C in Section 1.3 above will initially be [ * * * ]. GroceryCos Canada Services Manager for Item C in Section 1.3 above will initially be [ * * * ]. SnackCos Canada Services Manager for Item C in Section 1.3 above will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. |
2.4 Services Manager for Kraft Parmesan Brand Marketing Services in Japan . GroceryCos Services Manager will initially be [ * * * ], and SnackCos Services Manager will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party.
3. | Additional terms. |
3.1 Term . This Project Statement will become effective upon the Effective Date and will terminate as indicated above in Section 1 under the caption Transition Period, unless terminated earlier as provided in the Master Agreement.
3.2 Entire agreement; precedence. This Project Statement will supplement and/or modify the Master Agreement by and between GroceryCo and SnackCo with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Master Agreement, this Project Statement will prevail. All other terms and conditions of the Master Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Master Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
- B.4 - 8 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
3.3 Amendments . No changes to this Project Statement are valid unless in writing, signed by both parties.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Effective Date.
MONDELĒZ GLOBAL LLC |
KRAFT FOODS GROUP, INC. | |||||||||
By: |
|
By: |
|
|||||||
Its: |
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Its: |
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- B.4 - 9 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit A
To Project Statement for
Joint CRM Programs, Consumer Programs / Services, Marketing / CIS
Joint Canadian Retailer Programs
1. | Each marketing program listed in Table 1 attached hereto has elements whereby both SnackCo and GroceryCo products are marketed in either the same promotion to the trade, with consumers, and/or in common media, including, but not limited to, Krafts Whats Cooking magazine and websites. |
2. | The parties have agreed that the three classes of marketing programs (CRM, Scale, and Customer Marketing) will be split prior to the Effective Date, with the responsibility for trade agreements with customers and the execution of each such marketing program assigned to either SnackCo or GroceryCo, as noted on the marketing program table, below (the Marketing Program Table ). The split of these marketing programs is designated on the Marketing Program Table, with the party receiving the primary benefit of an assigned marketing program being responsible for: |
|
Using its commercially reasonable efforts to properly execute the applicable marketing program, including achieving the benefits expected to be received by the other party pursuant to the programs in place with the retailers; |
|
Paying all costs associated with the applicable marketing program in its entirety, including any costs related to procuring the benefits derived by the other party |
3. | For the avoidance of doubt, ensuring that there will be no cross charges between the parties related to the aforementioned split of these marketing programs. |
4. | To the extent that a party requires data or other reasonable cooperation from the other party to execute its responsibilities in overseeing any marketing program, such other party will provide such data or other otherwise reasonably cooperate. This would include post program analysis data required for 2012 programs which will be available in Q1 2013. |
5. | The lead business will coordinate the programs with the retailers headquarters, and similarly coordinate display building/POS/circular participation between its sales force and the other Kraft partys sales force to realize the program benefits. |
- B.4 - 10 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Table 1
Marketing Program Table
The following table identifies each program (see the Program Description column), the program type (see the Program Type column and the Program Type Definitions below) and the relevant Supplier for the program (i.e., GroceryCo or SnackCo, as applicable).
Program Type Definitions :
AW Working Media
AN Non Working Media
CC Consumer Coupons
CP Consumer Promotions
CU Consumer Coupons Marketing
FV Face Value (Coupons)
OT Other Promotions
Program Description |
Program
Type |
Supplier | ||
[ * * * ] |
AW | GroceryCo | ||
[ * * * ] |
CN | GroceryCo | ||
[ * * * ] |
AN | GroceryCo | ||
[ * * * ] |
AW | GroceryCo | ||
[ * * * ] |
AW | GroceryCo | ||
[ * * * ] |
CM | GroceryCo | ||
[ * * * ] |
OT | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
OT | GroceryCo | ||
[ * * * ] |
OT | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
OT | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo |
- B.4 - 11 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
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OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Program Description |
Program
Type |
Supplier | ||
[ * * * ] |
AW | GroceryCo | ||
[ * * * ] |
AN | GroceryCo | ||
[ * * * ] |
AW | GroceryCo | ||
[ * * * ] |
AW | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
OT | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
OT | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
OT | GroceryCo | ||
[ * * * ] |
OT | GroceryCo | ||
[ * * * ] |
OT | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
OT | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
OT | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
OT | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
OT | GroceryCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
OT | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
OT | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
OT | SnackCo | ||
[ * * * ] |
OT | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CM | SnackCo | ||
[ * * * ] |
CU | SnackCo | ||
[ * * * ] |
OT | SnackCo |
Program Description |
Program
Type |
Supplier | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo |
- B.4 - 12 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Program Description |
Program
Type |
Supplier | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo |
- B.4 - 13
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
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OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Program Description |
Program
Type |
Supplier | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
OT | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CR | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
OT | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo |
- B.4 - 14
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Program Description |
Program
Type |
Supplier | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo |
- B.4 - 15
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OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Program Description |
Program
Type |
Supplier | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CC | GroceryCo | ||
[ * * * ] |
FV | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | GroceryCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
OT | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
OT | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo |
- B.4 - 16
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Program Description |
Program
Type |
Supplier | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo | ||
[ * * * ] |
CP | SnackCo |
- B.4 - 17
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit B
To Project Statement for
Joint CRM Programs, Consumer Programs / Services, Marketing / CIS
Joint U.S. Retailer Programs
After the Separation, the Kraft Foods Consumer Relationship Management (CRM) program will be owned and operated by GroceryCo.
SnackCo brands participating in the CRM programs will continue to receive services identified below consistent with the plans in place as of the Effective Date for Q4 2012 as follows:
|
Editorial support (recipes and other product usage ideas) on the following CRM assets: Kraft Food and Family Magazine, kraftrecipes.com, Recipe By Email, Make Tonight Delicious Email, kraftrecipes Facebook page, kraftrecipes Pinterest page, Comida Y Familia Print, Web and Email |
Advertising support on the following CRM assets: Kraft Food and Family Magazine, kraftrecipes.com, paid search, recipe by email and make tonight delicious email.
The total payment by SnackCo will be $[ * * * ] representing fully Allocated Cost plus the Mark-Up, as applicable. SnackCo will pay for the services at the end of the quarter.
SnackCo will be responsible for supplying the GroceryCo CRM group with finished advertising in the required formats and by the required deadlines, consistent with the past practice.
- B.4 - 18
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
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OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit C
To Project Statement for
Joint CRM Programs, Consumer Programs / Services, Marketing / CIS
Canadian Retailer Arrangements
In Canada, there are a number of marketing agreements and incentive programs in place today between Kraft Canada Inc. and individual major retailers and between Kraft Canada Inc. and other third parties which grant Kraft Canada Inc. promotional or sponsorship rights that pertain to both grocery and snack products. Many of the programs, according to their terms, continue beyond the targeted Effective Date. Below is the summary of the plans for the Canadian Grocery and Snack Businesses to cooperate after the Effective Date to maintain these commitments to retailers and third parties.
In-Store Displays/Point-of-Sale materials/Advertising in circulars for Q1 2013+
There are three major programs in place which extend beyond 2012:
1. | SnackCo and GroceryCo will continue the below listed scale marketing programs in place with Canadian consumers and retailers under three joint promotional agreements between SnackCo and GroceryCo. As denoted, the intention is for one entity to become the lead party responsible for program development and execution and to provide pass through rights to participate to the other party. As contemplated by Section 4.3 of the Separation Agreement, the parties shall, and shall cause their respective Subsidiaries to, use their respective reasonable best efforts to work together (and, if necessary and desirable, to work with each of the applicable retailers and/or third parties granting promotional rights) in an effort to divide, partially assign, modify and/or replicate (in whole or in part) the respective rights and obligations under and in respect of the joint promotional agreement relating to the joint trade programs listed below, or to otherwise settle a lawful and mutually agreeable arrangement, in each case to give effect to this Project Statement. |
2. | For the listed scale marketing programs, the parties will cooperate to jointly build [ * * * ]. |
3. | Listed scale marketing Programs: |
a) | Carnaval de Quebec: SnackCo overall lead responsible party to retailers and third parties granting sponsorship rights |
i) | Contract expires in [ * * * ] |
b) | Kraft Hockeyville: GroceryCo overall lead responsible party to retailers, third parties grating sponsorship rights and the Canadian Broadcasting Corporation |
i) | Contract expires [ * * * ] |
c) | Kraft Celebration Tour: GroceryCo overall lead responsible party to retailers and third parties granting sponsorship rights |
i) | Contract expires [ * * * ] |
- B.4 - 19
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Retailer Incentive Payments for 2012
Major retailers have agreements with Kraft Canada Inc., [ * * * ], to receive incentive payments [ * * * ].
[ * * * ] will [ * * * ] make payments to retailers [ * * * ].
Retailer Trade Transition and Close
Overview : As mentioned above, the Canadian retailer programs in calendar 2012 are [ * * * ]. To properly manage the separation of trade promotional spending and retailer incentives will require well defined processes, procedures and oversight to obtain an accurate trade liability estimate and to ensure proper co-ordination of the related payments to the retailers through customer deductions and cheques. GroceryCo will provide Senior Customer Finance Management oversight services and guidance to the SnackCo Customer Finance and Sales teams to facilitate an accurate trade close for 2012. Activities will include setting up processes, reporting to senior management to facilitate decision making and controls guidance with respect to 2012 trade budgeting, spending, and year-end close procedures. This Service will be provided by the Director, Trade Transition with equal attention given to GroceryCo and SnackCo.
Transition Period : Effective Date to May 31, 2013.
Charges and Payment : SnackCo will reimburse GroceryCo for 50% of the Allocated Cost, subject to the Mark Up, of the Director, Trade Transition (TBD) for the period between October 1, 2012 to May 31, 2013.
Other
Supplier : Kraft Canada Inc. or a Canadian Affiliate of GroceryCo
Buyer : Mondelēz Canada Inc. or a Canadian Affiliate of SnackCo
Duration : Up to 8 months following the Effective Date
Pricing : Allocated Cost (50% of employee-related costs), subject to the Mark-Up
Service provided : The Director, Trade Transition (GroceryCo employee) will spend 50% of his/her time on:
1. | Budgeting retailer incentives and tracking actual spend against budget for Mondelēz Canada Inc. or a Canadian Affiliate of SnackCo |
2. | Advising on processes, procedures and controls related to retailer incentives, including as requested liability estimates and payments to retailers |
3. | Facilitating the 2012 trade close |
- B.4 - 20
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
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OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit D
To Project Statement for
Joint CRM Programs, Consumer Programs / Services, Marketing / CIS
NCH Marketing Services, Inc. Agreement
See attached.
- B.4 - 21
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OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Statement of Work (SOW)
Kraft Company Project [ * * * ]
Document Version 2.0
Prepared for
Kraft Foods Global, Inc.
By:
NCH Marketing Services, Inc.
NCH Marketing Services, Inc.
[ * * * ]
- B.4 - 22
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Statement of Work (SOW)
Kraft Company Project [ * * * ]
Overview
Kraft Foods Global, Inc . (Client) has requested that NCH Marketing Services, Inc. (NCH) decentralize their current P.O. Box and related coupon activities into two separate companies to be completed by September 28, 2012. Client has indicated one company will be called Kraft Foods while the other company is being referred to as Snack Company until a legal name is determined. For purposes of this SOW, we shall refer to the new companies as Kraft Foods and Snack Company. The terms under which NCH will perform this work are set out and agreed upon by both parties in this Statement of Work (SOW).
Project Team
[ * * * ] Project Lead: [ * * * ]
Phone/E-Mail: [ * * * ]
Phone/E-Mail: [ * * * ]
Client Project Lead: [ * * * ]
Phone/E-Mail: [ * * * ]
Phone/E-Mail: [ * * * ]
Phone/E-Mail: [ * * * ]
Description of Work
NCH Scope of Work
In an effort to create two separate companies, Client will be decentralizing their current single P.O. Box into one for each new company. Refer to Exhibit A for detailed activity. [ * * * ]
| Retain current client database [ * * * ] |
| Assign two new PO Box redemption addresses: |
Kraft Foods TBD
P.O. Box XXXX
El Paso, TX 88XXX-XXXX
Snacks Company TBD
P.O. Box XXXX
El Paso, TX 88XXX-XXXX
| Set-up database for each company [ * * * ] |
[ * * * ] |
| Work with Kraft Foods and Snack Company to set-up receipt of outbound files to [ * * * ] |
| Bank conversion [ * * * ] |
- B.4 - 23
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Statement of Work (SOW)
Kraft Company Project [ * * * ]
| Update information deliverables and security for each company |
[ * * * ]
| Establish payment policies for each company |
[ * * * ]
Development
Development in the following areas is necessary to meet the needs as described in this SOW.
| Database set-up/offer mapping for two separate companies |
| Programming of electronic file interchange [ * * * ] |
| Bank conversion [ * * * ] |
Client Scope of Work
| Provide NCH with legal company names |
| Determine mapping of each company database |
| Provide file requirements for client conversion [ * * * ] |
| Provide user/contact lists [ * * * ] |
| Facilitate discussions and timing with Bank [ * * * ] |
Key Assumptions and Constraints Refer to Exhibit B
[ * * * ]
| Statement of Work items predicated on Client meeting deadline dates. Any deviation from SOW may require a supplemental SOW and revision of timeframes and cost |
[ * * * ]
- B.4 - 24
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Testing
All electronic files outbound and inbound from client, Kraft Foods, and Snack Company
[ * * * ]
| Files outbound and inbound from respective companys bank |
Implementation
Timing of development will be scheduled upon acceptance of SOW. This SOW is valid through [ * * * ]
Approximate completion date assumes all parties have achieved agreed upon milestones and timeframes. Any change in milestones may result in modification of completion date or timeframe.
Project Costs
Total project cost includes development, testing of programs, bank set-up, computer run-time, and man-hours required from several departments.
[ * * * ]
Cost is estimated based on previous conversion experience. Once the requirements are defined and reviewed in detail the actual times and cost will be determined which may be outside of the estimated range provided in this document.
Cost to be invoiced by [ * * * ] and cost allocation based on mutual agreement between new companies.
All services and other work performed under this SOW are pursuant to the agreement for manufacturer services between the parties.
[ * * * ]
NCH MARKETING SERVICES, INC. | KRAFT FOODS GLOBAL, INC. | |||||||
By: |
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- B.4 - 25
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit B
Project [* * *] Timeline and Cost
Event | Estimated Time |
*Required Start
Date |
Estimated $ | |||||
1 | [ * * * ] | |||||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
2 | [ * * * ] | |||||||
[ * * * ] | ||||||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | |||||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
3 | [ * * * ] | |||||||
[ * * * ] | [ * * * ] | [ * * * ] | ||||||
[ * * * ] | [ * * * ] | [ * * * ] | ||||||
4 | [ * * * ] | |||||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
5 |
[ * * * ] | |||||||
[ * * * ] | [ * * * ] | [ * * * ] |
[ * * * ]
- B.4 - 26
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex B.5
Project Statement
Procurement and Hedging Services
This document is a Project Statement as defined in the Master General Transition Services Agreement ( Master Agreement ) dated as of the Effective Date between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ). This Project Statement is an annex to, and is incorporated and subject to, the Master Agreement. Once signed by both parties, this Project Statement becomes part of the Master Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Master Agreement.
1. | Description of Services. |
Service |
Supplier |
Transition
Period |
Country(ies)
of Service |
Charges and
Payment |
||||||
A. |
Coffee Procurement Services, as further described on Exhibit A , attached hereto | SnackCo |
Up to two
years from the Effective Date |
U.S. and
Canada |
See Exhibit A | |||||
B. |
Hedging Services, as further described on Exhibit B , attached hereto | GroceryCo |
Up to 30 days
from the Effective Date |
Global |
Allocated
Cost, subject to the Mark-Up |
2. | Details of Services. |
2.1 Services Manager . GroceryCos Services Manager for Item A in Section 1 above will initially be [ * * * ], and SnackCos Services Manager for Item A in Section 1 above will initially be [ * * * ]. GroceryCos Services Manager for Item B in Section 1 above will initially be [ * * * ], and SnackCos Services Manager for Item B in Section 1 above will initially be [ * * * ]. A party may change its Services Manager upon prior written notice to the other party. The Service Managers will meet on a quarterly basis. During such quarterly meetings, Suppliers Service Manager will, among other things, inform Buyers Service Manager of any planned outsourcing of Services.
3. | Additional terms. |
3.1 Term . This Project Statement will become effective upon the Effective Date and will terminate as indicated above in Section 1 under the caption Transition Period, unless terminated earlier as provided in the Master Agreement.
3.2 Entire agreement; precedence. This Project Statement will supplement and/or modify the Master Agreement by and between GroceryCo and SnackCo with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Master Agreement, this Project Statement will prevail. All other terms and conditions of the Master Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Master Agreement of which it is a part, is a
- B.5 - 1
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
3.3 Amendments . No changes to this Project Statement are valid unless in writing, signed by both parties.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Effective Date.
MONDELĒZ GLOBAL LLC | KRAFT FOODS GROUP, INC. | |||||||
By: | By: | |||||||
Its: |
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Its: |
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- B.5 - 2
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit A
to Project Statement for Procurement Services
Coffee Procurement
1. Supplier : SnackCo
2. Buyer : GroceryCo
3. Duration : [ * * * ]
4. Volume : [ * * * ]
5. Description of services :
[ * * * ]
6. Payment : Net [ * * * ] days after sample approval per past practices
7. Damages/Issues :
a. | [ * * * ] |
b. | Rejects for coffee and claim handling will follow the practice existing prior to the Distribution Date. |
8. Market intelligence :
[ * * * ]
9. Other :
[ * * * ]
- B.5 - 3
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit B
to Project Statement for Procurement Services
Hedging Services
Following the Effective Date, one or more brokerage companies will be establishing accounts for SnackCo. Prior to the establishment of these accounts, GroceryCo will have access to all SnackCo designated trades (with such designations having been established prior to the Distribution Date and maintained thereafter in GroceryCos internal information systems), and will execute such trades and settle accounts on behalf of SnackCo. In the event that SnackCo desires that GroceryCo make a trade on SnackCos behalf, SnackCo will send a notice to GroceryCo in the form of Schedule A attached hereto. In the event that a brokerage company will not accept payment directly by SnackCo, then GroceryCo will pay such brokerage company on behalf of SnackCo, and SnackCo will reimburse GroceryCo in full for any such payment promptly, but not later than one business day following payment by GroceryCo. At the end of each day, GroceryCo will confirm, using the form of confirmation attached hereto as Schedule B , any executed trades, settlement of accounts and other related actions on that day and confirm the amounts that need to be transferred to/from SnackCo accounts from/to the brokerage account based on that days settlement.
- B.5 - 4
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule A to Exhibit B
to Project Statement for Procurement Services
Form of Notice Requesting Trade
Email sent from authorized SnackCo commodities finance representative ([ * * * ]) to authorized GroceryCo commodities finance representative ([ * * * ]). Trades will be executed on an as needed basis on SnackCos behalf; email receipt by GroceryCo. does not ensure that a trade will be transacted the same day, however, reasonable effort will be provided to ensure same day transactions do occur. Email notification must contain specific data from New Edge system (identified below) for each individual trade to be processed:
Email Template:
I hereby authorize GroceryCo to execute the following trade on behalf of SnackCo:
Product (Commodity) Name
New Edge Account Number
Futures or Options Trade Type Designation
Transaction Quantity
Futures contracts specific information requirements:
Purchase Date
Purchase Price
Long or Short Trade Type Designation
Future Month & Year for Futures Contracts
Action requested (liquidate, exercise )
Option contracts specific information requirements:
Original Option Trade Date
Option Expiration Date
Option Strike Price and Option Price
Call or Put Option Designation
Action requested (liquidate, exercise )
GroceryCo will transfer funds to/from SnackCo to cover the outstanding financial liability realized from the trade/s detailed above and executed on SnackCos behalf. Trade impact will be realized and settled within GroceryCo New Edge margin account. Realized amount will be transferred to/from GroceryCo to SnackCo on a one day lag.
- B.5 - 5
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Schedule B to Exhibit B
to Project Statement for Procurement Services
Form of Confirmation
Email sent from authorized GroceryCo commodities finance representative ([ * * * ]) to confirm trade execution with SnackCo commodities finance representative ([ * * * ]). Email confirmation will contain specific data related to trade (identified below) for each individual trade processed:
Email Template:
GroceryCo on behalf of SnackCo has executed the following trades:
Product (Commodity) Name
New Edge Account Number
Futures or Options Trade Type Designation
Transaction Quantity
Transaction Date
Futures contracts specific information requirements:
Purchase Date
Purchase Price
Long or Short Trade Type Designation
Future Month & Year for Futures Contracts
Action requested (liquidate, exercise )
Liquidated or Exercised Price
Option contracts specific information requirements:
Original Option Trade Date
Option Expiration Date for Options Contracts
Option Strike Price and Option Price
Call or Put Option Designation
Action requested (liquidate, exercise )
Liquidated or Exercised Price
GroceryCo will transfer funds to/from SnackCo to cover the outstanding financial liability realized from the trade/s detailed above and executed on SnackCos behalf. Trade impact will be realized and settled within GroceryCo New Edge margin account. Realized amount will be transferred to/from GroceryCo to SnackCo on a one day lag.
- B.5 - 6
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex B.6
Services for Product, Platform, or Process Development and Management
This document is a Project Statement as defined in the Master General Transition Services Agreement ( Master Agreement ) dated as of the Effective Date between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ). This Project Statement is an annex to, and is incorporated and subject to, the Master Agreement. Once signed by both parties, this Project Statement becomes part of the Master Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Master Agreement.
1. | Description of Services. |
Service |
Supplier |
Transition Period |
Country(ies) of
Service |
Charges and Payment | ||||
Kraft Food Ingredients (KFI) Services for Product, Platform, or Process Development and Management, as further described in Exhibit A (the Projects). | GroceryCo |
Up to 24 months
from the Effective Date |
Global |
Allocated Cost,
subject to the Mark-Up
See Exhibit A for
|
2. | Details of Services. |
2.1 Scope and specifications of Services . GroceryCo will provide SnackCo with new ingredient, platform, and process management and support services consistent with past practices in the Projects listed in Exhibit A , as directed by SnackCo. The Parties may, by mutual consent, enter into separate agreements for services in any new projects, which may be identified after the Effective Date.
2.2 Deliverables . A listing of the project activity to be undertaken pursuant to this Annex is attached as Exhibit A hereto.
2.3 Services Manager . GroceryCos Services Manager will initially be [ * * * ], and SnackCos Services Managers will initially be [ * * * ] and [ * * * ]. A party may change its Services Manager upon prior written notice to the other party.
- B.6 - 1
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
3. | Additional terms. |
3.1 Term . This Project Statement will become effective upon the Effective Date and will terminate as indicated above in Section 1 under the caption Transition Period, unless terminated earlier as provided in the Master Agreement.
3.2 | Intellectual Property . |
(a) Except as may otherwise be provided in the IP Separation Agreement: (i) GroceryCo will own and continue to own all rights in and to all intellectual property developed, authored, or created by GroceryCo, its employees or Contractors after the Effective Date and in the course of any Project, including all inventions, discoveries, developments, improvements, works of authorship, patent rights, copyrights, industrial design rights, database rights, trade secrets, and know-how, regardless of whether or not it incorporates, is based on or is derived from any intellectual property provided to GroceryCo by SnackCo in connection with the Projects or any other preexisting information, material or rights (the Work Product ); and (ii) GroceryCo will have the sole right, in its own discretion, to decide whether to file patent applications or other applications for protection of rights in Work Product, and will have the sole discretion and responsibility for all decisions about the content and prosecution of such applications and the maintenance of any resulting patents or other grants or registrations.
(b) GroceryCo hereby grants to the SnackCo as from the Effective Date a perpetual, non-exclusive, fully-paid, royalty-free and transferable license to use the ingredient specifications delivered in connection with the Services (excluding the processes used by GroceryCo to produce ingredients) in any manner or way without any restrictions.
(c) Except as may otherwise be provided in the IP Separation Agreement: (i) SnackCo will own and continue to own all rights in and to SnackCos intellectual property, including any underlying SnackCo intellectual property that GroceryCo uses or incorporates in developing any Work Product; and (ii) GroceryCo will have no right to use such SnackCo intellectual property except in connection with performing the Services .
(d) Any intellectual property that is developed jointly by the Parties in any Project will be jointly owned by the Parties, with each Party free to use and otherwise exploit (and to license others to use and otherwise exploit) such intellectual property without any obligation to share with the other Party, or account to the other Party for, any resulting profits.
3.3 No warranties . GroceryCo makes no warranties that the Services will product any particular outcomes or results, and makes no warranties about the deliverables and timing identified above. SnackCo will have the right to terminate this Service with immediate effect as a remedy if the Services will not meet expectations under agreed milestones.
3.4 Entire agreement; precedence. This Project Statement will supplement and/or modify the Master Agreement by and between GroceryCo and SnackCo with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Master Agreement, this Project Statement will prevail. All other terms and conditions of the Master Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Master Agreement of which it is a part, is a complete and
- B.6 - 2
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FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
3.5 Amendments . No changes to this Project Statement are valid unless in writing, signed by both parties.
- B.6 - 3
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Project Statement Effective Date above written.
MONDELĒZ GLOBAL LLC | KRAFT FOODS GROUP, INC. | |||||||
By: |
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By: |
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Its: |
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Its: |
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- B.6 - 4
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit A
to Project Statement for Services for Product, Platform, or Process Development and
Management
Project Activity
Summary
Description |
Good Faith
Estimate (Total)* |
|
Project Driven (New) |
$[ * * * ] |
* | The amount excludes Mark-Up, which will be added as appropriate |
Snacks
Description |
Good Faith
Estimate (Summary) |
Start Date |
Estimated Close Date |
Good Faith Estimate |
||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] |
- B.6 - 5
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] |
International
Description |
Good Faith
Estimate (Summary) |
Start Date |
Estimated Close Date |
Good Faith Estimate |
||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] | [ * * * ] | |||||
[ * * * ] | [ * * * ] | [ * * * ] |
- B.6 - 6
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex C
Menu Services
Annex |
Category of Menu Services |
|
C.1 | Human Resources, Payroll and Benefits | |
C.2 | Accounting, Finance and Treasury | |
C.3 | Operations | |
C.4 | Joint CRM Programs, Consumer Programs / Services, Marketing / CIS | |
C.5 | Procurement and Hedging | |
C.6 | Product, Platform, or Process Development and Management |
- C - 1 -
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OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex C.1
Menu Services
Human Resources, Payroll and Benefits
Service |
Country(ies) of Service |
|||
A. | Manager transaction support: For any employee transaction (e.g., new hires, promotions, etc.) for which a business manager has authority to approve the transaction, Supplier (SnackCo) will provide administrative support to Buyer (GroceryCo) by entering such transactions in the applicable database(s) | U.S., Canada and Puerto Rico | ||
B. | Health and welfare benefit plan administration | U.S., Canada and Puerto Rico | ||
C. | Retirement benefit plan administration | U.S., Canada and Puerto Rico | ||
D. | COBRA services | U.S. | ||
E. | Personnel files access | U.S., Canada and Puerto Rico |
- C.1 - 1 -
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OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex C.2
Menu Services
Accounting, Finance and Treasury
Service |
Supplier |
Transition Period |
Country(ies)
|
Charges and
|
||||||
A. | Cash Management | GroceryCo or SnackCo | Up to 6 months after the Effective Date | Global |
Fully Allocated Cost plus Mark-up |
|||||
B. | Benefit Investments (in addition to any Services described under Annex B.1.(A)) | GroceryCo or SnackCo | Up to 6 months after the Effective Date | US and Canada |
Fully Allocated Cost plus Mark-up |
|||||
C. | Capital Markets | GroceryCo or SnackCo | Up to 6 months after the Effective Date | Global |
Fully Allocated Cost plus Mark-up |
|||||
D. | Risk Management and Insurance | GroceryCo or SnackCo | Up to 6 months after the Effective Date | Global |
Fully Allocated Cost plus Mark-up |
Note: The Services listed above may include consulting, advice, and/or execution at the request of the Buyer. Execution requests must be in writing and in reasonable detail.
- C.2 - 1 -
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OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex C.3
Menu Services
Operations
None.
- C.3 - 1 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex C.4
Menu Services
To Project Statement for
Joint CRM Programs, Consumer Programs / Services, Marketing / CIS
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex C.5
Menu Services
Procurement and Hedging Services
None.
- C.5 - 1 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex C.6
Menu Services
Services for Product, Platform, or Process Development and Management
None.
- C.6 - 1 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex D
Wire Transfer Information
If to GroceryCo:
Kraft Foods Group, Inc.
[ * * * ]
If to SnackCo:
Mondelēz International, Inc.
[ * * * ]
For Canadian matters: Canadian billing will be in Canadian $ and any reference to Canadian services provided refers to Canadian $:
If to Groceryco Canada:
Kraft Canada Inc
[ * * * ]
If to Snackco Canada
Mondelez Canada Inc
[ * * * ]
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit 10.10
EXECUTION VERSION
MASTER INFORMATION TECHNOLOGY
TRANSITION SERVICES AGREEMENT
between
Kraft Foods Group, Inc.
and
Mondelēz Global LLC
Dated as of September 27, 2012
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
MASTER INFORMATION TECHNOLOGY
TRANSITION SERVICES AGREEMENT
This Master Information Technology Transition Services Agreement (this Agreement ) is entered into as of the Distribution Date (as defined in the Separation Agreement) (the Effective Date ) between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ).
WHEREAS, GroceryCo and SnackCos parent company are parties to that certain Separation Agreement dated as of the date hereof (the Separation Agreement );
WHEREAS, pursuant to the Separation Agreement, the parties agreed to separate Kraft Foods Inc. into two companies: (a) GroceryCo, which will own and conduct, directly and indirectly, the GroceryCo Business; and (b) SnackCo, which will own and conduct, directly and indirectly, the SnackCo Business (the Separation );
WHEREAS, in connection with the transactions contemplated by the Separation Agreement and in order to ensure a smooth transition following the Separation, each party desires that the other party provide, or cause its Affiliates or contractors to provide, certain information technology transition services in exchange for the consideration stated in this Agreement and in accordance with the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the services to be provided hereunder will be specified in separate Project Statements (as further defined below) that will set forth the scope of the services to be provided as well as the party who will provide the services (the Supplier as further defined herein) to the other party (the Buyer as further defined herein); and
WHEREAS, each party in its capacity as a Buyer wishes to receive such specified transition services for use in connection with its Business in order to ensure a smooth transition following the Separation to such other IT systems and services as Buyer may select, and each party in its capacity as a Supplier has agreed to provide such services in accordance with the terms specified herein.
NOW, THEREFORE, in consideration of the mutual agreements contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, GroceryCo and SnackCo agree as follows:
1. Definitions. The following terms have the meanings indicated:
1.1 Allocated Cost has the meaning set forth in Section 5.2.
1.2 Buyer means with respect to a Service specified in a Project Statement, the party receiving such Service as specified in the Project Statement.
1.3 Buyer Data means data relating to the operation of the Business of Buyer in the possession or control of Supplier.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.4 Canadian Buyer has the meaning set forth in Section 10.1.
1.5 Canadian Supplier has the meaning set forth in Section 10.1.
1.6 Confidential Information has the meaning set forth in Section 9.1.
1.7 Contractor has the meaning set forth in Section 3.3.
1.8 Dispute has the meaning set forth in Section 10.2.
1.9 Employee Matters Agreement means the Employee Matters Agreement between the parties dated as of the date hereof.
1.10 IP Separation Agreement means that certain Master Ownership and License Agreement Regarding Patents, Trade Secrets and Related Intellectual Property being entered into by certain Affiliates of the parties as of the Distribution Date.
1.11 Maximum Transition Period means the two year period beginning on the Effective Date.
1.12 New Service means a Service not provided or supplied by Kraft Foods Inc., its subsidiaries and/or Contractors for the Business of Buyer during the 12 months preceding the Effective Date.
1.13 Project Manager has the meaning set forth in Section 3.1.
1.14 Project Statement has the meaning set forth in Section 2.1.
1.15 Representative means an Affiliate, Contractor or other Person providing Services hereunder on behalf of Supplier.
1.16 Services means collectively the IT Services, any Menu Services and any Additional Services described in mutually agreed Project Statements.
1.17 Supplier means with respect to a Service specified in a Project Statement, the party providing such Service as specified in the Project Statement.
1.18 Supplier Data means data relating to the operation of the Business of Buyer in the possession or control of Buyer.
1.19 Term has the meaning set forth in Section 7.1.
1.20 Transition Period means the maximum period of time set forth in the applicable Project Statement for a Service, as such Transition Period may be adjusted by mutual written agreement of the parties from time to time; provided , however , that in no event will the Transition Period exceed the date that is two years from the Effective Date.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Other capitalized terms have the meanings set forth elsewhere in this Agreement. Any capitalized terms used but not defined in this Agreement have the meanings given to them in the Separation Agreement.
2. Transition Services.
2.1 Project Statements. The scope of each agreed upon Service to be provided under the terms of this Agreement will be set forth in a Project Statement substantially in the form set forth in Annex A (a Project Statement ), including, as applicable, (i) the party that is the Supplier of the Service and the party that is the Buyer of the Service, (ii) a timeline for such Service, (iii) the location of such Service (including any Canada Services), (iv) each partys Project Manager for such Project Statement, (v) any details regarding the Allocated Cost for such Service, (vi) payment terms, and (vii) any specifications applicable to such Service, if different from the specifications defined in this Agreement. No Project Statement will be binding or effective unless signed by both parties. Supplier will provide, or cause one or more of its Representatives to provide, to Buyer the Services described in executed Project Statements in accordance therewith and subject to the terms and conditions of this Agreement.
2.2 IT Services. Each Project Statement entered into as of the Effective Date is attached hereto in Annex D (the Services identified in such Project Statements being referred to in this Agreement, collectively, as the IT Services). Supplier agrees, on the terms and subject to the conditions of this Agreement, to provide, or cause one or more of its Representatives to provide, to Buyer each of the IT Services for the applicable Transition Period indicated in each applicable Project Statement attached hereto in Annex D , and Buyer agrees to purchase and pay for the IT Services as provided for in Section 5.
2.3 Menu Services. If Buyer desires to receive any information technology services that are not IT Services but that are listed on the menu of services available upon request as set forth in Annex C ( Menu Services ), Buyer will provide Supplier with a reasonably detailed written request for such proposed services. Within 30 days following such request, Supplier will, to the extent feasible, provide a good faith estimate of the costs, timing and resources required to provide such Menu Services, including a good faith summary of any costs or effects to other Services, equipment, systems, personnel or resources being provided to Buyer ( Resulting Linked Effects ). The parties will then promptly negotiate in good faith the terms of a Project Statement by which the proposed Menu Services would be provided under this Agreement. The Project Statement will set forth the parties estimate of the costs associated with the applicable Menu Services, however the parties acknowledge that the final price may vary depending on Allocated Costs in providing such Services. Supplier agrees to take commercially reasonable efforts to provide the proposed Menu Services to the extent not unduly burdensome in light of Suppliers resource constraints and obligations, subject to the following conditions: (i) if the requested Menu Services could be obtained from other commercial service providers in a commercially reasonable manner, then Supplier will have the right, in its sole and absolute discretion, to decline to provide such Menu Services; (ii) Supplier will not be obligated to perform any Menu Services unless Buyer agrees to pay the Allocated Cost for such Menu Services, including any Allocated Costs associated with Resulting Linked Effects; and (iii) in no event will the Transition Period for any Menu Service extend beyond the Maximum Transition Period.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.4 Additional Services.
(a) | If Buyer desires to receive any information technology services that are not IT Services or Menu Services, or that represent a significant or material change to an IT Service or a Menu Service, Buyer will provide Supplier with a reasonably detailed written request for such proposed services (the Additional Services ) (such request sufficiently detailed to enable Supplier to weigh the risks and assess the feasibility of such request and attempt to estimate the resources and effort required to provide such proposed services). Within 30 days following such request, Supplier will, to the extent reasonably feasible, assess the request in good faith and provide notice of whether it will endeavor to provide the requested Additional Service. If Supplier does not respond to such request within 30 days following such request, then Supplier will be deemed to have refused such request. |
(b) | If a requested Additional Service is reasonably necessary to effect the Separation of the GroceryCo and SnackCo Businesses then Supplier will accept the request to provide the proposed Additional Service if it can feasibly provide such Additional Service without undue burden in light of Suppliers resource constraints and obligations. Supplier will have no obligation to provide an Additional Service or to provide the Additional Service under any specific terms, and may decline to provide such requested Additional Service in its sole and absolute discretion, if any of the following apply: (i) the requested Additional Service is not reasonably necessary to effect the Separation of the GroceryCo and SnackCo Businesses; (ii) the requested Additional Service is not a Service that was provided or supplied by Kraft Foods Inc. and/or its subsidiaries for the Business of Buyer during the 12 months preceding the Effective Date; (iii) the requested Additional Service could be obtained from other commercial service providers in a commercially reasonable manner; (iv) Buyer will not agree to pay the Allocated Cost for such Additional Services, including any Allocated Costs associated with Resulting Linked Effects; or (v) the Transition Period for the requested Additional Service extends beyond the Maximum Transition Period. |
(c) | If Supplier accepts a request to provide an Additional Service, it will, to the extent reasonably feasible, provide a good faith estimate of the fees, timing and resources required to provide such Additional Services, including a good faith summary of any Resulting Linked Effects. The parties will then promptly negotiate in good faith a Project Statement by which the proposed Additional Services would be provided under this Agreement. The Project Statement will set forth the parties estimate of the costs associated with the applicable Additional Services, however the parties acknowledge that the final price may vary depending on the Allocated Costs in providing such Services. |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.5 Disputes over requested Services . In the event that Buyer alleges that Supplier (or a proposed Supplier) has violated its obligation to consider or provide a requested Service hereunder, or has acted in bad faith in negotiating the terms applicable to a Service such Dispute will be subject to arbitration in accordance with Section 10.2(c).
2.6 Financial obligation . In providing the Services, Supplier and its Representatives will not be obligated to perform any of the following actions unless Buyer agrees to pay the fully Allocated Cost of such actions and the performance of such actions is reasonably within the control of Supplier and its Representatives: (i) maintain the employment of any specific employee; (ii) purchase, lease or license any additional equipment or software, except any replacement for existing equipment owned by Supplier and necessary to provide the Services pursuant to the terms of this Agreement; (iii) pay any costs related to the conversion of the Buyer Data from one format to another; or (iv) pay any costs necessary to integrate Buyers systems for purposes of receiving the Services.
2.7 Means of providing Services. Supplier will, in its sole discretion, determine the means and resources used to provide the Services in accordance with its business judgment and subject to Section 4. Supplier will have sole discretion and responsibility for staffing, instructing and compensating its personnel and third parties who perform the Services. Without limiting the foregoing, Supplier may elect to modify or replace at any time any aspect of the Services, provided that such modifications or replacements are being implemented consistently with Suppliers own Business objectives. Such changes may include without limitation (a) modification of IT policies and procedures; (b) changes in the environment used to provide the Services, including without limitation the Representatives that provide all or any portion of the Services; (c) the location from which any Service is provided; or (d) the intellectual property, IT, products and services used to provide the Services. Supplier will use commercially reasonable efforts to eliminate or minimize disruption to Buyers business as a result of such modifications, and not to implement such modifications during mutually agreed periods of time before and after cut-overs from affected systems to Buyers systems. Prior to Supplier making any changes or disruptions to its or its Representatives information technology systems which could reasonably be expected to alter or disrupt the Services, Supplier will give Buyer reasonable prior written notice including a description of which Services may be disrupted and the anticipated length of the disruption.
2.8 Access to facilities and equipment. To the extent reasonably required to perform the Services hereunder, Buyer will provide (or, as necessary, will cause its Representatives to provide) Supplier with reasonable access to and use of Buyers applicable facilities and equipment.
2.9 Cooperation; consulting . Supplier and Buyer will use reasonable efforts to assist and cooperate with one another in the timely and orderly transfer of all matters that support or relate to the functions that are the subject of any Services. Buyer acknowledges that some Services to be provided under this Agreement require instructions and information from Buyer, which Buyer will provide to Supplier sufficiently in advance in order to enable Supplier or its Representatives to provide or procure such Services in a timely manner. Supplier will not be liable for any delays resulting from or caused by Buyers failure to provide such instructions or information in a timely manner, and Buyer will pay any reasonable additional costs or expenses,
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
including labor, resulting therefrom. Buyer will provide all information reasonably required or requested by Supplier to perform its obligations under this Agreement. Except as otherwise specified for Menu Services, the cost for hourly consulting services provided by Supplier personnel included in Allocated Costs for any Services will be billed at $150 per hour plus reasonable, out-of-pocket expenses.
2.10 Inability to perform Services . In the event that Supplier will be unable to perform Services as required by this Agreement for any reason whatsoever, the parties will cooperate, and Supplier will use its commercially reasonable efforts, to restore the affected Services as soon as possible. The foregoing is without prejudice to any rights and remedies Buyer may have in connection with such failure to perform.
2.11 Litigation holds. In the event that Buyer notifies Supplier of a litigation hold or e-discovery request, then Supplier will take all efforts to comply with such notices, including providing access to any Buyer Data in its control or possession and by retaining all relevant data and materials for the duration of the litigation hold. Supplier will cooperate with Buyer in responding to any court orders or discovery requests and promptly provide Buyer with copies of any relevant Buyer Data or materials.
3. Personnel.
3.1 Services Managers . Each party will each select a services manager (a Services Manager ) to act as its contact person responsible for overseeing the provision or receipt, as applicable, of all of the information technology Services hereunder. Each party will also select a project manager (a Project Manager ) to be the primary contact person for each Service that is the subject of the Project Statement. All communications relating to the provision of the Services will be directed to the relevant Project Manager of the other party with problems and disputes to be escalated to the Services Manager of the other party. A party may change its Services Manager or Project Managers upon prior written notice to the other party. GroceryCos Services Manager will initially be Jan Ziskasen, and SnackCos Services Manager will initially be Dave Diedrich. The initial Project Managers for each Service will be set forth in the each Project Statement. The Services Managers of the parties will meet periodically, no less than quarterly, to discuss the status of the Services.
3.2 Supplier personnel . Except as otherwise set forth in the Separation Agreement or Employee Matters Agreement, for the avoidance of doubt, this Agreement does not impose an obligation on Supplier to second or procure the secondment to Buyer of any employee or other personnel in connection with the provision of the Services. The parties agree that such employees of Supplier and its Affiliates providing Services are employees, contract employees or secondees of Supplier or its Affiliates. All labor matters relating to any employees of Supplier and its Affiliates will be within the exclusive direction, control and supervision of Supplier and its Affiliates, and Buyer will take no action affecting such matters, and Supplier will have the sole right to exercise all authority with respect to the employment, termination, assignment, and compensation of such Supplier personnel; provided , however , that Supplier agrees to use commercially reasonable efforts to maintain sufficient personnel and facilities necessary to provide the Services. Supplier will be solely responsible for the payment of all salary and benefits, social security taxes, unemployment compensation tax, workers compensation tax,
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
other employment taxes or withholdings and premiums and remittances with respect to employees of Supplier and its Affiliates used to provide Services, and all Supplier personnel providing Services under this Agreement will be deemed to be employees or representatives solely of Supplier for purposes of all compensation and employee benefits and not to be employees, representatives or agents of Buyer.
3.3 Contractors. The Services may be provided in whole or in part by (a) Affiliates of Supplier or (b) third party contractors or subcontractors (a Contractor ) capable of providing the required level of service set forth in Section 4.
(a) | If Supplier wishes to use a Contractor to provide Services for the benefit of Buyer that has not provided similar services to the Businesses during the 12 months preceding the Effective Date (a New Contractor ), then Supplier will ensure that such New Contractor agrees in writing to be bound by the relevant terms and conditions of this Agreement. Without limiting the foregoing, Supplier will ensure that the New Contractor enters into a written confidentiality agreement on terms with respect to the Confidential Information of Buyer and its Affiliates that are substantially similar to and at least as protective of such Confidential Information as the terms of Section 9 of this Agreement. |
(b) | Supplier will take all commercially reasonable efforts to ensure that Services are not interrupted or materially disrupted in connection with the transition of provision of Services to any Contractor, including a New Contractor. Supplier will not be responsible for delays in the provision of Services arising from Buyers failure to respond promptly to reasonable requests or information provided by Supplier or caused by terms or negotiations requested by Buyer. |
(c) | If and to the extent that any failure, delay or other problem in connection with the Services (or any part thereof) is caused by the act or omission of a Contractor: (i) Supplier will not be in breach of this Agreement or otherwise liable to Buyer as a result of such failure, delay or other problem; (ii) Supplier will use commercially reasonable efforts to exercise and enforce its rights and remedies (if any) against the Contractor such that the failure, delay or other problem is remedied as soon as reasonably practicable and its impact on the Services and its Business is minimized; and (iii) Supplier will pay (or procure the payment) to Buyer such portion of any monetary compensation paid to Supplier by a Contractor in respect of any damages caused by the act or omission of that Contractor as relates to any damage suffered by Buyer or its Business as a result of that act or omission (in the event Contractor is found obligated to pay less than all compensation necessary to make whole both Supplier and Buyer, then Supplier and Buyer will split the compensation on a pro-rata basis consistent with each partys portion of the total damages suffered). |
3.4 Compliance with Policies; Safety of Personnel . Buyer acknowledges that Supplier has instituted and will continue to institute and revise a variety of policies and
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
procedures for its provision of Services. All Services must be reasonably capable of being performed in a manner that is consistent with the policies and procedures of Supplier, including those relating to antitrust laws and health, safety, labor, employment and environmental laws and otherwise in compliance with applicable law. Supplier will use reasonable efforts to provide Buyer with advance written notice in the event it believes any Service is not consistent with such policies or procedures where the same would materially affect the Services to be provided. To the extent Services are performed on site, Supplier will be permitted to withdraw any personnel providing Services at that time if Supplier has a reasonable opinion that such personnel face any risk to their personal safety and prior written notice (to the extent possible) has been given to Buyer.
3.5 Retention of Supplier personnel. If, during the Term, Buyer hires, retains or otherwise engages any employee, Contractor or other personnel of Supplier, Supplier will not be in breach of this Agreement or otherwise liable to Buyer to the extent such hiring, retention or engagement impairs or affects the ability of Supplier to provide the Services hereunder (or any part thereof), including any failure, delay or other non-compliance with any requirements relating to the Services resulting therefrom.
4. Service Standards.
4.1 Service levels. A Service will be subject to a Service Level Agreement ( SLA ) only if specifically referenced in a Project Statement. Supplier will measure and report its performance relative to the applicable SLAs, and the parties will meet periodically to review such performance. In the event that Supplier materially fails to meet any applicable SLA, Supplier will initiate a root cause analysis for any incident that contributed to Supplier missing such SLA within a reasonable period of time after such incident and use commercially reasonable efforts to ascertain the actual root cause of such failure, which analysis will include, where reasonable and practicable, Suppliers plan for avoiding such incidents in the future. For the sake of clarity, there are no financial penalties associated with Suppliers failure to meet an SLA, except for the pass through of monetary compensation received from Contractors as provided in Section 3.3(c). If an SLA issue remains unresolved under this Section for more than thirty (30) days Buyer may refer the matter for resolution in accordance with Section 10.2.
4.2 Other Service standards. For Services not governed by SLAs: (a) Supplier will use commercially reasonable efforts to continue to provide those Services being supplied for Buyers Business as of the Effective Date at a relative service level consistent in all material respects with that provided to Buyers Business in the 12 months preceding the Effective Date; or (b) Supplier will use commercially reasonable efforts to provide New Services consistent with the specifications, if any, set forth in an applicable Project Statement. For any work performed on premises of Buyer, Supplier and its personnel will comply with all reasonable security, confidentiality, safety and health policies of Buyer (as applicable) if and to the extent Buyer informs Supplier of such policies in writing. In the event of a failure to meet such general service levels, Supplier will endeavor to identify and resolve the cause of the deficiency. If such issue remains unresolved for more than 30 days Buyer may refer the matter for resolution in accordance with Section 10.2.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
4.3 Exceptions. It will not be deemed to be a breach of this Agreement if Supplier fails to meet the service standards set forth in this Section 4 because of (i) the failure of Buyer to cooperate with or provide information, services or decisions to Supplier as required hereunder, (ii) failure caused by any act or omission of Buyer or its facilities, equipment, hardware or software, (iii) changes reasonably deemed to be required by changes in law, technology or the availability of reasonably commercially available products and services, (iv) changes otherwise permitted hereunder, (v) demands on, or changes to, the relevant systems, processes or personnel, provided Supplier expends commercially reasonable efforts to attempt to correct the situation within a reasonable period of time, (vi) failures by third party service providers not directly retained by Supplier, including general Internet service providers, (vii) a Contractors failure to perform (subject to Section 3.3(c)(ii)), or (viii) Force Majeure as further provided in Section 10.3.
4.4 No warranty . O THER THAN AS PROVIDED IN THIS S ECTION 4, S UPPLIER DOES NOT MAKE ANY WARRANTY WITH RESPECT TO THE S ERVICES , WHETHER EXPRESS OR IMPLIED , AND SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES , WHETHER OF MERCHANTABILITY , SUITABILITY , FITNESS FOR A PARTICULAR PURPOSE , OR OTHERWISE FOR SAID S ERVICES .
5. Payment for Services.
5.1 Costs and charges. Supplier will charge Buyer the Allocated Cost for the Services provided hereunder.
5.2 Calculation of Allocated Cost. Allocated Cost means the fully allocated cost for providing Services calculated in a manner consistent with past practice, including the following (to the extent allocable to the provision of the Services): (a) the cost of licenses for software or other intellectual property (or other cost associated with obtaining rights to use software or intellectual property), including any termination, transfer, sublicensing, access, upgrade or conversion fees, (b) the cost of maintenance and support, including user support, (c) the fully loaded cost of personnel, (d) the cost of equipment, (e) the cost of disaster recovery services and backup services, (f) the cost of facilities and space, (g) the cost of supplies (including consumables), (h) the cost of utilities (HVAC, electricity, gas, etc.), (i) the cost of networking and connectivity, (j) the cost of legal fees associated with any advice, activities or agreements related to the foregoing areas, (k) any reasonable out-of-pocket expenses incurred by Supplier with third parties (including Contractors) in connection with the provision of Services (including one-time set-up costs, license fees, costs to enter into third party agreements, costs to exit third party agreements, termination fees, and other costs incurred in connection with Contractors engaged in compliance with this Agreement), and (l) the cost of personnel retained, displaced or transferred (excluding severance costs for Supplier employees). Travel expenses must be reasonable and incurred in accordance with Suppliers normal travel policy. Overhead allocations must be calculated consistently with Suppliers practice as then generally used by Supplier in its applicable, respective geographic business. Allocated Costs will be subject to a mark up of five percent (the Mark-Up ), except for (i) materials and services provided by third parties, (ii) fees charged by third parties, and (iii) out-of-pocket expenses paid to third parties .
5.3 Invoices and payment. Supplier will provide Buyer with monthly invoices reflecting: (i) the Services provided during the preceding month, (ii) the Allocated Cost owed for
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
such Services provided during the preceding month, and (iii) any other charges incurred during the preceding month under the terms of this Agreement. Invoices will be sent in a format and containing a level of detail reasonably sufficient for Buyer to determine the accuracy of the computation of the amount charged and that such amount is being calculated in a manner consistent with this Agreement. Reasonable documentation will be provided for all out-of-pocket expenses consistent with Suppliers practices. All amounts will be due and payable within 60 days of the date of invoice; provided, however, that with respect to any material purchases identified in a Project Statement or other attachment, such amounts will be due and payable in advance of the date that such Services are provided as set forth therein. Upon Buyers reasonable request, Supplier (or Canadian Supplier, as applicable) will provide explanations, answer questions, and provide additional documentation regarding invoiced amounts. Unless otherwise specifically agreed in writing by the parties, all payments due hereunder will be made by wire transfer of immediately available funds to the accounts specified in Annex B (or such other account as may be designated from time to time by Supplier).
5.4 Taxes.
(a) | All amounts to be paid to Supplier (or Canadian Supplier, as applicable) under this Agreement are exclusive of any applicable taxes required by law to be collected from Buyer (including withholding, sales, use, excise or services tax, which may be assessed on the provision of the Services under this Agreement). If a withholding, sales, use, excise, services or similar tax is assessed on the provisions of any of the Services under this Agreement, Buyer (or a Canadian Affiliate, as applicable) will pay directly or reimburse or indemnify Supplier (or Canadian Supplier, as applicable) for such tax. The parties agree to cooperate with each other in determining the extent to which any tax is due and owing under the circumstances, and will provide and make available to each other any resale certificate, information regarding out of state use of materials, services or sale, and other exemption certificates or information reasonably requested by either party. The parties further agree to work together to structure the provision of the Services to eliminate or minimize applicable transfer taxes, including but not limited to, itemizing on invoices each Service provided to Buyer. |
(b) | In addition to any amounts otherwise payable pursuant to this Agreement, Buyer will be responsible for any and all sales, use, excise, services or similar taxes imposed on the provision of goods and services by Supplier or its Representatives to Buyer pursuant to this Agreement ( Sales Taxes ) and will either (i) remit such Sales Taxes to Supplier (and Supplier will remit the amounts so received to the applicable taxing authority) or (ii) provide Supplier with a certificate or other proof, reasonably acceptable to Supplier, evidencing an exemption from liability for such Sales Taxes. For the avoidance of doubt, all amounts under this Agreement are expressed exclusive of Sales Taxes. |
5.5 Other expenses. After the Effective Date, except as otherwise specified in this Agreement, each party hereto will pay its own legal, accounting, out-of-pocket and other expenses incident to this Agreement and to any action taken by such party in carrying this Agreement into effect.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
5.6 Interest payable on amounts past due . All late payments due under this Agreement will bear interest at a rate equal to the annualized interest rate at prime (as published in the Wall Street Journal from time to time) plus three percentage points, from the invoice due date to the date of payment. If Buyer disputes any portion of any invoice, Buyer must notify Supplier in writing of the nature and the basis of the dispute within 60 days after the date of the applicable invoice, after which time Buyer will have waived any rights to dispute such amount.
5.7 Audit . Supplier will keep reasonably detailed records, consistent with past practice, for any expenses that constitute a component upon which the price for Services is determined. Supplier will maintain the records in accordance with its then-current record retention policies. At reasonable intervals during the Term and for two years thereafter, Buyer personnel will, upon no less than five business days prior notice, or, if critical, upon reasonable shorter notice under the circumstances, have access to the records for the purpose of verifying the invoices submitted to Buyer hereunder notwithstanding the termination of any Project Statement. The costs of all such audits will be borne by Buyer. The confidentiality provisions in Section 9 of this Agreement will govern all audits by Buyer.
6. Proprietary Rights.
6.1 Equipment. Except with respect to those items of equipment, systems, tools, facilities and other resources allocated to Buyer pursuant to the Separation Agreement, all equipment, systems, tools, facilities and other resources used by Supplier and any of its Affiliates in connection with the provision of Services hereunder will remain the property of Supplier and its Affiliates and, except as otherwise provided in this Agreement, will at all times be under the sole direction and control of Supplier and its Affiliates.
6.2 Intellectual property. To the extent Supplier or its Representatives use any know-how, processes, technology, trade secrets or other intellectual property owned by or licensed to Supplier or any of its Representatives ( IP ) in providing the Services, such IP (other than such IP licensed to Supplier by Buyer or its Affiliates) and any derivative works of, or modifications or improvements to, such IP conceived or created as part of the provision of Services ( Improvements ) will, as between the parties, remain the sole property of Supplier unless such Improvements were specifically created for Buyer or its Affiliates pursuant to a specific Service as specifically indicated in a Project Statement. The applicable party will and hereby does assign to the applicable owner designated above, and agrees to assign automatically in the future upon first recordation in a tangible medium or first reduction to practice, all of such partys right, title and interest in and to all Improvements, if any. All rights not expressly granted herein are reserved. Notwithstanding the foregoing, if there is any conflict between the terms of this Section 6.2 and specific terms of the IP Separation Agreement, then the terms of the IP Separation Agreement will prevail.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
7. Term and Termination.
7.1 Term. Buyer will use commercially reasonable efforts to end its need to use the Services as soon as reasonably possible after the Effective Date; provided , however , that Supplier will not be required to provide the Services later than the Maximum Transition Period or any earlier applicable Transition Period. This Agreement starts on the Effective Date and ends on the earlier of termination of all Services, unless sooner terminated by the parties in accordance with Section 7.3 (the Term ).
7.2 Termination of a Service.
(a) | Buyer may elect to terminate a Service at any time by providing Supplier with written notice prior to the effective date of termination of such Service. The amount of notice provided will be reasonable and in no event shorter than (i) 90 days, (ii) any longer required notice period specified in a Project Statement, and (iii) any greater minimum notice period as may be provided under applicable arrangements with Contractors. Following receipt of such notice (the Services Termination Notice ), Supplier will provide, not later than 30 days following Suppliers receipt of the Services Termination Notice, to Buyer written notice regarding the impact of such termination on any other Services, including a good faith summary of any Resulting Linked Effects. In the event that Buyer still wishes to proceed with termination, then (A) Buyer will provide Supplier with written notice thereof, (B) the affected Services, including those linked Services identified by Supplier, will terminate effective at the end of the notice period, and (C) Supplier will not be liable for any Resulting Linked Effects arising from such terminations whether included in the prior good faith summary or otherwise. |
(b) | Buyer also may elect to terminate a Service upon at least 30 days notice to Supplier if Supplier notifies Buyer (as provided in Section 3.3) that it plans to use a New Contractor to perform any of the Services, and Supplier does not, within 30 days after the notice, commit not to use the New Contractor. |
(c) | Without prejudice to any other rights or remedies of Buyer, Buyer may also elect to terminate a Service at any time, upon written notice to Supplier, if (i) Supplier will have failed to perform any of its material obligations under this Agreement relating to such Service, (ii) Buyer has notified Supplier in writing of such failure, and (iii) for a period of 30 days after receipt by Supplier of written notice of such failure, such failure will not have been cured. |
(d) | Supplier may terminate a Service, upon written notice to Buyer, with respect to any Service for which Buyer fails to pay an amount when due hereunder if such amount remains unpaid for a period of 30 days after receipt by Buyer of written notice of such failure. |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(e) | A Service will terminate automatically at the end of its applicable Transition Period, or if no Transition Period is specified, at the end of the Maximum Transition Period. |
7.3 Termination of Agreement. Either party may terminate this Agreement and all Services immediately without notice if the other files for bankruptcy protection or has an involuntary petition for bankruptcy filed against it, becomes unable to pay its bills, sell or transfers property to creditors, dissolves or liquidates, has a liquidator or receiver appointed by a court, or is a party of any other similar legal proceedings, if in any such case termination is permitted by applicable law.
7.4 No abandonment for Dispute . In the event of a pending Dispute between the parties, Supplier will not have the right to suspend, withhold, interrupt or terminate any Service involved in such Dispute, including for breach of this Agreement, unless and until an arbitrator or tribunal sanctioned under Section 10.2 authorizes or orders such interruption or termination. Supplier acknowledges and agrees that it will be fully compensated by money damages alone for, and will not be irreparably harmed by, providing Services during the pendency of any Dispute. In the event that Supplier threatens to stop performing Services in connection with a Dispute other than as permitted in this Section 7.4, Buyer will be entitled to an order for injunctive relief against Supplier. Supplier agrees that such an abandonment would result in irreparable injury to Buyer, that Buyer would have no adequate remedy at law, and that Supplier will not oppose Buyers motion for continuation of the Services or the entry of an order compelling performance by the Supplier of its obligations under this Agreement.
7.5 Costs upon termination. Upon any termination, Buyer will pay all amounts outstanding for Services provided by Supplier or its Contractors. Any termination of Services will be final, and monthly charges will be appropriately prorated. Buyer will be liable for all out-of-pocket costs, stranded costs or other costs incurred by Supplier that are not otherwise recoupable by Supplier in connection with termination or winding up of terminated Services, including (a) costs under third-party contracts for services, software or other items, including breakage fees or termination fees, (b) costs relating to any of Suppliers personnel which are affected by termination of a Service, (excluding severance costs for Supplier employees), (c) fees associated with facilities, hardware or equipment affected by the terminated Service including fees related to terminated leases, (d) costs relating to or in connection with the termination of any related or linked Services, including any Resulting Linked Effects, and (e) costs of any materials or third-party services that, before notice of termination, Supplier paid for or obligated itself to pay for in connection with providing the Services, if and to the extent that Supplier cannot through reasonable commercial efforts obtain a refund for or terminate its obligation to pay for such materials and services.
7.6 Return of materials. The parties will, at the disclosing partys request and upon termination of this Agreement, use all reasonable efforts to return to the other party or destroy all documents and materials in tangible form, and permanently erase all data in electronic form, containing any Confidential Information. Notwithstanding the foregoing, the parties hereto acknowledge that certain systems utilized by Supplier may not permit the purging or deletion of data, and in such case Supplier agrees to maintain copies of affected Buyer data for the minimum amount of time permitted by such systems and not to use such data for any other purposes.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
7.7 Data return. Upon termination of a Service for any reason, Supplier will promptly provide Buyer with a copy of any Buyer Data relating to such terminated Service (excluding any Buyer Data that has previously been provided to Buyer or that is otherwise already in the possession of Buyer). Buyer Data will be provided in its then current form, in an electronic format and media to be reasonably agreed upon by the parties. The foregoing obligation of Supplier is absolute, and Supplier will not be entitled to withhold such Buyer Data for any reason, including due to Buyers breach of this Agreement (provided that in the case Buyer is in breach of this Agreement, that Buyer pays Supplier prior to delivery for any reasonable costs incurred by Supplier to comply with Buyers data copy request). Upon providing Buyer with an electronic media copy of the Buyer Data, Supplier will have no further responsibility with respect to such data, including maintaining a backup or archive for Buyer, except as otherwise expressly provided in a Project Statement.
7.8 Access to personnel. When this Agreement or a Service terminates for whatever reason, Supplier will provide Buyer or its designee for a period of three months with reasonable access to personnel and information relating to the provision of the discontinued Service(s) in order to facilitate the future performance by Buyer of such Service(s); provided that nothing in the foregoing will require Supplier to maintain or retain any particular personnel, systems, software or data and the access granted hereunder will be to such resources that Supplier retains in its ordinary course of business.
8. Indemnity, Limitation of Liability and Mitigation of Damages.
8.1 Limit of liability. Neither party nor any of its Affiliates will be liable to the other party or for any special, punitive, consequential, incidental or exemplary damages (including lost or anticipated revenues or profits relating to the same and attorneys fees) arising from any claim relating to this Agreement or any of the Services to be provided under this Agreement or the Project Statements, or the performance of or failure to perform such partys obligations under this Agreement or the Project Statements, whether such claim is based on warranty, contract, tort (including negligence or strict liability) or otherwise, and regardless of whether such damages are foreseeable or an authorized representative of such party is advised of the possibility or likelihood of such damages.
8.2 Maximum liability. Except with respect to (a) a breach of the confidentiality obligations set forth in Section 9, including liability for Security Breaches as set forth in Section 9.5, or (b) Suppliers unjustified refusal to perform its obligations under this Agreement, the aggregate liability of Supplier arising out of or in connection with this Agreement will be limited by each specific Service, such that the aggregate liability of Supplier arising out of or in connection with each specific Service will not exceed an amount equal to the aggregate amount of fees (which fees will exclude any pass-through costs of Contractors) paid or payable for such specific Service under this Agreement.
8.3 Mitigation of damages. In addition, the parties will, in all circumstances, use commercially reasonable efforts to mitigate and otherwise minimize damages, whether direct or indirect, due to, resulting from or arising in connection with any failure to comply fully with the obligations under this Agreement.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
8.4 Buyer indemnity. Buyer agrees to indemnify, defend and hold Supplier and each of its Representatives harmless against all damages, claims, actions, fines, penalties, expenses or costs (including court costs and reasonable attorneys fees) (collectively, Liabilities ) attributable to any third-party claims asserted against Supplier or its Representatives to the extent arising from or relating to any breach of this Agreement resulting from the negligence or willful malfeasance of Buyer, any of its Representatives or any of its or their respective employees, officers or directors. The limitations in Sections 8.1 and 8.2 do not apply to Buyers indemnification and defense obligations under this Section 8.4.
8.5 Supplier indemnity. Supplier agrees to indemnify, defend and hold Buyer and each of its Representatives harmless against all Liabilities attributable to any third-party claims to the extent arising from or relating to (i) the provision of Services under this Agreement resulting from the negligence or willful malfeasance of Supplier, any of its Representatives or any of its or their respective employees, officers or directors, or (ii) the failure of Supplier or its Affiliates to perform the Services in accordance with the standards set forth in Section 4 (subject to the limitations and exceptions in Section 3.3(c) and 4.3). The limitations in Sections 8.1 and 8.2 do not apply to Suppliers indemnification obligations under this Section 8.5.
8.6 Indemnity procedure. All claims for indemnification under this Section 8 will be made in accordance with the procedures set forth in Article V of the Separation Agreement.
9. Confidentiality.
9.1 Each party will, and will cause its Representatives and their officers, directors, employees and agents to, hold as confidential and not disclose to any other party all information received by it under this Agreement that relates to the other partys business or that relates to the other partys activities or deliverables under this Agreement ( Confidential Information ). Confidential Information includes: (a) this Agreement and its terms and conditions; (b) the IP and Improvements; (c) the Buyer Data; (d) the Supplier Data; and (e) any information obtained or reviewed by a party in the course of reviewing the other partys records in accordance with this Agreement. When a party discloses any of its Confidential Information to the other party it will make reasonable efforts to mark the information as Confidential, but any failure to mark the information as Confidential will not cause the information to lose its status as Confidential Information nor will it relieve the receiving party of its obligations under this Section 9 with respect to that information.
9.2 Notwithstanding Section 9.1, each party may: (a) disclose the other partys Confidential Information if legally compelled to do so, provided that it promptly informs the other party of the required disclosure; (b) disclose this Agreement as reasonably necessary in connection with efforts to resolve a Dispute; and (c) disclose this Agreement to third parties for strategic due diligence purposes if the third party has signed a confidentiality agreement covering the disclosure.
9.3 Confidential Information does not include any information that: (a) is or becomes publicly known through no fault of the receiving party; (b) is known to the receiving party before disclosure under this Agreement, as documented by business records (and ownership of such information has not been allocated to the disclosing party pursuant to the
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Separation Agreement); (c) is disclosed to the receiving party by a third party having no obligation of confidentiality to the disclosing party; or (d) is independently developed by the receiving party without use of the disclosing partys Confidential Information as documented by reasonable evidence.
9.4 The parties obligations under this Section 9 will continue for five years after the termination of this Agreement, except that to the extent that any Confidential Information constitutes a trade secret, the receiving partys obligations with respect to that Confidential Information will continue for five years or for such period as the information remains trade secret, whichever is longer.
9.5 Security Breach means any actual, probable, or reasonably suspected misuse, compromise, or unauthorized access of Buyer Data, including but not limited to (a) physical trespass on a secure facility; (b) electronic systems intrusion or hacking; (c) loss or theft of a notebook, desktop, smartphone, DVD, CD or other electronic or mobile device, hard drive, thumb drive or information storage device; (d) loss or theft of printed materials; (e) a breach or alleged breach of applicable law, rule or regulation regarding the privacy, security or protection of Buyer Data, including any personally identifiable information therein; or (f) a breach or alleged breach of the privacy, security or data protection policies of Supplier that involves Buyer Data. In the event of a Security Breach, Supplier will take appropriate measures to promptly stop and remedy the Security Breach and promptly notify Buyer. Immediate notification of Buyer is required when the Security Breach involves possible unauthorized access to sensitive financial information or personally identifiable information or at any time when Supplier contacts a third party, law enforcement or government entity about a Security Breach. Supplier agrees to be responsible for any security or privacy related claims, actions or causes of action brought against Buyer in relation to the compromise of Buyer Data in the custody or control of Supplier and hereby agrees to indemnify, defend and hold Buyer and its Affiliates harmless therefrom in accordance with, and subject to the terms and conditions of, Section 8.5. The parties will mutually agree upon the notification to be provided to affected parties as a result of a Security Breach, provided that nothing will prevent a party from complying with any of its obligations under applicable law, rule or regulation. Supplier will bear all expenses incurred by either party relating to any notice or other remedial actions arising from a Security Breach, including payment of the cost of notice and any credit history or other watch service that is offered to affected personnel or customers.
10. General.
10.1 Canadian matters.
(a) | For greater certainty and without limiting any other provision of this Agreement, the parties acknowledge and agree that the Services indicated with Canada as a country of service in a Project Statement may be performed by one or more Canadian Affiliates of Supplier (each, a Canadian Supplier ) for any one or more Canadian Affiliates of Buyer (each, a Canadian Buyer ). |
(b) |
The applicable Canadian Supplier will possess all of the rights and obligations of Supplier that relate to the Services to be performed by such |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Canadian Supplier. The applicable Canadian Buyer will possess all of the rights and obligations of Buyer that relate to the Services to be performed for such Canadian Buyer. |
(c) | For greater certainty and without limiting any other provision of this Agreement, the Supplier or Canadian Supplier, as applicable, that provides Services to a Canadian Buyer will directly invoice the applicable Canadian Buyer in respect of such Services, and Buyer will cause the applicable Canadian Buyer to make payment for any Services provided to such Canadian Buyer directly to the Supplier or Canadian Supplier of such Services, as applicable. |
(d) | Without limiting the generality of Section 5.4, the Allocated Cost for Canadian Services will be exclusive of applicable GST/HST, QST and PST. Any Canadian Supplier will invoice applicable GST/HST, QST and PST. Any Canadian Buyer will withhold from payments to the applicable Supplier or Canadian Supplier any amounts required by law. |
10.2 Dispute resolution. Any controversy or claim arising out of or relating to this Agreement (a Dispute ), will be resolved: (i) first, by negotiation with the possibility of mediation as provided in subsection (a) below; and (ii) then, if negotiation and mediation fail, as provided in subsection (b) below. The procedures set forth in this Section 10.2 will be the exclusive means for resolution of any Dispute. The initiation of mediation or arbitration will not toll applicable statutes of limitation or repose unless the parties otherwise agree in writing.
(a) | Negotiation and mediation. If either party serves written notice of a Dispute upon the other party (a Dispute Notice ), the parties will first attempt to resolve the Dispute by direct discussions between representatives of the parties who have authority to settle the Dispute. In the event the Dispute is not resolved within 15 days by the initial representatives to whom the matter is referred, the Dispute will be escalated for resolution to the CFO of each party. If the parties agree, they may also attempt to resolve the Dispute through mediation administered by a mutually agreed upon mediator. |
(b) | Arbitration or litigation . If a Dispute is not resolved within 45 days after the service of a Dispute Notice, the Dispute will be resolved through arbitration under clause (i) below, except that if the Dispute involves infringement, other violation, validity, enforceability, or ownership of intellectual property rights, either party may initiate litigation under clause (ii) below. |
(i) | Arbitration . |
(1) |
Any arbitration will be administered by the International Centre for Dispute Resolution (the ICDR ) in accordance with its International Arbitration Rules and before a panel of three arbitrators having experience or expertise in the subject matter of the Dispute. The claimant will designate an arbitrator in its request for arbitration and the respondent |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
will designate an arbitrator in its answer to the request for arbitration. When the two co-arbitrators have been appointed, they will have 21 days to select a third arbitrator who will serve as the chair of the arbitral tribunal, and if they are unable to do so, the ICDR will appoint the chair by use of the list method. The place of arbitration will be New York, New York. Judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof or having jurisdiction over the relevant party or its assets. |
(2) | Interim relief . At any time during or before the arbitration of a Dispute between the parties, either party may initiate litigation seeking interim relief, including pre-arbitration attachments or injunctions, necessary to preserve the parties rights or to maintain the parties relative positions pending completion of the arbitration. |
(3) | Procedures and remedies in arbitration . In the arbitration, each party will be entitled to reasonable, expedited discovery of documents and information that relate specifically to the substance of the Dispute, but no depositions or third party discovery will be conducted. At least seven days before the hearing, each party will provide the other with a written position statement and copies of all evidence that it intends to produce at the hearing. The parties will treat as confidential all discussions and submissions made in connection with the arbitration proceeding, and all non-public documents and information produced or submitted in the proceeding. The arbitrators decision will be in writing, rendered no more than 60 days after the date on which the arbitration panel is selected. The arbitrators will have no authority or power to limit, expand, alter, amend, modify, revoke or suspend any condition or provision of this Agreement nor any right or power to award punitive, exemplary or treble (or other multiple) damages. |
(ii) | Litigation . Any litigation that may be initiated in lieu of arbitration, as provided above, will be brought only in the United States District Court for the Southern District of New York or in the state courts located in that District. The parties consent to jurisdiction and venue in those courts. The parties waive the right to a jury in any such litigation. |
(c) |
Arbitration for Service request Disputes. In the event of a dispute involving a denied or disputed request for a Service as provided in Section 2.5 or under an applicable Project Statement, any arbitration under subsection (b) will be submitted collectively once per month to, and heard |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
before, a single arbitrator from Bain & Company, Deloitte or other mutually agreeable consulting firm with knowledge regarding Information Technology systems and requirements. The arbitration will be limited solely to the issues of (i) whether the requested Service is reasonably necessary to effect the Separation of the GroceryCo and SnackCo Businesses or Supplier is otherwise obligated under the terms of this Agreement to provide the requested Service, and (ii) the reasonableness of the proposed terms for such Services. Each party will use commercially reasonably efforts to cause the arbitrator to decide not later than 30 days after submission of the particular matter to the arbitrator. Except as otherwise provided in this Section 10.2(c), the provisions in Section 10.2(b)(i) will apply to any arbitration under this Section 10.2(c). |
(d) | Arbitration for pricing Disputes. In the event of a dispute regarding the amount charged to Buyer for any Service, including calculation of Allocated Costs associated with a Service or a claim that the amount charged is not consistent with the terms of this Agreement, any arbitration under subsection (b) will be submitted collectively once per month to and heard before a single arbitrator from Ernst & Young LLP, or if such accounting firm shall decline to act or is not, at the time of submission thereto, independent of SnackCo or GroceryCo, to another arbitrator from any mutually agreed upon accounting firm. The arbitration will be limited solely to issues of price and cost calculations. Each party will use commercially reasonably efforts to cause the arbitrator to decide not later than 30 days after submission of the particular matter to the arbitrator. Except as otherwise provided in this Section 10.2(d), the provisions in Section 10.2(b)(i) will apply to any arbitration under this Section 10.2(d). |
(e) | Expenses . The parties will equally share the fees charged for any mediators services and will bear their own internal expenses incurred in connection with resolving a Dispute. If any Dispute is resolved through arbitration or litigation, the prevailing party will be entitled to recover, from the other party, the reasonable out of pocket expenses that it incurred in connection with the arbitration or litigation, including attorneys fees, arbitrator fees and expert witness fees. |
10.3 Force Majeure. Supplier will not be liable for any failure of performance attributable to acts or events (including war, terrorist activities, conditions or events of nature, industry wide supply shortages, civil disturbances, work stoppage, power failures, failure of telephone lines and equipment, fire and earthquake, or any law, order, proclamation, regulation, ordinance, demand or requirement of any governmental authority) beyond its reasonable control which impair or prevent in whole or in part performance by Supplier hereunder ( Force Majeure ). If Supplier is unable to perform its obligations hereunder as a result of a Force Majeure event, Supplier will, as promptly as reasonably practicable, give notice of the occurrence of such event to Buyer and will use commercially reasonable efforts to resume the Services at the earliest practicable date; provided, however, that upon any failure of Supplier to provide Services under this Section 10.3, Buyer, in its sole discretion, may terminate its receipt of such Service effective upon notice to Supplier and will not be obligated to pay for Services not performed by Supplier due to an event of Force Majeure.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
10.4 Relationship of parties. Except as specifically provided herein, neither party will act or represent or hold itself out as having authority to act as an agent or partner of the other party, or in any way bind or commit the other party to any obligations. Nothing contained in this Agreement will be construed as creating a partnership, joint venture, agency, trust or other association of any kind, each party being individually responsible only for its obligations as set forth in this Agreement.
10.5 Assignment. Either party may assign its rights and obligations under this Agreement to a controlled Affiliate, without the prior written consent of the non-assigning party. Either party may assign its rights and obligations under this Agreement to a third party provider, upon prompt notice to and the approval of the non-assigning party, with such approval not to be unreasonably withheld or delayed. No other assignment of a partys rights and obligations under this Agreement may be made without the non-assigning partys prior written consent. In the event of any assignment of a partys rights and obligations under this Agreement, the assigning party nonetheless will remain responsible for the performance of all of its obligations under this Agreement.
10.6 No third-party beneficiaries. This Agreement is for the sole benefit of the parties to this Agreement and does not benefit or create any right or case of action for any other persons other than Representatives entitled to indemnification under Section 8.
10.7 Entire agreement; no reliance; amendment . This Agreement (including all annexes or other attachments) is the entire agreement with respect to its subject matter, and any prior agreements, oral or written, are no longer effective. In deciding whether to enter into this Agreement, the parties have not relied on any representations, statements, or warranties other than those explicitly contained in this Agreement. No changes to this Agreement are valid unless in writing, signed by both parties.
10.8 Waiver. Except as otherwise specifically provided elsewhere in this Agreement, neither party waives any rights under this Agreement by delaying or failing to enforce them.
10.9 Notices. Except as may otherwise be provided in a Project Statement, all notices under this Agreement will be in writing, sent by hand delivery, by FedEx or other commercial overnight courier, or by email, directed to the address or email address set forth below. Notices sent by hand delivery, by FedEx or other commercial overnight courier are effective upon receipt. Notices sent by email are effective upon transmission, provided that the sender does not receive any indication that the email has not been successfully transmitted.
If to GroceryCo:
General Counsel
Kraft Foods Group, Inc.
Three Lakes Drive
Northfield, Illinois 60093
Email: kim.rucker@kraftfoods.com
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
If to SnackCo:
General Counsel
Mondelēz Global LLC
Three Parkway North
Deerfield, Illinois 60015
Email: gerd.pleuhs@mdlz.com
10.10 Counterparts. This Agreement may be executed in counterparts. Facsimile signatures are binding.
10.11 Severability. If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, such invalidity or unenforceability will not affect any other provision of this Agreement. Upon such determination that a provision is invalid or unenforceable, the parties will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible.
10.12 Interpretation . The headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. The provisions of this Agreement will be construed according to their fair meaning and neither for nor against either party irrespective of which party caused such provisions to be drafted. The terms include and including do not limit the preceding terms. Each reference to $ or dollars is to United States dollars. Each reference to days is to calendar days.
10.13 Governing law. This Agreement will be governed by and construed in accordance with New York law.
10.14 Precedence . If there is any conflict between the terms of this Agreement and specific terms of the Separation Agreement, then the terms of this Agreement will prevail. If there is any conflict between the terms of this Agreement, the Separation Agreement and the terms of any Project Statement, the terms of the Project Statement will prevail.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
10.15 Survival. Sections 1, 5.3, 5.4, 5.6, 5.7, 6, 7.4, 7.6, 7.7, 7.8, 8, 9 and 10 will survive any termination or expiration of this Agreement.
(Signature Page Follows)
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
KRAFT FOODS GROUP, INC. | MONDELĒZ GLOBAL LLC | |||||||
By: |
/s/ Timothy R. McLevish |
By: |
/s/ Gerhard Pleuhs |
|||||
Its: |
Authorized Signatory |
Its: |
Authorized Signatory |
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex A: Form of Project Statement |
Annex B: Wire Transfer Information |
Annex C: Menu Services |
Annex D: IT Services Project Statements |
D.1: Archived Data Extraction Services |
D.2: Hypercare Services |
D.3: Email Forwarding Services |
D.4: Internet Domain Name Resolution Services |
D.5: EDI/B2B Services |
D.6: HP Infrastructure Services |
D.7: Approva Application Services |
D.8: Master Data Center Content Management Services |
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBITS TO
MASTER INFORMATION TECHNOLOGY
TRANSITION SERVICES AGREEMENT
between
Kraft Foods Group, Inc.
and
Mondelēz Global LLC
Dated as of September 27, 2012
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex A
Form of Project Statement
This document is a Project Statement as defined in the Master Information Technology Transition Services Agreement ( Agreement ) between [GroceryCo / SnackCo], a [Virginia corporation / Delaware limited liability company] ( Supplier ), and [GroceryCo / SnackCo], a [Virginia corporation / Delaware limited liability company] ( Buyer ) and dated as of the Effective Date of the Agreement. This Project Statement is an annex to, and is incorporated and subject to, the Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Agreement, provided that references to Services in this Project Statement will mean the Services specified in this Project Statement.
1. | Service Description. |
Project Title: | ||
Supplier: | ||
Buyer: | ||
GroceryCo Project Manager: | ||
SnackCo Project Manager: | ||
Description of Services: | Supplier will [INDICATE] | |
Location/Country of Service: | Worldwide | |
Project Statement Effective Date: | Effective Date of Agreement | |
Transition Period: | [INDICATE] | |
Charges and Payment: | Allocated Cost plus Mark-Up | |
Service Level Agreement: | Not applicable | |
Specifications: | [INDICATE] |
2. | Service Details. |
2.1 Scope and Specifications. [LIST DETAILS, INCLUDING ANY APPLICABLE SPECIFICATIONS]
2.2 Deliverables . [LIST ANY SPECIFIC DELIVERABLES]
2.3 Details regarding Allocated Cost . [ IF NEEDED, LIST ANY DETAILS REGARDING THE ALLOCATED COST FOR ANY SERVICES IDENTIFIED ABOVE ].
2.4 Payment Terms . [LIST ANY SPECIFIC TERMS OR DIFFERENT TERMS FROM MASTER AGREEMENT]
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
3. | Additional Terms. |
3.1 Term . This Project Statement will become effective upon the Project Statement Effective Date and will terminate at the end of the Transition Period unless terminated earlier as provided in the Agreement.
3.2 Entire agreement; precedence. This Project Statement will supplement and/or modify the Agreement by and between Supplier and Buyer with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Agreement, this Project Statement will prevail. All other terms and conditions of the Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
[LIST ANY ADDITIONAL TERMS SUCH AS LIMITS OF LIABILITY]
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Project Statement Effective Date above written.
Mondelēz Global LLC | Kraft Foods Group, Inc. | |
By: | By: | |
Its: | Its: |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex B
Wire Transfer Information
If to GroceryCo:
Kraft Foods Group, Inc.
[ * * * ]
If to SnackCo:
Mondelēz International, Inc.
[ * * * ]
For Canadian matters: Canadian billing will be in Canadian $ and any reference to Canadian services provided refers to Canadian $:
If to GroceryCo Canada:
Kraft Canada Inc
[ * * * ]
If to SnackCo Canada:
Mondelēz Canada Inc
[ * * * ]
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex C
Menu Services
IT Knowledge Transfer: Supplier will facilitate the transfer of knowledge reasonably useful or necessary to support Buyers transition to split or new IT systems, services or technology, including providing access to relevant personnel, training and documentation. These Menu Services will be offered by Supplier for up to 2 years following the Effective Date.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Annex D
IT Services Project Statements
#1 |
Archived Data Extraction Services | |
#2 |
Hypercare and Cut-Over Services | |
#3 |
Email Forwarding Services | |
#4 |
Internet Domain Name Resolution Services | |
#5 |
B2B/EDI Services | |
#6 |
HP, [ * * * ] Infrastructure Services | |
#7 |
[ * * * ] Application Services | |
#8 |
Master Data Content Management Services | |
#9 |
Darwin Application Services | |
#10 |
SM7 Service Management Tool Services | |
#11 |
Marketing Financial Spend Management Services |
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Project Statement #1
This document is a Project Statement as defined in the Master Information Technology Transition Services Agreement ( Agreement ) between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ) and dated as of the Effective Date of the Agreement. This Project Statement is an annex to, and is incorporated and subject to, the Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Agreement, provided that references to Services in this Project Statement will mean the Services specified in this Project Statement.
1. | Service Description. |
Project Title: | Archived Data Extraction Services | |
Supplier: | Both GroceryCo and SnackCo | |
Buyer: | Both SnackCo and GroceryCo | |
GroceryCo Project Manager: | [ * * * ] | |
SnackCo Project Manager: | [ * * * ] | |
Description of Services: | During the two year period following Separation, Supplier will provide copies of certain archived data as specified herein | |
Location/Country of Service: | Worldwide | |
Project Statement Effective Date: | Effective Date of Separation | |
Transition Period: | 2 years | |
Charges and Payment: | Allocated Cost plus Mark-Up | |
Service Level Agreement: | Not applicable | |
Specifications: | Not applicable |
2. | Service Details. |
2.1 Data Extraction.
(a) The data to be provided by GroceryCo as Supplier to SnackCo as Buyer (the GroceryCo Data ) will consist of archived data in digital, electronic form relating to activities prior to the Separation that is in the possession or control of GroceryCo.
(b) The data to be provided by SnackCo as Supplier to GroceryCo as Buyer (the SnackCo Data ) will consist of archived data in digital, electronic form relating to activities prior to the Separation that is in the possession or control of SnackCo.
(c) Data means the SnackCo Data or Grocery Data, as applicable.
(d) Buyer will provide Supplier with a reasonably detailed written request for Data during the Transition Period. Buyer will use commercially reasonable efforts to timely provide the requested Data in light of Suppliers resource constraints and obligations. In the event that Buyer alleges that Supplier has violated its obligation to consider or provide requested Data hereunder, such dispute will be subject to arbitration in accordance with Section 10.2(c) of the Agreement.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.2 Scope . During the Transition Period, Supplier will extract the relevant Data from Suppliers systems and provide a copy of such Data to Buyer in the standard format in which such Data has been maintained (the Data Extraction Services ). Supplier will use commercially reasonable efforts in light of Suppliers resource constraints and obligations to timely provide the Data Extraction Services at a relative service level consistent in all material respects with that provided to Buyers Business in the 12 months preceding the Project Statement Effective Date. Supplier will have no obligation under this Project Statement to provide any Data in a customized format or to otherwise translate, adapt or reformat any data supplied hereunder, and any requests for customized formats or formatting will be considered Additional Services as provided in the Agreement.
2.3 Data archival. Suppliers obligation under this Project Statement is to use commercially reasonable efforts to provide any requested Data that Supplier may have in its possession or control; provided that nothing in this Project Statement will impose any obligation on Supplier to maintain or retain any particular Data in any particular manner or for any particular period of time. Nothing in this Project Statement will negate the obligation of a Supplier to maintain or backup Data as required by law, regulation or other agreement between the parties.
3. | Additional Terms. |
3.1 Term . This Project Statement will become effective upon the Project Statement Effective Date and will terminate at the end of the Transition Period unless terminated earlier as provided in the Agreement.
3.2 Cooperation and Limitation of liability. Each party will cooperate with the other party to accomplish the Services contemplated hereby and will, at the request of the other party, use its respective commercially reasonable efforts to promptly and in good faith take any actions necessary to effect such Services. Provided a party acts in good faith, such party will not be liable for monetary penalties, damages or other remedies for delays or failures to provide Services or Data due to lack of resources or otherwise.
3.3 Entire agreement; precedence. This Project Statement will supplement and/or modify the Agreement by and between Supplier and Buyer with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Agreement, this Project Statement will prevail. All other terms and conditions of the Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Project Statement Effective Date above written.
Mondelēz Global LLC | Kraft Foods Group, Inc. | |||||||
By: | By: | |||||||
Its: |
|
Its: |
|
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Project Statement #2
This document is a Project Statement as defined in the Master Information Technology Transition Services Agreement ( Agreement ) between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ) and dated as of the Effective Date of the Agreement. This Project Statement is an annex to, and is incorporated and subject to, the Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Agreement, provided that references to Services in this Project Statement will mean the Services specified in this Project Statement.
1. | Service Description. |
Project Title: | Hypercare and Cut-Over Services | |
Supplier: | Both GroceryCo and SnackCo | |
Buyer: | Both SnackCo and GroceryCo | |
GroceryCo Project Manager: | [ * * * ] | |
SnackCo Project Manager: | [ * * * ] | |
Description of Services: | Supplier will provide certain short term technical support services as reasonably necessary to effect the Separation of the GroceryCo and SnackCo Businesses and enable transition to Buyers IT systems | |
Location/Country of Service: | Worldwide | |
Project Statement Effective Date: | Effective Date of Separation | |
Transition Period: | Five months | |
Charges and Payment: | Allocated Cost plus Mark-Up | |
Service Level Agreement: | Not applicable | |
Specifications: | See Section 2.1 |
2. | Service Details. |
2.1 Scope and specifications. For the periods specified herein, Supplier will provide technical support services to effect the Separation of the GroceryCo and SnackCo Businesses and enable transition to Buyers IT systems as follows:
(a) Cutover : Cut-Over means the Buyers transition to split or new IT systems, processes, services or technology as of Separation to effect the Separation of the GroceryCo and SnackCo Businesses. Supplier will provide post-Separation technical services to Buyer ( Cut-Over Services ) necessary to achieve Cut-Over with the goal that all systems, processes and transactional activity in all locations for both GroceryCo and SnackCo, will have been restarted and are functioning post-Separation, including without limitation all manufacturing, warehousing, transportation, procurement, payables, receivables, financial reporting, and customer service ([ * * * ]). It is expected the Cut-Over will be complete within 4 days of the Project Statement Effective Date (the Cut-Over Period ).
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(i) | Personnel will be required from both SnackCo and GroceryCo from the IS, BPM teams and business functions to achieve the objective of Cut-Over and perform the Cut-Over Services. Resources will be individually identified prior to Separation. Personnel providing Cut-Over Services ( Cut-Over Personnel ) will remain co-located at the facilities at which they were located at the time of Separation while providing Cut-Over Services. Buyer will provide sufficient access to Buyers facilities and systems as necessary to provide Cut-Over Services and will supply Cut-Over Personnel with office space, access, resources, supplies and support (at Buyers expense) consistent with his/her duties in providing Cut-Over Services and the scope of such items and services available prior to Separation. |
(ii) | Subject to Section 2.2, Supplier will: (A) use its best efforts to cause Cut-Over Personnel to timely provide the Cut-Over Services; and (B) provide access to the systems, hardware, software code and other resources reasonably necessary to provide the Cut-Over Services. |
(iii) | The governance process for managing personnel and oversight of Cut-Over Services being requested and performed will be as set forth in Exhibit 1 . The escalation process for issues involving the Cut-Over Services will be will be as set forth in Exhibit 1 . |
(iv) | A Cut-Over Service will be deemed completed when the applicable system, process or transactional activity will have been restarted post-Separation. In the event that a Cut-Over Service has not been completed by the end of the Cut-Over Period then the parties will manage any extensions of the Cut-Over Period in accordance with the governance and escalation process set forth in Exhibit 1 . In the event of a Dispute over an extension, the Dispute will handled in accordance with Section 2.3. Subject to Section 2.1(b), upon completion or termination of their Cut-Over Service duties, Cut-Over Personnel will cease providing Cut-Over Services and relocate to Suppliers facilities as directed by Supplier. |
(b) Hypercare : Upon completion of Cut-Over Services, Supplier will observe, monitor and validate that Cut-Over has been successfully achieved and that all systems, processes and transactional activities in all locations for both GroceryCo and SnackCo are functioning to a service level consistent with that observed in the 3 months prior to the Project Statement Effective Date ( Hypercare Services ). If no deficiencies are noted during the validation period then Hypercare Services will terminate, however if any deficiencies are noted then Supplier will provide as part of Hypercare Services any and all remedial action (including cooperating with Contractors and third parties) required to cause all systems, processes and transactional activities in all locations for both GroceryCo and SnackCo to a achieve service level consistent with that observed in the 3 months prior to the Project Statement Effective Date. Such Hypercare Services may be provided for up to three months following the Project Statement Effective Date (the Hypercare Period ).
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(i) | Unless otherwise agreed by the parties, personnel providing Cut-Over Services will be utilized to provide Hypercare Services during overlap with the Cut-Over Period. For the remainder of the Hypercare Period, personnel providing Hypercare Services ( Hypercare Personnel ) will be those individually identified prior to Separation or as otherwise requested and agreed by the parties. Hypercare Personnel will remain co-located at the facilities at which they were located at the time of Separation while providing Hypercare Services. Buyer will provide sufficient access to Buyers facilities and systems as necessary to provide Hypercare Services and will supply Hypercare Personnel with office space, access, resources, supplies and support (at Buyers expense) consistent with his/her duties in providing Hypercare Services and the scope of such items and services available prior to Separation. |
(ii) | Subject to Section 2.2, Supplier will: (A) use its best efforts to cause Hypercare Personnel to timely provide the Hypercare Services; provided that Hypercare Personnel will be entitled to work on other matters for Supplier when not engaged in providing Hypercare Services; and (B) provide access to the systems, hardware, software code and other resources reasonably necessary to provide the Hypercare Services. |
(iii) | Unless otherwise agreed by the parties, the governance process for Hypercare Services will be the same as that applicable to Cut-Over Services during overlap with the Cut-Over Period. No specific governance process will apply after expiration of the Cut-Over Period and any governance issues will be initially be handled by the Project Managers. Unless otherwise agreed by the parties, the escalation process for issues involving Hypercare Services will be the same as that applicable to Cut-Over Services. |
(iv) | A Hypercare Service will be deemed completed when the applicable system, process or transactional activity will have been fully restarted and is functioning to a service level consistent with that observed in the 3 months prior to the Project Statement Effective Date. In the event that a Hypercare Service has not been completed by the end of the Hypercare Period then the parties may mutually agree upon any necessary extensions of the Hypercare Period for up to 2 additional months. In the event of a Dispute over an extension, the Dispute will handled in accordance with Section 2.3. Upon completion or termination of their Hypercare Service duties, Hypercare Personnel will cease providing Hypercare Services hereunder and relocate to Suppliers facilities as directed by Supplier. |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.2 Limit on obligation. Supplier will have no obligation to provide Services under this Project Statement, and may decline to provide such requested Services in its sole and absolute discretion, to the extent: (i) the requested Service is not reasonably necessary to effect the Separation of the GroceryCo and SnackCo Businesses or Buyers transition to split or new IT systems or technology; (ii) the requested Service is not a Service that was provided or supplied by Assets (including personnel) of Supplier for the Business of Buyer during the 12 months preceding the Effective Date; (iii) the requested Service could be obtained from other commercial service providers in a commercially reasonable manner; or (iv) the Service is covered by or subject to another agreement, including another transition services agreement, between the parties relating to the Separation or to transition or interim services to be provided in connection with the Separation.
2.3 Escalation and Disputes . During the Cut-Over Period or Hypercare Period, in lieu of the escalation process in Section 10.2(a) of the Agreement, all issues or Disputes will be subject to the escalation process set forth in Exhibit 1 . If the Dispute is not resolved under the foregoing sentence, it will be subject to arbitration in accordance with Section 10.2(c) of the Agreement.
3. | Additional Terms. |
3.1 Term . This Project Statement will become effective upon the Project Statement Effective Date and will terminate at the end of the Transition Period unless terminated earlier as provided in the Agreement.
3.2 Cooperation and Limitation of liability. Each party will cooperate with the other party to accomplish the Services contemplated hereby and will, at the request of the other party, use its respective commercially reasonable efforts to promptly and in good faith take any actions necessary to effect such Services. Provided a party acts in good faith, such party will not be liable for monetary penalties, damages or other remedies for delays or failures to provide Services due to lack of resources or otherwise. Nothing in this Project Statement will obligate Supplier to provide any temporary staffing or general help desk support services.
3.3 Entire agreement; precedence. This Project Statement will supplement and/or modify the Agreement by and between Supplier and Buyer with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Agreement, this Project Statement will prevail. All other terms and conditions of the Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Project Statement Effective Date above written.
Mondelēz Global LLC | Kraft Foods Group, Inc. | |||||||
By: | By: | |||||||
Its: |
|
Its: |
|
- 5 -
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit 1
Governance and Escalation
Governance Process:
The Governance structure will be established using the KF PMO Command Center concept. The Command Centers have been established across IS and the BUs and functions and begin operating on October 2 with a regular cadence of meetings. The meeting attendees from IS are based on Gemini pre-Separation roles and will consist of Business/functional IS leads/Gemini PMO as per the Gemini team structure existing prior to Separation (as depicted in the diagram below), including the IS Steering Committee, IS Gemini Functional Leads, Project Management Office, Business Transition Team IS Reps, IS Workstreams (Catalyst and Non-Catalyst applications, IS Financials, Data Separation Policies, Controls, Contracts, CCS, Organization, Inflight projects, Infrastructure, and Regional leads) and Functional Team IS Reps (Finance, HR, Sales, Marketing, B2B, ESS, Corporate Services, Supply Chain, RDQ). The Governance team will require meeting space consistent with meetings scheduled prior to Separation. The Governance team will continue to hold weekly PMO core team meetings and other meetings deemed necessary to supplement the Command Center meeting cadence per the Day 2 Onwards diagram depicted below. Governance deliverables will include the daily Four Box Status for IS and accompanying metrics.
Escalation:
All issues identified during the Cut-Over Period or Hypercare Period will be escalated per the Command Center processes being established at the KF level. As needed, internal IS issues will be immediately (same day if possible) escalated to the respective CIOs of both GroceryCo and SnackCo for resolution. In the event an issue is not promptly resolved by such parties, either party can require immediate escalation of the issue for resolution by the CFO of each party.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
[ * * * ]
[***2 pages have been redacted***]
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Project Statement #3
This document is a Project Statement as defined in the Master Information Technology Transition Services Agreement ( Agreement ) between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ) and dated as of the Effective Date of the Agreement. This Project Statement is an annex to, and is incorporated and subject to, the Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Agreement, provided that references to Services in this Project Statement will mean the Services specified in this Project Statement.
1. | Service Description. |
Project Title: | Email Forwarding Services | |
Supplier: | GroceryCo | |
Buyer: | SnackCo | |
GroceryCo Project Manager: | [ * * * ] | |
SnackCo Project Manager: | [ * * * ] | |
Description of Services: | Supplier will cause its email Contractor to redirect and forward email sent to old Buyer email addresses to new email addresses adopted by Buyer | |
Location/Country of Service: | Worldwide | |
Project Statement Effective Date: | Effective Date of Separation | |
Transition Period: | 2 years | |
Charges and Payment: | Allocated Cost plus Mark-Up | |
Service Level Agreement: | Not applicable | |
Specifications: | Supplier will use commercially reasonable efforts to provide the Email Service in conformance with the scope of Services set forth in Section 2.1 |
2. | Service Details. |
2.1 Scope . During the Transition Period, Supplier will provide the following Services to Buyer:
(a) Email forwarding will be done for all employees and contractors who move from the @kraftfoods.com email address format to a @snackco.com e-mail address format on the day of Separation. During the Transition Period, e-mail sent to an @kraftfoods.com email address that belonged to a SnackCo employee prior to separation will be forwarded by GroceryCos e-mail Contractor to the appropriate @mdlz.com email address as it exists on the day of Separation.
(b) No updates to the email forwarding table will be accepted after Separation during the Transition Period.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(c) If SnackCo changes or adds additional e-mail address formats, no forwarding to those changed or new e-mail addresses will be enabled under this Project Statement.
(d) If any SnackCo users are added or removed during the Transition Period, no changes will be made to the forwarding strategy. SnackCo will be solely responsible for sending any delivery failure or other return e-mails to the message sender.
(e) During the Transition Period, GroceryCo will not store or retain any e-mails being forwarded. The performing Contractor for GroceryCos e-mail solution will simply forward the e-mail and discard all copies of the original email. In addition, neither GroceryCo nor its Contractor will send any automatic reply to e-mail senders notifying them that the recipients e-mail address has changed.
(f) At the end of the Transition Period, GroceryCo will notify its e-mail Contractor to discontinue the e-mail forwarding for all users simultaneously.
3. | Additional Terms. |
3.1 Term . This Project Statement will become effective upon the Project Statement Effective Date and will terminate at the end of the Transition Period unless terminated earlier as provided in the Agreement.
3.2 Entire agreement; precedence. This Project Statement will supplement and/or modify the Agreement by and between Supplier and Buyer with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Agreement, this Project Statement will prevail. All other terms and conditions of the Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Project Statement Effective Date above written.
Mondelēz Global LLC | Kraft Foods Group, Inc. | |||||||
By: | By: | |||||||
Its: |
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Its: |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Project Statement #4
This document is a Project Statement as defined in the Master Information Technology Transition Services Agreement ( Agreement ) between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ) and dated as of the Effective Date of the Agreement. This Project Statement is an annex to, and is incorporated and subject to, the Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Agreement, provided that references to Services in this Project Statement will mean the Services specified in this Project Statement.
1. | Service Description. |
Project Title: | Internet Domain Name Resolution Services | |
Supplier: | GroceryCo | |
Buyer: | SnackCo | |
GroceryCo Project Manager: | [ * * * ] | |
SnackCo Project Manager: | [ * * * ] | |
Description of Services: | Supplier will continue to host and resolve DNS names for SnackCo resources not yet migrated to appropriate SnackCo DNS names | |
Location/Country of Service: | Worldwide | |
Project Statement Effective Date: | Effective Date of Separation | |
Transition Period: | 18 months | |
Notice Requirement for Early Termination: | 90 days | |
Charges and Payment: | Allocated Cost plus Mark-Up | |
Service Level Agreement: | Not applicable | |
Specifications: | See Section 2.2 |
2. | Service Details. |
2.1 Scope . During the Transition Period, Supplier will provide the following Services to Buyer:
(a) GroceryCo will cause its Contractor to continue to host and resolve DNS names for SnackCo resources not yet migrated to appropriate SnackCo DNS names. For example, GroceryCo will keep the existing collaboration.kraft.com name and associated IP address in their external DNS solution and provide DNS resolution services for up to 18 months.
(b) No new SnackCo addresses will be added to any GroceryCo DNS domain name after Separation.
(c) At the end of the Transition Period, GroceryCo will notify its external DNS Contractor to remove all SnackCo DNS names.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.2 Specifications. Supplier will use commercially reasonable efforts to provide the Services hereunder at a relative service level consistent in all material respects with that provided to Buyers Business in the 12 months preceding the Project Statement Effective Date.
3. | Additional Terms. |
3.1 Term . This Project Statement will become effective upon the Project Statement Effective Date and will terminate at the end of the Transition Period unless terminated earlier as provided in the Agreement.
3.2 Entire agreement; precedence. This Project Statement will supplement and/or modify the Agreement by and between Supplier and Buyer with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Agreement, this Project Statement will prevail. All other terms and conditions of the Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Project Statement Effective Date above written.
Mondelēz Global LLC | Kraft Foods Group, Inc. | |||||||
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Project Statement #5
This document is a Project Statement as defined in the Master Information Technology Transition Services Agreement ( Agreement ) between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ) and dated as of the Effective Date of the Agreement. This Project Statement is an annex to, and is incorporated and subject to, the Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Agreement, provided that references to Services in this Project Statement will mean the Services specified in this Project Statement.
1. | Service Description. |
Project Title: | B2B/EDI Services | |
Supplier: | SnackCo | |
Buyer: | GroceryCo | |
GroceryCo Project Manager: | [ * * * ] | |
SnackCo Project Manager: | [ * * * ] | |
Description of Services: | Supplier will provide Services to Buyer using Suppliers B2B (Business to Business) Application which provides EDI (Electronic Data Interchange) services (Communication, Translation, Visibility) globally. | |
Location/Country of Service: | Globally | |
Project Statement Effective Date: | Effective Date of Separation | |
Transition Period: | 1 year | |
Charges and Payment: | Allocated Cost plus Mark-Up (estimated at $[ * * * ] as provided in Section 3.2) | |
Service Level Agreement: | SLAs will be maintained per the existing support contract Bell 2.0 with Infosys LTD. | |
Specifications: | See Sections 2.1 and 2.2 |
2. | Service Details. |
2.1 Description and background. The B2B application (the Application ) is a key enabler for functions such as OTC (Order to Cash), BTC (Bill To Cash), OTM (Transportation Management), Fusion/3PL (Warehouse Management/Third Party Logistics Providers), Treasury/Banking (EFT) and many SaaS (Software as a Service) solutions. The B2B Application provides direct computer to computer interfaces to many internal Kraft applications (such as SAP), however there is no direct end user access to the Application. As of the Project Statement Effective Date, [ * * * ] are processed through the Application. [ * * * ].
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.2 Scope . During the Transition Period, Supplier will provide the following Services to Buyer:
(a) Supplier will maintain and provide access to the Application to conduct, consistent with practices existing at Separation, B2B exchanges with key customers, vendors and suppliers.
(i) | The Application will process EDI messages in supporting Order processing/Order fulfillment, Distribution/Transportation and Bill to Cash. The EDI messages which will be used to support Buyer are set forth in attached Exhibit 1 . |
(ii) | In North America the Application will process all Electronic Banking interfaces supporting Buyer Account Receivable, Account Payable and SHARP/HR transactions. |
(iii) | In North America the Application will exchange data electronically with Customers (e.g., [ * * * ]), Banks (e.g., [ * * * ]) and Suppliers (e.g., [ * * * ]). |
(b) Supplier will provide EDI onboarding to support key project and customer mandated changes as required by Buyer:
(i) | Onboarding of incremental Fusion Warehouse (3PL) EDI interfaces within North America; |
(ii) | Onboarding of incremental OTC EDI interfaces worldwide (Orders, Invoices); and |
(iii) | External customer mandated requests which include: |
(1) | Upgrade to newer EDI versions; |
(2) | EDI message exchanges (Debit/Credit Notes, EFTs); and |
(3) | Support of new business programs. |
(c) Supplier will, consistent with past practices in the 12 months preceding the Project Statement Effective Date, provide production support and interfaces as well as the architecture to support Application development, testing and production environments.
(d) Supplier will provide governance for Change Management processes to ensure proper Buyer approvals/sign-offs are obtained prior to production implementations as well as proof of testing.
(e) Supplier will manage external approved communication on behalf of Buyer with trading partners required to support B2B interfaces and on-boarding activities as necessary.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(f) Any portions of the Services that are provided by or obtained from a Contractor will be provided in accordance with existing agreements with such Contractor.
2.3 Specifications. Supplier will use commercially reasonable efforts to provide the Services hereunder (a) consistent with the specifications referenced above and otherwise at a relative service level consistent in all material respects with that provided to Buyers Business in the 12 months preceding the Project Statement Effective Date; and (b) consistent with the target SLAs set forth above. To the extent that Services are provided by a Contractor and not by Supplier, Supplier will use commercially reasonable efforts to case the Contractor to provide the Services consistent with the levels set forth in this Section 2.3.
2.4 Exit plan. During the Transition Period, Buyer will execute a project to evaluate, select and migrate to an outsourced B2B Managed service provider by the end of the Transition Period with termination of Services for processing Buyer transactions on the Supplier B2B Application to be accomplished by the end of the Transition Period.
3. | Additional Terms. |
3.1 Term . This Project Statement will become effective upon the Project Statement Effective Date and will terminate at the end of the Transition Period unless terminated earlier as provided in the Agreement. Any early termination permitted under the Agreement that occurs during a month will be considered to be completed at month-end for billing purposes.
3.2 Costs. Supplier will provide the Services for an estimated Allocated Cost of $[ * * * ] plus Mark-Up for a total of $[ * * * ] over the 12 month Transition Period. This cost will be invoiced monthly in equal installments during the Transition Period. Any costs incurred by Supplier or its Contractors in connection with assisting Buyer in establishing an exit plan as contemplated in Section 2.4 or in transitioning Services to a new provider will be separately reimbursed by Buyer on an Allocated Cost basis per the Agreement. Any additional costs incurred by Supplier as a result of changes to the Services, including pursuant to the change management process with any Contractor, will be separately reimbursed by Buyer on an Allocated Cost plus Mark-Up basis per the Agreement.
3.3 Entire agreement; precedence. This Project Statement will supplement and/or modify the Agreement by and between Supplier and Buyer with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Agreement, this Project Statement will prevail. All other terms and conditions of the Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Project Statement Effective Date above written.
Mondelēz Global LLC | Kraft Foods Group, Inc. | |||||||
By: |
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By: |
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Its: |
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Its: |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit 1
B2B EDI messages
Shipping |
Transportation |
|
856 Advanced Ship Notice |
204 Load Tender |
|
861 Receiving Advice |
210 Freight Bills |
|
894 Delivery/Return Base Record |
214 Carrier Shipment Status |
|
895 Delivery/Return Adjustment |
301 Ocean Booking Request |
|
304 Ocean Shipment Information |
||
Order/Billing |
404 Rail Carrier Shipment Information |
|
810 Invoice |
990 Response to Load Tender |
|
850 Purchase Order | ||
855 Purchase Order Acknowledgement | Financial | |
860 Purchase Order Change | 812 Credit/Debit Adjustment | |
867 Product Transfer and Resale Report | 820 Payment Order/Remittance Advice | |
875 Grocery Purchase Order | 823 Lockbox | |
880 Grocery Invoice | 824 Application Advice | |
882 Direct Store Delivery Summary Information | ||
Item Catalog Information | Warehouse | |
879 Price Information | 846 Inventory Inquiry | |
832 Item/Price | 940 Warehouse Shipping Order | |
888 Item Maintenance | 944 Warehouse Stock Transfer | |
889 Promotion Announcement | 945 Warehouse Shipping Advice | |
GDS 1SYNC | 947 Warehouse Inventory Adj Advice | |
NON EDI | ||
US Bank AP Files (NACAH) | ||
US Payroll Files | ||
US Advertising files | ||
US Check Image files | XML Purchase Contract for Coffee |
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Project Statement #6
This document is a Project Statement as defined in the Master Information Technology Transition Services Agreement ( Agreement ) between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ) and dated as of the Effective Date of the Agreement. This Project Statement is an annex to, and is incorporated and subject to, the Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Agreement, provided that references to Services in this Project Statement will mean the Services specified in this Project Statement.
1. | Service Description. |
Project Title: | HP, [ * * * ] Infrastructure Services | |
Supplier: | SnackCo | |
Buyer: | GroceryCo | |
GroceryCo Project Manager: | [ * * * ] | |
SnackCo Project Manager: | [ * * * ] | |
Description of Services: | (1) Supplier will cause its Contractor, HP ( HP ), to provide the short term network transition services specified herein, in accordance with and subject to the terms of the HP Master Professional Services Agreement (the HP MPSA ), as reasonably necessary to effect the Separation of the GroceryCo and SnackCo Businesses. (2) Supplier will also cause its other Contractors [ * * * ] to provide ongoing services and support in accordance with existing agreements with such vendors as reasonably necessary to effect the Separation of the GroceryCo and SnackCo Businesses. | |
Location/Country of Service: | Worldwide | |
Project Statement Effective Date: | Effective Date of Separation | |
Transition Period: | Ending December 31, 2013. | |
Charges and Payment: | Charges for HP Services are based on the current HP MPSA Resource Units (RU), volumes, and site locations. A monthly invoice for Services will be generated from SnackCo and provided to GroceryCo. Details of the costs will be [ * * * ]. Charges for Services for other vendors are Allocated Cost plus Mark-Up. | |
Service Level Agreement: | Per HP MPSA Schedule 3.2 Service Level Definitions and Schedule 3.1 Service Level Matrix | |
Specifications: | See Section 2.1, 2.2 and 2.8 |
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2. | Service Details. |
2.1 Scope of service
(a) Supplier will cause HP to provide, manage and support all applicable networks specified in the HP MPSA except those for which responsibility is assigned to a party other than HP per Schedule 18 of the HP MPSA. This list of applicable sites at which Services will be provided and the types of Services (WAN, LAN, Voice, Network Security and PSTN Trunking) at each site which are covered under this Project Statement is set forth in the asset allocation master site list (Gemini Network TSA Tracking.xlsx) (the Site List ) (a copy of the Site List current as September 19, 2012 is attached hereto as Exhibit 1 ). The network tower leads under the HP MPSA for SnackCo ([ * * * ]) and GroceryCo ([ * * * ]) (the Network Leads ) will update the Site List from time to time to reflect transition of responsibility for specific network Services to Buyer.
(b) Supplier will use commercially reasonable efforts to cause HP to provide the Services hereunder consistent with the Service Level Agreement referenced above, and otherwise at a relative service level consistent in all material respects with that provided to Buyers Business in the 12 months preceding the Project Statement Effective Date.
(c) [ * * * ]. Nonetheless the obligation for Supplier to provide Services hereunder will end at [ * * * ].
(d) Network Services will be performed within the physical boundaries of the WAN, MAN, LAN, WLAN, Standard Voice Network and the typical physical configurations, components, and boundaries of the network Services.
2.2 Services definition. During the Transition Period, Network Services will be delivered per Schedule 2.1, Schedule 2.2 and Schedule 2.4 of the HP MPSA:
(a) | HP MPSA Schedule 2.1: [ * * * ] Supplier will cause HP to provide the following services specified in Schedule 2.1 [ * * * ] of the HP MPSA as they relate to the Network Services specified above and in Schedule 2.4 of the HP MPSA: |
(i) | Following the processes and procedures in Section 1.0: [ * * * ] |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
[ * * * ] |
[*** 1 page has been redacted ***] |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
[ * * * ] |
(xx) | Services will comply with Attachment 2.1-A: [ * * * ] |
(xxi) | Services will comply with Attachment 2.1-B [ * * * ] |
(xxii) | Services will comply with Attachment 2.1-C [ * * * ] |
(b) | HP MPSA Schedule 2.2: [ * * * ] Supplier will provide the following services specified in Schedule 2.2 [ * * * ] as they relate to the Network Services specified above and in Schedule 2.4 of the [ * * * ]: |
(i) | Following the processes and procedures in Section 1.0: [ * * * ] |
[ * * * ] |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
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OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
[ * * * ] |
(xii) | Services will comply with Attachment 2.2-A [ * * * ] |
(c) | HP MPSA Schedule 2.4: [ * * * ] Supplier will provide the following services specified in Schedule 2.4: [ * * * ]: |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
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OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
[ * * * ] |
[*** 1 page has been redacted ***] |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(v) | Services will comply with Attachment 2.4-A [ * * * ] |
(vi) | Services will comply with Attachment 2.4-B [ * * * ] |
2.3 Transition Services operational model
(a) | Financial terms |
(i) | Invoice process |
(1) | SnackCo will provide GroceryCo with billing for GroceryCo locations on a monthly basis according to actual RU (Resource Unit) consumption broken down by location: |
a. | If a location is shared, the actual Services costs for the location will be allocated to SnackCo and GroceryCo based on the relative size of the facility and the split of the users. |
b. | If a shared location becomes either a 100% GroceryCo or SnackCo location, the monthly Services billing from SnackCo to GroceryCo will be adjusted on the next months billing following the change from a shared location to a single company location. Any such changes occurring during a month will be considered to be completed at month-end for billing purposes. The Network Leads are responsible for updating the Site List and communicating to Finance any changes in facility status or lease end dates. |
c. | Shared Services locations will be covered by, and invoiced as part of, a separate Business transition services agreement between the parties. |
(2) | SnackCo will provide GroceryCo with an invoice and supporting documentation for Services according to the Corporate Billing Process agreed upon by the parties. |
(3) | Any adjustments necessary to invoicing will be accomplished in the subsequent months invoice between SnackCo and GroceryCo. |
(ii) | Existing Asset ownership |
(1) | Ownership of all network assets relating to the Services that exist as of Separation will be assigned to the applicable party as set forth in the asset allocation Site List managed by the SnackCo Network Lead and GroceryCo Network Lead as of Separation (e.g., as of the start of the Transition Period). |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(iii) | Service or hardware acquisition during Transition Period |
(1) | Any tangible assets, including network hardware or software, procured during the Transition Period in connection with the Services will be allocated to the applicable party as set forth in the Site List managed by the SnackCo Network Lead and GroceryCo Network Lead, and such company will own and bear financial responsibility therefor. |
a. | Prior to the start of the Transition Period, SnackCo will request from HP a list of then-existing assets that would be stranded after the end of the HP MPSA. Ownership and costs will be allocated to either GroceryCo or SnackCo based on the location of the asset as set forth in the Site List managed by the SnackCo Network Lead and GroceryCo Network Lead. GroceryCo will verify the accuracy of the allocations of assets assigned to GroceryCo. |
b. | At the end of the Transition Period or upon early termination of the Services by either SnackCo or GroceryCo as specified in Section 2.7, SnackCo will request from HP a new list of incremental assets acquired during the Transition Period that would be stranded after the end of the HP MPSA. Ownership and costs will be allocated to either GroceryCo or SnackCo based on the location of the asset as set forth in the Site List managed by the SnackCo Network Lead and GroceryCo Network Lead. GroceryCo will verify the accuracy of the allocations of assets assigned to GroceryCo. |
(2) | Each Non-Standard Service Request ( NSSR ) should be assigned a company and/or location for billing purposes. |
(b) | Operational terms |
(i) | Services will be performed as specified in the Policies and Procedures Manual as defined in the HP MPSA. GroceryCo will work directly with HP on day to day escalations, outages, etc. in accordance with the current North American escalation process, without the need to contact or involve SnackCo. Notwithstanding the foregoing, the following exceptions will apply: |
(1) | Any contractual changes to the current Statements of Work to the HP MPSA will be managed by SnackCo. |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(2) | Any changes that would impact financial obligations under the HP MPSA, including any resolutions of financial disputes with HP, will be managed by SnackCo. |
(3) | Significant operational performance issues will be escalated to and managed by SnackCo. |
(ii) | Technical Change Management will be performed in the following manner: |
(1) | The Technical Change Management process as set forth in the HP MPSA will be delivered as specified in the Policies and Procedures Manual, with GroceryCo permitted to participate in shared infrastructure/application changes. Alternately, both parties can agree to establish separate Technical Change Management processes to address GroceryCo network changes only. |
(2) | To the extent permitted under the HP MPSA, GroceryCo, SnackCo and HP will participate in one Change Control Board and Change Approval Board with respect to shared infrastructure/Services. |
(iii) | NSSRs will be managed as specified in the Policies and Procedures Manual, with the following exceptions: |
(1) | The NSSR cannot alter the terms and conditions of the current HP MPSA without SnackCo written consent. |
(2) | Billing for NSSRs must follow financial terms as outlined in Section 2.3(a) Financial Terms of the HP MPSA. |
(c) | Security and internal controls |
(i) | Security will be administered per the current HP MPSA, with the following exceptions: |
(1) | SnackCo has the final approval on any security and internal controls. |
(2) | SnackCo Security and Internal Controls will be aligned to the review and approval process with HP. |
(3) | SnackCo Security and Internal Controls will document and manage the request for access and approvals process. |
2.4 Governance model
(a) SnackCo will continue to participate in the Governance structure specified in the HP MPSA. GroceryCo will not be entitled to join in such governance structure but will work with SnackCo (via the GroceryCo Project Manager) on applicable matters involving governance activities. SnackCo will coordinate input from GroceryCo for consideration and introduction to Governance bodies. Alternately, both parties can agree to establish separate Governance processes to address GroceryCo network governance issues only.
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OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(b) All contractual and financial change controls will be managed by SnackCo per the Governance structure.
(c) Supplier Performance and Relationship Management will be the responsibility of SnackCo.
(d) The following items will be handled in the SnackCo Source Governance Forum:
(i) | Billing disputes with HP |
(ii) | Contractual disputes with HP |
(iii) | Escalation of HP performance issues |
(iv) | Key personnel appointments. |
2.5 Personnel
(a) The GroceryCo and SnackCo Project Managers will act as the primary contact persons for the provision or receipt of network Services hereunder.
(b) GroceryCo and SnackCo will have an appropriate staffing model to deliver and consume the Services outlined in this Project Statement, including the day-to-day operations and governance model participation.
(c) GroceryCo will have appropriate staffing to validate invoices in a timely manner.
2.6 SLAs
(a) HP will provide Services in accordance with the SLAs in the HP MPSA, including Schedules 3.1 and 3.6. Supplier will cause HP to perform in accordance with such SLAs, and in the event Services provided to Buyer do not meet such SLAs then Supplier will pursue service credits and other remedies on Buyers behalf under the HP MPSA. Any recoveries for SLA deficiencies are subject to Section 3.3(c) of the Agreement.
(b) For certain requests requiring involvement of and/or approvals from SnackCo, no more than 10% will be added to the total SLA time for SnackCo to process the request.
(c) Any requests regarding SLAs that impact the contract, billing, pricing or RU structures are required to be processed by SnackCo.
(d) Reporting and reviewing SLAs will be performed per the governance structure outlined in Section 2.4 above.
2.7 Transition exit plan and termination assistance .
(a) GroceryCo will continue to utilize the SnackCo network infrastructure and services while both SnackCo and GroceryCo finalize their future network architectures.
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(b) GroceryCo and SnackCo will execute sourcing events based on the network architecture strategy for each company. The plan will include technical migration of GroceryCo from the current network to the new architecture and suppliers.
(c) Either SnackCo or GroceryCo may exit the Services arrangement with HP prior to the end of the Transition Period as follows:
(i) | SnackCo must provide HP and GroceryCo with 90 days written notice to terminate the HP MPSA during the Contract Extension Year and can only terminate after both SnackCo and GroceryCo have an agreed upon exit plan. |
(ii) | GroceryCo may exit the Services arrangement at any time after May 31, 2013, provided that GroceryCo gives SnackCo 90 days written notice. To minimize any contract price increases, GroceryCo and SnackCo must coordinate with HP to plan for elimination of services and HP costs. |
(iii) | If GroceryCo and/or SnackCo do not plan appropriately with HP and the result is stranded or increased costs, the party creating the increased costs will be responsible for payment of such costs. |
(d) SnackCo will cause HP to provide to GroceryCo Termination Assistance (as defined in the HP MPSA) to transfer services from HP to another provider in accordance with the HP MPSA. Termination Assistance will be requested via NSSR and subject to the terms of the HP MPSA. Costs for Termination Assistance provided by HP will be attributable to the party that requested such assistance (i.e., there are no shared Termination Assistance costs).
2.8 Other Services Provided by [ * * * ]
(a) Supplier will cause the above referenced Contractors to provide the following Services consistent with past practice. Services provided by these vendors may be exited at any point after the Project Statement Effective Date upon 30 days written notice.
(i) | WAN Core services with [ * * * ] (router management, VPN tunnel management, backbone services); |
(ii) | Plant firewall management with [ * * * ]; and |
(iii) | WAN optimization management with [ * * * ]. |
3. | Additional Terms. |
3.1 Term . This Project Statement will become effective upon the Project Statement Effective Date and will terminate at the end of the Transition Period unless terminated earlier as provided in the Agreement.
3.2 Entire agreement; precedence. This Project Statement will supplement and/or modify the Agreement by and between Supplier and Buyer with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Agreement, this Project Statement will prevail. All other terms and conditions of the Agreement remain
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OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Project Statement Effective Date above written.
Mondelēz Global LLC | Kraft Foods Group, Inc. | |||||||
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Exhibit 1
Site List
[ * * * ]
[*** 5 pages have been redacted ***]
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Project Statement #7
This document is a Project Statement as defined in the Master Information Technology Transition Services Agreement ( Agreement ) between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ) and dated as of the Effective Date of the Agreement. This Project Statement is an annex to, and is incorporated and subject to, the Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Agreement, provided that references to Services in this Project Statement will mean the Services specified in this Project Statement.
1. | Service Description. |
Project Title: | [ * * * ] | |
Supplier: | SnackCo | |
Buyer: | GroceryCo | |
GroceryCo Project Manager: | [ * * * ] | |
SnackCo Project Manager: | [ * * * ] | |
Description of Services: | Supplier will provide Buyer with access to an environment hosting the [ * * * ] application, including certain support services | |
Location/Country of Service: | Worldwide | |
Project Statement Effective Date: | Effective Date of Separation | |
Transition Period: | 6 months | |
Charges and Payment: | Allocated Cost plus Mark-Up (estimated at [ * * * ] as provided in [ * * * ]) | |
Service Level Agreement: | Not applicable | |
Specifications: | Supplier will use commercially reasonable efforts to provide the Service in conformance with the scope of Services set forth in Section 2.1 and the service level in Section 2.2. |
2. | Service Details. |
2.1 Scope . During the Transition Period, Supplier will provide the following Services to Buyer:
(a) Supplier will provide Buyer with access to a dedicated NA production environment (the Environment ) consisting of the following:
(i) | The dedicated Kraft [ * * * ] hardware server (the Server ) in use as of the date of Separation; and |
(ii) | The suite of [ * * * ] tools licensed by Kraft Foods as of the date of Separation (the Application ) consisting of: Authorization Insights, Certification Manager, User Activity Insight, System Configuration Insight, Access Management Insight. |
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(iii) | Access will be provided for a maximum of 750 Buyer named users. |
(b) Supplier will cause its Contractor, HP to continue to provide, subject to the terms of the HP Master Professional Services Agreement between Supplier and HP (which is hereby incorporated herein), infrastructure technical support.
(c) Supplier will cause its Contractor, [ * * * ] (the licensor of the Application) to continue to provide, subject to the terms of the annual maintenance agreement between [ * * * ] and Supplier (which is hereby incorporated herein), technical support for the Application.
(d) Supplier will cause the Supplier consultant responsible for providing Application level technical support at the time of Separation to continue to provide Buyer with full Application level technical support.
2.2 Service levels. Subject to Section 2.6, Supplier will use commercially reasonable efforts in light of Suppliers resource constraints and obligations to, and to cause its Contractors to, timely provide the Services at a relative service level consistent in all material respects with that provided to Buyers Business in the 12 months preceding the Project Statement Effective Date.
2.3 Deliverables. Upon termination or expiration of this Project Statement, Supplier will provide Buyer with a copy of Buyers data collected or generated during the Transition Period (the Data ) and the configuration for the Environment, in a format and medium reasonably acceptable to both parties, including SOD/Sensitive rulesets, mitigating controls, exclusions, and security configuration (AOD authorized users and approvers, security system parameter specifications). The Environment, including the Server, will be and remain a Supplier asset, and no title or ownership therein is transferred to Buyer.
2.4 Audit data. For a period of 18 months following Separation, Supplier will at the request of Buyer provide Buyer with access to historical [ * * * ] audit reports covering the Data for the purposes of auditing and compliance. Report information will include historical records for the Access On Demand process, changes to the rulesets and mitigating controls, system configuration changes, and all other security user access changes. Suppliers obligation under this Project Statement is to use commercially reasonable efforts to provide any requested Data that Supplier may have in its possession or control. Nothing in this Project Statement will impose any obligation on Supplier to maintain or retain any particular Data for more than 18 months following Separation; provided that nothing in this Project Statement will negate the obligation of a Supplier to maintain or backup Data as required by law, regulation or other agreement between the parties.
2.5 Exit plan. During the Transition Period, Buyer will execute a project to evaluate, select and migrate to new environment/application by the end of the Transition Period. In the event that Buyer requires continued access to the Environment, including the Application, after
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
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the end of the Transition Period, Supplier will, and will to the extent possible under any applicable contract with its Contractor, cause Contractor to, provide transition assistance to assist Buyer in executing its exit plan and migration, provided that Buyer shall bear the costs of all such Services, including any penalties or stranded or increased costs resulting from such continued use after the Transition Period or after Suppliers transition to a different environment or application. In no event shall Supplier be required to provide Services hereunder or access to the Environment, Server or Application more than one year after Separation except as Supplier may otherwise agree in writing in its discretion.
2.6 Limit on obligation. Supplier will have no obligation to provide Services under this Project Statement, and may decline to provide such requested Services in its sole and absolute discretion, to the extent: (i) the requested Service is not a Service that was provided or supplied by Assets (including personnel) of Supplier for the Business of Buyer during the 12 months preceding the Effective Date; or (ii) the Service is covered by or subject to another agreement, including another transition services agreement, between the parties relating to the Separation or to transition or interim services to be provided in connection with the Separation.
3. | Additional Terms. |
3.1 Term . This Project Statement will become effective upon the Project Statement Effective Date and will terminate at the end of the Transition Period unless terminated earlier as provided in the Agreement.
3.2 Costs. Supplier will provide the Services for an estimated Allocated Cost of $[ * * * ] plus Mark-Up for a total of $[ * * * ] over the 6 month Transition Period. This cost will be invoiced monthly in equal installments during the Transition Period. Any costs incurred by Supplier or its Contractors in connection with assisting Buyer in establishing an exit plan as contemplated in Section 2.5 or in implementing Buyers transition project, will be separately reimbursed by Buyer on an Allocated Cost basis per the Agreement, including any lease or other costs associated with the Server.
3.3 Entire agreement; precedence. This Project Statement will supplement and/or modify the Agreement by and between Supplier and Buyer with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Agreement, this Project Statement will prevail. All other terms and conditions of the Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
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OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Project Statement Effective Date above written.
Mondelēz Global LLC | Kraft Foods Group, Inc. | |||||||
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Project Statement #8
This document is a Project Statement as defined in the Master Information Technology Transition Services Agreement ( Agreement ) between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ) and dated as of the Effective Date of the Agreement. This Project Statement is an annex to, and is incorporated and subject to, the Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Agreement, provided that references to Services in this Project Statement will mean the Services specified in this Project Statement.
1. | Service Description. |
Project Title: | Master Data Content Management Services | |
Supplier: | GroceryCo | |
Buyer: | SnackCo | |
GroceryCo Project Manager: | [ * * * ] | |
SnackCo Project Manager: | [ * * * ] | |
Description of Services: |
(1) Supplier will provide, in Buyers dedicated environment, content management services for the commercialization and maintenance of various domains/areas including: Direct Material, Indirect Material, Vendor, Warehouse Customer, Snacks Food Service Delivery, and Export/Foreign to Foreign, Pricing, and Hierarchy processes for Buyers North American (U.S. and Canada) processes.
(2) Supplier will cooperate to provide knowledge transfer of the content management services to Buyer, including training and documentation of transitioned work, before the Transition Period ends. |
|
Location/Country of Service: | North America (U.S. and Canada) | |
Project Statement Effective Date: | Effective Date of Separation | |
Transition Period: | 8 months | |
Charges and Payment: | Allocated Cost plus Mark-Up | |
Service Level Agreement: | See Section 2.5. | |
Specifications: | See Section 2.5. |
2. | Service Details. |
2.1 Personnel .
(a) Supplier management personnel (the Supplier Management Personnel ) will direct a core team [ * * * ] (the Services Team ) to provide the Services hereunder. The parties contemplate that the Services Team will be composed of [ * * * ] dedicated employees of Buyer
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([ * * * ]) and [ * * * ] of contractors retained by Buyer. Service Team members located in Canada ([ * * * ]) will be providing base support for Canadian BU domains whereas the U.S. based resources ([ * * * ]) will be providing support for the overall Master Data Content services.
(b) In the event that Services Team is not fully staffed as of Separation, Supplier will be responsible for contracting or otherwise procuring personnel/resources to achieve [ * * * ] (with the Allocated Cost plus Mark-Up of any retained personnel passed back through to Buyer). Buyers management personnel shall be responsible for managing all Buyer employees on the Services Team, however such personnel will be dedicated to providing Services hereunder and their activities will be directed by Supplier Management Personnel in providing the Services.
(c) With any departure (turnover) of any Services Team member during the Transition Period, Supplier will be responsible for contracting or otherwise procuring personnel/resources to replace such individual (and for training such replacements) (with the Allocated Cost plus Mark Up of such replacement personnel passed back through to Buyer).
(d) For the transition of work to the East Coast SS COE, there will be resources that are identified who understand the process of data creation and maintenance for their specific tasks (in detail) and have the ability to provide Subject Matter Expertise ( SMEs ) to successfully complete work prior to the end of the Transition Period.
2.2 Scope of services. During the Transition Period, the following Services will be provided to Buyer:
(a) Services will consist of the base level content management Services for the commercialization and maintenance of the areas set forth in Section 2.3. Services will be provided in accordance with the Service details set forth in Sections 2.2 and 2.3. Commercialization means, consistent with industry usage, moving an item from idea to market by managing the finished good life cycle and material (raw and pack) life cycle, and includes: reservation of Kraft Item Codes/GTINs, enforcement and compliance to industry standards and Kraft Foods policies, collaboration and guidance on finished good/raw material and packaging set-up (including parent/child linkage for finished goods), collection of attributes from various stakeholders, analysis and creation of input documents, completion of input into production systems to active finished goods/raw materials/packaging Items, and communication of activation to all partners in the End to End (E2E) Process.
(b) All requests for Services will be submitted, consistent with the process existing at Separation, by Buyers representatives (PCM, RDQ, Plant Data Steward, and Governance) to the designated Services Team for completion. Separate security and work stream queues will be established.
(c) The data creation and maintenance in MDM/Portal of the Direct Material, Indirect Material (MRO), Vendor, Pricing Import/Export/Foreign to Foreign, Warehouse Customer, FSD, Hierarchy and Pricing areas will be provided by the designated Services Team handling all of Buyers requests in the Buyer environment.
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(d) Buyer system security access will be given to the designated Services Team to manage all of Buyers Service requests. Incremental security access will need to be provided for Supplier Management Personnel and analysts that support hierarchy, pricing processes, and other areas as needed.
(e) Only the designated Buyer upfront and downstream E2E partners in the commercialization material and product create processes will interact with the designated Services Team (provided the foregoing shall not be deemed to limit Buyers rights to manage Buyers employees). The Supplier Project Manager will have the discretion to bring Supplier resources into the Buyers environment for issue resolution as deemed necessary. It may be necessary to include the Buyer Project Manager to help troubleshoot organizational and process bottlenecks due to the placement of new players in new jobs that are integral to the E2E commercialization processes.
(f) Supplier will provide Buyer with user training and documentation as it exists at Separation for all Service areas hereunder.
(g) As part of the Services hereunder, Supplier Management Personnel and Services Team members will support the transition of the Services to Buyer resources. Such transition Services will include providing knowledge transfer, training and documentation in accordance with a transition plan developed by Buyer.
2.3 Detailed Service scope and workflow. The following sets forth the domains/areas for which Services will be provided and details on the scope and specification for the Services for each indicated area:
(a) | Import, Export, Foreign to Foreign: |
(i) | Imported items to be sold in the U.S. need full commercialization |
(ii) | Items produced exclusively for export require complete system setup |
(iii) | U.S. or Canadian items that will also be sold abroad need extension to additional Sales Orgs & DCs |
(iv) | F2F items are setup by U.S. MD in ECC only |
(v) | Generation of KIC7 numbers to sell U.S. items abroad |
(vi) | Issue resolution |
(b) | Pricing: |
(i) | Military MDA pricing is loaded for Cadbury SKUs |
(ii) | Military Commissary and Hawaii pricing is calculated and loaded for Cadbury SKUs |
(iii) | Puerto Rico pricing loaded |
(iv) | Cross Boarder Pricing is loaded for Mexico |
(v) | Retail Route-to-Market pricing is calculated and loaded |
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(vi) | FS R2M & Retail Lift pricing is calculated and loaded |
(vii) | Manage all major Retail (Biscuit and Cadbury) & FS Snack Price Actions |
(viii) | U.S. Retail commercializes new FS Snacks items and calculates & loads pricing |
(ix) | Price Lists management for business supported by Supplier for Buyer. (For example, excludes Cadbury Warehouse business which is performed by Buyer today). |
(x) | Pricing error resolution excluding Cadbury Warehouse business. |
(c) | Direct Material (Raw, Package, Semi-Finished Goods): |
(i) | Stakeholders: PCM, R&D, Plant, Transportation, Finance, APC, Governance, Procurement |
(ii) | Stewardship of the enterprise data (Master Data) vs. regional data |
(iii) | Forms, MDM/Portal, SAP, and dialysis reports |
(iv) | Meridian (Spec) / Mosaic (Packaging) interfaces |
(v) | Liaison with IS / Governance / Stakeholders for system support /enhancement project |
(vi) | Single point of contact for assistance |
(d) | Indirect Material (MRO): |
(i) | StakeholdersPlant / Storeroom Manager / Procurement |
(ii) | Stewardship of the enterprise catalogs, attribute characteristics, and material data |
(iii) | Forms (NMRO), SAP 4.7, BugEye, and reports |
(iv) | Project works supporting COE/BPM |
(v) | Liaison with IS / BPM / Stakeholders for system support /enhancement project |
(vi) | Single point of contact for assistance |
(e) | Vendor: |
(i) | StakeholdersProcurement / Real Estate / AP / Business Category |
(ii) | Stewardship of the enterprise data vs. regional data |
(iii) | Forms, MDM/Portal/RWF, SAP, and dialysis reports |
(iv) | Liaison with IS / Governance / Stakeholders for system support /enhancement project |
(v) | Single point of contact for assistance |
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(f) | Hierarchy: |
(i) | Analysis/approvals/maintenance/communication for new Product Hierarchy requests |
(ii) | Analysis/approvals/maintenance/communication for Product Hierarchy corrections |
(iii) | Annual Hierarchy Review & maintenance for future Planning with BU Finance/Trade/Corp FP&A |
(g) | Warehouse Customer: |
(i) | WH Customer maintenance through use of RWF or CIF where required, this will not be managed by use of DSD Customer form. |
(ii) | WH Customer Type A Hierarchy maintenance. |
(iii) | Collaboration on WH Customer issues/resolution |
(h) | FSD Snacks Commercialization: |
(i) | Data collection and maintenance of new or changed Finished Goods. |
(ii) | Collaboration on FS Snacks Finished Good issues/resolution |
2.4 Limit on obligation. Buyer will provide Supplier with a reasonably detailed written request for any additional Services requested hereunder. Supplier will have no obligation to provide Services under this Project Statement, and may decline to provide any requested Services in its sole and absolute discretion, to the extent: (i) the requested Service (other than a transition Service contemplated hereunder) is not a Service that was provided or supplied for the Business of Buyer during the 12 months preceding the Effective Date; or (ii) the Service is covered by or subject to another agreement, including another transition services agreement, between the parties relating to the Separation or to transition or interim services to be provided in connection with the Separation. Without limiting the foregoing, the following are specifically excluded from the scope of Services hereunder:
(a) The Supplier Project Manager and Supplier personnel will not be involved in streamlining any Buyer processes.
(b) The Supplier Project Manager and Supplier personnel will not be involved in the future state transition strategy of Master Data Content Management services moving to the East Coast Shared Services Center of Excellence (the East Coast SS COE ). Transition services for such transfer, including knowledge transfer, training of Buyer management and personnel, and documentation of processes, will be provided as part of the Services as set forth herein.
(c) The Supplier Project Manager and Supplier personnel will not be involved in the hiring process to support the new East Coast SS COE as Buyer readies itself for the new standup organization on June 1st, 2013.
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(d) Current Buyer processes will remain under the exclusive control and support of Buyer.
(e) RWF implementations for new Buyer domains/areas will be the responsibility of the Buyer Master Data team based in [ * * * ].
2.5 Specifications. Supplier will provide Services at a relative service level consistent in all material respects with that provided to Buyers Business for the domain/area in the 12 months preceding the Project Statement Effective Date.
3. | Additional Terms. |
3.1 Term . This Project Statement will become effective upon the Project Statement Effective Date and will terminate at the end of the Transition Period unless terminated earlier as provided in the Agreement. In addition to the termination provisions included in Section 7.2 of the Agreement, Buyer and Supplier may mutually agree in writing to terminate this Project Statement at any time prior to the end of the Transition Period.
3.2 Costs. Costs incurred by Supplier or its Contractors in connection with Services will be reimbursed by Buyer on an Allocated Cost plus Mark-Up basis. Any costs incurred by Supplier or its Contractors in connection with assisting Buyer in establishing a transition plan as contemplated in Section 2.2(g) or in transitioning Services to new resources will be separately reimbursed by Buyer on an Allocated Cost plus Mark-Up basis per the Agreement. Any additional costs incurred by Supplier as a result of changes to the Services will be separately reimbursed by Buyer on an Allocated Cost plus Mark-Up basis per the Agreement. To protect Supplier from additional volume risk if work volumes for the [ * * * ] resources of the Services Team exceed more than 10% of historical volume, Supplier will have the right to hire additional contractor headcount and pass the incremental charge on a pass-through basis back to Buyer.
3.3 Responsibility for Service Team Members. Buyer will be solely responsible for the acts and omissions of its employees, including its employees who are Services Team Members. If and to the extent that any failure, delay or other problem in connection with the Services (or any part thereof) is caused by the act or omission of a Buyer employee who is a Services Team Member: (i) Supplier will not be in breach of this Agreement or otherwise liable to Buyer as a result of such failure, delay or other problem; and (ii) Supplier will use commercially reasonable efforts to escalate issues to Buyer management personnel and to work with Buyer to remedy any issues or problems as soon as reasonably practicable so their impact on the Services and its Business is minimized.
3.4 Entire agreement; precedence. This Project Statement will supplement and/or modify the Agreement by and between Supplier and Buyer with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Agreement, this Project Statement will prevail. All other terms and conditions of the Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Project Statement Effective Date above written.
Mondelēz Global LLC | Kraft Foods Group, Inc. | |||||||
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Project Statement #9
This document is a Project Statement as defined in the Master Information Technology Transition Services Agreement ( Agreement ) between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ) and dated as of the Effective Date of the Agreement. This Project Statement is an annex to, and is incorporated and subject to, the Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Agreement, provided that references to Services in this Project Statement will mean the Services specified in this Project Statement.
1. | Service Description. |
Project Title: | Darwin Application Services | |
Supplier: | SnackCo | |
Buyer: | GroceryCo | |
GroceryCo Project Manager: | [ * * * ] | |
SnackCo Project Manager: | [ * * * ] | |
Description of Services: | Supplier will provide Buyer with access to, and application services for, the Darwin sales data application (the Application ), including certain maintenance and user support services | |
Location/Country of Service: | Puerto Rico | |
Project Statement Effective Date: | Effective Date of Separation | |
Transition Period: | 1 year | |
Charges and Payment: | Allocated Cost plus Mark-Up | |
Service Level Agreement: | Not applicable | |
Specifications: | See Sections 2.2, 2.3 and 2.6 |
2. | Service Details. |
2.1 Service Description. As depicted in the data flow chart overview in Exhibit 1 , there are separate data file streams for Buyer and Supplier data. Separate files for each of Buyer and Supplier are emailed from trade distributors ( TD ) to two distinct power-users ( Users ) designated by each organization. The Supplier User and Buyer User will work independently to input their own daily file into the Darwin Application. The Darwin Application will populate a distinct data cube with Buyers data input from the daily files.
2.2 Scope and Specifications. During the Transition Period, Supplier will provide the following Services to Buyer:
(a) Supplier will make the Darwin application available to the Buyer User for daily processing of Buyer company sales to trade files;
(b) The Buyer User will be responsible for adding new products to the Application for Buyer;
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(c) Supplier will cause the Application to provide daily updates of the Buyer data cube which may be accessed using Microsoft Excel Analysis Services;
(d) Supplier will provide assistance upon request to solve any issues affecting accurate presentation of information in the Buyer database or data cube; and
(e) Supplier will upon request update the lists of Buyer users with access to the Buyer data cube.
2.3 Deliverables . The Buyer User will have access to the Application to generate reports consistent with practices prior to Separation, including the following reports: Daily sales by Trade Distributor (TD), Sell out summary, Sell out items detail by distributor and by month, Sell out summary Weekly Pacing, Monthly Customer Rankings by brand/category, and other ad hoc requests (new items sales, POS rankings, promotions, performance, etc.).
2.4 Exit plan. During the Transition Period, Buyer will execute a project to evaluate, select and migrate to new environment/application by the end of the Transition Period. In the event that Buyer requires continued access to the Application after the end of the Transition Period, Supplier will provide transition assistance to assist Buyer in executing its exit plan and migration, provided that Buyer shall bear the costs of all such Services, including any penalties or stranded or increased costs resulting from such continued use after the Transition Period or after Suppliers transition to any different environment or application. In no event shall Supplier be required to provide Services hereunder or access to the Application more than two years after Separation.
2.5 Data copy. Upon termination or expiration of this Project Statement, Supplier will upon request provide Buyer with a copy of Buyers data collected or generated by the Application during the Transition Period (the Data ) in a format and medium reasonably acceptable to both parties. The Application and hosting environment, including any applicable servers, will be and remain a Supplier asset, and no title or ownership therein is transferred to Buyer.
2.6 Service levels. Subject to Section 2.7, Supplier will use commercially reasonable efforts in light of Suppliers resource constraints and obligations to timely provide the Services at a relative service level consistent in all material respects with that provided to Buyers Business in the 12 months preceding the Project Statement Effective Date.
2.7 Limit on obligation. Supplier will have no obligation to provide Services under this Project Statement, and may decline to provide such requested Services in its sole and absolute discretion, to the extent: (i) the requested Service is not a Service that was provided or supplied by Assets (including personnel) of Supplier for the Business of Buyer during the 12 months preceding the Effective Date; or (ii) the Service is covered by or subject to another agreement, including another transition services agreement, between the parties relating to the Separation or to transition or interim services to be provided in connection with the Separation.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
3. | Additional Terms. |
3.1 Term . This Project Statement will become effective upon the Project Statement Effective Date and will terminate at the end of the Transition Period unless terminated earlier as provided in the Agreement.
3.2 Costs. Buyer will pay Supplier the Allocated Cost for the Services plus Mark-Up (the estimated Allocated Cost for the Services is $[ * * * ] per month exclusive of Mark-Up). Payment will be made as follows: (i) payment for Services from October 1st until December 31st, 2011 shall be made in January 2013, and (ii) payment for Services from January 1st until December 31st, 2012 shall be made in June 2013.
3.3 Entire agreement; precedence. This Project Statement will supplement and/or modify the Agreement by and between Supplier and Buyer with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Agreement, this Project Statement will prevail. All other terms and conditions of the Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Project Statement Effective Date above written.
Mondelēz Global LLC | Kraft Foods Group, Inc. | |||||||
By: |
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Its: |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit 1
Darwin Data Flow
[ * * * ]
[*** 1 page has been redacted ***]
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Project Statement #10
This document is a Project Statement as defined in the Master Information Technology Transition Services Agreement ( Agreement ) between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ) and dated as of the Effective Date of the Agreement. This Project Statement is an annex to, and is incorporated and subject to, the Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Agreement, provided that references to Services in this Project Statement will mean the Services specified in this Project Statement.
1. | Service Description. |
Project Title: | SM7 Service Management Tool Services | |
Supplier: | SnackCo | |
Buyer: | GroceryCo | |
GroceryCo Project Manager: | [ * * * ] | |
SnackCo Project Manager: | [ * * * ] | |
Description of Services: | Supplier will provide Services to Buyer using Suppliers Service Manager 7 Application which provides Help Desk ticket handling globally. | |
Location/Country of Service: | Worldwide, licensed centrally from North America | |
Project Statement Effective Date: | Effective Date of Separation | |
Transition Period: | 1 year | |
Charges and Payment: | Allocated Cost plus Mark-Up (estimated at $[ * * * ] as provided in Section 3.2) | |
Service Level Agreement: | SLAs will be maintained per the existing support contract with HP. | |
Specifications: | See Sections 2.1 and 2.2 |
2. | Service Details. |
2.1 Description and background. The Service Manager 7 (SM7) application handles Help Desk tickets which must be resolved by GroceryCo application teams. SM7 is interfaced to the HP system used by HP Help Desk agents taking calls from GroceryCo employees. As HP Agents take calls, tickets are created and then routed to GroceryCo teams for resolution. SM7 also contains information for SOX System Change controls.
2.2 Scope . During the Transition Period, Supplier will provide the following Services to Buyer:
(a) Supplier will maintain and provide access to the Application consistent with practices existing at Separation for SM7. This includes the TeleAlert paging and Business Objects Reporting environment.
(b) Supplier will monitor HP application support services for SM7.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(c) Buyer will manage SM7 activities for GroceryCo. Buyers application manager will be the only point of contact to Supplier for SM7 application management issues.
(d) Supplier will renew SM7 licensing for the term of this Project Statement and for a longer period of time if requested by the Buyer, at Buyers cost. Licensing is renewed in December 2012 if needed.
2.3 Specifications. Supplier will use commercially reasonable efforts to provide the Services hereunder consistent with the specifications referenced above and otherwise at a relative service level consistent in all material respects with that provided to Buyers Business in the 12 months preceding the Project Statement Effective Date. To the extent that Services are provided by a Contractor and not by Supplier, Supplier will cause the Contractor to perform in accordance with agreed SLAs, and in the event that Services provided by the Contractor to Buyer do not meet such SLAs then Supplier will pursue service credits and other remedies on Buyers behalf under the agreement with the Contractor. Any recoveries for SLA deficiencies are subject to Section 3.3(c) of the Agreement.
2.4 Exit plan. During the Transition Period, Buyer and Seller Service Management teams will complete the transition off SM7. Buyer and Seller will fund their respective transition costs. There will be collaboration between the Buyer and Seller project leads to coordinate delivery.
3. | Additional Terms. |
3.1 Term . This Project Statement will become effective upon the Project Statement Effective Date and will terminate at the end of the Transition Period unless terminated earlier as provided in the Agreement. Any early termination permitted under the Agreement that occurs during a month will be considered to be completed at month-end for billing purposes.
3.2 Costs. Supplier will provide the Services for an estimated Allocated Cost of Service plus Mark-Up of $[ * * * ] over the 12 month Transition Period. The cost covers licensing ($[ * * * ]), HP server and storage cost ($[ * * * ]), and [ * * * ] ($[ * * * ]) SnackCo overhead. This cost will be invoiced monthly in equal installments during the Transition Period. Any costs incurred by Supplier or its Contractors in connection with assisting Buyer in establishing an exit plan as contemplated in Section 2.4 or in transitioning Services to a new provider will be separately reimbursed by Buyer on an Allocated Cost basis per the Agreement. Any additional costs incurred by Supplier as a result of changes to the Services, including pursuant to the change management process with any Contractor, will be separately reimbursed by Buyer on an Allocated Cost plus Mark-Up basis per the Agreement.
3.3 Entire agreement; precedence. This Project Statement will supplement and/or modify the Agreement by and between Supplier and Buyer with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Agreement, this Project Statement will prevail. All other terms and conditions of the Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Project Statement Effective Date above written.
Mondelēz Global LLC | Kraft Foods Group, Inc. | |||||||
By: |
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By: |
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Its: |
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Its: |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Project Statement #11
This document is a Project Statement as defined in the Master Information Technology Transition Services Agreement ( Agreement ) between Kraft Foods Group, Inc., a Virginia corporation ( GroceryCo ), and Mondelēz Global LLC, a Delaware limited liability company ( SnackCo ) and dated as of the Effective Date of the Agreement. This Project Statement is an annex to, and is incorporated and subject to, the Agreement. Any capitalized term not otherwise defined herein will have the meaning ascribed thereto in the Agreement, provided that references to Services in this Project Statement will mean the Services specified in this Project Statement.
1. | Service Description. |
Project Title: | Marketing Financial Spend Management Services | |
Supplier: | GroceryCo & SnackCo | |
Buyer: | SnackCo & GroceryCo | |
GroceryCo Project Manager: | [ * * * ] | |
SnackCo Project Manager: | [ * * * ] | |
Description of Services: | Supplier will provide Buyer with access to, and application services for, certain Marketing Spend Management applications (the Applications ), including certain maintenance and user support services therefor. | |
Location/Country of Service: | [ * * * ] | |
Project Statement Effective Date: | Effective Date of Separation | |
Transition Period: | Ending on the Transition End Date as provided in Section 3.1 (estimated to be March 8, 2013) | |
Charges and Payment: | Allocated Cost plus Mark-Up | |
Service Level Agreement: | Not applicable | |
Specifications: | See Sections 2.2, 2.3 and 2.6 |
2. | Service Details. |
2.1 Service Description and Background. The Marketing Spend Management Applications provide Marketers the visibility and process support to enable spending of marketing budgets. These Applications are in the process of being transitioned to a new platform to improve the efficiency and effectiveness of the Brand Marketers. During the transition the Supplier and Buyer organizations will need to continue to provide application and business process support for the legacy Applications. In addition, the Buyer and Supplier organizations will need to deliver the configuration, development, testing, change management and training of the new [ * * * ] application and all interfaces to SAP.
2.2 Scope and Specifications. During the Transition Period, Supplier will provide the following Services to Buyer:
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
(a) | The following Applications have been made available to each respective company to permit such companys User to complete the daily processing of such companys marketing spend transactions to [ * * * ]. The chart below indicates which party is the Supplier of each support Service and the party that is the Buyer of such support Service, |
Application |
SnackCo
Instance |
GroceryCo
Instance |
Information
Systems Support Supplier |
Business Process
Support Supplier |
||||
[ * * * ] | X | X | GroceryCo |
GroceryCo &
SnackCo for respective instances |
||||
[ * * * ] | X | X | SnackCo | GroceryCo | ||||
[ * * * ] | X | X | GroceryCo | SnackCo | ||||
[ * * * ] | X | X | GroceryCo | GroceryCo | ||||
[ * * * ] | X | X | GroceryCo | GroceryCo | ||||
[ * * * ] | X | X | GroceryCo | GroceryCo | ||||
[ * * * ] | X | X | SnackCo | Not Applicable | ||||
[ * * * ] | X | X | Not Applicable | Not Applicable | ||||
[ * * * ] | X | X | Not Applicable | Not Applicable | ||||
[ * * * ] | X | X | Not Applicable | Not Applicable |
(b) | The Buyers User will be responsible for attending the necessary training and data load workshops for each Application. |
(c) | A Business Process Support Supplier will provide resourcing necessary to complete the user acceptance testing, data validation, business change management services and hyper-care support for the indicated Application. |
(d) | A Business Process Support Supplier will provide assistance to the Buyer upon request to solve any issues affecting business process management for the indicated Application. |
(e) | Supplier will upon request coordinate the Buyers end users participation in training for transition of the Services and training of the new [ * * * ] application. |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.3 Deliverables . The Buyer User will have access to the Application to generate transactions consistent with practices prior to Separation, including the following:
(a) | Budget Planning |
(b) | Purchase order commitments |
(c) | Invoice Payments |
(d) | Media Integrations |
(e) | Couponing |
(f) | Journal Entries |
2.4 Exit plan. During the Transition Period, Buyer and Supplier will complete the project to migrate to independent new environments/applications by the end of the Transition Period. In the event that Buyer and Supplier require continued access to an Application after the end of the Transition Period, Supplier will provide transition assistance to assist Buyer in executing its exit plan and migration, provided that Buyer shall bear the costs of all such Services, including any penalties or stranded or increased costs resulting from such continued use after the Transition Period or after Suppliers transition to any different environment or application. In no event shall Supplier be required to provide Services hereunder or access to the Application more than two years after Separation.
2.5 Data copy. Upon termination or expiration of this Project Statement, an Information Systems Support Supplier will upon request provide Buyer with a copy of Buyers data collected or generated by the Application during the Transition Period (the Data ) in a format and medium reasonably acceptable to both parties. The Application and hosting environment, including any applicable servers, will be and remain a Supplier asset, and no title or ownership therein is transferred to Buyer.
2.6 Service levels. Subject to Section 2.7, Supplier will use commercially reasonable efforts in light of Suppliers resource constraints and obligations to timely provide the Services at a relative service level consistent in all material respects with that provided to Buyers Business in the 12 months preceding the Project Statement Effective Date.
2.7 Limit on obligation. Supplier will have no obligation to provide Services under this Project Statement, and may decline to provide such requested Services in its sole and absolute discretion, to the extent: (i) the requested Service is not a Service that was provided or supplied by Assets (including personnel) of Supplier for the Business of Buyer during the 12 months preceding the Effective Date; or (ii) the Service is covered by or subject to another agreement, including another transition services agreement, between the parties relating to the Separation or to transition or interim services to be provided in connection with the Separation.
3. | Additional Terms. |
3.1 Term . This Project Statement will become effective upon the Project Statement Effective Date and will terminate at the end of the Hyper-care Transition Period 60 days post-go-live of the [ * * * ] Application (the Transition End Date ) unless terminated earlier as provided in the Agreement. In no event will the Transition Period extend beyond the Maximum Transition Period.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
3.2 Costs. Estimated total program expense is $[ * * * ] with GroceryCo allocation being $[ * * * ] and SnackCo allocation $[ * * * ]. The assumption is SnackCo will hold remaining Gemini funding and Buyer SnackCo will pay Supplier GroceryCo the Allocated Cost for the Services plus Mark-Up (the estimated Allocated Cost for the Services is $[ * * * ] exclusive of Mark-Up). Payment will be made as follows: (i) payment for Services from October 1st until December 31st, 2012 shall be made in January 2013, and (ii) payment for Services from January 1st until March 31st, 2013 shall be made in June 2013.
3.3 Entire agreement; precedence. This Project Statement will supplement and/or modify the Agreement by and between Supplier and Buyer with respect to the Services provided hereunder. In the event of a conflict between this Project Statement and the Agreement, this Project Statement will prevail. All other terms and conditions of the Agreement remain unchanged and are ratified hereby. This Project Statement, including its terms and conditions and the Agreement of which it is a part, is a complete and exclusive statement of the agreement between the parties relating to its subject matter, and which supersedes all prior or concurrent proposals and understandings, whether oral or written, and all other communications between the parties relating to its subject matter.
IN WITNESS WHEREOF, the parties hereto have executed this Project Statement as of the Project Statement Effective Date above written.
Mondelēz Global LLC | Kraft Foods Group, Inc. | |||||||
By: |
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By: |
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [ * * * ]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit 10.19
K RAFT F OODS G ROUP , I NC .
C HANGE IN C ONTROL P LAN FOR K EY E XECUTIVES
ADOPTED : O CTOBER 2, 2012
K RAFT F OODS G ROUP , I NC .
C HANGE IN C ONTROL P LAN FOR K EY E XECUTIVES
1. Definitions
For purposes of the Change in Control Plan for Key Executives, the following terms are defined as set forth below (unless the context clearly indicates otherwise):
Affiliate | Any entity controlled by, controlling or under common control with the Company. | |
Annual Base Salary | Twelve times the higher of (i) the highest monthly base salary paid or payable to the Participant by the Company and its Affiliates in respect of the twelve-month period immediately preceding the month in which the Change in Control occurs, or (ii) the highest monthly base salary in effect at any time thereafter, in each case including any base salary that has been earned and deferred. | |
Board | The Board of Directors of the Company. | |
Annual Incentive Award Target | The annual incentive award that the Participant would receive in a fiscal year under the Management Incentive Plan or any comparable annual incentive plan if the target goals are achieved. | |
Cause | As defined in Section 3.2(b)(i) of this Plan. | |
Change in Control |
Change in Control means the occurrence of any of the following events: (A) Acquisition of 20% or more of the outstanding voting securities of the Company by another entity or group; excluding, however, the following:
(1) any acquisition by the Company or any of its Affiliates;
(2) any acquisition by an employee benefit plan or related trust sponsored or maintained by the Company or any of its Affiliates; or
(3) any acquisition pursuant to a merger or consolidation described in clause (C) of this definition.
(B) During any consecutive 24 month period, persons who constitute the Board at the beginning of such period cease to constitute at least 50% of the Board; provided that each new Board member who is approved by a majority of the directors who began such 24 month period shall be deemed to have been a member of the Board at the beginning of such 24 month period;
(C) The consummation of a merger or consolidation of the Company with another company, and the Company is not the surviving company; or, if after such transaction, the other entity owns, directly or indirectly, 50% or more of the outstanding voting securities of the Company; excluding, however, a transaction pursuant to which all or substantially all of the |
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individuals or entities who are the beneficial owners of the outstanding voting securities of the Company immediately prior to such transaction will beneficially own, directly or indirectly, more than 50% of the combined voting power of the outstanding securities entitled to vote generally in the election of directors (or similar persons) of the entity resulting from such transaction (including, without limitation, an entity which as a result of such transaction owns the Company either directly or indirectly) in substantially the same proportions relative to each other as their ownership, immediately prior to such transaction, of the outstanding voting securities of the Company; or
(D) The consummation of a plan of complete liquidation of the Company or the sale or disposition of all or substantially all of the Companys assets, other than a sale or disposition pursuant to which all or substantially all of the individuals or entities who are the beneficial owners of the outstanding voting securities of the Company immediately prior to such transaction will beneficially own, directly or indirectly, more than 50% of the combined voting power of the outstanding securities entitled to vote generally in the election of directors (or similar persons) of the entity purchasing or acquiring the Companys assets in substantially the same proportions relative to each other as their ownership, immediately prior to such transaction, of the outstanding voting securities of the Company.
For the avoidance of doubt, the separation of the Company from Kraft Foods Inc. shall not be considered a Change in Control. |
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Code | The Internal Revenue Code of 1986, as amended from time to time. | |||
Committee | The Boards Compensation Committee or a subcommittee thereof, any successor thereto or such other committee or subcommittee as may be designated by the Board to administer the Plan. | |||
Company | Kraft Foods Group, Inc., a corporation organized under the laws of the Commonwealth of Virginia, or any successor thereto. | |||
Date of Termination | If the Participants employment is terminated by: | |||
(i) |
The Employer for Cause or by the Participant for Good Reason, the Date of Termination shall be the date on which the Participant or the Employer, as the case may be, receives the Notice of Termination (as described in Section 3.2(c)) or any later date specified therein, as the case may be. | |||
(ii) |
The Employer other than for Cause, death or Disability, the Date of Termination shall be the date on which the Employer notifies the Participant of such termination. | |||
(iii) |
Reason of death or Disability, the Date of Termination shall be the date of death of the Participant or the Disability Effective Date, as the case may be. | |||
Notwithstanding the above, in the event that the Date of Termination as determined above is not the last date on which the Participant is employed by the Employer, the Participants Date of Termination shall be the last date on which the Participant is employed by the Employer. |
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Disability | As defined in Section 3.2(b) (ii). | |
Disability Effective Date |
As defined in Section 3.2(b) (ii). | |
Effective Date | October 2, 2012. | |
Employer | The Company or any of its Affiliates. | |
Excise Tax | The excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax. | |
Good Reason | As defined in Section 3.2(a). | |
Key Executive | An employee who is employed on a regular basis by the Employer and (i) is serving as the Companys Executive Chairman and/or Chief Executive Officer, (ii) is serving in a position that reports directly to the Companys Executive Chairman and/or Chief Executive Officer (Direct Reports) or (ii) is otherwise designated by the Committee as eligible to participate in this Plan. | |
Long-Term Incentive Plan Award Target | The long-term award that the Participant would receive during a performance cycle under the Long-Term Incentive Plan or any comparable incentive plan if the target goals specified under the Long-Term Incentive Plan or such comparable incentive plan are achieved. | |
Net After-Tax Benefit | The present value (as determined in accordance with Sections 280G(b)(2)(A)(ii) and 280G(d)(4) of the Code) of a Participants Payments less any Federal, state, and local income taxes and any Excise Tax payable on such amount. | |
Non-Competition Agreement | The agreement of a Participant, not to, without the Companys prior written consent, engage in any activity or provide any services, whether as a director, manager, supervisor, employee, adviser, consultant or otherwise, for a period of up to one (1) year following the Participants Date of Termination, with a company that is substantially competitive with a business conducted by the Company and its Affiliates. | |
Non-Solicitation Agreement | The agreement of a Participant that he or she will not solicit, directly or indirectly, any employee of the Company or an Affiliate, or a surviving entity following a Change in Control, to leave the Company or an Affiliate and to work for any other entity, whether as an employee, independent contractor or in any other capacity, for a period of up to one (1) year following the Participants Date of Termination. | |
Non-U.S. Executive | A Key Executive whose designated home country, for purposes of the Employers personnel and benefits programs and policies, is other than the United States. |
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Participant | A Key Executive who meets the eligibility requirements of Section 2.1; provided, however, that any Non-U.S. Executive who, under the laws of his or her designated home country or the legally enforceable programs or policies of the Employer in such designated home country, is entitled to receive, in the event of termination of employment (whether or not by reason of a Change in Control), separation benefits at least equal in aggregate amount to the Separation Pay prescribed under Section 3.3(b), of this Plan shall not be considered a Participant for the purposes of this Plan. | |
Payment | Any payment or distribution in the nature of compensation (within the meaning of Section 280G (b) (2) of the Code) to or for the benefit of the Participant, whether paid or payable pursuant to this Plan or otherwise. | |
Plan | The Kraft Foods Group, Inc. Change in Control Plan for Key Executives, as set forth herein. | |
Plan Administrator | The third-party accounting, actuarial, consulting or similar firm retained by the Company prior to a Change in Control to administer this Plan following a Change in Control. | |
Separation Benefits | The amounts and benefits payable or required to be provided in accordance with Section 3.3 of this Plan. | |
Separation Pay | The amount or amounts payable in accordance with Section 3.3(b) of this Plan. | |
Separation Pay Multiple |
For a Participant who served as Executive Chairman and/or Chief Executive Officer immediately prior to the Change in Control, the Separation Pay Multiple is three (3).
For a Participant who served as a Direct Report immediately prior to the Change in Control, the Separation Pay Multiple is two (2).
For all other Participants, the Separation Pay Multiple is one and one-half (1.5). |
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U.S. Executive | A Participant whose designated home country, for purposes of the Employers personnel and benefits programs and policies, is the United States. |
2. Eligibility
2.1. Participation . Except as set forth in the definition of Participant above, each employee who is a Key Executive on the Effective Date shall be a Participant in the Plan effective as of the Effective Date and each other employee shall become a Participant in the Plan effective as of the date of the employees promotion, hire or other designation as a Key Executive.
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2.2. Duration of Participation . A Participant shall cease to be a Participant in the Plan if (i) the Participant terminates employment with the Employer under circumstances not entitling him or her to Separation Benefits or (ii) the Participant otherwise ceases to be (or to be designated) a Key Executive, provided that no Key Executive may be so removed from Plan participation in connection with or in anticipation of a Change in Control that actually occurs. However, a Participant who is entitled, as a result of ceasing to be (or to be designated) a Key Executive of the Employer, to receive benefits under the Plan shall remain a Participant in the Plan until the amounts and benefits payable under the Plan have been paid or provided to the Participant in full.
3. Separation Benefits
3.1. Right to Separation Benefits . A Participant shall be entitled to receive from the Employer the Separation Benefits as provided in Section 3.3, if a Change in Control has occurred and the Participants employment by the Employer is terminated under circumstances specified in Section 3.2(a), whether the termination is voluntary or involuntary, and if (i) such termination occurs after such Change in Control and on or before the second anniversary thereof, or (ii) such termination is reasonably demonstrated by the Participant to have been initiated by a third party that has taken steps reasonably calculated to effect a Change in Control or otherwise to have arisen in connection with or in anticipation of such Change in Control and such Change in Control occurs within 90 days of the termination. Termination of employment shall have the same meaning as separation from service within the meaning of Treasury Regulation § 1.409A-1(h).
3.2. Termination of Employment .
(a) | Terminations which give rise to Separation Benefits under this Plan. The circumstances specified in this Section 3.2(a) are any termination of employment with the Employer by action of the Company or any of its Affiliates or by a Participant for Good Reason, other than as set forth in Section 3.2(b) below. For purposes of this Plan, Good Reason shall mean: |
(i) | the assignment to the Participant of any duties substantially inconsistent with the Participants position, authority, duties or responsibilities in effect immediately prior to the Change in Control, or any other action by the Company or the Employer that results in a marked diminution in the Participants position, authority, duties or responsibilities, excluding for this purpose: |
a. | changes in the Participants position, authority, duties or responsibilities which are consistent with the Participants education, experience, etc.; |
b. | an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company and/or the Employer promptly after receipt of notice thereof given by the Participant; |
(ii) | any material reduction in the Participants base salary, annual incentive or long-term incentive opportunity as in effect immediately prior to the Change in Control; |
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(iii) | the Employer requiring the Participant to be based at any office or location other than any other location which does not extend the Participants home to work commute as of the time of the Change in Control by more than 50 miles; |
(iv) | the Employer requiring the Participant to travel on business to a substantially greater extent than required immediately prior to the Change in Control; or |
(v) | any failure by the Company to 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 Plan in the same manner and to the same extent that the Company or the Employer would be required to perform it if no such succession had taken place, as required by Article 5. |
The Participant must notify the Company of any event purporting to constitute Good Reason within 45 days following the Participants knowledge of its existence, and the Company or the Employer shall have 20 days in which to correct or remove such Good Reason, or such event shall not constitute Good Reason.
(b) | Terminations which DO NOT give rise to Separation Benefits under this Plan. Notwithstanding Section 3.2(a), if a Participants employment is terminated for Cause or Disability (as those terms are defined below) or as a result of the Participants death, or the Participant terminates his or her own employment other than for Good Reason, the Participant shall not be entitled to Separation Benefits under the Plan, regardless of the occurrence of a Change in Control. |
(i) | A termination for Cause shall have occurred where a Participant is terminated because of: |
a. | Continued failure to substantially perform the Participants jobs duties (other than resulting from incapacity due to disability); |
b. | Gross negligence, dishonesty, or violation of any reasonable rule or regulation of the Company or the Employer where the violation results in significant damage to the Company or the Employer; or |
c. | Engaging in other conduct which adversely reflects on the Company or the Employer in any material respect. |
(ii) | A termination upon Disability shall have occurred where a Participant is absent from the Participants duties with the Employer on a full-time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Participant or the Participants legal representative. In such event, the Participants employment with the Employer shall terminate effective on the 30th day after receipt of such notice by the Participant (the Disability Effective Date), provided that, within the 30 days after such receipt, the Participant shall not have returned to full-time performance of the Participants duties. |
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(c) | Notice of termination. Any termination of employment initiated by the Employer for Cause, or by the Participant for Good Reason, shall be communicated by a Notice of Termination to the other party. For purposes of this Plan, a Notice of Termination means a written notice which (i) indicates the specific termination provision in this Plan relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participants employment under the provision so indicated, and (iii) specifies the date upon which the Participants termination of employment is expected to occur (which date shall be not more than 30 days after the giving of such notice), provided, however, that such specified date shall not be considered the Date of Termination for any purpose of this Plan if such date differs from the Participants actual Date of Termination. The failure by the Participant or the Employer to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Participant or the Employer, respectively, hereunder or preclude the Participant or the Employer, respectively, from asserting such fact or circumstance in enforcing the Participants or the Employers rights hereunder. |
3.3. Separation Benefits . If a Participants employment is terminated under the circumstances set forth in Section 3.2(a) entitling the Participant to Separation Benefits, and if the Participant signs a Non-Competition Agreement and a Non-Solicitation Agreement, the Company shall pay or provide, as the case may be, to the Participant the amounts and benefits set forth in items (a) through (e) below (the Separation Benefits):
(a) | The Employer shall pay to the Participant, in a lump sum in cash within 30 days after the Date of Termination (or, if later, 30 days after the date of the Change in Control), or on such later date as required under Section 3.3(g), the sum of (A) the Participants Annual Base Salary through the Date of Termination to the extent not theretofore paid, (B) the product of (x) the Participants Annual Incentive Award Target 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, (C) the product of (x) the Participants Long-Term Incentive Award Target and (y) a fraction, the numerator of which is the number of days completed in the applicable performance cycle through the Date of Termination and the denominator of which is the total number of days in the performance cycle, and (D) any accrued vacation pay, in each case to the extent not theretofore paid. The sum of the amounts described in sub clauses (A), (B), (C) and (D), shall be referred to as the Accrued Obligations, and, in the case of the amounts described in sub clauses (B) and (C), shall be reduced by any amount paid or payable under the Kraft Foods Group, Inc. 2012 Performance Incentive Plan on account of the same fiscal year or performance cycle, as applicable. |
(b) | The Employer also shall pay to the Participant, in a lump sum in cash within 30 days after the Date of Termination (or, if later, 30 days after the date of the Change in Control), or on such later date as required under Section 3.3(g), an amount (Separation Pay) equal to the product of (A) the applicable Separation Pay Multiple and (B) the sum of (x) the Participants Annual Base Salary and (y) the Participants Annual Incentive Award Target, reduced (but not below zero) in the case of any Participant who is a Non-U.S. Executive |
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by the U.S. dollar equivalent (determined as of the Participants Date of Termination) of any payments made to the Participant under the laws of his or her designated home country or any program or policy of the Employer in such country on account of the Participants termination of employment. |
(c) | Solely with respect to U.S. Participants, for a number of years equal to the applicable Separation Pay Multiple after the Participants Date of Termination (or, if later, the date of the Change in Control), or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Employer shall continue welfare benefits to the Participant and/or the Participants family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies (including, without limitation, medical, prescription, dental, disability, employee/spouse/child life insurance, executive life, estate preservation (second-to-die life insurance) and travel accident insurance plans and programs), as if the Participants employment had not been terminated, or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer executives of the Company and its Affiliates and their families; provided, however, that if the Participant 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. The period of continuation of any group medical plan coverage under Section 4980B of the Code (the COBRA Period) shall run concurrently during the period for which medical coverage is provided to the Participant pursuant to this Section 3.3(c). The provision of medical coverage made during the COBRA Period is intended to qualify for the exception to deferred compensation as a medical benefit provided in accordance with the provisions of Section 409A of the Code and Treasury Regulation §1.409A-1(b)(9)(v)(B). Any reimbursements required to be made to a Participant under any arrangement pursuant to this Section 3.3(c) that is not described in the preceding sentence or is not excepted from Section 409A of the Code under Treasury Regulation § 1.409A-1(a)(5) shall be made to the Participant no later than the end of the Participants second taxable year following the expense being reimbursed was incurred. The maximum amount of any such welfare benefits provided to a Participant under this provision in any calendar year shall not be increased or decreased to reflect the amount of such welfare benefits provided to such Participant under this provision in a prior or subsequent calendar year. For purposes of determining the Participants eligibility for retiree benefits pursuant to such welfare plans, practices, programs and policies, the Participant shall be considered to have remained employed for a number of years equal to the applicable Separation Pay Multiple after the Date of Termination; provided, however, that the Participants commencement of such retiree benefits shall not be any sooner than the date on which the Participant attains 55 years of age and provided, further, that the Participants costs under any such retiree benefits plans, practices, programs or policies shall be based upon actual service with the Company and its Affiliates. |
(d) |
The Employer shall, at its sole expense, provide the Participant with outplacement services through the provider of the Companys choice, the scope of which shall be chosen by the Participant in his or her sole discretion within the terms and conditions of the Companys |
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outplacement services policy as in effect immediately prior to the Change in Control, but in no event shall such outplacement services continue for more than two years after the calendar year in which the Participant terminates employment. |
(e) | The Employer shall, for a number of years equal to the applicable Separation Pay Multiple after the Participants Date of Termination, or after the Change in Control, if later, or such longer period as may be provided by the terms of the appropriate perquisite, continue the perquisites at least equal to those which would have been provided to them in accordance with the perquisites in effect immediately prior to the Change in Control; provided, however, that the maximum value of perquisites provided to a Participant under this provision in any calendar year shall not be increased or decreased to reflect the value of perquisites provided to such Participant under this provision in a prior or subsequent calendar year. Any reimbursements to a Participant for costs associated with such continued perquisites shall be made no later than the end of the Participants second taxable year following the date the Participant incurred such cost. This clause does not apply to personal use of the Company aircraft to the extent that this perquisite is in effect for any Key Executive immediately prior to the Change in Control. |
(f) | To the extent not theretofore paid or provided, the Employer shall pay or provide to the Participant, at the time otherwise payable, any other amounts or benefits required to be paid or provided or that the Participant is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its Affiliates. |
(g) | Notwithstanding the foregoing, if the Participant is a specified employee within the meaning of Section 409A of the Code, then (i) any payments described in Sections 3.3(a) and (b) which the Company determines constitute the payment of nonqualified deferred compensation, within the meaning of Section 409A of the Code, shall be delayed and become payable within five days after the six-month anniversary of the Participants termination of employment and (ii) any benefits provided under Sections 3.3(c) and (e) which the Company determines constitute the payment of nonqualified deferred compensation, within the meaning of Section 409A of the Code, shall be provided at the Participants sole cost during the six-month period after the date of the Participants termination of employment, and within five days after the expiration of such period the Company shall reimburse the Participant for the portion of such costs payable by the Company pursuant to Sections 3.3(c) and (e) hereof. |
(h) | For all purposes under the applicable Company non-qualified defined benefit pension plan, the Company shall credit the Participant with a number of additional years of service equal to the applicable Separation Pay Multiple and shall add a number of years equal to the applicable Separation Pay Multiple to the Participants age. |
3.4. Certain Additional Payments by the Employer .
(a) | Anything in this Plan to the contrary notwithstanding, with respect to any Participant who is a citizen or resident of the United States, in the event it shall be determined that any Payment would be subject to the Excise Tax, then the Payments to the Participant, in the aggregate, shall be the greater of: |
(i) | The Net After-Tax Benefit, or |
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(ii) | An amount (the Reduced Amount) that is one dollar less than the smallest amount that would give rise to any Excise Tax. |
The Company and its Affiliates shall bear no responsibility for any Excise Tax payable on any Reduced Amount pursuant to a subsequent claim by the Internal Revenue Service or otherwise. For purposes of determining the Reduced Amount under this Section 3.4(a), amounts otherwise payable to the Participant under the Plan shall be reduced, to the extent necessary, in the following order: first, Separation Pay under Section 3.3(b), then Accrued Obligations payable under Section 3.3(a), other than Annual Base Salary through the Date of Termination, followed by outplacement services payable under Section 3.3(d), welfare benefits payable under Section 3.3(c), and, finally, perquisites payable under Section 3.3(e). In the event that such reductions are not sufficient to reduce the aggregate Payments to the Participant to the Reduced Amount, then Payments due the Participant under any other plan shall be reduced in the order determined by the Plan Administrator in its sole discretion.
(b) | All determinations required to be made under this Section 3.4, including whether a Reduced Amount or a Net After-Tax Benefit is payable, and the assumptions to be utilized in arriving at such determinations, shall be made by the Companys independent auditors or such other nationally recognized certified public accounting firm as may be designated by the Company and approved by the Participant (the Accounting Firm), which shall provide detailed supporting calculations both to the Company and the Participant within 15 business days of the receipt of notice from the Participant that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any determination by the Accounting Firm shall be binding upon the Company, its Affiliates and the Participant. |
3.5. Payment Obligations Absolute . Upon a Change in Control and termination of employment under the circumstances described in Section 3.2(a), the obligations of the Company and its Affiliates to pay or provide the Separation Benefits described in Section 3.3 shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company or any of the Affiliates may have against any Participant. In no event shall a Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to a Participant under any of the provisions of this Plan, nor shall the amount of any payment or value of any benefits hereunder be reduced by any compensation or benefits earned by a Participant as a result of employment by another employer, except as specifically provided under Section 3.3.
3.6. Non-Competition and Non-Solicitation . Upon a Change in Control and termination of employment under the circumstances described in Section 3.2(a), the obligations of the Company and its Affiliates to pay or provide the Separation Benefits described in Section 3.3 are contingent on the Participants adhering to the Non-Competition Agreement and the Non-Solicitation Agreement. Should the Participant violate the Non-Competition Agreement or Non-
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Solicitation Agreement, the Participant will be obligated to pay back to the Employer all payments received pursuant to this Plan and the Employer will have no further obligation to pay the Participant any payments that may be remaining due under this Plan.
3.7. Non-Disparagement . Upon a Change in Control and termination of employment under the circumstances described in Section 3.2(a), the obligations of the Company and its Affiliates to pay or provide the Separation Benefits described in Section 3.3 are contingent on the Participants adhering to certain non-disparagement provisions. The Participant agrees that, in discussing their relationship with the Employer, such Participant will not disparage, discredit or otherwise treat in a detrimental manner the Employer, its affiliated and parent companies or their officers, directors and employees. The Employer agrees that, in discussing its relationship with the Participant, it will not disparage or discredit such Participant or otherwise treat such Participant in a detrimental way.
3.8 General Release of Claims . Upon a Change in Control and termination of employment under the circumstances described in Section 3.2(a), the obligations of the Company and its Affiliates to pay or provide the Separation Benefits described in Section 3.3 are contingent on the Participants (for him/herself, his/her heirs, legal representatives and assigns) agreement to execute a general release in the form and substance to be provided by Employer, releasing the Employer, its affiliated companies and their officers, directors, agents and employees from any claims or causes of action of any kind that the Participant might have against any one or more of them as of the date of this Release, regarding his/her employment or the termination of that employment. The Participant understands that this Release applies to all claims (s)he might have under any federal, state or local statute or ordinance, or the common law, for employment discrimination, wrongful discharge, breach of contract, violations of Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, the Employee Retirement Income Security Act, the Americans With Disabilities Act, or the Family and Medical Leave Act, and all other claims related in any way to Participants employment or the termination of that employment.
3.9. Non-Exclusivity of Rights . Nothing in this Plan shall prevent or limit the Participants continuing or future participation in any plan, program, policy or practice provided by the Company or any of the Affiliates and for which the Participant may qualify, nor, subject to Section 6.2, shall anything herein limit or otherwise affect such rights as the Participant may have under any contract or agreement with the Company or any of the Affiliates. Amounts or benefits which the Participant is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of the Affiliates shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Plan.
4. Successor to Company
This Plan shall bind any successor of the Company, its assets or its businesses (whether direct or indirect, by purchase, merger, consolidation or otherwise), in the same manner and to the same extent that the Company or its Affiliates would be obligated under this Plan if no succession had taken place.
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In the case of any transaction in which a successor would not by the foregoing provision or by operation of law be bound by this Plan, the Company shall require such successor expressly and unconditionally to assume and agree to perform the Companys or its Affiliates obligations under this Plan, in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. The term Company, as used in this Plan, shall mean the Company as hereinbefore defined and any successor or assignee to the business or assets which by reason hereof becomes bound by this Plan.
5. Duration, Amendment and Termination
5.1. Duration . This Plan shall remain in effect until terminated as provided in Section 5.2. Notwithstanding the foregoing, if a Change in Control occurs, this Plan shall continue in full force and effect and shall not terminate or expire until after all Participants who become entitled to any payments or benefits hereunder shall have received such payments or benefits in full.
5.2. Amendment and Termination . The Plan may be terminated or amended in any respect by resolution adopted by the Committee unless a Change in Control has previously occurred. However, after the Board has knowledge of a possible transaction or event that if consummated would constitute a Change in Control, this Plan may not be terminated or amended in any manner which would adversely affect the rights or potential rights of Participants, unless and until the Board has determined that all transactions or events that, if consummated, would constitute a Change in Control have been abandoned and will not be consummated, and, provided that, the Board does not have knowledge of other transactions or events that, if consummated, would constitute a Change in Control. If a Change in Control occurs, the Plan shall no longer be subject to amendment, change, substitution, deletion, revocation or termination in any respect that adversely affects the rights of Participants, and no Participant shall be removed from Plan participation.
6. Miscellaneous
6.1. Legal Fees . The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Participant may reasonably incur as a result of any contest by the Company or the Affiliates, the Participant or others of the validity or enforceability of, or liability under, any provision of this Plan or any guarantee of performance thereof (including as a result of any contest by the Participant about the amount of any payment pursuant to this Plan), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided that the Company shall have no obligation under this Section 6.1 to the extent the resolution of any such contest includes a finding denying, in total, the Participants claims in such contest.
6.2. Employment Status . This Plan does not constitute a contract of employment or impose on the Participant, the Company or the Participants Employer any obligation to retain the Participant as an employee, to change the status of the Participants employment as an at will employee, or to change the Companys or the Affiliates policies regarding termination of employment.
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6.3. Tax Withholding . The Employer may withhold from any amounts payable under this Plan such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
6.4. Validity and Severability . The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision of the Plan, which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
6.5. Governing Law . The validity, interpretation, construction and performance of the Plan shall in all respects be governed by the laws of the Commonwealth of Virginia, without reference to principles of conflict of law.
6.6. Section 409A of the Code . The Plan shall be interpreted, construed and operated to reflect the intent of the Company that all aspects of the Plan shall be interpreted either to be exempt from the provisions of Section 409A of the Code or, to the extent subject to Section 409A of the Code, comply with Section 409A of the Code and any regulations and other guidance thereunder. Notwithstanding anything to the contrary in Section 5.2, this Plan may be amended at any time, without the consent of any Participant, to avoid the application of Section 409A of the Code in a particular circumstance or to the extent determined necessary or desirable to satisfy any of the requirements under Section 409A of the Code, but the Employer shall not be under any obligation to make any such amendment. Nothing in the Plan shall provide a basis for any person to take action against the Employer based on matters covered by Section 409A of the Code, including the tax treatment of any award made under the Plan, and the Employer shall not under any circumstances have any liability to any Participant or other person for any taxes, penalties or interest due on amounts paid or payable under the Plan, including taxes, penalties or interest imposed under Section 409A of the Code.
6.7 Claim Procedure . If a Participant makes a written request alleging a right to receive Separation Benefits under the Plan or alleging a right to receive an adjustment in benefits being paid under the Plan, the Company shall treat it as a claim for benefits. All claims for Separation Benefits under the Plan shall be sent to the General Counsel of the Company and must be received within 30 days after the Date of Termination. If the Company determines that any individual who has claimed a right to receive Separation Benefits under the Plan is not entitled to receive all or a part of the benefits claimed, it will inform the claimant in writing of its determination and the reasons therefore in terms calculated to be understood by the claimant. The notice will be sent within 90 days of the written request, unless the Company determines additional time, not exceeding 90 days, is needed and provides the Participant with notice, during the initial 90-day period, of the circumstances requiring the extension of time and the length of the extension. The notice shall make specific reference to the pertinent Plan provisions on which the denial is based, and describe any additional material or information that is necessary. Such notice shall, in addition, inform the claimant what procedure the claimant should follow to take advantage of the review procedures set forth below in the event the claimant desires to contest the denial of the claim. The claimant may within 90 days thereafter submit in writing to the Plan Administrator a notice that the claimant contests the denial of his or her claim by the Company
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and desires a further review. The Plan Administrator shall within 60 days thereafter review the claim and authorize the claimant to appear personally and review the pertinent documents and submit issues and comments relating to the claim to the persons responsible for making the determination on behalf of the Plan Administrator. The Plan Administrator will render its final decision with specific reasons therefor in writing and will transmit it to the claimant within 60 days of the written request for review, unless the Plan Administrator determines additional time, not exceeding 60 days, is needed, and so notifies the Participant during the initial 60-day period. If the Plan Administrator fails to respond to a claim filed in accordance with the foregoing within 60 days or any such extended period, the Plan Administrator shall be deemed to have denied the claim. The Committee may revise the foregoing procedures as it determines necessary to comply with changes in the applicable U.S. Department of Labor regulations.
6.8. Unfunded Plan Status . This Plan is intended to be an unfunded plan and to qualify as a severance pay plan within the meaning of Labor Department Regulations Section 2510.3-2(b). All payments pursuant to the Plan shall be made from the general funds of the Employer and no special or separate fund shall be established or other segregation of assets made to assure payment. No Participant or other person shall have under any circumstances any interest in any particular property or assets of the Company or its Affiliates as a result of participating in the Plan. Notwithstanding the foregoing, the Committee may authorize the creation of trusts or other arrangements to assist in accumulating funds to meet the obligations created under the Plan; provided, however, that, unless the Committee otherwise determines, the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan.
6.9. Reliance on Adoption of Plan . Subject to Section 5.2, each person who shall become a Key Executive shall be deemed to have served and continue to serve in such capacity in reliance upon the Change in Control provisions contained in this Plan.
6.10. Plan Supersedes prior U.S. Arrangements with one Exception . For the period of two years following the occurrence of a Change in Control, the provisions of this Program shall supersede, with respect to U.S. Participants, any and all plans, programs, policies and arrangements of the Company or its Affiliates providing severance benefits, EXCEPT FOR the 2012 Performance Incentive Plan.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer effective as of the Effective Date set forth above.
KRAFT FOODS GROUP, INC. | ||||||
By: |
/s/ Diane Johnson May |
|||||
Diane Johnson May | ||||||
Executive Vice President, Human Resources |
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Exhibit 10.25
PERSONAL AND CONFIDENTIAL
July 15, 2012
Ms. Kim Rucker
Dear Kim,
I am very pleased to provide you with this letter confirming the verbal offer that we extended to you for the position of Executive Vice President of Corporate & Legal Affairs, Kraft Foods North America until the anticipated Spin-off of Kraft Foods Group, Inc. (currently a wholly-owned direct subsidiary of Kraft Foods Inc.), planned for the second half of 2012. Following the Spin-off, you will hold the position of Executive Vice President, Corporate and Legal Affairs, General Counsel and Corporate Secretary of Kraft Foods Group, Inc. Both positions will report to Tony Vernon and will be located in Northfield, Illinois, USA. It is our desire that you join Kraft as soon as possible. This letter sets forth all of the terms and conditions of the offer.
Listed below are details of your compensation and benefits that will apply to this offer.
Annualized Compensation (Range of Opportunity)
Target Maximum | ||||
Annual Base Salary |
$725,000 | |||
Annual Incentive Plan (Target* 60%) |
$435,000 - $1,087,500 | |||
Long-Term Incentives** |
$1,000,000 - $1,500,000 | |||
Total Annual Compensation |
$2,160,000 - $3,312,500 |
* | Target as a percent of base salary. |
** | 2012 mix of long-term incentives was 50% performance shares (LTIP), 25% restricted stock, and 25% stock options. The Human Resources and Compensation Committee reviews this mix each year. The value of the long-term incentive awards reflects the economic value of awards. For performance and restricted shares, the value reflects grant value. For stock option value, the value approximates the Kraft Foods Black-Scholes value. |
July 15, 2012
Page 2 of 4
Annual Incentive Plan
You will be eligible to participate in the Kraft Management Incentive Plan (MIP), which is the Companys annual incentive program (Company, here and for the remainder of this letter is defined as Kraft Foods Inc. until the Spin-off of Kraft Foods Group Inc., and then is defined as Kraft Foods Group Inc. after the Spin-off). Your target award opportunity under the MIP is equal to 60% of your base salary. The actual amount you will receive may be lower or higher depending on your individual performance and the performance of Kraft Foods North America prior to the Spin-off and Kraft Foods Group, Inc. after the Spin-off. Your 2012 award will be payable in March 2013. Your MIP eligibility will begin on your date of employment.
Long-Term Incentives
Performance Shares (50% of long-term incentive mix)
Your eligibility for the Kraft performance share program (referred to as Kraft Foods Long-Term Incentive Plan or LTIP) will commence with the 2013 2015 performance cycle. Your target opportunity under the LTIP is equal to 50% of your total long-term incentive grant established at the beginning of the performance cycle. The actual award you will receive may be lower or higher depending upon the performance of Kraft Foods Inc. (and Kraft Foods Group after the Spin-off) during the performance cycle. The number of performance shares under the 2013 2015 performance cycle is equal to your target value divided by the fair market value of Kraft stock on the first business day of the performance cycle.
The 2013 2015 performance shares will vest in early 2016. It is anticipated that a new three year performance cycle will begin each year in January.
Equity Program Restricted Stock and Stock Options (50% of long-term incentive mix)
You will also be eligible to participate in the Companys restricted stock and stock option award program. Stock awards are typically made on an annual basis, with the next award anticipated to be granted in the first quarter of 2013. Awards historically have been delivered as follows: 50% of equity value is delivered in restricted stock and 50% in stock options. Actual award size is based on individual potential and performance. You will receive dividends on the restricted shares during the vesting period consistent in amount and timing with that of Common Stock shareholders.
The number of stock options granted is typically communicated as a ratio relative to the number of restricted shares granted based on the economic value of the stock options. In 2012, Kraft Foods Inc. granted 6 stock options for every restricted share awarded. This ratio may change from year to year.
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Sign-On Incentives
As part of your employment offer, as an incentive to join Kraft, upon hire, you will receive one-time sign-on incentives in the form of cash and stock as follows:
Equity Sign-On Incentive: |
$750,000 in restricted stock | |
Vest 50% on 1 st anniversary of your start date and 50% on the second anniversary of your start date |
||
Cash Sign-On Incentive: |
$1,310,000 in cash | |
$510,000 paid at hire and will have two year repayment agreement |
||
$475,000 will be paid on the first anniversary of your start date |
||
$325,000 will be paid on the second anniversary of your start date |
For the equity sign on incentive, the actual number of shares that you will receive will be determined based upon the fair market value of Kraft Foods Inc. Common Stock on your date of hire. You will be paid dividends on the restricted stock during the vesting period consistent in amount and timing with that of Common Stock shareholders. Following the anticipated Spin-Off of the North American grocery business, your equity awards will be adjusted to only be denominated in Kraft Foods Group equity. The number of shares will be adjusted to maintain the intrinsic value held immediately prior to the Spin-Off.
If, prior to the end of the two-year repayment period, your employment with the Company ends due to involuntary termination for reasons other than cause, you will not be required to repay the cash sign-on amount paid at hire.
Similarly, if prior to full vesting of the sign-on restricted stock and cash sign-on granted per this offer letter, your employment with the Company ends due to involuntary termination for reasons other than cause, the value of the total number of unvested stock and unpaid cash sign-on incentive shall vest on the scheduled vesting dates.
For purposes of this offer letter, cause means: 1) continued failure to substantially perform the jobs duties (other than resulting from incapacity due to disability); 2) gross negligence, dishonesty, or violation of any reasonable rule or regulation of the Company where the violation results in significant damage to the Company; or 3) engaging in other conduct which materially adversely reflects on the Company.
The other terms and conditions set forth in Krafts standard Stock Award Agreement will apply.
Perquisites
You will be eligible for a company car cash allowance of $15,000 per year under the executive perquisite policy. You will also be eligible for an annual financial counseling allowance of $7,500. You may use any firm of your choosing and submit payments directly to the Company.
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Deferred Compensation Program
You will be eligible to participate in the Executive Deferred Compensation Program. This program allows you to voluntarily defer a portion of your salary and/or your annual incentive to a future date. Investment opportunities under this program are designed to mirror the Companys 401(k) plan. Additional information for this program can be made available upon request.
Stock Ownership Guidelines
You will be required to attain and hold Company stock equal in value to four times your base salary. You will have five years from your date of employment to achieve this level of ownership. Stock held for ownership determination includes common stock held directly or indirectly, unvested restricted/deferred stock or share equivalents held in the Companys 401(k) plan. It does not include stock options or unvested performance shares.
Other Benefits
Your offer includes Krafts comprehensive benefits package available to full-time salaried employees. This benefits package is described in the Kraft Benefits Summary brochure that we previously sent to you. You will be eligible for 30 days of Paid Time Off (PTO).
You will be a U.S. employee of the Company and your employment status will be governed by and shall be construed in accordance with the laws of the United States. As such, your status will be that of an at will employee. This means that either you or Kraft is free to terminate the employment relationship at any time, for any reason.
If your employment with the Company ends due to an involuntary termination other than for cause, you will receive severance arrangements no less favorable than those accorded recently terminated senior executives of the Company. The amount of any severance pay under such arrangements shall be paid in equal installments at the regularly scheduled dates for payment of salary to Kraft executives and beginning within 30 days of your termination.
To assist in your relocation from New Jersey to Illinois, we offer relocation assistance as outlined in Krafts Relocation Guide.
Section 409A of the Internal Revenue Code of 1986, as amended (the Code)
If you are a specified employee (within the meaning of Code section 409A) as of your separation from service (within the meaning of Code section 409A): (a) payment of any amounts under this letter (or under any severance arrangement pursuant to this letter) which the Company determines constitute the payment of nonqualified deferred compensation (within the meaning of Code section 409A) and which would otherwise be paid upon your separation from service shall not be paid before the date that is six months after the date of your separation from service and any amounts that cannot be paid by reason of this limitation shall be accumulated and paid on the first day of the seventh month following the date of your separation from service
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(within the meaning of Code section 409A); and (b) any welfare or other benefits (including under a severance arrangement) which the Company determines constitute the payment of nonqualified deferred compensation (within the meaning of Code section 409A) and which would otherwise be provided upon your separation from service shall be provided at your sole cost during the first six-month period after your separation from service and, on the first day of the seventh month following your separation from service, the Company shall reimburse you for the portion of such costs that would have been payable by the Company for that period if you were not a specified employee.
Payment of any reimbursement amounts and the provision of benefits by the Company pursuant to this letter (including any reimbursements or benefits to be provided pursuant to a severance arrangement) which the Company determines constitute nonqualified deferred compensation (within the meaning of Code section 409A) shall be subject to the following:
(a) | the amount of the expenses eligible for reimbursement or the in-kind benefits provided during any calendar year shall not affect the amount of the expenses eligible for reimbursement or the in-kind benefits to be provided in any other calendar year; |
(b) | the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the calendar year in which the expense was incurred; and |
(c) | your right to reimbursement or in-kind benefits is not subject to liquidation or exchange for any other benefit. |
This offer is contingent upon successful completion of our pre-employment checks, which may include a background screen, reference check, and post-offer drug test pursuant to testing procedures determined by Kraft Foods.
Kim, we are excited at the prospect of you joining our team and are confident you will make a significant impact at Kraft. Please acknowledge your acceptance of the above offer by signing below and returning this letter to me. If you have any questions, please call me at (xxx) xxx-xxxx.
Sincerely,
/s/ Diane Johnson May
SVP Human Resources North America
I accept the offer as expressed above.
/s/ Kim Rucker | 7/16/12 | |
Signature | Date |
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Exhibit 23.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Amendment No. 2 to the Registration Statement on Form S-4 of Kraft Foods Group, Inc. of our report dated April 2, 2012, except for the presentation of earnings per share described in Note 14, as to which the date is October 5, 2012, relating to the financial statements and financial statement schedule of Kraft Foods Group, Inc., which appears in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
December 3, 2012
Exhibit 25.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER
THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
¨ | CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |
DEUTSCHE BANK TRUST COMPANY AMERICAS
(formerly BANKERS TRUST COMPANY)
(Exact name of trustee as specified in its charter)
NEW YORK | 13-4941247 | |
(Jurisdiction of Incorporation or organization if not a U.S. national bank) |
(I.R.S. Employer Identification no.) |
|
60 WALL STREET NEW YORK, NEW YORK |
10005 | |
(Address of principal executive offices) | (Zip Code) |
Deutsche Bank Trust Company Americas
Attention: Lynne Malina
Legal Department
60 Wall Street, 37th Floor
New York, New York 10005
(212) 250 0677
(Name, address and telephone number of agent for service)
Kraft Foods Group, Inc.
(Exact name of obligor as specified in its charter)
Virginia | 36-3083135 | |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
|
Three Lakes Drive Northfield, Illinois |
60093 | |
(Address of principal executive offices) | (Zip Code) |
1.625% Notes due 2015
2.250% Notes due 2017
6.125% Notes due 2018
5.375% Notes due 2020
3.500% Notes due 2022
6.875% Notes due 2039
6.500% Notes due 2040
5.000% Notes due 2042
(Title of the Indenture securities)
Item 1. General Information.
Furnish the following information as to the trustee.
(a) | Name and address of each examining or supervising authority to which it is subject. |
Name |
Address |
|
Federal Reserve Bank (2nd District) |
New York, NY | |
Federal Deposit Insurance Corporation |
Washington, D.C. | |
New York State Banking Department |
Albany, NY |
(b) | Whether it is authorized to exercise corporate trust powers. |
Yes. |
Item 2. Affiliations with Obligor.
If the obligor is an affiliate of the Trustee, describe each such affiliation.
None.
Item 3. -15. Not Applicable
Item 16. List of Exhibits.
Exhibit 1 - | Restated Organization Certificate of Bankers Trust Company dated August 6, 1998, Certificate of Amendment of the Organization Certificate of Bankers Trust Company dated September 25, 1998, Certificate of Amendment of the Organization Certificate of Bankers Trust Company dated December 16, 1998, and Certificate of Amendment of the Organization Certificate of Bankers Trust Company dated February 27, 2002 - Incorporated herein by reference to Exhibit 1 filed with Form T-1 Statement, Registration No. 333-157637-01. | |
Exhibit 2 - | Certificate of Authority to commence business - Incorporated herein by reference to Exhibit 2 filed with Form T-1 Statement, Registration No. 333-157637-01. | |
Exhibit 3 - | Authorization of the Trustee to exercise corporate trust powers - Incorporated herein by reference to Exhibit 3 filed with Form T-1 Statement, Registration No. 333-157637-01. | |
Exhibit 4 - | Existing By-Laws of Deutsche Bank Trust Company Americas, as amended on April 15, 2002 - Incorporated herein by reference to Exhibit 4 filed with Form T-1 Statement, Registration No. 333-157637-01. | |
Exhibit 5 - | Not applicable. | |
Exhibit 6 - | Consent of Bankers Trust Company required by Section 321(b) of the Act. - Incorporated herein by reference to Exhibit 6 filed with Form T-1 Statement, Registration No. 333-157637-01. |
Exhibit 7 - | The latest report of condition of Deutsche Bank Trust Company Americas dated as of September 30, 2012. Copy attached. | |
Exhibit 8 - | Not Applicable. | |
Exhibit 9 - | Not Applicable. |
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Deutsche Bank Trust Company Americas, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on this 3rd day of December, 2012.
DEUTSCHE BANK TRUST COMPANY AMERICAS | ||
By: |
/s/ Carol Ng |
|
Name: | Carol Ng | |
Title: | Vice President |
Exhibit 99.1
LETTER OF TRANSMITTAL
KRAFT FOODS GROUP, INC.
Offer to Exchange
New $1,000,000,000 1.625% Notes due 2015 for $1,000,000,000 1.625% Notes due 2015
New $1,000,000,000 2.250% Notes due 2017 for $1,000,000,000 2.250% Notes due 2017
New $1,034,657,000 6.125% Notes due 2018 for $1,034,657,000 6.125% Notes due 2018
New $900,000,000 5.375% Notes due 2020 for $900,000,000 5.375% Notes due 2020
New $2,000,000,000 3.500% Notes due 2022 for $2,000,000,000 3.500% Notes due 2022
New $877,860,000 6.875% Notes due 2039 for $877,860,000 6.875% Notes due 2039
New $787,483,000 6.500% Notes due 2040 for $787,483,000 6.500% Notes due 2040
New $2,000,000,000 5.000% Notes due 2042 for $2,000,000,000 5.000% Notes due 2042
Pursuant to the Prospectus, dated , 2012
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 2013, UNLESS EXTENDED (THE EXPIRATION DATE). TENDERS
MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
Each holder of Notes wishing to participate in the Exchange Offer, except holders of Notes executing their tenders through the Automated Tender Offer Program (ATOP) procedures of The Depository Trust Company (DTC) or according to the electronic procedures of Euroclear and Clearstream, should complete, sign and submit this Letter of Transmittal to the exchange agent, Deutsche Bank Trust Company Americas, before the Expiration Date.
The Exchange Agent for the Exchange Offer is:
Deutsche Bank Trust Company Americas
By Mail:
DB Services Americas, Inc.
MS JCK01-0218
5022 Gate Parkway, Suite 200
Jacksonville, FL 32256
By Overnight Mail or Courier:
DB Services Americas, Inc.
MS JCK01-0218
5022 Gate Parkway, Suite 200
Jacksonville, FL 32256
For Additional Information, Contact:
(800) 735-7777 (Option #1)
DB.Reorg@db.com
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF THIS INSTRUMENT VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY OF THIS LETTER OF TRANSMITTAL.
The undersigned acknowledges that he or she has received and reviewed the Prospectus, dated , 2012 (the Prospectus), of Kraft Foods Group, Inc., a Virginia corporation (the Issuer) and this Letter of Transmittal (the Letter of Transmittal), which together constitute the Issuers offer (the Exchange Offer) to
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(i) exchange new $1,000,000,000 1.625% Notes due 2015 that have been registered under the Securities Act of 1933, as amended (the Securities Act) (the New 2015 Notes) for a like principal amount, in the aggregate, of the Issuers issued and outstanding 1.625% Notes due 2015 (the Outstanding 2015 Notes) from the registered holders thereof, (ii) exchange new $1,000,000,000 2.250% Notes due 2017 that have been registered under the Securities Act (the New 2017 Notes) for a like principal amount, in the aggregate, of the Issuers issued and outstanding 2.250% Notes due 2017 (the Outstanding 2017 Notes) from the registered holders thereof, (iii) exchange new $1,034,657,000 6.125% Notes due 2018 that have been registered under the Securities Act (the New 2018 Notes) for a like principal amount, in the aggregate, of the Issuers issued and outstanding 6.125% Notes due 2018 (the Outstanding 2018 Notes) from the registered holders thereof, (iv) exchange new $900,000,000 5.375% Notes due 2020 that have been registered under the Securities Act (the New 2020 Notes) for a like principal amount, in the aggregate, of the Issuers issued and outstanding 5.375% Notes due 2020 (the Outstanding 2020 Notes) from the registered holders thereof, (v) exchange new $2,000,000,000 3.500% Notes due 2022 that have been registered under the Securities Act (the New 2022 Notes) for a like principal amount, in the aggregate, of the Issuers issued and outstanding 3.500% Notes due 2022 (the Outstanding 2022 Notes) from the registered holders thereof, (vi) exchange new $877,860,000 6.875% Notes due 2039 that have been registered under the Securities Act (the New 2039 Notes) for a like principal amount, in the aggregate, of the Issuers issued and outstanding 6.875% Notes due 2039 (the Outstanding 2039 Notes) from the registered holders thereof, (vii) exchange new $787,483,000 6.500% Notes due 2040 that have been registered under the Securities Act (the New 2040 Notes) for a like principal amount, in the aggregate, of the Issuers issued and outstanding 6.500% Notes due 2040 (the Outstanding 2040 Notes) from the registered holders thereof, and (viii) exchange new $2,000,000,000 5.000% Notes due 2042 that have been registered under the Securities Act (the New 2042 Notes) for a like principal amount, in the aggregate, of the Issuers issued and outstanding 5.000% Notes due 2042 (the Outstanding 2042 Notes) from the registered holders thereof. We refer to these eight series of new notes collectively as the New Notes. Similarly, we refer to the eight series of outstanding notes collectively as the Outstanding Notes.
For each Outstanding Note accepted for exchange, the holder of such Outstanding Note will receive a New Note having a principal amount, interest rate and maturity equal to that of the surrendered Outstanding Note. The New Notes will bear interest from the most recent date to which interest has been paid. Accordingly, registered holders of New Notes on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid on the Outstanding Notes, from the date of original issue of the Outstanding Notes. Outstanding Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Outstanding Notes whose Outstanding Notes are accepted for exchange will not receive any payment in respect of accrued interest on such Outstanding Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer.
The terms of the New Notes are identical in all material respects to the terms of the Outstanding Notes, except the New Notes will not contain transfer restrictions and holders of New Notes will have been registered under the Securities Act, will not bear the restrictive legends restricting their transfer under the Securities Act and will not contain the registration rights and additional interest provisions contained in the Outstanding Notes.
Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Outstanding Notes where the Outstanding Notes were acquired as a result of market making activities or other trading activities.
The Issuer will not receive any proceeds from any sale of the New Notes by broker-dealers. New Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over the counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of
2
resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker dealer or the purchasers of any of the New Notes. Any broker-dealer that resells the New Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of the New Notes may be deemed to be an underwriter within the meaning of the Securities Act and any profit on any such resale of the New Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act.
For a period of 180 days after the consummation of the Exchange Offer, the Issuer will promptly send additional copies of the Prospectus and any amendment or supplement to the Prospectus to any broker-dealer that requests such documents.
This Letter of Transmittal is to be completed by a holder of Outstanding Notes if a tender is to be made by book-entry transfer to the account maintained by Deutsche Bank Trust Company Americas, as Exchange Agent for the Exchange Offer (the Exchange Agent), at the Book-Entry Transfer Facility pursuant to the procedures set forth in the Prospectus under The Exchange OfferBook-Entry Transfers and an Agents Message is not delivered. Tenders by book-entry transfer may also be made by delivering an Agents Message in lieu of this Letter of Transmittal. The term Agents Message means a message, transmitted by the Book-Entry Transfer Facility to and received by the Exchange Agent and forming a part of a Book-Entry Confirmation (as defined below), which states that the Book-Entry Transfer Facility has received an express acknowledgment from the tendering participant, which acknowledgment states that such participant has received and agrees to be bound by this Letter of Transmittal and that the Issuer may enforce this Letter of Transmittal against such participant.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.
Unless you intend to tender your Outstanding Notes through ATOP, you should complete, execute and deliver this Letter of Transmittal.
The undersigned has completed the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer.
List below the Outstanding Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the certificate numbers and principal amount of Outstanding Notes should be listed on a separate signed schedule affixed hereto.
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If tendering Outstanding 2015 Notes:
If tendering Outstanding 2017 Notes:
4
If tendering Outstanding 2018 Notes:
If tendering Outstanding 2020 Notes:
5
If tendering Outstanding 2022 Notes:
If tendering Outstanding 2039 Notes:
6
If tendering Outstanding 2040 Notes:
If tendering Outstanding 2042 Notes:
Holders of Outstanding Notes who cannot deliver all other required documents to the Exchange Agent on or prior to the Expiration Date or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Outstanding Notes according to the guaranteed delivery procedures set forth in the Prospectus.
Unless the context otherwise requires, the term holder for purposes of this Letter of Transmittal means any person in whose name Outstanding Notes are registered or any other person who has obtained a properly completed bond power from the registered holder or any person whose Outstanding Notes are held of record by The Depository Trust Company (the Book-Entry Transfer Facility).
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If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of New Notes. If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Outstanding Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. A broker-dealer may not participate in the Exchange Offer with respect to Outstanding Notes acquired other than as a result of market-making activities or other trading activities. Any holder who is an affiliate of the Issuer or who has an arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer, or any broker-dealer who purchased Outstanding Notes from the Issuer to resell pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act must comply with the registration and prospectus delivery requirements under the Securities Act.
¨ | CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: |
Name(s) of Tendering Institution |
|
Account Number |
|
Transaction Code Number |
|
By crediting the Outstanding Notes to the Exchange Agents account at the Book-Entry Transfer Facilitys Automated Tender Offer Program (ATOP) and by complying with applicable ATOP procedures with respect to the Exchange Offer, including transmitting to the Exchange Agent a computer-generated Agents Message in which the holder of the Outstanding Notes acknowledges and agrees to be bound by the terms of, and makes the representations and warranties contained in, the Letter of Transmittal, the participant in the Book-Entry Transfer Facility confirms on behalf of itself and the beneficial owners of such Outstanding Notes all provisions of this Letter of Transmittal (including all representations and warranties) applicable to it and such beneficial owner as fully as if it had completed the information required herein and executed and transmitted this Letter of Transmittal to the Exchange Agent. |
¨ | CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: |
Name(s) of Registered Holder(s) |
|
Window Ticket Number (if any) |
|
Date of Execution of Notice of Guaranteed Delivery |
|
Name of Institution Which Guaranteed Delivery |
|
If Delivered by Book-Entry Transfer, Complete the Following: | ||
Account Number | Transaction Code Number | |
Name of Tendering Institution |
¨ | CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. |
Name | ||
Address |
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PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Issuer the aggregate principal amount of Outstanding Notes indicated above. Subject to, and effective upon, the acceptance for exchange of all or any portion of the Outstanding Notes tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to, or upon the order of, the Issuer all right, title and interest in and to such Outstanding Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the undersigneds true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that the Exchange Agent also acts as the agent of the Issuer, in connection with the Exchange Offer) to cause the Outstanding Notes to be assigned, transferred and exchanged. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Outstanding Notes, and to acquire New Notes issuable upon the exchange of such tendered Outstanding Notes, and that, when the same are accepted for exchange, the Issuer will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim.
The undersigned and any beneficial owner of the Outstanding Notes tendered hereby further represent and warrant that (i) the New Notes acquired by the undersigned and any such beneficial owner of Outstanding Notes pursuant to the Exchange Offer are being acquired in the ordinary course of business; (ii) neither the undersigned nor any such beneficial owner has an arrangement or understanding with any person to participate in the distribution of the Outstanding Notes or New Notes within the meaning of the Securities Act of 1933, as amended (the Securities Act); (iii) if the undersigned or any such beneficial owner is not a broker-dealer, that neither the undersigned nor any such beneficial owner nor any such other person is engaging in or intends to engage in a distribution of such New Notes; (iv) neither the undersigned nor any such other person is an affiliate, as defined in Rule 405 promulgated Securities Act, of the Issuer or if the undersigned is an affiliate, such person will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable; and (v) if the undersigned or any such beneficial owner is a broker-dealer, that it will receive New Notes for its own account in exchange for Outstanding Notes that were acquired as a result of market-making activities or other trading activities, and that it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, including the delivery of a prospectus in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus meeting the requirements of the Securities Act, the undersigned will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. The undersigned and each beneficial owner acknowledge and agree that any person who is an affiliate of the Issuer or who tenders in the Exchange Offer for the purpose of participating in a distribution of the New Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale transaction of the New Notes acquired by such person and may not rely on the position of the staff of the Securities and Exchange Commission set forth in the no-action letters discussed in the Prospectus under the caption The Exchange OfferConsequences of Exchanging Outstanding Notes. The undersigned and each beneficial owner will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Issuer to be necessary or desirable to complete the sale, assignment and transfer of the Outstanding Notes tendered hereby.
For purposes of the Exchange Offer, the Issuer shall be deemed to have accepted validly tendered Outstanding Notes when as and if the Issuer has given oral notice (confirmed in writing) or written notice thereof to the Exchange Agent.
The undersigned will, upon request, execute and deliver any additional documents deemed by the Issuer to be necessary or desirable to complete the sale, assignment and transfer of the Outstanding Notes tendered hereby.
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All authority conferred or agreed to be conferred in this Letter of Transmittal and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. The undersigned understands that tenders of Outstanding Notes pursuant to the procedures described under the caption The Exchange OfferExchange Offer Procedures in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Issuer upon the terms and subject to the conditions of the Exchange Offer, subject only to withdrawal of such tenders on the terms set forth in the Prospectus under the caption The Exchange OfferWithdrawal Rights.
For the book-entry delivery of Outstanding Notes, please credit the account(s) indicated above in the boxes entitled Description of Outstanding 2015 Notes, Description of Outstanding 2017 Notes, Description of Outstanding 2018 Notes, Description of Outstanding 2020 Notes, Description of Outstanding 2022 Notes, Description of Outstanding 2039 Notes, Description of Outstanding 2040 Notes and Description of Outstanding 2042 Notes maintained at the Book-Entry Transfer Facility.
THE UNDERSIGNED, BY COMPLETING THE BOX OR BOXES ABOVE FOR EACH APPLICABLE SERIES OF OUTSTANDING NOTES AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE TENDERED THE APPLICABLE OUTSTANDING NOTES AS SET FORTH IN SUCH BOX ABOVE.
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if book-entry transfer of New Notes are to be credited to an account other than as indicated above.
Credit New Notes and unexchanged Outstanding Notes delivered by book-entry transfer to the Book-Entry Transfer Facility account set forth below:
¨ | New Notes, to: |
¨ | Outstanding Notes, to: |
Name(s)
Address
Telephone
Number:
(Tax Identification or Social Security Number)
Book-Entry Transfer
Facility Account Number:
(Complete IRS Form W-9)
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IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF OR AN AGENTS MESSAGE IN LIEU THEREOF (TOGETHER WITH A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying IRS Form W-9)
Dated: , 2012
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This Letter of Transmittal must be signed by the registered holder(s) exactly in whose name Outstanding Notes are registered on the books of the Book-Entry Transfer Facility or one of its participants, or by any person(s) authorized to become registered holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth the full title of such person. See Instruction 3.
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SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by Eligible Institution: |
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Dated: , 2012
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INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF
THE EXCHANGE OFFER FOR
New $1,000,000,000 1.625% Notes due 2015 for $1,000,000,000 1.625% Notes due 2015
New $1,000,000,000 2.250% Notes due 2017 for $1,000,000,000 2.250% Notes due 2017
New $1,034,657,000 6.125% Notes due 2018 for $1,034,657,000 6.125% Notes due 2018
New $900,000,000 5.375% Notes due 2020 for $900,000,000 5.375% Notes due 2020
New $2,000,000,000 3.500% Notes due 2022 for $2,000,000,000 3.500% Notes due 2022
New $877,860,000 6.875% Notes due 2039 for $877,860,000 6.875% Notes due 2039
New $787,483,000 6.500% Notes due 2040 for $787,483,000 6.500% Notes due 2040
New $2,000,000,000 5.000% Notes due 2042 for $2,000,000,000 5.000% Notes due 2042
Pursuant to the Prospectus, dated , 2012
1. | Delivery of This Letter of Transmittal and Outstanding Notes; Guaranteed Delivery Procedures. |
This Letter of Transmittal is to be completed by tendering holders of Outstanding Notes if tenders are to be made pursuant to the procedures for delivery by book-entry transfer set forth in the Prospectus under The Exchange OfferBook-Entry Transfers and an Agents Message is not delivered. Tenders by book-entry transfer may also be made by delivering an Agents Message in lieu of this Letter of Transmittal. The term Agents Message means a message, transmitted by the Book-Entry Transfer Facility to and received by the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the tendering participant, which acknowledgment states that such participant has received and agrees to be bound by the Letter of Transmittal and that the Issuer may enforce the Letter of Transmittal against such participant. A Book-Entry Confirmation as well as a properly completed and duly executed Letter of Transmittal (or manually signed facsimile hereof or Agents Message in lieu thereof) and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at the address set forth herein on or prior to the Expiration Date, or the tendering holder must comply with the guaranteed delivery procedures set forth below. Outstanding Notes tendered hereby must be in minimum denominations of principal amount of $2,000 and integral multiples of $1,000 in excess thereof.
Holders who tender their Outstanding Notes through DTCs ATOP procedures shall be bound by, but need not complete, this Letter of Transmittal; thus, a Letter of Transmittal need not accompany tenders effected through ATOP.
Any financial institution that is a participant in DTC may electronically transmit its acceptance of the Exchange Offer by causing DTC to transfer Outstanding Notes in accordance with DTCs ATOP procedures for such transfer before the Expiration Date.
Delivery of a Letter of Transmittal to DTC will not constitute valid delivery to the Exchange Agent. No Letter of Transmittal should be sent to the Issuer or DTC.
Holders who cannot complete the procedures for book-entry transfer on a timely basis must tender their Outstanding Notes pursuant to the guaranteed delivery procedures set forth in the Prospectus under The Exchange OfferGuaranteed Delivery Procedures. Pursuant to such procedures, (i) such tender must be made by or through an Eligible Institution (as defined below); (ii) prior to 5:00 p.m., New York City time, on the Expiration Date, the Exchange Agent must receive from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Issuer (by facsimile transmission, mail or hand delivery), setting forth the name and address of the tendering holder of Outstanding Notes, the registered numbers of the Outstanding Notes, and the principal amount of Outstanding Notes tendered; stating that the tender is being made thereby and guaranteeing that within three (3) business days after the date of execution of the Notice of Guaranteed
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Delivery a Book-Entry Confirmation, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof or Agents Message in lieu thereof) with any required signature guarantees and any other documents required by this Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (iii) a Book-Entry Confirmation, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof or Agents Message in lieu thereof) with any required signature guarantees and all other documents required by this Letter of Transmittal, are received by the Exchange Agent within three (3) business days after the date of execution of the Notice of Guaranteed Delivery. An Eligible Institution is a firm which is a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion Program.
The method of delivery of this Letter of Transmittal, the Outstanding Notes and all other required documents is at the election and risk of the tendering holders, but the delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If Outstanding Notes are sent by mail, it is suggested that the mailing be registered mail, properly insured, with return receipt requested, made sufficiently in advance of the Expiration Date to permit delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. No Letters of Transmittal or Outstanding Notes should be sent directly to the Issuer.
See The Exchange Offer in the Prospectus.
2. | Delivery of the New Notes. |
New Notes to be issued according to the terms of the Exchange Offer, if completed, will be delivered in book-entry form. The appropriate DTC participant name and number (along with any other required account information) needed to permit such delivery must be provided in the description of Outstanding Notes tables above. Failure to do so will render a tender of the Outstanding Notes defective.
All of the Outstanding Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated in the boxes above entitled Description of Outstanding 2017 Notes, Description of Outstanding 2018 Notes, Description of Outstanding 2020 Notes, Description of Outstanding 2022 Notes, Description of Outstanding 2039 Notes, Description of Outstanding 2040 Notes and Description of Outstanding 2042 Notes. If a holder submits Outstanding Notes for a greater principal amount than the holder desires to exchange, we will return to such holder the non-exchanged Outstanding Notes or have them credited to DTC as promptly as practicable after the Expiration Date.
3. | Signatures on This Letter of Transmittal; Note Powers and Endorsements; Guarantee of Signatures. |
If this Letter of Transmittal is signed by the registered holder(s) of the Outstanding Notes tendered hereby, the signature must correspond exactly with the name as written on the Book-Entry Transfer Facilitys security position listing as the holder of such Outstanding Notes without alteration, enlargement or any change whatsoever.
If any tendered Outstanding Notes are owned of record by two or more joint owners, all of such owners must sign this Letter of Transmittal.
When this Letter of Transmittal is signed by the registered holder or holders of the Outstanding Notes specified herein and tendered hereby, no endorsements of certificates or separate written instrument or instruments of transfer or exchange are required. If, however, the Outstanding Notes are registered in the name of a person other than a signer of the Letter of Transmittal, written instrument or instruments of transfer or exchange must accompany the Letter of Transmittal, in satisfactory form as determined by the Issuer in its sole discretion, duly executed by the registered national securities exchange with the signature thereon guaranteed by an Eligible Institution.
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If this Letter of Transmittal is signed by a person or persons other than the registered holder or holders of Outstanding Notes, the Letter of Transmittal must be accompanied by appropriate powers of attorney signed exactly as the name or names of the registered holder or holders that appear on the Outstanding Notes.
If this Letter of Transmittal or any other required documents or powers of attorneys are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Issuer, proper evidence satisfactory to the Issuer of their authority to so act must be submitted with the Letter of Transmittal.
Signatures on powers of attorneys required by this Instruction 3 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed by an Eligible Institution, provided the Outstanding Notes are tendered: (i) by a registered holder of Outstanding Notes (which term, for purposes of the Exchange Offer, includes any participant in the Book-Entry Transfer Facility system whose name appears on a security position listing as the holder of such Outstanding Notes) who has not completed the box entitled Special Issuance Instructions on this Letter of Transmittal or (ii) for the account of an Eligible Institution.
4. | Special Issuance Instructions. |
Holders may indicate a Book-Entry Transfer Facility account number for New Notes to be credited that is different from that indicated as the account originally holding the Outstanding Notes. Holders tendering Outstanding Notes by book-entry transfer may request that Outstanding Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such holder may designate hereon.
5. | Taxpayer Identification Number. |
Federal income tax law generally requires that a tendering holder who is a U.S. person (including a U.S. resident alien) whose Outstanding Notes are accepted for exchange must provide the Exchange Agent with such holders correct Taxpayer Identification Number (TIN) on the enclosed IRS Form W-9, which in the case of a tendering holder who is an individual is his or her Social Security number. If the Exchange Agent is not provided with the current TIN or an adequate basis for an exemption, such tendering holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery to such tendering holder of New Notes may be subject to backup withholding in an amount equal to 28% of all reportable payments made after the exchange (which rate is scheduled to increase to 31% for taxable years beginning on or after January 1, 2013). If withholding results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Outstanding Notes are not subject to these backup withholding and reporting requirements. See the instructions to the enclosed IRS Form W-9 (the W-9 Instructions) for additional instructions.
To prevent backup withholding, each tendering holder of Outstanding Notes must provide its correct TIN by completing the enclosed IRS Form W-9, certifying that the TIN provided is correct (or that such holder is awaiting a TIN), that the holder is a U.S. citizen or resident and that (i) the holder is exempt from backup withholding, (ii) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of a failure to report all interest or dividends or (iii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the tendering holder of Outstanding Notes is a nonresident alien or foreign entity not subject to backup withholding, such holder generally must give the Exchange Agent a completed IRS Form W-8BEN, W-8ECI or W-8IMY, as applicable (instead of an IRS Form W-9). If the Outstanding Notes are in more than one name or are not in the name of the actual owner, such holder should consult the W-9 Instructions for information on which TIN to report. If such holder does not have a TIN, such holder should consult the W-9 Instructions for instructions on applying for a
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TIN, write Applied For in the space provided for the TIN in Part I of the IRS Form W-9, and sign and date the form. Writing applied for on the form means that such holder has already applied for a TIN or that such holder intends to apply for one in the near future. Notwithstanding that the holder has written applied for in Part I of the IRS Form W-9, reportable payments that are received by such holder generally will be subject to backup withholding unless the holder has furnished the Exchange Agent with its TIN by the time such payment is made.
The information requested above should be directed to the Exchange Agent at the following address:
The Exchange Agent for the Exchange Offer is:
Deutsche Bank Trust Company Americas
By Mail:
DB Services Americas, Inc.
MS JCK01-0218
5022 Gate Parkway, Suite 200
Jacksonville, FL 32256
By Overnight Mail or Courier:
DB Services Americas, Inc.
MS JCK01-0218
5022 Gate Parkway, Suite 200
Jacksonville, FL 32256
For Additional Information, Contact:
(800) 735-7777 (Option #1)
DB.Reorg@db.com
6. | Transfer Taxes. |
Holders who tender their Outstanding Notes for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, New Notes are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Outstanding Notes tendered, or if a transfer tax is imposed for any reason other than on the exchange of Outstanding Notes in connection with the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Outstanding Notes specified in this Letter of Transmittal.
7. | Waiver of Conditions. |
The Issuer reserves the absolute right to waive, in whole or in part, any defects or irregularities or conditions of the Exchange Offer as to any particular Outstanding Note either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Outstanding Notes in the Exchange Offer).
8. | No Conditional Tenders. |
No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders of Outstanding Notes, by execution of this Letter of Transmittal or an Agents Message in lieu thereof, shall waive any right to receive notice of the acceptance of their Outstanding Notes for exchange.
Neither the Issuer, the Exchange Agent nor any other person shall be obligated to give notice of any defect or irregularity with respect to any tender of Outstanding Notes.
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9. | Withdrawal Rights. |
Tenders of Outstanding Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at the address set forth above prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must: (i) specify the name of the person having tendered the Outstanding Notes to be withdrawn (the Depositor) and (ii) identify the Outstanding Notes to be withdrawn (including the principal amount of such Outstanding Notes). If Outstanding Notes have been tendered pursuant to the procedure for book-entry transfer set forth in the Prospectus under The Exchange OfferBook-Entry Transfers, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Outstanding Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Issuer, whose determination shall be final and binding on all parties. Any Outstanding Notes that have been tendered for exchange but which are not exchanged for any reason will be credited to an account maintained with the Book-Entry Transfer Facility for the Outstanding Notes, pursuant to the book-entry transfer procedures set forth in the Prospectus under The Exchange Offer-Book-Entry Transfers, as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Outstanding Notes may be retendered by following the procedures described above at any time on or prior to 5:00 p.m., New York City time, on the Expiration Date.
10. | Requests for Assistance or Additional Copies. |
Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter of Transmittal, and requests for Notices of Guaranteed Delivery and other related documents may be directed to the Exchange Agent at the address and telephone number set forth above.
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