(1) | | This table also shows the stock awards paid out under the2005-2007 EPP. The2005-2007 EPP cycle began on January 1, 2005 (first day of fiscal 2005) and concluded on December 29, 2007 (last day of fiscal 2007). Although the performance period ended on December 29, 2007, each NEO had to be actively employed by Kellogg on the date the awards were paid out (February 18, 2008) in order to receive the payout. | | | | | | | | | | | | | | | | | | | Option Awards | | | Stock Awards(1) | | | | Number of Shares
| | | | | | Number of Shares
| | | | | | | Acquired on
| | | Value Realized on
| | | Acquired on Vesting
| | | Value Realized on
| | Name | | Exercise (#) | | | Exercise ($) | | | (#) | | | Vesting ($) | | | David Mackay | | | 0 | | | | 0 | | | | 60,200 | | | | 3,114,146 | | John Bryant | | | 2,719 | | | | 1,795 | | | | 47,600 | (2) | | | 2,401,472 | | | | | | | | | | | | | | | | | | | Brad Davidson | | | 25,784 | | | | 71,457 | | | | 21,400 | (2) | | | 998,822 | | Paul Norman | | | 78,182 | | | | 467,042 | | | | 15,000 | | | | 775,950 | | | | | | | | | | | | | | | | | | | Tim Mobsby | | | 110,554 | | | | 1,620,625 | | | | 11,400 | | | | 589,722 | | Jeff Montie | | | 39,308 | | | | 179,822 | | | | 52,700 | (2) | | | 2,659,154 | |
| | | (1) | | Only reflects the payout of the2005-2007 EPP awards in February 2008. Does not reflect the payout of2006-2008 EPP awards. The2006-2008 EPP cycle began on January 1, 2006 (first day of fiscal 2006) and concluded on January 3, 2009 (last day of fiscal 2008). Although the performance period ended on January 3, 2009, each NEO had to be actively employed by Kellogg on the date the awards were paid out (February 17, 2009) in order to receive the payout. See “Compensation Discussion and Analysis — Elements of Our Compensation Program — Long-Term Incentives — Executive Performance Plan —2005-20072006-2008 EPP” and “Executive Compensation — Outstanding Equity Awards at Fiscal Year-End Table” for additional information. |
| | | (2) | | Includes restricted stock awards granted in 2005 to Mr. Bryant, Mr. Davidson and Mr. Montie which vested in 2008. |
4044
RETIREMENT AND NON-QUALIFIED DEFINED CONTRIBUTION AND DEFERRED COMPENSATION PLANS Pension Plans The CEO, CFO and other NEOs are eligible to participate in Kellogg-provided pension plans which provide benefits based on years of service and pay (salary plus annual incentive) to a broad base of employees. U.S. Pension Plans. Our U.S. pension plans are comprised of the Kellogg Company Pension Plan and the non-qualified restoration plans, which include the Kellogg Company Executive Excess Plan for accruals after December 31, 2004, and the Kellogg Company Excess Benefit Retirement Plan for accruals on or before December 31, 2004 (collectively, the “U.S. Pension Plans”). Below is an overview of our U.S. Pension Plans in which Messrs.Mr. Mackay, Mr. Bryant, Montie,Mr. Davidson, Mr. Norman and DavidsonMr. Montie participate. | �� | | | | | | | | | U.S. Qualified Pension Plan | | | U.S. Non-Qualified Plans | Reason for Plan | | | Provide eligible employees with a competitive level of retirement benefits based on pay and years of service. | | | Provide eligible employees with a competitive level of retirement benefits U.S. Non-Qualified Plan on the formula used in the Salaried Pension Plan, by “restoring” the benefits limited by the Internal Revenue Code. Based on the formula used in the U.S. Pension Plan. | Eligibility | | | Salaried employees, including the CEO, CFO and other NEOs, and certain hourly and union employees. | | | Eligible employees impacted under the Internal Revenue Code by statutory limits on the level of compensation and benefits that can be considered in determining Kellogg-provided retirement benefits. | Payment Form | | | Monthly annuity. | | | Monthly annuity or lump sum at the choice of the executive. | Participation, as of January 1, 2003 | | | Active Kellogg heritage employees who are 40 years of age orolderor have 10 ormoreyears of service. | Retirement Eligibility | | | Full Unreduced Benefit:
• Normal retirement age 65
• Age 55 with 30 or more years of service
• Age 62 with 5 years of service
Reduced Benefit:
• Age 55 with 20 years of service
• Any age with 30 years of service | Pension Formula | | | Single Life Annuity = 1.5% x (years of service) x (final average pay based on the average of highestthreeconsecutive years) – (Social Security offset) | Pensionable Earnings | | | Includes only base pay, overtime pay and annual incentive payments. We do not include any other compensation, such as restricted stock grants, EPP payouts, gains from stock option exercises and any other form of stock- or option-based compensation in calculating pensionable earnings. | | | | | | | |
Foreign Pension Plans. Mr. Mobsby, who is based in Ireland, participates in the Irish Executive Pension Plan. There is no additional non-qualified pension plan as there is for U.S. executives, because applicable tax laws do not function in a way that would require us to “restore” benefits limited by the applicable tax laws. In order to become a participant in the Irish Executive Pension Plan, an executive must be nominated for participation and subsequently have his or her nomination approved by the Board of Trustees of the Irish Executive Pension Plan. The Board of Trustees is chaired by a Kellogg-nominated trustee and comprised of a combination of Kellogg- and member-nominated trustees. The formula for the single life annuity benefit under the Irish Executive Pension Plan is 1.67% of the final average pay multiplied by the executive’s years of service. The final average pay amount is based on the average pay of the best
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three of the last ten years and includes only base salary and bonus and does not include any other compensation. Once an 45
executive reaches 20 years of service, the years of service factor automatically increases to 40 years, at which point it is capped under applicable Irish law. Years of service also includes all years of service worked by the executive at Kellogg prior to participation in the Irish Executive Pension Plan. Executives are eligible to retire and receive the full unreduced benefit at age 63. Executives who joined the Irish Executive Pension Plan prior to December 1, 1991 are eligible to retire and receive the full unreduced benefit at age 60, while executives who joined subsequent to that date must receive consent in order to retire between the ages of 60 and 65 before receiving the full unreduced benefit. Executives may retire and receive a reduced benefit upon reaching the age of 50, but must receive consent before receiving the reduced benefit. Mr. Mobsby also received pension benefits under the U.K. Executive Pension Plan. The benefits provided under the U.K. Executive Pension Plan mirror those provided under the Irish Executive Pension Plan. Consequently, Mr. Mobsby’s benefit shown in the Pension Benefits Table under the U.K. Executive Pension Plan is calculated in the same way. Actuarial Present Value. The estimated actuarial present value of the retirement benefit accrued through December 29, 2007January 3, 2009 appears in the table below.following table. The calculation of actuarial present value is generally consistent with the methodology and assumptions outlined in our audited financial statements, except that benefits are reflected as payable as of the date the executive is first entitled to full unreduced benefits (as opposed to the assumed retirement date) and without consideration of pre-retirement mortality. Specifically, present value amounts were determined based on the financial accounting discount rate of 6.45%6.09% for the U.S. Qualified Pension Plans, 5.50%Plan, 6.34% for the U.S. Non-Qualified Pension Plan, 5.6% for the Irish Executive Pension Plan and 5.75%6.35% for the U.K. Executive Pension Plan. Benefits subject to lump-sum distributions in the US were determined using an interest rate of 3.95%3.84% and PBGC mortality assumptions for Mr. Mackay and an interest rate of 6.45%6.34% and current statutory mortality under the Pension Protection Act for Messrs. Montie,Mr. Bryant, Mr. Davidson, Mr. Norman and Norman.Mr. Montie. Lump sum conversion factors in the UK and Ireland include a more complex mix of interest rate, mortality and the anticipated rate of future increases in pension benefits; these factors are plan-specific, determined by the Trustees on actuarial advice and apply equally to all plan members, differing by age only. For further information on our accounting for pension plans, refer to Note 9 within Notes to the Consolidated Financial Statements included in our Annual Report onForm 10-K for the year ended December 29, 2007.January 3, 2009. The actuarial increase in 20072008 of the projected retirement benefits can be found in the Summary Compensation Table under the heading “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” (all amounts reported under that heading represent actuarial increases in the U.S. Pension Plans, Irish Executive Pension Plan and U.K. Executive Pension Plan). No payments were made to our NEOs under the U.S. Pension Plans, Irish Executive Pension Plan and U.K. Executive Pension Plan during 2007.2008. The number of years of credited service disclosed below equals an executive’s length of service with Kellogg, except that in 2003 Mr. Mackay (who is retirement-eligible) received additional years of credited service under the U.S. Pension Plans for retention purposes. Refer to “Employment Agreements.”
4246
PENSION BENEFITS TABLE | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number
| | | | | | | | | | | | | | | Number of
| | | | | | | | | | | | | | | | of Years
| | | | Present Value of
| | | | | | | | | | | Years
| | | | Present Value of
| | | | | | | | | | | | Credited Service
| | | | Accumulated
| | | | Payments During
| | | | | | | Credited Service
| | | | Accumulated
| | | | Payments During
| | Name | | | Plan Name | | | (#) | | | | Benefit ($) | | | | Last Fiscal Year ($) | | | | Plan Name | | | (#) | | | | Benefit ($) | | | | Last Fiscal Year ($) | | David Mackay(1) | | | Pension Plan | | | | 17 | | | | | 267,000 | | | | | | | | | U.S. Qualified Pension Plan | | | | 18 | | | | | 333,000 | | | | | | | | | | Non-Qualified Plan (2004 and before) | | | | 14 | | | | | 1,665,000 | | | | | | | | | Non-Qualified Plan (2004 and before) | | | | 14 | | | | | 1,804,000 | | | | | | | | | | Non-Qualified Plan (2005 and after) | | | | 9 | | | | | 4,014,000 | | | | | | | | | Non-Qualified Plan (2005 and after) | | | | 10 | | | | | 5,658,000 | | | | | | | | | | TOTAL | | | | | | | | | 5,946,000 | | | | | 0 | | | | TOTAL | | | | | | | | | 7,795,000 | | | | | 0 | | | | | | | | | | | | | | | | | | | | | | John Bryant | | | Pension Plan | | | | 10 | | | | | 76,000 | | | | | | | | | U.S. Qualified Pension Plan | | | | 11 | | | | | 100,000 | | | | | | | | | | Non-Qualified Plan (2004 and before) | | | | 7 | | | | | 128,000 | | | | | | | | | | | Non-Qualified Plan (2005 and after) | | | | 3 | | | | | 445,000 | | | | | | | | | | | TOTAL | | | | | | | | | 649,000 | | | | | 0 | | | Jeff Montie | | | Pension Plan | | | | 20 | | | | | 369,000 | | | | | | | | | | | Non-Qualified Plan (2004 and before) | | | | 17 | | | | | 640,000 | | | | | | | | | | | Non-Qualified Plan (2005 and after) | | | | 3 | | | | | 1,821,000 | | | | | | | | | | | TOTAL | | | | | | | | | 2,830,000 | | | | | 0 | | | Tim Mobsby(2) | | | U.K. Executive Pension Plan | | | | 22 | | | | | 8,739,000 | | | | | | | | | | | Irish Executive Pension Plan | | | | 3 | | | | | 1,043,000 | | | | | | | | | | | TOTAL | | | | | | | | | 9,782,000 | | | | | 0 | | | Paul Norman | | | Pension Plan | | | | 21 | | | | | 335,000 | | | | | | | | | | | Non-Qualified Plan (2004 and before) | | | | 18 | | | | | 255,000 | | | | | | | | | Non-Qualified Plan (2004 and before) | | | | 7 | | | | | 140,000 | | | | | | | | | | Non-Qualified Plan (2005 and after) | | | | 3 | | | | | 1,274,000 | | | | | | | | | Non-Qualified Plan (2005 and after) | | | | 4 | | | | | 631,000 | | | | | | | | | | TOTAL | | | | | | | | | 1,864,000 | | | | | 0 | | | | TOTAL | | | | | | | | | 871,000 | | | | | 0 | | Brad Davidson | | | Pension Plan | | | | 24 | | | | | 489,000 | | | | | | | | | U.S. Qualified Pension Plan | | | | 25 | | | | | 598,000 | | | | | | | | | | Non-Qualified Plan (2004 and before) | | | | 21 | | | | | 478,000 | | | | | | | | | Non-Qualified Plan (2004 and before) | | | | 21 | | | | | 518,000 | | | | | | | | | | Non-Qualified Plan (2005 and after) | | | | 3 | | | | | 2,096,000 | | | | | | | | | Non-Qualified Plan (2005 and after) | | | | 4 | | | | | 2,778,000 | | | | | | | | | | TOTAL | | | | | | | | | 3,063,000 | | | | | 0 | | | | TOTAL | | | | | | | | | 3,894,000 | | | | | 0 | | Paul Norman | | | | U.S. Qualified Pension Plan | | | | 22 | | | | | 416,000 | | | | | | | | | | | | | | | | | | | | | | | | Non-Qualified Plan (2004 and before) | | | | 18 | | | | | 278,000 | | | | | | | | | | | | | | | | | | | | | | | | Non-Qualified Plan (2005 and after) | | | | 4 | | | | | 1,591,000 | | | | | | | | | | | TOTAL | | | | | | | | | 2,285,000 | | | | | 0 | | Tim Mobsby(2) | | | | U.K. Executive Pension Plan | | | | 22 | | | | | 7,082,000 | | | | | | | | | | | Irish Executive Pension Plan | | | | 4 | | | | | 1,527,000 | | | | | | | | | | | TOTAL | | | | | | | | | 8,609,000 | | | | | 0 | | Jeff Montie(3) | | | | U.S. Qualified Pension Plan | | | | 21 | | | | | 179,000 | | | | | | | | | | | Non-Qualified Plan (2004 and before) | | | | 17 | | | | | 657,000 | | | | | | | | | | | Non-Qualified Plan (2005 and after) | | | | 12 | | | | | 2,737,000 | | | | | | | | | | | TOTAL | | | | | | | | | 3,573,000 | | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (1) | | Mr. Mackay was granted 6 years of additional service credit in 2003 for retention purposes. This additional service credit increased the actuarial present value of his non-qualified pension benefit shown above by $1,594,000.$1,996,007, however the additional service credit does not impact the qualified plan. | | (2) | | Mr. Mobsby is employed in Ireland and is paid in euros.euro. In calculating the U.S. dollar equivalent for disclosure purposes, we calculated this value using the U.S. dollar equivalents of the ending balance of Mr. Mobsby’s pension benefit as of the last day of fiscal 20072008 after converting this amount from euroseuro to U.S. dollars with the conversion rates in effect for the last day of fiscal 2007.2008. In last year’s proxy statement, Mr. Mobsby’s present value of accumulated benefit was reported as $9,782,000. The corrected value is $8,116,000. The present value was changed because a cost of living adjustment that only applies to UK benefits for service earned in 1997 and later years was mistakenly applied to his benefits earned before 1997. | | (3) | | The Number of Years of Credited Service and the Present Value of Accumulated Benefit for the Non-Qualified Plan (2005 and after) reflect the terms of Mr. Montie’s separation agreement. Under the agreement he is on a leave of absence from October 1, 2008 until June 2, 2016. At the end of the leave of absence, Mr. Montie is entitled to receive pension and retirement benefits under Kellogg’s plans as if he reached his earliest retirement age. The value of this benefit is $2,280,000. |
Non-Qualified Deferred Compensation We offer both qualified and non-qualified defined contribution plans for employees to elect voluntary deferrals of salary and annual incentive awards. Our defined contribution plans are comprised of (1) the Savings & Investment Plan (which is a qualified plan available to substantially all salaried employees) and (2) the Restoration Savings & Investment 47
Plan (“Restoration Plan”), which is a non-qualified plan as described below. Effective on January 1, 2005, the Restoration Plan was renamed the Grandfathered Restoration Plan to preserve certain distribution options previously available in the old Restoration Plan, but no longer allowed under IRS regulations on deferrals after January 1, 2005. Deferrals after January 1, 2005 are contributed to a new Restoration Plan, which complies with the new IRS regulations on distributions. Under these plans, employees can defer up to 50% of base salary plus annual incentives. Payouts are generally made after retirement or termination of employment with Kellogg either as annual installments or as a lump sum, based on the distribution payment alternative elected under each plan. Participants in the Restoration Plan may not make withdrawals during their employment. Participants in the Grandfathered Restoration Plan may make withdrawals during employment, but must pay a 10% penalty on any in-service withdrawal.
43
In order to assist employees with saving for retirement, we provide matching contributions on employee deferrals. Under this program, we match dollar for dollar up to 3% of eligible compensation (i.e., base salary plus annual incentive) which is deferred by employees, and 50% of the deferred compensation between 3% and 5% of eligible compensation deferred by employees. Accordingly, if employees contribute 5% of eligible compensation, we provide a matching contribution of 4% of eligible compensation. No Kellogg contributions are provided above 5% of eligible compensation deferred by employees. Kellogg contributions are immediately vested. Our Restoration Plan is a non-qualified, unfunded plan we offer to employees who are impacted by the statutory limits of the Internal Revenue Code on contributions under our qualified plan. The Restoration Plan allows us to provide the same matching contribution, as a percentage of eligible compensation, to impacted employees as other employees. All contributions to the Restoration Plan are invested in the Stable Income Fund, which was selected by Kellogg (and is one of the 11 investment choices available to employees participating in the Savings & Investment Plan). The Stable Income Fund has provided an interest rate of about 5% per year. As an unfunded plan, no money is actually invested in the Stable Income Fund; contributions and earnings/losses are tracked in a book-entry account and all account balances are general Kellogg obligations. The following table provides information with respect to our Restoration Plan for each NEO. This table excludes information with respect to our Savings & Investment Plan, which is a qualified plan available to all salaried Kellogg employees as described above. Because Mr. Mobsby is employed in Ireland and our Restoration Plan is governed by the laws of the United States, he does not participate in our Restoration Plan or similar plan in Ireland. In lieu of receiving this benefit, Mr. Mobsby participates in the KPlan described in “Compensation Discussion and Analysis — Elements of Our Compensation Program — The Kellogg Europe Trading Limited Employee Share Purchase Plan.” | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Executive
| | | | Aggregate
| | Aggregate
| | Aggregate
| | | Executive
| | | | Aggregate
| | Aggregate
| | Aggregate
| | | | Contributions in
| | Registrant
| | Earnings
| | Withdrawals/
| | Balance
| | | Contributions in
| | Registrant
| | Earnings
| | Withdrawals/
| | Balance
| | | | Last FY
| | Contributions in
| | in Last FY
| | Distributions
| | at Last FYE
| | | Last FY
| | Contributions in
| | in Last FY
| | Distributions
| | at Last FYE
| | Name | | ($)(1) | | Last FY ($)(2) | | ($)(3) | | ($) | | ($)(4)(5) | | | ($)(1) | | Last FY ($)(2) | | ($)(3) | | ($) | | ($)(4)(5) | | | David Mackay | | | 366,404 | | | | 97,708 | | | | 93,947 | | | | 0 | | | | 2,175,285 | | | | 455,677 | | | | 121,514 | | | | 119,992 | | | | 0 | | | | 2,872,468 | | John Bryant | | | 54,912 | | | | 43,930 | | | | 24,211 | | | | 0 | | | | 557,342 | | | | 70,881 | | | | 56,705 | | | | 29,828 | | | | 0 | | | | 714,755 | | Brad Davidson | | | | 58,232 | | | | 46,585 | | | | 32,305 | | | | 0 | | | | 761,265 | | Paul Norman | | | | 51,008 | | | | 40,807 | | | | 28,738 | | | | 0 | | | | 677,999 | | Tim Mobsby | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Jeff Montie | | | 140,000 | | | | 46,667 | | | | 48,031 | | | | 0 | | | | 1,100,267 | | | | 180,399 | | | | 60,133 | | | | 57,508 | | | | 0 | | | | 1,398,307 | | Tim Mobsby | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | Paul Norman | | | 44,134 | | | | 35,308 | | | | 24,526 | | | | 0 | | | | 557,446 | | | Brad Davidson | | | 48,379 | | | | 38,704 | | | | 27,562 | | | | 0 | | | | 624,144 | | |
| | | (1) | | Amounts in this column are included in the “Salary” and/or “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table. | | (2) | | Amounts in this column are Kellogg matching contributions and are reflected in the Summary Compensation Table under the heading “All Other Compensation.” | | (3) | | Represents at-market/non-preferential earnings on the accumulated balance in 2007.2008. | | (4) | | Aggregate balance as of December 29, 2007January 3, 2009 is the total market value of the deferred compensation account, including executive contributions, Kellogg contributions and any earnings, including contributions and earnings from past fiscal years. |
48
| | | (5) | | The amounts in the table below are also being reported as compensation in the Summary Compensation Table in the years indicated below: |
| | | | | | | | | | | | | | | | | | | Fiscal Year | | Reported Amounts ($) | | | Fiscal Year | | Reported Amounts ($) | | David Mackay | | | 2007 | | | | 464,112 | | | | 2008 | | | | 577,191 | | | | | 2006 | | | | 437,388 | | | | 2007 | | | | 464,112 | | | | | | 2006 | | | | 437,388 | | John Bryant | | | 2007 | | | | 98,842 | | | | 2008 | | | | 127,585 | | | | | | 2007 | | | | 98,842 | | | | | | 2006 | | | | 97,555 | | Brad Davidson | | | | 2008 | | | | 104,817 | | | | | | 2007 | | | | 87,083 | | Paul Norman | | | | 2008 | | | | 91,815 | | | | | | 2007 | | | | 79,442 | | Tim Mobsby | | | | 2008 | | | | 0 | | | | | 2006 | | | | 97,555 | | | | 2007 | | | | 0 | | Jeff Montie | | | 2007 | | | | 186,667 | | | | 2008 | | | | 240,531 | | | | | 2006 | | | | 195,609 | | | | 2007 | | | | 186,667 | | Tim Mobsby | | | 2007 | | | | 0 | | | Paul Norman | | | 2007 | | | | 79,442 | | | Brad Davidson | | | 2007 | | | | 87,083 | | | | | | | 2006 | | | | 195,609 | |
4449
EMPLOYMENT AGREEMENTS Mr. Jenness. Our letter agreements with Mr. Jenness outline the compensation and benefits to which he is entitled while serving as executive Chairman of the Board. In 2007, it was Mr. Jenness’s preference to forfeit certain awards that had been previouslyThe total amount of his compensation in 2008 is $630,000, which is comprised of cash and the same long-term incentives granted to himnon-employee Directors (2,100 shares of restricted stock and not receive any additional annual base salary, bonus or long-term compensation. Consequently, he did not receive any Director fees, base salary, bonus or long-term incentive grants in 2007. 5,000 stock options). Mr. Jenness retainedreceived these equity grants on the equity awards previouslysame day the annual long-term incentives are granted to him and continues toother employees of Kellogg. The stock options vest in the stock options granted to him in 2005 and 2006,same manner as those received by other employees (50% on the stock grant he received when he became Chairman and Chief Executive Officer in February 2005 and his2005-2007 EPP award, both of which vested pursuant to their terms. Based on Mr. Jenness’ preference at the time he transitioned outfirst anniversary of the Chief Executive Officer position,grant date, and 50% on the second anniversary of the grant date)). The shares of restricted stock vest immediately, but Mr. Jenness must hold the shares as long as he forfeited his2006-2008 EPP award granted to him in February 2006. is a Kellogg employee or Director. While serving as Chairman, Mr. Jenness remains eligible to participate in our employee benefit plans and senior executive benefit plans, such as our pension plans, life insurance, medical insurance, dental plan and savings and investment plan. In 2007, he received relocation and home sale benefits asHe also remains entitled to receive the retiree medical insurance described in the letter agreement between him and Kellogg, dated December 20, 2004. He also remains entitled to receive the retiree medical insurance described in that letter agreement. Mr. Jenness is entitled to a lump sum pension benefit from Kellogg calculated as of January 1, 2008, which we refer to as the election date. The benefit is payable six months after the termination of his employment from Kellogg as a result of Section 409A of the Internal Revenue Code. In accordance with our Pension Plans, the pension benefit (stated as a single life annuity of $155,167) will be converted to a lump sum amount using the PBGC interest rate in effect in October 2007. The lump sum will accrueaccrues interest at the30-year treasury rate from the election date. Given the ongoing time commitment of serving as executive Chairman, the valuable service he provides Kellogg and its Shareowners and his affection for Kellogg, the Board determined in February 2008 it was appropriate to provide compensation to Mr. Jenness beginning in 2008. The total amount of his annual compensation is $630,000, which is comprised of the same long-term incentives granted to non-management Directors (2,100 shares of restricted stock and 5,000 stock options), with the remaining compensation paid in cash. Mr. Jenness received these equity grants in 2008 on the same day the annual long-term incentives were granted to other employees of Kellogg. The stock options will vest in the same manner as those received by other employees (50% on February 22, 2009 (the first anniversary of the grant date), and 50% on February 22, 2010 (the second anniversary of the grant date)). The shares of restricted stock vested immediately, but Mr. Jenness must hold the shares as long as he is a Kellogg employee or Director. Working with Towers Perrin, the Board determined the total compensation amount for Mr. Jenness to be reasonable and competitive. If Mr. Jenness’ employment is terminated by us for cause (as defined in the agreement), he will forfeit all outstanding equity awards and will not be entitled to a pension payment.
Mr. Mackay. On October 23, 2006, we announced that on December 31, 2006 (the first day of our 2007 fiscal year), David Mackay, our then President and Chief Operating Officer, would assume the role of Chief Executive Officer. In connection with this announcement, we entered into a letter agreement with Mr. Mackay. Our letter agreementagreements with Mr. Mackay outlines certain compensation and benefits relating to his 2007 pay as the Chief Executive Officer. The agreement provides that his starting base salary for 2007 would be $1,100,000 per year, and he would be eligible for his first annual merit adjustment in April 2008. In addition, he is a participant in:
| | | | • | the 2007 Kellogg Company Senior Executive Annual Incentive Plan (the “AIP”), with a target award for 2007 under the AIP of 125% of his base salary; and | | | • | our LTIP, with a target award to be established by the Compensation Committee at approximately $6,000,000, which amount is consistent with our philosophy of targeting long-term incentives at the 50th percentile of the compensation peer group. |
In addition, his2005-2007 EPP target award was increased from 19,900 shares to 30,100 shares and his2006-2008 EPP target award was increased from 19,900 shares to 50,400 shares (which was the Chief Executive Officer target award in 2006) to reflect his additional responsibilities.
Mr. Mackay is entitled to certain relocation benefits under an agreement entered into with us on September 1, 2003 (the “2003 Agreement”). He is also entitled to certain pension benefits under the 2003 Agreement and under an agreement entered into with us on August 17, 2004 (the “2004 Agreement”). If Mr. Mackay’s employment is terminated by Kellogg without cause prior to December 31, 2008, Mr. Mackay’s relocation benefits would include (1) business class airfare to
45
Australia for Mr. Mackay and his family, (2) shipping expenses for personal and household effects transported by ocean freight and a limited number of personal items shipped by air transport, (3) normal and customary closing costs payable in connection with the sale of his residence in the Battle Creek/Kalamazoo metropolitan area and (4) the loss on the sale of his residence, if any. Under the 2003 Agreement, Mr. Mackay received six additional years of service credit. In addition, if his employment is terminated by Kellogg without cause, he would be entitled to take a leave of absence through August 16, 2010, during which he would be eligible to receive benefits under the Kellogg Company Severance Benefit Plan. Mr. Mackay will be eligible to retire at the end of the leave of absence and he would receive at that time benefits in accordance with the terms of the plans payable at the retirement of salaried retirees. He could also become entitled to such benefits upon certain terminations of his employment in connection with a change in control of Kellogg.
Mr. Bryant and Mr. Montie.Bryant. On July 23, 2007, we announced management changes concerning senior executive leaders, including John Bryant and Jeff Montie.In December 2008, Mr. Bryant was appointed Executive Vice President, Kellogg Company, President, Kellogg North America and retainedagreed to reduce certain benefits he would have received in the roleevent of Chief Financial Officer. Previously,his termination from Kellogg. Mr. Bryant had been Executive Vice President and Chief Financial Officer, Kellogg Company, President, Kellogg International. Mr. Montie was appointed Executive Vice President, Kellogg Company, President, Kellogg International and assumed the additional responsibilities for leading our global marketing, consumer promotions, and sales teams. Previously, Mr. Montie had been Executive Vice President, Kellogg Company, President, Kellogg North America. In connection with these changes, we entered into retention agreements with Mr. Bryant and Mr. Montie pursuant to which (a)gave up a benefit that provided that if the executive ishe were terminated by Kellogg without cause or leaveswere to leave Kellogg for good reason prior to his retirement date, under our pension plans (November 2020 for Mr. Bryant and June 2016 for Mr. Montie), he would receive pension benefits under these plans as if he had reached his earliest retirement age as of such date; (b)age. Our retention agreement with Mr. Bryant provides that (a) Mr. Bryant’s pension benefits would be calculated based on the same formula applicable to most other senior executives; and (c) each executive(b) Mr. Bryant will be subject to non-compete and non-solicit obligations.
Mr. Mobsby. Effective as of April 20, 2004, as part of a relocation and retention program intended to guarantee benefits otherwise available to management employees, we provided to TimMr. Mobsby a summary of benefits, terms and conditions of his employment. The summary provides for minimum annual base salary and annual bonus, and other benefits customarily provided to management in Ireland such as life insurance of four times his annual base salary, participation in our stock option plan, European pension plans and the Kellogg Europe Trading Limited Employee Share Purchase Plan, vehicle allowance, benefits relating to private health care, sickness absence, paternity, notice period entitlements and paid vacation days. In addition, in 2007 Mr. Mobsby received (1)Montie. Mr. Montie ceased to be executive vice president and president, Kellogg International on August 11, 2008. Under an agreement with Mr. Montie, he is on a relocation incentive premium payment equal to his initial base salary, payable over three years, withleave of absence during which he receives severance pay and benefits under the final payment made in 2007;Kellogg Company Severance Benefit Plan and (2) an education allowance for primary and secondary education in Irelandat the end of $721. Per the terms of his agreement, Mr. Mobsbywhich he is no longer entitled to receive an education allowance beginningcertain pension and retirement benefits under the Company’s plans as if he reached his earliest retirement age. He also continued to vest in 2008.his2006-2008 EPP award (which vested in February 2009), but forfeited his awards under the2007-2009 EPP and2008-2010 EPP. Mr. Montie is subject to restrictive covenants, including non-compete and non-solicit obligations and signed a release of claims.
50
POTENTIAL POST-EMPLOYMENT PAYMENTS Our executive officers are eligible to receive benefits in the event their employment is terminated (1) by Kellogg without cause, (2) upon their retirement, disability or death or (3) in certain circumstances following a change in control. The amount of benefits will vary based on the reason for the termination. The following sections present calculations as of December 29, 2007January 3, 2009 of the estimated benefits our executive officers would receive in these situations. Information regarding Mr. Montie is not presented in these tables, because he was no longer an executive officer of Kellogg at the end of the 2008 fiscal year. Although the calculations are intended to provide reasonable estimates of the potential benefits, they are based on numerous assumptions and may not represent the actual amount an executive would receive if an eligible termination event were to occur. In addition to the amounts disclosed in the following sections, each executive officer would retain the amounts which he has earned or accrued over the course of his employmentprior tothe termination event, such as the executive’s balances under our deferred compensation plans, accrued retirement benefits and previously vested stock options. For further information about previously earned and accrued amounts, see “Executive Compensation — Summary Compensation Table,” “Executive Compensation — Outstanding Equity Awards at Fiscal Year End Table,” “Executive Compensation — Option Exercises and Stock Vested Table” and “Retirement and Non-Qualified Defined Contribution and Deferred Compensation Plans.”
46
Severance Benefits If the employment of an executive (including the NEOs) is terminated without cause, then he or she will be entitled to receive benefits under the Kellogg Company Severance Benefit Plan. Benefits under this plan are not available if an executive is terminated for cause. Our NEOs participate in our severance plan, which is described below. In the event we terminate the “at-will” employment of the NEOs for reasons other than cause, they would receive severance-related benefits under the Kellogg Company Severance Benefit Plan. The plan is designed to apply in situations where Kellogg terminates employment for reasons such as (1) individual and company corporate performance; (2) a reduction in work force; (3) the closing, sale or relocation of a Kellogg facility; (4) elimination of a position; or (5) other reasons approved by the Kellogg ERISA Administrative Committee. Under the plan: | | | | • | The executive is entitled to receive cash compensation equal to two times base salary and two times target annual incentive award, paid in installments over a two-year severance period. | | | • | We haveThe Company has the discretion to pay the executive an annual incentive award for the current year at no higher than the target level, prorated as of the date of termination. | | | • | Previously-granted stock option and restricted stock awards continue to vest during the two-year severance period. All awards not vested or earned after the two-year period are forfeited. EPP awards do not vest under the terms of the severance plan unless the executive is eligible to retire at the time of his termination. | | | • | The executive is entitled to continue to participate in health, welfare and insurance benefits during the two-year severance period. However, executives do not earn any additional service credit during the severance period and severance payments are not included in pensionable earnings. | | | • | The executive is entitled to receive outplacement assistance for 12 months following termination. Mr. Mackay would also be entitled to relocation benefits if his employment is terminated by Kellogg without cause prior to December 31, 2008. |
Severance-related benefits are provided only if the executive executes a separation agreement prepared by Kellogg, which may include non-compete, non-solicitation, non-disparagement and confidentiality provisions. 51
The following table presents the estimated separation benefits which we would have been required to pay to each NEO if his employment had been terminated as of December 29, 2007.January 3, 2009. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Severance Pay | | Severance Pay | | | | | Vesting of Unvested
| | | | | | | | | | Vesting of Unvested
| | | | | | | | | Cash Compensation | | Equity Awards | | Benefits | | Other | | Total | | Cash Compensation | | Equity Awards | | Benefits | | Other | | Total | | | | | Two Times
| | 2007
| | | | | | | | | | | | | | | | | | | | Two Times
| | 2008
| | | | | | | | | | | | | | | | | | | Target
| | Annual
| | | | | | | | Health and
| | Change to
| | | | | | | | | | Target
| | Annual
| | | | | | | | Health and
| | Change to
| | | | | | | Two Times
| | Annual
| | Target
| | Stock
| | EPP
| | Restricted
| | Welfare
| | Retirement
| | Reloca-
| | Outplace-
| | | | Two Times
| | Annual
| | Target
| | Stock
| | EPP
| | Restricted
| | Welfare
| | Retirement
| | | | | | | Base Salary
| | Incentives
| | Incentive(1)
| | Options(2)
| | Awards(3)
| | Stock(2)
| | Benefits(4)
| | Benefits(5)
| | tion(6)
| | ment
| | | | Base Salary
| | Incentives
| | Incentive(1)
| | Options(2)
| | Awards(3)
| | Stock(2)
| | Benefits(4)
| | Benefits(5)
| | Outplacement
| | | | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | David Mackay | | | 2,200,000 | | | | 2,750,000 | | | | 1,375,000 | | | | 1,774,285 | | | | 8,001,504 | | | | 0 | | | | 70,000 | | | | 2,513,000 | | | | 490,000 | | | | 100,000 | | | | 19,273,789 | | | | 2,300,000 | | | | 3,335,000 | | | | 1,667,500 | | | | 0 | | | | 8,095,485 | | | | 0 | | | | 70,000 | | | | 3,232,000 | | | | 50,000 | | | | 18,749,985 | | John Bryant | | | 1,270,000 | | | | 1,143,000 | | | | 571,500 | | | | 703,828 | | | | 1,312,416 | | | | 1,206,576 | | | | 70,000 | | | | 1,656,000 | | | | 0 | | | | 100,000 | | | | 8,033,320 | | | | 1,600,000 | | | | 1,573,333 | | | | 786,667 | | | | 0 | | | | 1,117,240 | | | | 1,576,750 | | | | 70,000 | | | | (257,000 | ) | | | 50,000 | | | | 6,516,990 | | Jeff Montie | | | 1,280,000 | | | | 1,152,000 | | | | 576,000 | | | | 746,128 | | | | 1,460,592 | | | | 1,328,292 | | | | 70,000 | | | | 586,000 | | | | 0 | | | | 100,000 | | | | 7,299,012 | | | Brad Davidson | | | | 1,300,000 | | | | 996,667 | | | | 498,333 | | | | 0 | | | | 513,570 | | | | 1,126,250 | | | | 70,000 | | | | (2,306,000 | ) | | | 50,000 | | | | 2,248,820 | | Paul Norman | | | | 1,200,000 | | | | 920,000 | | | | 460,000 | | | | 0 | | | | 675,750 | | | | 1,171,300 | | | | 70,000 | | | | (1,362,000 | ) | | | 50,000 | | | | 3,185,050 | | Tim Mobsby | | | 1,341,574 | | | | 939,102 | | | | 469,551 | | | | 306,779 | | | | 603,288 | | | | 0 | | | | 260,000 | | | | (164,000 | ) | | | 0 | | | | 100,000 | | | | 3,856,294 | | | | 1,503,480 | | | | 1,052,436 | | | | 526,218 | | | | 0 | | | | 513,570 | | | | 0 | | | | 290,000 | | | | (123,000 | ) | | | 50,000 | | | | 3,812,704 | | Paul Norman | | | 1,100,000 | | | | 770,000 | | | | 385,000 | | | | 391,830 | | | | 793,800 | | | | 582,120 | | | | 70,000 | | | | (1,113,000 | ) | | | 0 | | | | 100,000 | | | | 3,079,750 | | | Brad Davidson | | | 1,100,000 | | | | 770,000 | | | | 385,000 | | | | 352,800 | | | | 603,288 | | | | 529,200 | | | | 70,000 | | | | (1,820,000 | ) | | | 0 | | | | 100,000 | | | | 2,090,288 | | |
| | | (1) | | Payable at our discretion. | | (2) | | Represents the intrinsic value of unvested stock options and restricted stock as of December 29, 2007,January 3, 2009, based on a stock price of $52.92.$45.05. | | (3) | | For Mr. Mackay, who is the only retirement-eligible NEO, represents the value based on the actual number of shares paid out under the2005-20072006-2008 EPP and the “target” number of shares under the2006-20082007-2009 EPP and2007-20092008-2010 EPP and, in each case, a stock price of $52.92.$45.05. For all other NEOs, represents the value based on the actual number of shares paid out under the2005-20072006-2008 EPP, which would be payable at our discretion, and a stock price of $52.92.$45.05. Since the other NEOs are not retirement-eligible as of December 29, 2007,January 3, 2009, the2006-20082007-2009 EPP and2007-20092008-2010 EPP awards would terminate.be forfeited. |
47
| | | (4) | | Represents the estimated costs to Kellogg of continued participation in medical, dental and life insurance benefits during the severance period. Of the $260,000$290,000 reported for Mr. Mobsby, $243,000$137,380 represents social taxes that would have to be paid to the tax authority in Ireland. | | (5) | | Represents both (a) the incremental value of retiree medical for Mr. Mackay only and (b) the increase (decrease) to the estimated actuarial present value of retirement benefit accrued through December 29, 2007January 3, 2009 for each NEO associated with terminating an NEO’s employment without cause. The estimated actuarial present value of retirement benefit accrued through December 29, 2007January 3, 2009 appears in the Pension Benefits Table on page 4347 of this proxy statement. For each NEO, changes to retirement benefits upon severance vary depending on age, service and pension formula at the time of termination. For each of Messrs. Mobsby,Mr. Bryant, Mr. Davidson, Mr. Norman and Davidson,Mr. Mobsby, the change to his retirement benefit is negative because, based on his age, service and pension formula, his pension benefit upon severance does not include early retirement subsidies that are assumed to be earned under the pension benefit calculated in the Pension Benefit Table. | | (6) | | Represents the estimated value of relocation and home sale benefits payable to Mr. Mackay. Mr. Mackay is only eligible to receive relocation benefits if his employment is terminated by Kellogg without cause prior to December 31, 2008. |
On August 11, 2008, in connection with Mr. Montie’s departure from Kellogg, we entered into a separation agreement with Mr. Montie, and therefore, he is not included in the table above. Under the agreement, he is on a leave of absence during which he receives severance pay and benefits under the Kellogg Company Severance Benefit Plan equal to two years of base salary and two years of target bonus, to be paid in equal bi-weekly installments of $12,586 from October 1, 2008 until June 2, 2016, so long as he does not violate any of the restrictive covenants in the separation agreement, including a non-compete. At the end of the leave of absence, Mr. Montie is entitled to receive pension and retirement benefits under Kellogg’s plans as if he reached his earliest retirement age. The value of this benefit is $2,280,000. He also continued to vest in his2006-2008 EPP award (which vested in February 2009), but has forfeited his awards under the2007-2009 EPP and2008-2010 EPP. During the term of his severance period, he and his eligible dependents will receive health and welfare benefits valued at $268,000, provided he does not become eligible for coverage under another employer’s plan. He also received a prorated target bonus for 2008 of $447,120. Mr. Montie is subject to restrictive covenants, including non-compete and non-solicit obligations and signed a release of claims. Retirement, Disability and Death Retirement. In the event of retirement, an executive is entitled to receive (1) the benefits payable under our retirement plans and (2) accelerated vesting of unvested stock options, continued vesting of his or her awards under our outstanding EPP plans (the amount of which will be based on our actual performance during the relevant periods and paid after the end of the performance periods) and continued vesting of his or her restricted stock. We have the discretion to pay an executive an annual incentive award for the current year at no higher than the target level, prorated as of the date of retirement. 52
The following table presents the estimated benefits payable, based on retirement as of December 29, 2007,January 3, 2009, to those NEOs who were retirement eligible as of December 29, 2007,January 3, 2009, assuming they retired on that date. In addition to the benefits shown in this table, the NEOs would be entitled to their vested benefits under our retirement plans, which are described in the section of this proxy statement called “Retirement and Non-Qualified Defined Contribution and Deferred Compensation Plans.” | | | | | | | | | | | | | | | | | | | | | | | | | | | Additional Benefits Upon Retirement(1) | | | | | Vesting of Unvested
| | | | | Cash Compensation | | Equity Awards(3) | | Total | | | | | 2007
| | | | | | | | | | | | | Annual
| | | | | | | | | | | Base
| | Target
| | Stock
| | EPP
| | Restricted
| | | | | Salary(2)
| | Incentive(3)
| | Options(4)
| | Awards(5)
| | Stock
| | | | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | David Mackay | | | 0 | | | | 1,375,000 | | | | 1,774,285 | | | | 8,001,504 | | | | 0 | | | | 11,150,789 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Additional Benefits Upon Retirement(1) | | | | | | | Vesting of Unvested
| | | | | | | Cash Compensation | | | Equity Awards(3) | | | Total | | | | | | | 2008
| | | | | | | | | | | | | | | | | | | Annual
| | | | | | | | | | | | | | | | Base
| | | Target
| | | Stock
| | | EPP
| | | Restricted
| | | | | | | Salary(2)
| | | Incentive(3)
| | | Options(4)
| | | Awards(5)
| | | Stock
| | | | | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | David Mackay | | | 0 | | | | 1,667,500 | | | | 0 | | | | 8,095,485 | | | | 0 | | | | 9,762,985 | |
| | | (1) | | Information regarding Messrs.Mr. Bryant, Montie, Mobsby,Mr. Davidson, Mr. Norman and DavidsonMr. Mobsby is not presented in this table because these individuals were not retirement eligible as of December 29, 2007.January 3, 2009. See the “Annual Incentive and Accelerated Vesting” column in the table under “— Death or Disability.” | | (2) | | Payable through retirement date only. | | (3) | | Payable at our discretion. | | (4) | | Represents the intrinsic value of unvested stock options as of December 29, 2007,January 3, 2009, based on a stock price of $52.92.$45.05. | | (5) | | Valued based on the actual number of shares paid out under the2005-20072006-2008 EPP and the “target” number of shares under the2006-20082007-2009 EPP and2007-20092008-2010 EPP and, in each case, a stock price of $52.92.$45.05. |
Death or Disability. Upon the death or disability of an executive, the executive or his or her beneficiary would receive the benefits described in the Additional Benefits Upon Retirement table above (or, in the case of executives who were not retirement eligible as of December 29, 2007,January 3, 2009, the benefits described below). In addition, in the event of an executive’s death, his beneficiary would receive payouts under Kellogg-funded life insurance policies and our Executive Survivor Income Plan. However, for NEOs based in the U.S., the deceased executive’s retirement benefits would be converted to a joint survivor annuity, resulting in a decrease in the cost of these
48
benefits. In the event of an executive’s disability, the executive would receive disability benefits starting six months following the onset of the disability with no reductions or penalty for early retirement. The following table presents the estimated benefits payable upon death or disability as of December 29, 2007.January 3, 2009. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Additional Benefits Upon Death or Disability | | Additional Benefits Upon Death or Disability | | | Annual
| | | | | | Annual
| | | | | | | Incentive
| | | | | | Incentive
| | | | | | | and
| | | | | | and
| | | | | | | Accelerated
| | | | Adjustments Due to
| | Accelerated
| | | | Adjustments Due to
| | | Vesting(1) | | Adjustments Due to Death | | Disability | | Vesting(1) | | Adjustments Due to Death | | Disability | | | | | Life Insurance
| | | | | | | | | | | | Life Insurance
| | | | | | | | | | | | | and Executive
| | | | | | | | | | | | and Executive
| | | | | | | | | | | | | Survivor
| | Change to
| | | | Change to
| | | | | | Survivor
| | Change to
| | | | Change to
| | | | | | | Income Plan
| | Retirement
| | Total for
| | Retirement
| | Total for
| | | | Income Plan
| | Retirement
| | Total for
| | Retirement
| | Total for
| | | Total
| | Benefits(2)
| | Benefits(3)
| | Death
| | Benefits(4)
| | Disability
| | Total
| | Benefits(2)
| | Benefits(3)
| | Death
| | Benefits(4)
| | Disability
| | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | David Mackay | | | 11,150,789 | | | | 11,344,000 | | | | (1,762,000 | ) | | | 20,732,789 | | | | 2,385,000 | | | | 13,535,789 | | | | 9,762,985 | | | | 12,979,000 | | | | (2,395,000 | ) | | | 20,346,985 | | | | 3,087,000 | | | | 12,849,985 | | John Bryant | | | 4,969,144 | | | | 5,708,000 | | | | 448,000 | | | | 11,125,144 | | | | 1,590,000 | | | | 6,559,144 | | | | 4,368,142 | | | | 6,576,000 | | | | (348,000 | ) | | | 10,596,142 | | | | (257,000 | ) | | | 4,111,142 | | Jeff Montie | | | 5,359,924 | | | | 5,320,000 | | | | (1,202,000 | ) | | | 9,477,924 | | | | 499,000 | | | | 5,858,924 | | | Brad Davidson | | | | 2,597,663 | | | | 5,451,000 | | | | (2,564,000 | ) | | | 5,484,663 | | | | (2,306,000 | ) | | | 291,663 | | Paul Norman | | | | 2,784,580 | | | | 4,716,000 | | | | (1,502,000 | ) | | | 5,998,580 | | | | (1,362,000 | ) | | | 1,422,580 | | Tim Mobsby | | | 1,929,986 | | | | 6,437,000 | | | | (1,109,000 | ) | | | 7,257,986 | | | | 3,771,000 | | | | 5,700,986 | | | | 1,454,248 | | | | 5,217,000 | | | | 407,000 | | | | 7,078,248 | | | | 2,593,000 | | | | 4,047,248 | | Paul Norman | | | 2,830,126 | | | | 4,215,000 | | | | (1,227,000 | ) | | | 5,818,126 | | | | (1,113,000 | ) | | | 1,717,126 | | | Brad Davidson | | | 2,452,408 | | | | 4,785,000 | | | | (2,019,000 | ) | | | 5,218,408 | | | | (1,820,000 | ) | | | 632,408 | | |
| | | (1) | | For Mr. Mackay, represents the amounts shown in the Additional Benefits Upon Retirement table. For Messrs.Mr. Bryant, Montie, Mobsby,Mr. Davidson, Mr. Norman and Davidson,Mr. Mobsby, represents the aggregate value of the 20072008 Annual Target Incentive, the intrinsic value of unvested stock options (which would vest upon death or disability), the value of outstanding EPP |
53
| | | | | awards (which would continue to vest following death or disability, be payable based on our actual performance during the relevant periods and be paid following the end of the performance periods) and the intrinsic value of restricted stock (which would continue to vest following death or disability). | | (2) | | Payment of death benefits for company-paid life insurance and Executive Survivor Income Plan. | | (3) | | Represents the incremental value of retiree medical and the increase (decrease) to the estimated actuarial present value of retirement benefit accrued through December 29, 2007January 3, 2009 for each NEO associated with an NEO’sNEOs retirement benefits being converted to a 50% survivor annuity upon his death. The estimated actuarial present value of retirement benefit accrued through December 29, 2007January 3, 2009 appears in the Pension Benefits Table on page 4347 of this proxy statement. The increaseFor the U.S. NEOs the Change to Mr. Bryant’sRetirement Benefits is negative because the benefits by extra service provided upon death perdo not include early retirement subsidies otherwise included in the termsestimate of his employment agreement, more than offsetsretirement benefits. Also, the reduction from the conversion to the 50% survivor annuity payable upon death. Mr. Montie’s benefits are also increased bydeath is reduced to less than 50% of the extra servicebenefit provided per the terms of his employment agreement but this increase is more than offset by the conversion to the 50% survivor annuity.upon early or normal retirement. | | (4) | | For Messrs.Mr. Mackay, Montie and Bryant, represents both (a) the incremental value of retiree medical and (b) the increase to the estimated actuarial present value of retirement benefit accrued through December 29, 2007 associated with their receiving disability benefits starting six months following the onset of disability,January 3, 2009, based on the terms of their agreements.his agreement. For Messrs.Mr. Bryant, Mr. Davidson and Mr. Norman, no specialthe Change to Retirement Benefits is negative because the disability retirement payments begin at a later age (age 65) than early retirement benefits are payable from the plan.(age first eligible to receive an unreduced pension). The estimated actuarial present value of retirement benefit accrued through December 29, 2007January 3, 2009 appears in the Pension Benefits Table on page 4347 of this proxy statement. |
Potential Change In Control Payments We have arrangements with our NEOs that provide for benefits, which are only payable if a “change in control” occurs. Our 2003 Long-Term Incentive Plan specifies the treatment of outstanding, unvested equity awards to employees including the NEOs upon the occurrence of a change of control (regardless of whether or not employment terminates). The severance and other benefits payable to Messrs.Mr. Mackay and Mr. Bryant or Montie under their agreements are due only if (1) there is a change in control and (2) we terminate their employment unrelated to cause, or if they terminate their employment for good reason within three years following a change in control, commonly referred to as a “Double Trigger.” Good reason includes a material diminution of position, decrease in salary or target annual incentive percentage or meaningful change in location.
49
A “change in control” is defined in the agreements to include a change in a majority of the Board, consummation of certain mergers, the sale of all or substantially all of our assets and Shareowner approval of a complete liquidation or dissolution. The “change in control” definition also includes an acquisition by a party of 20 or 30% of Kellogg common stock, depending on the post-acquisition ownership of the Kellogg Foundation and Gund Family Trusts (the “Trusts”). The applicable percentage is 20% or more if the Trusts do not collectively own more than 35% of the common stock. The applicable percentage is 30% or more if the Trusts collectively own more than 35% of the common stock. The change in control severance-relatedchange-in-control related severance payments consist of the following: Payments Triggered Upon a Change in Control. Unvested stock options and restricted stock awards become immediately exercisable and payable upon the occurrence of a change in control and do not require termination of employment. EPP awards are payable in full at target level (or, at the discretion of the Compensation Committee, above the target level based onto the extent actual performance through the change in control)control has exceeded the target level), and are not subject to pro ration. The following table shows the value of unvested equity awards as of December 29, 2007January 3, 2009 for each executive listed below upon a change in control. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Vesting of Unvested Equity Awards | | | | Vesting of Unvested Equity Awards | | | | | | Stock Options(1)
| | EPP Awards(2)
| | Restricted Stock(1)
| | Total
| | Stock Options(1)
| | EPP Awards(2)
| | Restricted Stock(1)
| | Total
| | | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | | David Mackay | | | 1,774,285 | | | | 8,001,504 | | | | 0 | | | | 9,775,789 | | | | 0 | | | | 8,095,485 | | | | 0 | | | | 8,095,485 | | John Bryant | | | 703,828 | | | | 2,487,240 | | | | 1,206,576 | | | | 4,397,644 | | | | 0 | | | | 2,004,725 | | | | 1,576,750 | | | | 3,581,475 | | Jeff Montie | | | 746,128 | | | | 2,709,504 | | | | 1,328,292 | | | | 4,783,924 | | | Brad Davidson | | | | 0 | | | | 973,080 | | | | 1,126,250 | | | | 2,099,330 | | Paul Norman | | | | 0 | | | | 1,153,280 | | | | 1,171,300 | | | | 2,324,580 | | Tim Mobsby | | | 306,779 | | | | 1,153,656 | | | | 0 | | | | 1,460,435 | | | | 0 | | | | 928,030 | | | | 0 | | | | 928,030 | | Paul Norman | | | 391,830 | | | | 1,471,176 | | | | 582,120 | | | | 2,445,126 | | | Brad Davidson | | | 352,800 | | | | 1,185,408 | | | | 529,200 | | | | 2,067,408 | | |
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| | | (1) | | Represents the intrinsic value of unvested stock options and restricted stock as of December 29, 2007,January 3, 2009, based on a stock price of $52.92.$45.05. | | (2) | | Valued based on the actual number of shares paid out under the2005-20072006-2008 EPP and the “target” number of shares under the2006-20082007-2009 EPP and the2007-20092008-2010 EPP and, in each case, a stock price of $52.92.$45.05. |
Payments Triggered Upon a Termination Following a Change in Control. In December 2008, the Board reduced the amount of severance payments which the NEOs would receive if they are terminated following a change in control. Cash severance is now payable in the amount of threetwo times the current annual salary plus threetwo times the highest annual incentive award earned or received during the three years before the change in control. Previously, the NEOs would have received three times base and annual incentive award (and three years of related benefits). In addition, executives are entitled to receive the annual incentive award for the current year at the higher of target or the actual formula-calculated award, prorated as of the date of termination. This amount is payable as a lump sum within 30 days after termination. The executive will continue to participate in benefit and retirement pension plans for a three-year period following termination, and will also receive outplacement assistance. The additionalAdditional retirement benefits would equal the actuarial equivalent of the benefit the executive would have received for threetwo years of additional participation under our retirement plans. As described above, Mr. Mackay wouldThe executive will continue to participate in benefit plans for a two-year period following termination, and will also receive relocation benefits to enable him to return to Australia, if he is terminated without cause prior to December 31, 2008.outplacement assistance.
The agreementsThese arrangements provide for“gross-up” payments to cover any U.S. federal excise taxes owed on change in control-related severance payments/benefits. The“gross-up” is an additional payment that would cover (1) the amount of federal excise taxes and (2) the additional income taxes resulting from payment of the“gross-up.” As anon-U.S. taxpayer, Mr. Mobsby does not receive thisgross-up amount. In response to emerging trends in corporate governance, the arrangements were revised to provide that“gross-up” payments are only made if thechange-in-control-related severance payments/benefits exceed 110% of the maximumchange-in-control-related severance payments/benefits an executive could receive without any payments/benefits being subject to federal excise taxes (which is generally three times the average of five-years of an executive’s earnings as reported on the executive’sW-2).
50
The following table assumes that each executive is terminated after a change in control for reasons other than cause, retirement, disability or death. The unvested equity awards that vested upon the change in control, shown in the table immediately above, are also shown in the column “Vesting of Unvested Equity.” These values are estimated as of December 29, 2007.January 3, 2009. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Estimated
| | | | | | | | | | | | | | Estimated
| | | | | | | | | | | | | | | Payments
| | | | | | | | | | | | | | Payments
| | | Cash Compensation | | Benefits | | Other | | Subtotal | | | | | | Following CIC | | Cash Compensation | | Benefits | | Other | | Subtotal | | | | | | Following CIC | | | Three
| | Threee
| | 2007
| | Health
| | Change
| | Other
| | | | | | | | | | | | | | Two
| | Two
| | 2008
| | Health
| | Change
| | | | | | | | | | | | | | | | | Times
| | Times
| | Annual
| | and
| | to
| | Benefits
| | | | | | | | Vesting of
| | | | Total If
| | Times
| | Times
| | Annual
| | and
| | to
| | Other Benefits
| | | | | | | | Vesting of
| | | | Total If
| | | Base
| | Annual
| | Incentive
| | Welfare
| | Retirement
| | and
| | | | | | If Termination
| | Unvested
| | Excise Tax
| | Termination
| | Base
| | Annual
| | Incentive
| | Welfare
| | Retirement
| | and
| | | | | | If Termination
| | Unvested
| | Excise Tax
| | Termination
| | | Salary
| | Incentive(1)
| | Payment
| | Benefits
| | Benefits(2)
| | Perquisites(3)
| | Relocation
| | Outplacement
| | Occurs
| | Equity
| | Gross-Up(4)
| | Occurs
| | Salary
| | Incentive(1)
| | Payment
| | Benefits
| | Benefits(2)
| | Perquisites(3)
| | Relocation
| | Outplacement
| | Occurs
| | Equity
| | Gross-Up(4)
| | Occurs
| | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | ($) | | David Mackay(5) | | | 3,300,000 | | | | 6,393,900 | | | | 2,131,300 | | | | 100,000 | | | | 6,018,000 | | | | 70,000 | | | | 490,000 | | | | 100,000 | | | | 18,603,200 | | | | 9,775,789 | | | | 8,106,000 | | | | 36,484,989 | | | | 2,300,000 | | | | 5,202,600 | | | | 2,601,300 | | | | 70,000 | | | | 8,106,000 | | | | 80,000 | | | | 0 | | | | 50,000 | | | | 18,409,900 | | | | 8,095,485 | | | | 0 | | | | 26,505,385 | | John Bryant | | | 1,905,000 | | | | 2,850,000 | | | | 950,000 | | | | 100,000 | | | | 2,175,000 | | | | 70,000 | | | | 0 | | | | 100,000 | | | | 8,150,000 | | | | 4,397,644 | | | | 3,163,000 | | | | 15,710,644 | | | | 1,600,000 | | | | 1,984,000 | | | | 992,000 | | | | 70,000 | | | | (2,000 | ) | | | 80,000 | | | | 0 | | | | 50,000 | | | | 4,744,000 | | | | 3,581,475 | | | | 0 | | | | 8,355,475 | | Jeff Montie | | | 1,920,000 | | | | 2,544,600 | | | | 777,600 | | | | 100,000 | | | | 1,046,000 | | | | 70,000 | | | | 0 | | | | 100,000 | | | | 6,558,200 | | | | 4,783,924 | | | | 3,203,000 | | | | 14,545,124 | | | Brad Davidson | | | | 1,300,000 | | | | 1,684,000 | | | | 842,000 | | | | 70,000 | | | | (1,875,000 | ) | | | 80,000 | | | | 0 | | | | 50,000 | | | | 2,151,000 | | | | 2,099,330 | | | | 0 | | | | 4,250,330 | | Paul Norman | | | | 1,200,000 | | | | 1,344,000 | | | | 672,000 | | | | 70,000 | | | | (1,085,000 | ) | | | 80,000 | | | | 0 | | | | 50,000 | | | | 2,331,000 | | | | 2,324,580 | | | | 0 | | | | 4,655,580 | | Tim Mobsby | | | 2,012,361 | | | | 2,815,200 | | | | 938,400 | | | | 390,000 | | | | 1,720,000 | | | | 160,000 | | | | 0 | | | | 100,000 | | | | 8,135,961 | | | | 1,460,435 | | | | 0 | | | | 9,596,396 | | | | 1,503,480 | | | | 2,013,392 | | | | 552,529 | | | | 440,000 | | | | 2,074,000 | | | | 170,000 | | | | 0 | | | | 50,000 | | | | 6,803,401 | | | | 928,030 | | | | 0 | | | | 7,731,431 | | Paul Norman | | | 1,650,000 | | | | 1,890,000 | | | | 550,500 | | | | 100,000 | | | | (924,000 | ) | | | 70,000 | | | | 0 | | | | 100,000 | | | | 3,436,500 | | | | 2,445,126 | | | | 1,748,000 | | | | 7,629,626 | | | Brad Davidson | | | 1,650,000 | | | | 2,310,000 | | | | 770,000 | | | | 100,000 | | | | (1,399,000 | ) | | | 70,000 | | | | 0 | | | | 100,000 | | | | 3,601,000 | | | | 2,067,408 | | | | 1,830,000 | | | | 7,498,408 | | |
| | | (1) | | Represents threetwo times the highest of the actual annual incentive awards earned or received for each of the three years from 20052006 to 2007.2008. | | (2) | | Represents both (a) the incremental value of retiree medical for Mr. Mackay only and (b) the increase (decrease) to the estimated actuarial present value of retirement benefit accrued through December 29, 2007January 3, 2009 for each NEO associated with terminating an NEO’s employment without cause following a change in control. The estimated actuarial present value of retirement benefit accrued through December 29, 2007January 3, 2009 appears in the Pension Benefits Table on page 4347 of this proxy statement. For each NEO, changes to retirement benefits upon change in control vary depending on age, service and pension formula at the time of termination. For each of Mr. NormanDavidson and Mr. Davidson,Norman, the change to his retirement benefit is negative because, based on his age, service and pension formula, his pension benefit upon change in control does not include early retirement subsidiesbenefits that are included in the value used on the Pension Benefits Table. Change in control pension benefits are also increased because of the additional threetwo years of service provided by change in control. |
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| | | (3) | | Consists of Kellogg-paid death benefit, financial planning, physical exam and, for Mr. Mobsby, car allowance over a three-yeartwo-year period after a termination following a change in control. | | (4) | | The excise taxgross-up payment would apply to amounts triggered by the change of control (as shown in the Vesting of Unvested Equity table) and amounts triggered by an eligible termination following a change of control (as shown in the table above). Represents the estimated amount payable to the executive for taxes (excise and related income taxes) owed on severance-related benefits/payments following a change in control and termination of employment that occur on December 29, 2007.January 3, 2009. The estimated values in this column were developed based on the provisions of Section 280G and 4999 of the Internal Revenue Code. The actual amount, if any, of the excise taxgross-up will depend upon the executive’s pay, terms of a change in control transaction and the subsequent impact on the executive’s employment. As anon-U.S. taxpayer, Mr. Mobsby does not receive thisgross-up amount. | | (5) | | Consistent with the objectives of the change in control program, the largest single portion of the change in control-triggered benefit for Mr. Mackay is related to equity-based long-term incentives which have value determined by Kellogg’s stock price at the time of a transaction and hence are linked directly to Shareowner gains. In 2008, the Board also reduced the amount of pay continuance following a change in control from three years to two years of salary plus annual incentive award. |
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RELATED PERSON TRANSACTIONS Policy For Evaluating Related Person Transactions. The Board has adopted a written policy relating to the Nominating and Governance Committee’s review and approval of transactions with related persons that are required to be disclosed in proxy statements by SEC regulations, which are commonly referred to as “Related Person Transactions.” A “related person” is defined under the applicable SEC regulation and includes our Directors, executive officers and 5% or more beneficial owners of our common stock. The Corporate Secretary administers procedures adopted by the Board with respect to related person transactions and the Nominating and Governance Committee reviews and approves all such transactions. At times, it may be advisable to initiate a transaction before the Nominating and Governance Committee has evaluated it or a transaction may begin before discovery of a related person’s participation. In such instances, management consults with the Chair of the Nominating and Governance Committee to determine the appropriate course of action. Approval of a related person transaction requires the affirmative vote of the majority of disinterested Directors on the Nominating and Governance Committee. In approving any related person transaction, the Nominating and Governance Committee must determine that the transaction is fair and reasonable to Kellogg. The Nominating and Governance Committee periodically reports on its activities to the Board. The written policy relating to the Nominating and Governance Committee’s review and approval of related person transactions is available on our website under the “Investor Relations” tab, at the “Corporate Governance” link. The related person transaction referred to under the heading “Related Person Transactions” below was approved by the disinterested members of the Board of Directors. Related Person Transactions. Refer to pages 78 and 89 of this proxy statement for a description of the Trust Transactions. EQUITY COMPENSATION PLAN INFORMATION The following table presents information relating to securities authorized under our equity compensation plans as of January 3, 2009 (in millions, except exercise price data). | | | | | | | | | | | | | | | Number of
| | | | | | | Securities to be
| | | | Number of
| | | Issued upon
| | Weighted-average
| | Securities
| | | Exercise of
| | Exercise Price of
| | Remaining Available
| | | Outstanding
| | Outstanding
| | for Future Issuance
| | | Options, Warrants
| | Options, Warrants
| | Under Equity
| | | and Rights
| | and Rights
| | Compensation Plans
| Plan Category | | (a) | | (b) | | (c) | | Equity compensation plans approved by security holders | | | 25.8 | | | $ | 45 | | | | 8.0 | | Equity compensation plans not approved by security holders | | | 0.1 | | | $ | 27 | | | | 0.6 | | Total | | | 25.9 | | | $ | 45 | | | | 8.6 | |
Five plans (including one individual compensation arrangement) are considered “Equity compensation plans not approved by security holders”. The Kellogg Share Incentive Plan, which was adopted in 2002 and is available to most U.K. employees of specified Kellogg Company subsidiaries; a similar plan, which is available to employees in the Republic of Ireland; the Kellogg Company Executive Stock Purchase Plan, which was also adopted in 2002 and is available to selected senior level Kellogg employees; the Deferred Compensation Committee InterlocksPlan for Non-Employee Directors, which was adopted in 1986 and Insider Participation. Pages 7amended in 1993 and 8 of this proxy statement include2002; and a descriptionnon-qualified stock option granted in 2000 to Mr. Jenness, when he had just been appointed a Kellogg director. Under the Kellogg Share Incentive Plan, eligible U.K. employees may contribute up to 1,500 Pounds Sterling annually to the plan through payroll deductions. The trustees of the Trust Transactions. Dr. Richardson retiredplan use those contributions to buy shares of our common stock at fair market value on the open market, with Kellogg matching those contributions on a 1:1 basis. Shares must be withdrawn from the plan when employees cease employment. Under current law, eligible employees generally receive certain income and other tax benefits if those shares are held in the plan for a specified number of years. A similar plan is also available to employees in the Republic of Ireland. As these plans are open market plans with no set overall maximum, no amounts for these plans are included in the above table. However, approximately 78,000 shares were purchased by eligible employees under the Kellogg Share Incentive Plan, the plan for the Republic of Ireland and other similar predecessor plans during 2008, with approximately an additional 78,000 shares being provided as matched shares. 57
Under the Deferred Compensation Plan for Non-Employee Directors, non-employee Directors may elect to defer all or part of their compensation (other than expense reimbursement) into units which are credited to their accounts. The units have a value equal to the fair market value of a share of our common stock on the appropriate date, with dividend equivalents being earned on the whole units in non-employee Directors’ accounts. Units may be paid in either cash or shares of our common stock, either in a lump sum or in up to ten annual installments, with the payments to begin as soon as practicable after the non-employee Director’s service as a Director terminates. No more than 150,000 shares are authorized for use under this plan, of which approximately 11,000 had been issued as of January 3, 2009. Because Directors may elect, and are likely to elect, a memberdistribution of cash rather than shares, the contingently issuable shares are not included in column (a) of the Compensation Committee effective February 16, 2007. He retiredtable above. When Mr. Jenness joined Kellogg as a trusteedirector in 2000, he was granted a non-qualified stock option to purchase 300,000 shares of our common stock. In connection with this option, which was to vest over three annual installments, he agreed to devote 50% of his working time to consulting with Kellogg, with further vesting to immediately stop if he was no longer willing to devote such amount of time to consulting with Kellogg or if Kellogg decided that it no longer wished to receive such services. During 2001, Kellogg and Mr. Jenness agreed to terminate the Kellogg Trust on January 31, 2007, and is currently President Emeritus ofconsulting relationship, which immediately terminated the Kellogg Foundation.unvested 200,000 shares.
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PROPOSAL 2 — RATIFICATION OF PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP has been appointed by the Audit Committee, which is composed entirely of independent Directors, to be the independent registered public accounting firm for us for fiscal year 2008.2009. PricewaterhouseCoopers LLP was our independent registered public accounting firm for fiscal year 2007.2008. A representative of PricewaterhouseCoopers LLP is expected to be present at the annual meeting and to have an opportunity to make a statement if they desire to do so. The PricewaterhouseCoopers LLP representative is also expected to be available to respond to appropriate questions at the meeting. If the Shareowners fail to ratify the appointment of PricewaterhouseCoopers LLP, the Audit Committee would reconsider its appointment. THE BOARD RECOMMENDS A VOTE “FOR” RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS KELLOGG’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. Fees Paid to Independent Registered Public Accounting Firm Audit Fees. The aggregate amount of fees billed to Kellogg by PricewaterhouseCoopers LLP for professional services rendered for the audit of our consolidated financial statements and for reviews of our financial statements included in our Quarterly Reports onForm 10-Q was approximately $4.8 million in 2008 and $5.4 million in 2007 and $5.0 million in 2006.2007. Audit-Related Fees. The aggregate amount of fees billed to Kellogg by PricewaterhouseCoopers LLP for assistance and related services reasonably related to the performance of the audit of our consolidated financial statements and for reviews of our financial statements included in our Quarterly Reports onForm 10-Q, which were not included in “Audit Fees” above was approximately $0.5 million in 2008 and $0.6 million in 2007 and $0.5 million in 2006.2007. This assistance and related services generally consisted of consultation on the accounting or disclosure treatment of transactions or events and employee benefit plan audits. Tax Fees. The aggregate amount of fees billed to Kellogg by PricewaterhouseCoopers LLP for professional services rendered for tax compliance, tax advice, and tax planning was approximately $2.0 million in 20072008 and $2.4$2.0 million in 2006.2007. These tax compliance, tax advice and tax planning services generally consisted of U.S., federal, state, local and international tax planning, compliance and advice and expatriate and executive tax services, with over $0.9$0.7 million being spent for tax compliance in 20072008 and over $0.7$0.9 million being for tax compliance in 2006.2007. All Other Fees. The aggregate amount of all other fees billed to Kellogg by PricewaterhouseCoopers LLP for services rendered, and which were not included in “Audit Fees,” “Audit-Related Fees,” or “Tax Fees” above, was $0 in both 20072008 and 2006.2007. Preapproval Policies and Procedures The Charter of the Audit Committee and policies and procedures adopted by the Audit Committee provide that the Audit Committee shall pre-approve all audit, internal control-related and all permitted non-audit engagements and services (including the fees and terms thereof) by the independent registered public accounting firm (and their affiliates) and shall disclose such services in our SEC filings to the extent required. Under the policies and procedures adopted by the Audit Committee, the Audit Committee pre-approves detailed and specifically described categories of services which are expected to be conducted over the subsequent twelve months or a longer specified period, except for the services and engagements which the Chairman has been authorized to pre-approve or approve. The Chairman of the Audit Committee has been delegated the authority to pre-approve or approve up to $500,000 of such engagements and services, but shall report such approvals at the next full Audit Committee meeting. Such policies and procedures do not include delegation of the Audit Committee’s responsibilities to Kellogg management. All of the services described above for 20072008 and 20062007 were pre-approved by the Audit Committeeand/or the Committee Chairman before PricewaterhouseCoopers LLP was engaged to render the services. Audit Committee Report The Audit Committee oversees our financial reporting process on behalf of the Board. The Committee is composed of fourfive independent directors (as defined by the New York Stock Exchange Listing Standards), met six6 times in 20072008 and operates under a written charter last amended by the Board in February 2008, which is posted on our website at
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http://investor.kelloggs.com/governance.cfm. As provided in the Charter, the Committee’s oversight responsibilities include monitoring the integrity of our financial statements (including reviewing financial information, the systems of internal controls, the audit process and the independence and performance of our internal and independent registered public accounting firm) and our compliance with legal and regulatory requirements. However, management has the primary responsibility for the financial statements and the reporting process, including our systems of internal controls. In fulfilling its oversight responsibilities, the Committee reviewed and discussed the audited financial statements to be included in the 20072008 Annual Report onForm 10-K with management, including a discussion of the quality and the acceptability of our financial reporting and controls. The Committee reviewed with the independent registered public accounting firm, PricewaterhouseCoopers LLP, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality and acceptability of our financial reporting, internal control and such other matters as are required to be discussed with the Committee under generally accepted auditing standards. In addition, the Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, “Public Company Accounting Oversight Board AU Section 380 —Communications WithCommunication with Audit Committees,” No. 89,“Audit Adjustments”and No. 90,“Audit Committee Communications.”Committees. The Committee has discussed with the independent registered public accounting firm their independence from Kellogg and its management, including matters in the written disclosures and the letter from the independent registered public accounting firm required by Independence StandardsPublic Company Accounting Oversight Board Standard No. 1,Rule 3526, ““Independence Discussions WithCommunication with Audit Committees.Committees Concerning Independence.”The Committee also has considered whether the provision by the independent registered public accounting firm of non-audit professional services is compatible with maintaining their independence. The Committee also discussed with our internal auditors and independent registered public accounting firm the overall scope and plans for their respective audits. The Committee meets periodically with the internal auditors and independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of our internal controls, and the overall quality of our financial reporting. The Committee also meets privately with the independent registered public accounting firm, General Counsel, Corporate Controller and Vice President of Internal Audit at each in-person meeting. In reliance on the reviews and the discussions referred to above, the Committee recommended to the Board that the audited financial statements be included in the Annual Report onForm 10-K for the fiscal year ended December 29, 2007,January 3, 2009, for filing with the SEC. The Committee also reappointed our independent registered public accounting firm for our 20082009 fiscal year. AUDIT COMMITTEE John Dillon, Chair Don Knauss Rogelio Rebolledo Robert Steele Dr. John Zabriskie
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PROPOSAL 3 — APPROVAL OF THE KELLOGG COMPANY 2009 LONG-TERM INCENTIVE PLAN On February 20, 2009, the Board of Directors adopted the Kellogg Company 2009 Long-Term Incentive Plan (the “2009 Plan”) subject to approval by the Shareowners at the 2009 Annual Meeting. The shares reserved for use under Kellogg’s current incentive plan, the 2003 Long Term Incentive Plan (the “2003 Plan,” and together with the 2009 Plan, the “Plans”) are expected to be fully utilized by 2009 and the Board believes that the 2009 Plan is necessary because it will enable Kellogg to attract, retain, and motivate employees and officers and to align the interests of those individuals and our Shareowners. If approved, the 2009 Plan will replace the 2003 Plan, and the 2003 Plan will remain in existence solely for the purpose of addressing the rights of holders of existing awards already granted under the 2003 Plan. Kellogg does not anticipate granting any new awards under the 2003 Plan between January 3, 2009 and the date of the annual meeting, except that through February 2009 Kellogg granted 3,805,730 options, with an exercise price of $40.17 per share and a10-year term, and 30,700 shares of restricted stock. Although 2,318,564 shares are available for grant under the 2003 Plan as of the record date of the annual meeting, no new awards will be granted under the 2003 Plan following Shareowner approval of the 2009 Plan. If approved by our Shareowners, a total of 27 million shares of our common stock (“common stock”) will be initially reserved for issuance under the 2009 Plan, which represents approximately 7.1% of Kellogg’s outstanding shares as of the record date of the annual meeting. As of the record date for the annual meeting, Kellogg had 29,461,421 shares underlying outstanding stock options, with a weighted average exercise price of $44.22 and a weighted average remaining contractual term of 6.2 years, 352,236 shares of outstanding restricted stock, and 557,800 shares underlying outstanding long-term performance-based awards (including 192,800 shares underlying the Performance Share Units granted on February 20, 2009 under the 2009 Plan as discussed below). Under the 2009 Plan, Kellogg may not make grants of stock options and SARs with terms of more than 10 years. A summary of the basic features of the 2009 Plan is set forth below including a prohibition on repricing and reloads, a limit on full value shares and apro-shareowner share counting provision. The summary is subject to the specific provisions contained in the full text of the 2009 Plan set forth inAppendix A to this proxy statement. Purpose The 2009 Plan is consistent in substance with the 2003 Plan and will allow Kellogg to continue to provide for incentive stock options, non-statutory stock options, stock appreciation rights, and performance-based and other awards. The purpose of the 2009 Plan, like the 2003 Plan, is to further and promote the interests of Kellogg and its Shareowners by enabling Kellogg to attract, retain, and motivate employees, officers and directors (or those who will become employees, officers and directors) and to align the interests of those individuals and our Shareowners. To do this, the 2009 Plan offers performance-based incentive awards and equity-based opportunities providing such employees, officers and directors with a proprietary interest in maximizing the growth, profitability, and overall success of Kellogg. Plan Term The 2009 Plan will be effective on February 20, 2009, the date of its adoption by the Board, subject to Shareowner approval at the annual meeting. No new awards may be granted under the 2009 Plan after February 19, 2019. However, the term and exercise of awards granted before then may extend beyond that date. The Board may terminate the 2009 Plan at any time with respect to all awards that have not been granted. Administration The 2009 Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”). The Committee is currently composed of only non-employee directors. Each member of the Committee is a “Non-Employee Director” within the meaning ofRule 16b-3 under the Securities Exchange Act of 1934 (the “Exchange Act”), an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code of 1986 (the “Code”) and an “independent director” as defined under Section 303A of the Listed Company Manual of the New York Stock Exchange. Under the terms of the 2009 Plan, the Committee has the authority to select the participants, make awards in such amounts and form as the Committee shall determine, impose restrictions, terms, and conditions upon such awards as the Committee shall deem appropriate and correct any technical defects or omissions in the 2009 Plan or any award agreement. The Committee may designate persons other than members of the Committee to carry out the day-to-day administration of the 2009 Plan. In addition, the Committee may, in its sole discretion, delegate its authority to one or more senior executive officers of 61
Kellogg for the purpose of making awards to participants who are not subject to Section 16 of the Exchange Act, but no officer of Kellogg may grant awards to himself or herself. Eligibility Employees, officers and directors or those who will become employees, officers or directors of Kelloggand/or its subsidiaries are eligible to receive awards under the 2009 Plan. Awards under the 2009 Plan will be made by the Committee or by a senior executive officer who has been delegated authority to grant awards to participants who are not subject to Section 16 of the Exchange Act. Except for the Performance Share Unit awards to Kellogg’s executive officers and other key executives discussed below, no determination has been made as to awards that may be granted under the 2009 Plan, although it is anticipated that recipients of awards will include the current executive officers of Kellogg. Currently, Kellogg and its subsidiaries have approximately 2,950 employees and officers eligible to participate in the 2009 Plan. During 2006, 2007, and 2008, we made awards to an average of 2,615 employees per year, covering an average of approximately 4,671,100 shares per year under our 2003 Plan. However, these awards are not necessarily indicative of the number of participants or the number of awards that might be made under the proposed 2009 Plan. Shares Authorized; Share Limitations The maximum number of shares of Kellogg Company common stock for which awards may be granted under the 2009 Plan may not exceed the total of (a) 27 million shares; plus (b) the total number of shares as to which awards granted under the Kellogg Company 2001 Long-Term Incentive Plan, the 2003 Plan or the 2009 Plan expire or lapse or are forfeited, surrendered, cancelled, terminated or settled in cash in lieu of common stock (the “Additional Shares”). Subject to adjustment pursuant to the terms of the 2009 Plan, (1) no participant may receive awards of stock options or SARs exceeding 2 million shares in any calendar year; (2) no more than 1 million shares may be paid in any calendar year in respect of Performance Share Units, performance-based Restricted Shares and performance-based Restricted Share Units to any individual participant; (3) the maximum cash amount payable under any Performance Unit intended to be performance-based compensation to any participant for any calendar year is $10 million; and (4) the maximum number of shares that may be issued pursuant to the grant of awards under the 2009 Plan (other than stock options and SARs) is 5,000,000. The limits on the numbers of shares described in this paragraph and the number of shares subject to any award under the 2009 Plan are subject to proportional adjustment, to reflect certain stock changes, such as stock dividends and stock splits. Shares of common stock that, as of the effective date of the 2009 Plan, have not been issued under the 2001Long-Term Incentive Plan and the 2003 Plan (together, the “Old Plans”) and are not covered by outstanding awards under the Old Plans shall not be available for Awards under the 2009 Plan. Shares will not be added to the maximum share limitations under the 2009 Plan if: the shares are offered as payment of the exercise price of an option; the shares are withheld by Kellogg to satisfy the tax withholding obligation; the shares are repurchased on the open market with proceeds of an option exercise; or the shares are covered by an exercised SAR, regardless of whether shares of common stock are actually issued by the exercise, which are considered issued or transferred in accordance with the 2009 Plan. Section 162(m) Section 162(m) of the Code generally limits to $1,000,000 the amount that a publicly held corporation is allowed each year to deduct for the compensation paid to its Chief Executive Officer and the three other most highly compensated officers other than the principal financial officer. However, “qualified performance-based compensation” is not subject to the $1,000,000 deduction limit. Awards under the 2009 Plan are designed to qualify as qualified performance-based compensation, by satisfying the following requirements: (1) the performance goals are determined by the Committee consisting solely of outside directors; (2) the material terms under which the compensation is to be paid, including examples of the performance goals, are approved by a majority of Kellogg Company Shareowners; and (3) if applicable, the Committee certifies that the applicable performance goals and any other material terms were satisfied before payment of any performance-based compensation is made. 62
Awards All awards are expected to be evidenced by an award agreement between Kellogg and the individual participant and approved by the Committee. In the discretion of the Committee, an eligible employee may receive awards from one or more of the categories described below, and more than one award may be granted to an eligible employee. Types of awards under the 2009 Plan include: Stock Options — The Committee may grant Incentive Stock Options or Non-Qualified Stock Options (collectively referred to as “stock options”). An Incentive Stock Option is intended to be an “incentive stock option” within the meaning of Section 422 of the Code. A Non-Qualified Stock Option is any other stock option granted by the Committee that is not specifically designated as an Incentive Stock Option. The exercise price of stock options shall be determined by the Committee, but in no event shall the exercise price be less than 100% of the closing price of Kellogg’s common stock on the grant date. The term of each stock option shall be determined by the Committee; provided, however, that the term of stock options shall not exceed 10 years. Options may be exercised in whole or in part, and the option price may be paid (1) by cash, certified check, bank draft, electronic transfer, or money order payable to the order of Kellogg, (2) if permitted by the Committee in its sole discretion, by surrendering (or attesting to the ownership of) shares of common stock already owned by the participant, (3) pursuant to a net exercise arrangement, or (4) if permitted by the Committee (in its sole discretion) and applicable law, by delivery of, alone or in conjunction with a partial cash or instrument payment, some other form of payment acceptable to the Committee. Special provisions apply to stock options granted to 10% or greater Shareowners. No Stock Options granted under the 2009 plan may contain any reload provisions, entitling the option holder to additional options upon the exercise of existing options. Stock Appreciation Rights — Stock Appreciation Rights (or “SARs”) represent a right to receive a payment, in cash, shares of Kellogg’s common stock, Restricted Shares (as described below) or a combination thereof, equal to the excess of the fair market value of a specified number of shares of Kellogg common stock on the date the SAR is exercised over the fair market value of such shares on the date the SAR was granted. SARs may be exercised in accordance with the terms established by the Committee. The term of a SAR shall not exceed 10 years from the grant date. Restricted Shares and Restricted Share Units — A Restricted Share is an award of common stock granted to a participant, subject to such restrictions, terms and conditions as the Committee deems appropriate, including (a) restrictions on the sale, assignment, transfer, hypothecation or other disposition of such shares, (b) the requirement that the Participant deposit such shares with Kellogg while such shares are subject to such restrictions, and (c) the requirement that such shares be forfeited upon termination of employment for specified reasons within a specified period of time or for other reasons (including, without limitation, the failure to achieve designated performance goals). Upon lapse of the restrictions, Restricted Shares may be exchanged for unrestricted shares of common stock. A grant of Restricted Share Units is a notional award of shares of common stock which entitle the participant to a number of unrestricted shares of common stock equal to (or a cash amount equal in value to such number of unrestricted shares of common stock) the number of Restricted Share Units upon the lapse of similar restrictions, terms and conditions. A participant holding Restricted Shares shall have all the rights of a Share Owner of such shares (except as such rights may be limited by the Committee). Restrictions on Restricted Shares and Restricted Share Units may be performance-based. Performance Units and Performance Share Units — A grant of Performance Units is a notional award of units (with each unit representing such monetary amount as designated by the Committee) granted to a participant, subject to such terms as the Committee deems appropriate, including the requirement that the participant forfeit such units (or a portion thereof) if certain performance criteria are not met. A grant of Performance Share Units is an award of actual or notional shares of common stock which entitle the participant to a number of shares of common stock equal to the number of Performance Share Units upon achievement of specified performance goals and such other terms and conditions as the Committee deems appropriate. Participants receiving a grant of Performance Units and Performance Share Units will be entitled to payment in respect of such awards if Kelloggand/or the participant achieves certain performance goals during and in respect of a designated performance period. In setting performance goals, the Committee may use such measures as: | | | | • | net sales; | | | • | net income; | | | • | market price per share; | | | • | earnings per share; | | | • | return on equity; | | | • | return on capital employed; | | | • | return on invested capital; | | | • | cash flow; | | | • | discounted cash flow; | | | • | cumulative cash flow; |
63
| | | | • | operating profit; | | | • | gross or pre-tax profits; | | | • | post-tax profits; | | | • | gross or net margins; | | | • | consolidated net income; | | | • | unit sales volume; | | | • | economic value added; | | | • | costs or cost reduction initiatives; | | | • | production; | | | • | unit production volume; | | | • | improvements in financial ratings; | | | • | regulatory compliance; | | | • | achievement of balance sheet or income statement objectives; | | | • | market or category share; | | | • | organizational objectives (including diversity, safety and K-values); | | | • | productivity initiatives; | | | • | acquisition integration; | | | • | total return to shareowners (including both the market value of Kellogg’s stock and dividends thereon); or | | | • | any other performance measure the Committee deems appropriate. |
Performance goals may be absolute or relative and may be expressed in terms of a progression within a specified range. The payout of any such award to certain participants may be reduced, but not increased, based on the degree of attainment of other performance criteria or otherwise at the discretion of the Committee. New Plan Benefits Except for the Performance Share Units granted to Kellogg’s executive officers and other key executives that are described below, no plans have been made for the grant of future awards to any other employees or consultants under the 2009 Plan, and future awards that may be made under the 2009 Plan are not determinable at this time. The closing price per share of Kellogg Company common stock as reported on the New York Stock Exchange on February 20, 2009 was $40.17. At its meeting on February 20, 2009, the Board (and the independent members of the Board with respect to Mr. Mackay) granted, subject to the approval of the 2009 Plan by the Shareowners, Performance Share Units to each of Kellogg’s current named executive officers and certain other officers (the “2009-2011 EPP Awards”), that will be earned only if Kellogg achieves cost reductions and that are intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code. If this Proposal is not adopted, the 2009-2011 EPP Awards will not be valid and the Compensation Committee will consider what course of action to follow with respect to the 2009-2011 EPP Awards and future grant of performance-based awards under the Plans. Information regarding the 2009-2011 EPP Awards is set forth in the table below. Kellogg Company 2009 Long-Term Incentive Plan | | | | | | | | | | | | | | | | | | | Number of
| | Number of
| | Dollar Value
| | Dollar Value
| | | Awards
| | Awards
| | of Awards
| | of Awards
| | | Target
| | Maximum
| | Target
| | Maximum
| Name and Position | | (#) | | (#) | | ($) | | ($) | | David Mackay | | | 34,500 | | | | 69,000 | | | $ | 1,385,865 | | | $ | 2,771,730 | | John Bryant | | | 16,100 | | | | 32,200 | | | $ | 646,737 | | | $ | 1,293,474 | | Brad Davidson | | | 8,300 | | | | 16,600 | | | $ | 333,411 | | | $ | 666,822 | | Paul Norman | | | 6,200 | | | | 12,400 | | | $ | 249,054 | | | $ | 498,108 | | Tim Mobsby | | | 4,100 | | | | 8,200 | | | $ | 164,697 | | | $ | 329,394 | | Jeff Montie | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Executive Group | | | 125,700 | | | | 251,400 | | | $ | 5,049,369 | | | $ | 10,098,738 | | Non-Executive Director Group | | | 0 | | | | 0 | | | $ | 0 | | | $ | 0 | | Non-Executive Officer Employee Group | | | 67,100 | | | | 134,200 | | | $ | 2,695,407 | | | $ | 5,390,814 | |
Dividends and Dividend Equivalents. The Committee may provide that awards denominated in stock (other than stock options, SARs and unvested Performance Share Units, performance-based Restricted Shares and performance-based Restricted Share Units) earn dividends or dividend equivalents. At the same time that dividends are paid to holders of Kellogg common stock, dividends or dividend equivalents may be paid in cash or shares of common stock or may be credited to an account that 64
the Committee establishes in the name of the participant, to be paid at such time or times as determined by the Committee and as specified in the terms of the applicable award grant. The Committee may also impose other restrictions on the crediting of dividends or dividend equivalents, such as requiring reinvestment in additional shares or share equivalents. Any stock dividends paid to Shareowners shall, in respect of Restricted Shares (or Restricted Share Units, if the Committee grants dividend equivalents in a participant’s award agreement) shall be treated as additional Restricted Shares (or Restricted Share Units). Repricing Prohibited Except as set forth in Section 13 of the 2009 Plan (pertaining to changes in capitalization and other matters), the Board may not, among other things, increase the number of shares available for awards, revise the exercise price of any outstanding stock option or SAR, cancel outstanding stock options or SARs or repurchase stock options or SARs in exchange for cash, other awards, or stock options or SARs with an exercise price lower than that of the original stock options or SARs, without Shareowner approval. Change in Control or Other Cash-Out If there is a “Change in Control” of Kellogg (as defined in Section 14 of the 2009 Plan), in order to preserve the participants’ rights the following shall occur: (a) all stock options and SARs become fully vested and exercisable; (b) all restrictions on Restricted Shares shall be deemed lapsed and all Restricted Share Units shall become fully vested and payable; and (c) the performance criteria for all Performance Units, Performance Share Units, performance-based Restricted Shares and performance-based Restricted Share Units shall be considered earned and payable in full. In addition, the Committee shall have the authority to otherwise require that the holder surrender any stock option and SAR for cancellation by Kellogg, with the holder being entitled to receive a cash payment. Matters relating to the 2009 Plan and its Amendment, Suspension and/or Termination No Awards may be granted after February 19, 2019. The Board may suspend or terminate the 2009 Plan (or any portion thereof) at any time, and may amend the 2009 Plan at any time and from time to time in such respects as the Board may deem advisable to ensure that any and all awards conform to or otherwise reflect any change in applicable laws or regulations, or to permit Kellogg or the participants to benefit from any change in applicable laws or regulations or in any other respect the Board may deem to be in the best interests of Kellogg. However, no such amendment, suspension, or termination shall materially adversely affect the rights of any participant and the Board may not make any change that would disqualify the 2009 Plan or any other plan of Kellogg from the benefits provided under Section 422 of the Code. Non-transferability of Awards Awards granted under the 2009 Plan generally will not be transferable, except by will and the laws of descent and distribution. However, the Committee may from time to time permit Awards to be transferable to “family members” (within the meaning of the General Instructions toForm S-8) subject to such terms and conditions as the Committee may impose and applicable law. No award, however, may be transferred for value as defined in the general instructions toForm S-8. Federal Income Tax Consequences The following discussion is intended only as a brief summary of the federal income tax rules relevant to stock options, SARs, Performance Units, Performance Share Units, Restricted Shares, Restricted Share Units and supplemental cash payments. These rules are highly technical and subject to change. The following discussion is limited to the federal income tax rules relevant to us and to the individuals who are citizens or residents of the United States. The discussion does not address the state, local, or foreign income tax rules relevant to stock options, stock appreciation rights, performance awards, restricted stock, and supplemental cash payments. Employees are urged to consult their personal tax advisors with respect to the federal, state, local, and foreign tax consequences relating to stock options, appreciation rights, performance awards, restricted stock, and supplemental cash payments. Incentive Stock Options. A participant who is granted an Incentive Stock Option recognizes no income upon grant or exercise of the option. However, the excess of the fair market value of Kellogg shares on the date of exercise over the option exercise price is an item includible in the optionee’s alternative minimum taxable income. The IRS may require the optionee to pay an alternative minimum tax even though the optionee receives no cash upon exercise of the Incentive Stock Option that the optionee can use to pay such tax. 65
If an optionee holds the common stock acquired upon exercise of the Incentive Stock Option for at least two years from the date of grant and at least one year following exercise (the “Statutory Holding Periods”), the IRS taxes the optionee’s gain, if any, upon a subsequent disposition of such common stock, as capital gain. If an optionee disposes of common stock acquired through the exercise of an Incentive Stock Option before satisfying the Statutory Holding Periods (a “Disqualifying Disposition”), the optionee may recognize both compensation income and capital gain in the year of disposition. The amount of the compensation income generally equals the excess of (1) the lesser of the amount realized on disposition or the fair market value of the common stock on the exercise date over (2) the exercise price. This income is subject to income (but not employment) tax withholding. The balance of the gain that the optionee realizes on such a disposition, if any, is long-term or short-term capital gain depending on whether the common stock has been held for more than one year following exercise of the Incentive Stock Option. Special rules apply for determining an optionee’s tax basis in and holding period for common stock acquired upon the exercise of an Incentive Stock Option if the optionee pays the exercise price of the Incentive Stock Option in whole or in part with previously owned Kellogg shares. Under these rules, the optionee does not recognize any income or loss from delivery of shares of common stock (other than shares previously acquired through the exercise of an Incentive Stock Option and not held for the Statutory Holding Periods) in payment of the exercise price. The optionee’s tax basis in and holding period for the newly-acquired shares of common stock will be determined as follows: as to a number of newly-acquired shares equal to the previously-owned shares delivered, the optionee’s tax basis in and holding period for the previously-owned shares will carry over to the newly-acquired shares on a share-for-share basis; as to each remaining newly-acquired share, the optionee’s basis will be zero (or, if part of the exercise price is paid in cash, the amount of such cash divided by the number of such remaining newly-acquired shares) and the optionee’s holding period will begin on the date such shares are transferred. Under regulations, any Disqualifying Disposition is deemed made from shares with the lowest basis first. If any optionee pays the exercise price of an Incentive Stock Option in whole or in part with previously-owned shares that were acquired upon the exercise of an Incentive Stock Option and that have not been held for the Statutory Holding Periods, the optionee will recognize compensation income (but not capital gain) under the rules applicable to Disqualifying Dispositions. We are not entitled to any deduction with respect to the grant or exercise of an Incentive Stock Option or the optionee’s subsequent disposition of the shares acquired if the optionee satisfies the Statutory Holding Periods. If these holding periods are not satisfied, we are generally entitled to a deduction in the year the optionee disposes of the common stock in an amount equal to the optionee’s compensation income. Non-Qualified Stock Options. A participant who is granted a non-qualified stock option recognizes no income upon grant of the option. At the time of exercise, however, the optionee recognizes compensation income equal to the difference between the exercise price and the fair market value of the Kellogg shares received on the date of exercise. This income is subject to income and employment tax withholding. We are generally entitled to an income tax deduction corresponding to the compensation income that the optionee recognizes. When an optionee disposes of common stock received upon the exercise of a non-statutory stock option, the optionee will recognize capital gain or loss equal to the difference between the sales proceeds received and the optionee’s basis in the stock sold. We will not receive a deduction for any capital gain recognized by the optionee. If an optionee pays the exercise price for a non-statutory option entirely in cash, the optionee’s tax basis in the common stock received equals the stock’s fair market value on the exercise date, and the optionee’s holding period begins on the day after the exercise date. If however, an optionee pays the exercise price of a non-statutory option in whole or in part with previously-owned shares of common stock, then the optionee’s tax basis in and holding period for the newly-acquired shares will be determined as follows: as to a number of newly acquired shares equal to the previously-owned shares delivered, the optionee’s basis in and holding period for the previously-owned shares will carry over to the newly-acquired shares on a share-for-share basis; as to each remaining newly-acquired share, the optionee’s basis will equal the share’s value on the exercise date, and the optionee’s holding period will begin on the day after the exercise date. Tax Treatment of Capital Gains. The maximum federal income tax rate applied to capital gains realized on a taxable disposition of common stock a participant holds as a capital asset will be (1) 15% if such common stock is held by the participant for more than 12 months and (2) the rate that applies to ordinary income (i.e., a graduated rate up to a maximum of 35%) if the participant holds the common stock for no more than 12 months. SARs. A participant who is granted an SAR recognizes no income upon grant of the SAR. At the time of exercise, however, the participant recognizes compensation income equal to any cash received and the fair market value of any 66
Kellogg common stock received. This income is subject to income and employment tax withholding. We are generally entitled to an income tax deduction corresponding to the ordinary income that the participant recognizes. Restricted Shares. Restricted Shares are subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code. A participant to whom we grant Restricted Shares may make an election under Section 83(b) of the Code (a “Section 83(b) Election”) to have the grant taxed as compensation income at the date of receipt, resulting in the IRS taxing any future appreciation (or depreciation) in the value of the shares of common stock that we grant as capital gain (or loss) upon a subsequent sale of the shares. Such an election must be made within 30 days of the date that we grant the Restricted Shares. However, if a participant does not make a Section 83(b) Election, then the grant shall be taxed as compensation income at the full fair market value on the date that the restrictions imposed on the shares expire. Unless the participant makes a Section 83(b) Election, any dividends that we pay on common stock subject to the restrictions constitutes compensation income to the participant and compensation expense to us. Any compensation income the participant recognizes from a grant of Restricted Shares is subject to income and employment tax withholding. We are generally entitled to an income tax deduction for any compensation income taxed to the participant. Performance Units, Performance Share Units and Restricted Share Units. The grant of a Performance Unit, Performance Share Unit or Restricted Share Unit does not generate taxable income to a participant or an income tax deduction to us. Any cash and the fair market value of any Kellogg common stock received as payment in respect of a Performance Unit, Performance Share Unit or Restricted Share Unit will constitute ordinary income to the participant. The participant’s income is subject to income and employment tax withholding. We are generally entitled to an income tax deduction corresponding to the ordinary income that the participant recognizes. Payment of Withholding Taxes. We have the right to withhold or require a participant to remit to us an amount sufficient to satisfy any federal, state, local, or foreign withholding tax requirements on any grant or exercise made under the 2009 Plan. However, to the extent permissible under applicable tax, securities, and other laws, the Committee may, in its sole discretion, permit the participant to satisfy a tax withholding requirement by delivering shares of Kellogg common stock that the participant previously owned or directing us to apply shares of common stock to which the participant is entitled as a result of the exercise of an option or the lapse of a period of restriction, to satisfy such requirement. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL OF THE KELLOGG COMPANY 2009 LONG-TERM INCENTIVE PLAN. 67
PROPOSAL 4 — APPROVAL OF THE KELLOGG COMPANY 2009 NON-EMPLOYEE DIRECTOR STOCK PLAN The Board of Directors adopted the Kellogg Company 2009 Non-Employee Director Stock Plan (the “2009 Director Stock Plan”) on February 20, 2009, subject to approval by the shareowners at the Annual Meeting. The Kellogg Company 2000 Non-Employee Director Stock Plan (the “2000 Plan,” and together with the 2009 Director Stock Plan, the “Director Stock Plans”) expires in February 2010, and as such the Board of Directors believes that the 2009 Director Stock Plan is necessary because it believes that the ownership of common stock by directors supports the maximization of long-term shareowner value by aligning the interests of directors with those of shareowners. If approved, the 2009 Director Stock Plan will replace the 2000 Plan, and the 2000 Plan will remain in existence solely for the purpose of addressing the rights of holders of existing awards already granted under the 2000 Plan. Kellogg does not anticipate granting any new awards under the 2000 Plan between January 3, 2009 and the date of the annual meeting as it suspended the automatic grant of stock options to have been made on January 31, 2009. Although 348,215 shares remain available for grant under the 2000 Plan as of the record date of the Annual Meeting, no new awards will be granted under the 2000 Plan following Shareowner approval of the Director Stock Plan. If approved by our Shareowners, a total of 500,000 shares of our common stock will be initially reserved for issuance under the 2009 Director Stock Plan, which represents approximately 0.1% of Kellogg’s outstanding shares as of the record date of the Annual Meeting. See Proposal 3 above for additional information about our outstanding stock options, restricted stock and other awards. A summary of the 2009 Director Stock Plan is set forth below. The summary is qualified in its entirety by the full text of the 2009 Director Stock Plan, attached to this Proxy Statement asAppendix B. Purpose The 2009 Director Stock Plan will allow Kellogg to continue to provide its non-employee Directors equity awards. The purpose of the 2009 Director Stock Plan, like the 2000 Plan, is to promote the long-term growth of Kellogg Company by increasing the proprietary interest of non-employee Directors in Kellogg Company and to attract and retain highly qualified and capable non-employee Directors. Unlike the 2000 Plan, the 2009 Director Stock Plan will not allow for an annual grant of stock options — only awards of shares of common stock. The Board recently eliminated options for Directors. This change was made in light of emerging trends in corporate governance relating to director compensation. Plan Term The 2009 Director Stock Plan will be effective on February 20, 2009, the date of its adoption by the Board, subject to Shareowner approval at the annual meeting. No new awards may be granted under the 2009 Director Stock Plan after February 19, 2019. However, the term of awards granted before then may extend beyond that date. Shares Subject to the 2009 Director Stock Plan Subject to adjustment as provided in Section 9 of the 2009 Director Stock Plan (pertaining to changes in capitalization and other matters), the aggregate number of shares available for all grants of awards of shares under the 2009 Director Stock Plan shall not exceed 500,000, plus the total number of shares as to which awards granted under the 2000 Plan or the 2009 Director Stock Plan expire or lapse or are forfeited, surrendered, cancelled, terminated or settled in cash in lieu of common stock. Administration of the 2009 Director Stock Plan The 2009 Director Stock Plan will be administered by the Nominating and Governance Committee of the Board (the “Committee”). The Committee is currently composed of only non-employee Directors. Each member of the Committee is a “Non-Employee Director” within the meaning ofRule 16b-3 under the Exchange Act and an “independent director” as defined under Section 303A of the Listed Company Manual of the New York Stock Exchange. The Board may amend, suspend or terminate the 2009 Director Stock Plan at any time, but the terms of an award granted under the 2009 Director Stock Plan may not be adversely modified without the participant’s consent. 68
Stock Grants Annual Share Grants. Each year during the term of the 2009 Director Stock Plan, beginning in 2009, an annual award of shares or restricted shares will be made to each non-employee Director on the second business day following the earlier of (a) Kellogg’s announcement by press release or other widely disseminated means of its results of operations for the first fiscal quarter of Kellogg, or (b) Kellogg’s filing with the Securities and Exchange Commission of its Quarterly Report onForm 10-Q for the first fiscal quarter of Kellogg. The number of shares granted pursuant to each annual award will be determined by the Committee, and the Committee will also have the authority under the 2009 Director Stock Plan to change the timing of the annual awards. Non-employee Directors first elected or appointed to the Board at any time other than the Annual Meeting of Shareowners will receive an initial award on the date on which that person first begins to serve as a non-employee Director equal to the most recently granted annual award, pro-rated based upon the number of days remaining until the next Annual Meeting of Shareowners divided by 365. Other Share Grants. The Committee may make other grants of shares or restricted shares to non-employee Directors at such times and subject to such terms and conditions as it may determine in its sole discretion. Options No options will be granted under the 2009 Director Stock Plan. Change in Control If there is a “Change in Control” of Kellogg (as defined in Section 9.4 of the 2009 Director Stock Plan), in order to preserve the non-employee Directors’ rights, then all restricted shares outstanding shall become fully vested. U.S. Federal Income Tax Consequences Restricted Shares. Restricted shares are subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code. A participant to whom we grant restricted shares may make an election under Section 83(b) of the Code (a “Section 83(b) Election”) to have the grant taxed as compensation income at the date of receipt, resulting in the IRS taxing any future appreciation (or depreciation) in the value of the shares of common stock that we grant as capital gain (or loss) upon a subsequent sale of the shares. Such an election must be made within 30 days of the date that we grant the restricted shares. However, if a participant does not make a Section 83(b) Election, then the grant shall be taxed as compensation income at the full fair market value on the date that the restrictions imposed on the shares expire. Unless the participant makes a Section 83(b) Election, any dividends that we pay on common stock subject to the restrictions constitutes compensation income to the participant and compensation expense to us. Any compensation income the participant recognizes from a grant of restricted shares is subject to income and employment tax withholding. We are generally entitled to an income tax deduction for any compensation income taxed to the participant. New Plan Benefits There are currently 10 non-employee Directors who will each receive shares of common stock every fiscal year, beginning in 2009. As of the date of this proxy statement, no plans have been made for the grant of future awards to any non-employee Director under the 2009 Director Stock Plan, and future awards that may be made under the 2009 Director Stock Plan are not determinable at this time. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL OF THE KELLOGG COMPANY 2009 NON-EMPLOYEE DIRECTOR STOCK PLAN. 69
PROPOSAL 35 — SHAREOWNER PROPOSAL RELATING TO MAJORITY VOTING We expect the following proposal (Proposal 35 on the proxy card and voting instruction card) to be presented by a Shareowner at the annual meeting. Names, addresses and share holdings of the Shareowner proponent and, where applicable, of co-filers, will be supplied upon request. Resolution Proposed by Shareowner: That the shareholders of Kellogg Company (“Company”) hereby request that the Board of Directors initiate the appropriate process to amend the Company’s governance documents (certificate of incorporation or bylaws) to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders, with a plurality vote standard retained for contested director elections, that is, when the number of director nominees exceeds the number of board seats. Shareowner’s Supporting Statement: In order to provide shareholders a meaningful role in director elections, our Company’s director election vote standard should be changed to a majority vote standard. A majority vote standard would require that a nominee receive a majority of the votes cast in order to be elected. The standard is particularly well-suited for the vast majority of director elections in which only board nominated candidates are on the ballot. We believe that a majority vote standard in board elections would establish a challenging vote standard for board nominees and improve the performance of individual directors and entire boards. Our Company presently uses a plurality vote standard in all director elections. Under the plurality vote standard, a nominee for the board can be elected with as little as a single affirmative vote, even if a substantial majority of the votes cast are “withheld’“withheld” from the nominee. In response to strong shareholder support for a majority vote standard in director elections, an increasing numbera strong majority of the nation’s leading companies, including Intel, General Electric, Motorola, Hewlett-Packard, Morgan Stanley, Wal-Mart, Home Depot, Gannett, Marathon Oil, and recently PfizerSafeway have adopted a majority vote standard in company bylaws or articles of incorporation. Additionally, these companies have adopted director resignation policies in their bylaws or corporate governance policies to address post-election issues related to the status of director nominees that fail to win election. Other companies, includingHowever, our Company havehas responded only partially to the call for change, by simply adopting a post-election director resignation policiespolicy that setsets procedures for addressing the status of director nominees that receive more “withhold” votes than “for” votes. The plurality vote standard remains in place. We believe that a post-election director resignation policy without a majority vote standard in companyCompany bylaws or articles is an inadequate reform. The critical first step in establishing a meaningful majority vote policy is the adoption of a majority vote standard. With a majority vote standard in place, the boardBoard can then consider action on developing post-election procedures to address the status of directors that fail to win election. A majority vote standard combined with a post-election director resignation policy would establish a meaningful right for shareholders to elect directors, and reserve for the boardBoard an important post-election role in determining the continued status of an unelected director. We feel that this combination of the majority vote standard with a post-election policy represents a true majority vote standard. Our Response — Statement in Opposition to Proposal: The Board has carefully considered the above proposal, and believes that it is not in the best interest of the Shareowners. Consequently, the Board recommends that the Shareowners vote against the proposal for the following reasons: The Board has been mindful of recent governance developments on the subject of majority-voting in the election of directors and has examined the issue very closely. The Board believes that when Shareowners cast more “withheld” votes than “for” votes with regard to a Director, our Nominating and Governance Committee (the “Nominating Committee”) and the Board should very deliberately consider and thoroughly assess whether it is appropriate for the Director to remain on the Board. Consequently, in 2006, the Board adopted a policy relating to Director Elections (the “Policy”). The Policy strikes the appropriate balance that effectively ensures meaningful Shareowner participation in the election of Directors while preserving the Board’s ability to exercise its independent judgment on acase-by-case basis in the best interests of all shareholders.
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The Policy is fully set forth in our Corporate Governance Guidelines (which can be found on the Kellogg Company web site at www.kelloggcompany.com under “Corporate Governance”), and provides: | | | | • | In any uncontested election of Directors, any nominee for Director who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election (a “Majority Withheld Vote”) will promptly tender his or her resignation to the Nominating Committee. | | | • | The Nominating Committee would promptly consider the resignation and recommend to the Board the appropriate action to be taken. In making its recommendation, the Nominating Committee would consider all facts and circumstances surrounding the Majority Withhold Vote, including the stated reasons why votes were withheld, alternatives for curing the underlying cause of the withheld votes, the Director’s qualifications and our Corporate Governance Guidelines. | | | • | The Board would then review the recommendation and consider all factors considered by the Nominating Committee and such additional information and factors that the Board believes to be relevant to Kellogg’s and Shareowners’ best interests. | | | • | The Policy demonstrates our responsiveness to Director election results, while at the same time protecting our long-term interests and our Shareowners’ long-term interests. We also believe that the Policy provides a solution to a Majority-Withheld Vote that is more complete and meaningful than the majority voting standard called for in the proposal. |
Adopting a majority voting standard in the election of Directors seems especially unwarranted in our case. In each of the last ten years, every Director nominee has received the affirmative vote of more than 85% of the shares voted at the annual meeting of Shareowners. As a result, changing our current voting requirement to majority voting would have had no effect on the outcome of our election process during the past ten years. Moreover, the Board has historically been comprised of highly qualified Directors from diverse backgrounds, substantially all of whom have been “independent” within the meaning of standards recently adopted by the New York Stock Exchange. Each of these Directors was elected without majority voting. Since our Shareowners have a history of electing highly qualified, independent Directors, a change to a strict majority voting requirement is not necessary to improve our corporate governance processes. The Board is gratified that when a majority voting shareowner proposal was presented at each of the last year’s annual meeting,two consecutive Annual Meetings, holders of a majority of the outstanding shares agreed with our position and voted against the proposal.proposal on both occasions. FOR THESE REASONS, THE BOARD OF DIRECTORS RECOMMENDS A VOTE “AGAINST” THE PROPOSAL.
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PROPOSAL 6 — SHAREOWNER PROPOSAL RELATING TO ANNUAL ELECTION OF DIRECTORS We expect the following proposal (Proposal 6 on the proxy card and voting instruction card) to be presented by a Shareowner at the annual meeting. Names, addresses and share holdings of the Shareowner proponent and, where applicable, of co-filers, will be supplied upon request. Elect Each Director Annually RESOLVED, shareowners ask that our Company take the steps necessary to reorganize the Board of Directors into one class with each director subject to election each year and to complete this transition within one-year. Statement of Shareowner Our current practice, in which only a few directors stand for election annually, is not in the best interest of our Company and its stockholders. Eliminating this staggered system would require each director to stand for election annually and would give stockholders an opportunity to register their view on the performance of each director annually. Electing directors in this manner is one of the best methods available to stockholders to ensure that the Company will be managed in a manner that is in the best interest of stockholders. According to “2008 Trends in Corporate Governance of the Largest US Public Companies,” by Shearman & Sterling LLP, 73% of companies surveyed have annual elections for all directors, compared to 54% in 2004. The trend is clear. Arthur Levitt, Securities and Exchange Commission Chairman,1993-2001 said: In my view it’s best for the investor if the entire board is elected once a year The merits of this Elect Each Director Annually proposal should be considered in the context of the need for improvements in our company’s corporate governance and in individual director performance. For instance in 2008 the following governance and performance issues were identified: | | | | • | Our directors served on five boards rated “D” by The Corporate Library www.thecorporatelibrary.com, an independent investment research firm: |
| | | Ann McLaughlin Korologos Ann McLaughlin Korologos Benjamin Carson John Dillon Rogelio Rebolledo | | Harman International Industries (HAR) Vulcan Materials (YMC) Costco (COST) Caterpillar (CAT) Best Buy (BBY) |
| | | | • | Gordon Gund of our executive pay committee and our nomination committee was designated as an “Accelerated Vesting” director by The Corporate Library. This was due to his involvement with speeding up the vesting of stock options in order to avoid recognizing the related cost. | | | • | Mr. Gund also had22-years tenure and Ms. Korologos had19-years tenure — Independence concerns. | | | • | Mr. Gund and Ms. Korologos received 4-times as many withheld votes as some of their peers at our 2008 annual meeting. | | | • | Our CEO David Mackay was awarded 619,000 options in 2007. The large size of this option award raised concerns over the link between executive pay and company performance given that small increases in the company’s share price (which can be completely unrelated to management performance) can result in large financial awards. | | | • | The board is classified. This lowers board accountability to shareholders. |
Source: The Corporate Library Additionally: | | | | • | We had no shareholder right to: |
| | | | • | Call a special shareholder meeting | | | • | Cumulative voting |
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| | | | • | Act by written consent | | | • | Complete simple majority voting |
| | | | • | Thus future shareholder proposals on the above 4 topics by additional proponents could obtain significant support. |
The above concerns show there is need for improvement. Please encourage our board to respond positively to this proposal: Elect Each Director Annually Yes on 6 Our Response — Statement in Opposition to Proposal: The Board has carefully considered the above proposal, and believes that it is not in the best interest of the Shareowners. Consequently, the Board recommends that the Shareowners voteagainst the proposal for the following reasons: Accountability to Shareowners. In accordance with Kellogg’s Certificate of Incorporation, its Board is divided into three classes that serve staggered three-year terms. Directors elected to three-year terms are equally accountable to Shareowners as directors elected annually, since all directors are required to uphold their fiduciary duties to Kellogg and its Shareowners regardless of their term. Additionally, under Kellogg’s policies and procedures, specifically the policy relating to Director elections adopted in 2006 by the Board, the Company’s classified board structure does not compromise the directors’ accountability to Shareowners. The Director elections policy, which is fully set forth in our Corporate Governance Guidelines (which can be found on the Kellogg Company website at www.kelloggcompany.com under “Corporate Governance”), provides that in any uncontested election of Directors, any director nominee who receives a greater number of votes “withheld” than votes “for” will tender his or her resignation to the Nominating Committee. The Nominating Committee will then consider the resignation and recommend to the Qualified Independent Directors (as defined in the ‘Majority Voting for Directors; Director Resignation Policy’ section on page 7 of the proxy statement) the appropriate action to be taken. The Qualified Independent Directors will then review the recommendation and consider all factors it believes to be relevant to Kellogg’s and Shareowners’ best interests. Following the Qualified Independent Directors’ decision, Kellogg would promptly disclose in a current report onForm 8-K the decision whether to accept the resignation as tendered (providing a full explanation of the process by which the decision was reached and, if applicable, the reasons for rejecting the tendered resignation). The Director elections policy provides the shareowner a meaningful role in the election of directors as well as acting as a way of holding directors accountable for their actions or failure to act. Independence. Electing directors to three-year terms enhances the independence of non-employee directors by providing them with a longer term of office. This longer term provides enhanced independence from management or from special interest groups who may have an agenda contrary to the long-term interests of all Shareowners. As a result, independent directors are able to make decisions that are in the best interest of the Company without having to consider annual elections. Stability and Continuity. The Board is structured into classes to provide board stability, continuity and independence, while also enhancing long-term planning and ensuring that, at any given time, there are experienced directors serving on the Board who are familiar with Kellogg’s businesses, products, markets, opportunities and challenges. A classified board also benefits Kellogg and its Shareowners because it helps attract and retain highly qualified director candidates who are willing to make long-term commitments of the time and resources necessary to understand Kellogg, its operations and its competitive environment. This commitment is critical to achieve our strategic goals and one that will be best fulfilled by a stable and continuous Board. Protection Against Certain Takeovers. Our classified board structure strongly encourages potential acquirers to deal directly with the Board if they are interested in acquiring Kellogg, and better positions the Board to negotiate effectively on behalf of shareowners to realize the greatest possible shareowner value. The classified board structure is designed to safeguard against a hostile purchaser replacing a majority of our Directors with its own nominees at a single annual meeting, thereby gaining control of Kellogg and its assets without paying fair market value to Kellogg’s shareowners. A classified board does not preclude a takeover, but rather provides the Board the time and flexibility necessary to evaluate the adequacy and fairness of any takeover proposal, negotiate on behalf of all shareowners and weigh alternative methods of maximizing shareowner value for all shareowners, without the threat of imminent removal of a majority of Board members. 73
It is important to note that Shareowner approval of this proposal would not in itself declassify the Board. Approval of this proposal would advise the Board that a majority of the company’s Shareowners voting at the meeting favor a change and would prefer that the Board take the necessary steps to end the staggered system of electing directors. However, to change the class structure of the Board, the Board must first approve amendments to Kellogg’s Certificate of Incorporation and Bylaws. At a subsequent Shareowner meeting, Shareowners would then have to approve each of those amendments with an affirmative vote of not less than two-thirds of the total voting power of all outstanding shares of Kellogg stock entitled to vote generally in the election of directors. After careful consideration of this proposal, the Nominating Committee and the entire Board have determined that retention of a classified board structure remains in the best interests of the Company and its shareowners. The Board believes that the benefits of a classified board structure do not come at the expense of director accountability. Moreover, the strong financial performance of Kellogg along with the various corporate governance measures implemented by the Board validates the Board’s commitment to Kellogg and its Shareowners. FOR THESE REASONS, THE BOARD OF DIRECTORS RECOMMENDS A VOTE “AGAINST” THE PROPOSAL. 74
MISCELLANEOUS Shareowner Proposals for the 20092010 Annual Meeting. Shareowner proposals submitted for inclusion in our proxy statement for the 20092010 Annual Meeting of Shareowners must be received by us no later than November 11, 2008.2009. Other Shareowner proposals to be submitted from the floor must be received by us not earlier than the 120th day prior to the 2009 meeting and not later than January 25, 2009,2010, and must meet certain other requirements specified in our bylaws. “Householding” of Proxy Materials. The SEC permits companies and intermediaries (e.g. brokers) to satisfy the delivery requirements for proxy statements (and related documents) with respect to two or more Shareowners sharing the same address by delivering a single proxy statement (and related documents) addressed to those Shareowners. This process, which is commonly referred to as “householding,” potentially means extra convenience for Shareowners and cost savings for companies.
A number of brokers with account holders who are Shareowners will be “householding” our proxy materials. As indicated in the notice previously provided by these brokers to Shareowners, a single proxy statement (and related documents) will be delivered to multiple Shareowners sharing an address unless contrary instructions have been received from an affected Shareowner or Shareowners. Once you have received notice from your broker or Kellogg that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until Kellogg or Kellogg’s transfer agent receives contrary instructions from an affected Shareowner or Shareowners.
Shareowners who currently receive multiple copies of the proxy statement (and related documents) at their address and would like to request “householding” of their communications should contact their broker or, if a Shareowner is a registered holder of shares of common stock, he or she should submit a written request to Wells Fargo Shareowner Services, our transfer agent, at P.O. Box 64854, St. Paul, MN 55164-0854; phone number:(877) 910-5385. Shareowners who are now “householding” their communications, but who wish to receive separate proxy statements (and related documents) in the future may also notify Wells Fargo Shareowner Services. We will promptly deliver, upon written or oral request, a separate copy of the proxy statement (and related documents) at a shared address to which a single copy was delivered.
Annual Report onForm 10-K; No Incorporation by Reference. Upon written request, we will provide any Shareowner, without charge, a copy of our Annual Report onForm 10-K for 20072008 filed with the SEC, including the financial statements and schedules, but without exhibits. Direct requests to Kellogg Company, P.O. Box CAMB, Battle Creek, Michigan49016-1986 (phone: 800.961.1413), to Ellen Leithold of the Investor Relations Department, Kellogg Company, P.O. Box 3599, Battle Creek, MI49016-3599 (phone: 269.961.2800), or to investor.relations@kellogg.com. You may also obtain this document and certain other of our SEC filings through the Internet at www.sec.gov or under “Investor Relations” at www.kelloggcompany.com, the Kellogg website. Notwithstanding any general language that may be to the contrary in any document filed with the SEC, the information in this proxy statement under the captions “Audit Committee Report,” and “Compensation Committee Report” shall not be incorporated by reference into any document filed with the SEC. By Order of the Board of Directors,
Gary Pilnick
Senior Vice President,
General Counsel, Corporate Development and Secretary March 3, 20086, 2009
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APPENDIX A KELLOGG COMPANY 2009 LONG-TERM INCENTIVE PLAN 1. PURPOSE. The purpose of the 2009 Long-Term Incentive Plan is to further and promote the interests of Kellogg Company, its Subsidiaries and its shareowners by enabling the Company and its Subsidiaries to attract, retain and motivate employees and officers or those who will become employees or officers, and to align the interests of those individuals and the Company’s shareowners. To do this, the Plan offers performance-based incentive awards and equity-based opportunities providing such employees and officers with a proprietary interest in maximizing the growth, profitability and overall success of the Company and its Subsidiaries. 2. DEFINITIONS. Unless the context clearly indicates otherwise, for purposes of the Plan, the following terms shall have the following meanings: 2.1. “10% Shareowner”has the meaning set forth in Section 6.2. 2.2. “Award”means an award or grant made to a Participant under Sections 6, 7, 8and/or 9 of the Plan. 2.3. “Award Agreement”means the written agreement executed by a Participant pursuant to Sections 3.2 and 16.7 of the Plan in connection with the granting of an Award. 2.4. “Base Value”has the meaning set forth in Section 7.2. 2.5. “Board”means the Board of Directors of the Company, as constituted from time to time. 2.6. “Change in Control”has the meaning set forth in Section 14.2. 2.7. “Change in Control Price”has the meaning set forth in Section 13.3 2.8. “Code”means the Internal Revenue Code of 1986, as in effect and as amended from time to time, or any successor statute thereto, together with any rules, regulations and interpretations promulgated thereunder or with respect thereto. 2.9. “Collective Awards”means Awards together with any awards issued under Old Plans as of the Effective Date. 2.10. “Committee”means the committee of the Board designated to administer the Plan, as described in Section 3 of the Plan. 2.11. “Common Stock”means the Common Stock, par value $0.25 per share, of the Company or any security of the Company issued by the Company in substitution or exchange therefor. 2.12. “Company”means Kellogg Company, a Delaware corporation, or any successor corporation to Kellogg Company. 2.13. “Covered Employee”has the meaning set forth in Section 9.6. 2.14. “Director”means a director of the Company. 2.15. “Disability”means disability as defined in the Participant’s then effective employment agreement, or if the Participant is not then a party to an effective employment agreement with the Company which defines disability, “Disability” means disability as determined by the Committee in accordance with standards and procedures similar to those under the Company’s long-term disability plan, if any. Subject to the first sentence of this Section 2.15, at any time that the Company does not maintain a long-term disability plan, “Disability” shall mean any physical or mental disability which is determined to be total and permanent by a physician selected in good faith by the Company. Notwithstanding the foregoing, for purposes of Incentive Stock Options “Disability” shall mean a permanent and total disability as defined in Section 22(e)(3) of the Code, and for purposes of any Award that is subject to Section 409A of the Code, “Disability” shall mean that a Participant is “disabled” under Section 409A(a)(2)(c)(i) or (ii) of the Code. 2.16. “Effective Date”has the meaning set forth in Section 16.11. 2.17. “Exchange Act”means the Securities Exchange Act of 1934, as in effect and as amended from time to time, or any successor statute thereto, together with any rules, regulations and interpretations promulgated thereunder or with respect thereto. A-1
2.18. “Exercise Value”has the meaning set forth in Section 7.2. 2.19. “Fair Market Value”on any date means (a) the officially quoted closing price in the primary trading session for a share of the Common Stock on the New York Stock Exchange-Composite Transactions Tape or on any other stock exchange, if any, on which the Common Stock is primarily traded (or if no shares of the Common Stock were traded on such date, then on the most recent previous date on which any shares of the Common Stock were so traded), or (b) if clause (a) is not applicable, the value of a share of the Common Stock for such date as established by the Committee, using any reasonable method of valuation consistent with the requirements of Section 409A of the Code. 2.20. “Incentive Stock Option”means any stock option granted pursuant to the provisions of Section 6 of the Plan (and the relevant Award Agreement) that is intended to be (and is specifically designated as) an “incentive stock option” within the meaning of Section 422 of the Code. 2.21. “Incumbent Board”has the meaning set forth in Section 14.2. 2.22. “Merger Event”has the meaning set forth in Section 13.3. 2.23. “Net Exercise”means a Participant’s ability to exercise a Stock Option by directing the Company to deduct from the shares of Common Stock issuable upon exercise of his or her Stock Option a number of shares of Common Stock having an aggregate Fair Market Value equal to the sum of the aggregate exercise price therefor plus the amount of the Participant’s minimum tax withholding (if any), whereupon the Company shall issue to the Participant the net remaining number of shares of Common Stock after such deductions. 2.24. “Non-Employee Director”means a director of the Company who is a “nonemployee director” within the meaning ofRule 16b-3 promulgated under the Exchange Act. 2.25. “Non-Qualified Stock Option”means any Stock Option granted pursuant to the provisions of Section 6 of the Plan (and the relevant Award Agreement) that is not an Incentive Stock Option. 2.26. “Old Plans” means the Kellogg Company 2001 Long-Term Incentive Plan and the Kellogg Company 2003 Long-Term Incentive Plan. 2.27. “Outside Director”means a director of the Company who is an “outside director” within the meaning of Section 162(m) of the Code. 2.28. “Outstanding Company Common Stock”has the meaning set forth in Section 14.2. 2.29. “Outstanding Company Voting Securities”has the meaning set forth in Section 14.2. 2.30. “Participant”means any individual who is selected from time to time under Section 5 to receive an Award under the Plan. 2.31. “Performance-Based Compensation”means any Award that is intended to constitute “performance-based compensation” within the meaning of Code Section 162(m)(4)(C). 2.32. “Performance Share Unit” or “Performance Share” means an Award granted pursuant to the provisions of Section 9 of the Plan and the relevant Award Agreement, or a Restricted Share Unit or Restricted Share intended to bePerformance-Based Compensation. 2.33. “Performance Unit”means an Award granted pursuant to the provisions of Section 9 of the Plan and the relevant Award Agreement. 2.34. “Person”has the meaning set forth in Section 14.2. 2.35. “Plan”means this Kellogg Company 2009 Long-Term Incentive Plan, as set forth herein and as in effect and as amended from time to time (together with any rules and regulations promulgated by the Committee with respect thereto). 2.36. “Restricted Shares”means an Award of restricted shares of Common Stock granted pursuant to the provisions of Section 8 of the Plan and the relevant Award Agreement. 2.37. “Restricted Share Units”means an Award granted pursuant to the provisions of Section 8 of the Plan and the relevant Award Agreement. 2.38. “Restriction Period”has the meaning set forth in Section 8.3. A-2
2.39. “Retirement”means the voluntary termination by the Participant from active employment with the Company and its Subsidiaries on or after the attainment of normal retirement age under Company-sponsored pension or retirement plans, or any other age with the consent of the Committee. 2.40. “Section 16 Officer”means an “officer” as such term is defined inRule 16a-1(f) of the Exchange Act. 2.41. “Stock Appreciation Right”means an Award described in Section 7.2 of the Plan and granted pursuant to the provisions of Section 7 of the Plan. 2.42. “Stock Option”means a Non-Qualified Stock Option or an Incentive Stock Option. 2.43. “Subsidiary(ies)”means any corporation or other entity of which outstanding shares or ownership interests representing 50% or more of the combined voting power of such corporation or other entity entitled to elect the management thereof, or such lesser percentage as may be approved by the Committee, are owned directly or indirectly by the Company. Notwithstanding the foregoing, for purposes of Incentive Stock Options, “Subsidiary” means any subsidiary corporation of the Company within the meaning of Section 424(f) of the Code. 3. ADMINISTRATION. 3.1. The Committee.The Plan shall be administered by the Compensation Committee of the Board, as constituted from time to time. The Committee shall consist of two or more non-employee directors, each of whom shall be (i) a “non-employee director” as defined inRule 16b-3 of the Exchange Act; (ii) to the extent required by Section 162(m) of the Code, an “outside director” as defined under Section 162(m) of the Code; and (iii) an “independent director” as defined under Section 303A of the Listed Company Manual of the New York Stock Exchange or such other applicable stock exchange rule. To the extent no Committee exists that has the authority to administer this Plan, the functions of the Committee shall be exercised by the Board. If for any reason the appointed Committee does not meet the requirements ofRule 16b-3 of the Exchange Act, Section 162(m) of the Code or Section 303A of the Listed Company Manual, such noncompliance shall not affect the validity of Awards, grants, interpretations or other actions of the Committee. 3.2. Plan Administration and Plan Rules.The Committee is authorized to construe and interpret the Plan and to promulgate, amend and rescind rules and regulations relating to the implementation, administration and maintenance of the Plan. Subject to the terms and conditions of the Plan, the Committee shall make all determinations necessary or advisable for the implementation, administration and maintenance of the Plan including, without limitation, (a) selecting the Plan’s Participants, (b) making Awards in such amounts and form as the Committee shall determine, (c) imposing such restrictions, terms and conditions upon such Awards as the Committee shall deem appropriate, and (d) correcting any technical defect(s) or technical omission(s), or reconciling any technical inconsistency(ies), in the Planand/or any Award Agreement. Subject to applicable law, the Committee may designate persons other than members of the Committee to carry out the day-to-day ministerial administration of the Plan under such conditions and limitations as it may prescribe. Subject to the requirements of Section 157(c) of the Delaware General Corporation Law (or any successor statute), the Committee may, in its sole discretion, delegate its authority to one or more senior executive officers for the purpose of making Awards to Participants who are not Section 16 Officers, but no officer of the Company shall have the authority to grant Awards to himself or herself. Any such delegation shall be made by resolution of the Board and such resolution shall set forth the total number of shares of Common Stock that may be subject to Awards granted pursuant to such delegation. The Committee’s determinations under the Plan need not be uniform and may be made selectively among Participants, whether or not such Participants are similarly situated. Any determination, decision or action of the Committee in connection with the construction, interpretation, administration, implementation or maintenance of the Plan shall be final, conclusive and binding upon all Participants and any person(s) claiming under or through any Participants. The Company shall effect the granting of Awards under the Plan, in accordance with the determinations made by the Committee, by execution of Award Agreements in such form as is approved by the Committee. 3.3. Liability Limitation.Neither the Board, the Committee, nor any member of either, or any of their designees, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan (or any Award Agreement) or any transaction hereunder, and the members of the Board and the Committee shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by lawand/or under any directors and officers liability insurance coverage which may be in effect from time to time. 4. TERM OF PLAN/COMMON STOCK SUBJECT TO PLAN. 4.1. Limitations for Incentive Stock Options.Incentive Stock Options may not be granted following February 19, 2019, which is the ten-year anniversary of the Board’s adoption of the Plan. The maximum number of shares of Common A-3
Stock that may be issued pursuant to the grant of Incentive Stock Options under the Plan shall be 27,000,000 shares (as may be adjusted pursuant to Section 13.2), without regard to the provisions of Section 4.2(ii). 4.2. Limitations for Common Stock. (i) The maximum number of shares of Common Stock in respect of which Awards may be granted or paid out under the Plan, subject to adjustment as provided in this Section, Section 4.3 and Section 13.2 of the Plan, shall not exceed 27,000,000 shares,plus the aggregate number of shares of Common Stock described in Section 4.2(ii). (ii) Any shares of Common Stock that are subject to Collective Awards that expire or lapse or are forfeited, surrendered, cancelled, terminated or settled in cash in lieu of Common Stock shall again be available for Awards under the Plan to the extent of such expiration, forfeiture, surrender, cancellation, termination or settlement of such Collective Awards (as may be adjusted pursuant to Section 13.2). Shares of Common Stock that as of the Effective Date have not been issued under the Old Plans, and are not covered by outstanding awards under the Old Plans granted on or before the Effective Date, shall not be available for Awards under the Plan. (iii) Common Stock which may be issued under the Plan may be either authorized and unissued shares or issued shares which have been reacquired by the Company (in the open-market or in private transactions) and which are being held as treasury shares. No fractional shares of Common Stock shall be issued under the Plan, and the Committee shall determine the manner in which fractional share value shall be treated. (iv) In the event of a change in the Common Stock of the Company that is limited to a change in the designation thereof to “Capital Stock” or other similar designation, or to a change in the par value thereof, or from par value to no par value, without increase or decrease in the number of issued shares, the shares resulting from any such change shall be deemed to be the Common Stock for purposes of the Plan. (v) The maximum number of shares of Common Stock that may be issued pursuant to the grant of Awards (other than Stock Options and Stock Appreciation Rights) under the Plan shall not exceed 5,000,000 shares (as may be adjusted pursuant to Section 13.2). 4.3. Computation of Available Shares. (i) For the purpose of computing the total number of shares of Common Stock available for Awards under the Plan, there shall be counted against the limitations set forth in Section 4.2 of the Plan (subject to the remainder of this Section and Section 13.2) the maximum number of shares of Common Stock issued upon exercise or settlement of Awards granted under Sections 6 and 7 of the Plan and the number of shares of Common Stock issued under grants of Restricted Shares, Restricted Share Units and Performance Share Units pursuant to Sections 8 and 9 of the Plan, in each case determined as of the date on which such Awards are issued. (ii) If a Stock Appreciation Right is settled, in part or in whole, through the issuance of shares of Common Stock or Restricted Shares, then all shares that were covered by the exercised Stock Appreciation Right shall not again be available for issuance under the Plan. (iii) If the exercise price of any Award is paid by tender to the Company, or attestation to the ownership, of shares of Common Stock owned by the Participant, or by means of a Net Exercise, the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares of Common Stock for which the Award is exercised. (iv) Shares of Common Stock withheld or deducted by the Company for tax withholding obligations pursuant to Section 16.1 shall not again be available for issuance under the Plan. (v) Shares of Common Stock repurchased on the open market with the proceeds from the exercise of an Award shall not be added to the shares of Common Stock available for Awards under this Plan. 4.4. Maximum Yearly Awards.The maximum annual Common Stock amounts in this Section 4.4 are subject to adjustment under Section 13.2 and are subject to the Plan maximum determined pursuant to Sections 4.2 and 4.3. 4.4.1 Stock Options and Stock Appreciation Rights.The maximum number of shares of Common Stock that may be subject to Awards of Stock Options or Stock Appreciation Rights to any Participant in any calendar year under the Plan shall not exceed 2,000,000 shares of Common Stock. 4.4.2 Restricted Shares and Restricted Share Units.There is no annual individual share limitation for Awards of Restricted Shares or Restricted Share Units which are not intended to be Performance-Based Compensation. A-4
4.4.3 Performance Share Units. The maximum number of shares of Common Stock that may be subject to Performance Share Units granted to any Participant in any calendar year under the Plan shall not exceed 1,000,000 shares of Common Stock. 4.4.4 Performance Units. The maximum cash amount payable under any Performance Unit intended to be Performance-Based Compensation to any Participant for any calendar year shall be $10 million. 4.5. Minimum Purchase Price.Notwithstanding any provision of the Plan to the contrary, if authorized but previously unissued shares of Common Stock are issued under the Plan, such shares shall not be issued for consideration that is less than as permitted under applicable law. 5. ELIGIBILITY. Individuals eligible for Awards under the Plan shall consist of employees, officers and directors, or those who will become employees, officers or directors, of the Companyand/or its Subsidiaries whose performance or contribution, in the sole discretion of the Committee, benefits or will benefit the Company or any Subsidiary. 6. STOCK OPTIONS. 6.1. Terms and Conditions.Stock Options granted under the Plan shall be in respect of Common Stock and may be in the form of Incentive Stock Options or Non-Qualified Stock Options. Such Stock Options shall be subject to the terms and conditions set forth in this Section 6 and any additional terms and conditions, not inconsistent with the express terms and provisions of the Plan, as the Committee shall set forth in the relevant Award Agreement. 6.2. Grant.Stock Options may be granted under the Plan in such form as the Committee may from time to time approve. Stock Options may be granted alone or in addition to other Awards under the Plan or in tandem with Stock Appreciation Rights. Additional provisions shall apply to Incentive Stock Options granted to any employee who owns (within the meaning of Section 422(b)(6) of the Code) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its parent corporation or any Subsidiary of the Company, within the meaning of Sections 424(e) and (f) of the Code (a“10% Shareowner”). 6.3. Exercise Price.The exercise price per share of Common Stock subject to a Stock Option shall be determined by the Committee; provided, however, that the exercise price of a Stock Option shall not be less than one hundred percent (100%) of the Fair Market Value of the Common Stock on the grant date of such Stock Option; provided, further, however, that, in the case of a 10% Shareowner, the exercise price of an Incentive Stock Option shall not be less than one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the grant date. 6.4. Term.The term of each Stock Option shall be such period of time as is fixed by the Committee; provided, however, that the term of any Stock Option shall not exceed ten (10) years (five (5) years, in the case of a 10% Shareowner receiving an Incentive Stock Option) after the date immediately preceding the date on which the Stock Option is granted. 6.5. Method of Exercise.A Stock Option may be exercised, in whole or in part, by giving written notice of exercise to the Secretary of the Company, or the Secretary’s designee, specifying the number of shares to be purchased. Such notice shall be accompanied by payment in full of the exercise price. The methods of payment permitted by this Plan for payment in full of the aggregate exercise price of a Stock Option are as follows: (i) by cash, certified check, bank draft, electronic transfer, or money order payable to the order of the Company, (ii) if permitted by the Committee in its sole discretion, by surrendering (or attesting to the ownership of) shares of Common Stock already owned by the Participant, (iii) pursuant to a Net Exercise arrangement;provided, however, that in such event, the Committee may exercise its discretion to limit the use of a Net Exercise solely with respect to the portion of such payment required to be made with respect to tax withholding, or (iv) if permitted by the Committee (in its sole discretion) and applicable law, by delivery of, alone or in conjunction with a partial cash or instrument payment, some other form of payment acceptable to the Committee. Payment instruments shall be received by the Company subject to collection. The proceeds received by the Company upon exercise of any Stock Option may be used by the Company for general corporate purposes. Any portion of a Stock Option that is exercised may not be exercised again. The shares issued to an optionee for the portion of any Stock Option exercised by attesting to the ownership of shares shall not exceed the number of shares issuable as a result of such exercise (determined as though payment in full therefor were being made in cash) less the number of shares for which attestation of ownership is submitted. The value of owned shares submitted (directly or by attestation) in full or partial payment for the shares purchased upon exercise of a Stock Option shall be equal to the aggregate Fair Market Value of such owned shares on the date of the exercise of such Stock Option. 6.6. Exercisability.Any Stock Option granted under the Plan shall become exercisable on such date or dates, or based on the attainment of such performance goals, as determined by the Committee (in its sole discretion) at any time A-5
and from time to time in respect of such Stock Option, and as set forth in the applicable Award Agreement. Notwithstanding anything to the contrary contained in this Section 6.6, unless otherwise provided in an Award Agreement, such Stock Option shall become one hundred percent (100%) vested and exercisable as to the aggregate number of shares of Common Stock underlying such Stock Option upon the death, Disability or Retirement of the Participant. 6.7. Tandem Grants.If Non-Qualified Stock Options and Stock Appreciation Rights are granted in tandem, as designated in the relevant Award Agreements, the right of a Participant to exercise any such tandem Stock Option shall terminate to the extent that the shares of Common Stock subject to such Stock Option are used to calculate amounts or shares receivable upon the exercise of the related tandem Stock Appreciation Right. 6.8. No Reload Provision.Stock Options granted under this Plan shall not contain any provision entitling the optionee to the automatic grant of additional Stock Options in connection with any exercise of the original Stock Option. 7. STOCK APPRECIATION RIGHTS. 7.1. Terms and Conditions.The grant of Stock Appreciation Rights under the Plan shall be subject to the terms and conditions set forth in this Section 7 and any additional terms and conditions, not inconsistent with the express terms and provisions of the Plan, as the Committee shall set forth in the relevant Award Agreement. 7.2. Stock Appreciation Rights.A Stock Appreciation Right is an Award granted with respect to a specified number of shares of Common Stock, as shall be determined by the Committee, entitling a Participant to receive an amount equal to the excess of the Fair Market Value of a share of Common Stock on the date of exercise (the“Exercise Value”) over the Fair Market Value of a share of Common Stock on the grant date of the Stock Appreciation Right (the“Base Value”), multiplied by the number of shares of Common Stock with respect to which the Stock Appreciation Right shall have been exercised. In the case of a Stock Appreciation Right related to a Stock Option described in Section 6.7, the Base Value shall be the purchase price of a share of Common Stock under the Stock Option, provided, however, such amount may not be less than the Fair Market Value of the Common Stock on the date the Stock Appreciation Right is awarded. The Base Value of a Stock Appreciation Right shall not be less than one hundred percent (100%) of the Fair Market Value of the Common Stock on the grant date of such Stock Appreciation Right. 7.3. Grant.A Stock Appreciation Right may be granted in addition to any other Award under the Plan or in tandem with or independent of a Non-Qualified Stock Option. 7.4. Term.The term of each Stock Appreciation Right shall be such period of time as is fixed by the Committee; provided, however, that the term of any Stock Appreciation Right shall not exceed ten (10) years after the date immediately preceding the date on which the Stock Appreciation Right is granted. 7.5. Date of Exercisability.In respect of any Stock Appreciation Right granted under the Plan, unless otherwise (a) determined by the Committee (in its sole discretion) at any time and from time to time in respect of any such Stock Appreciation Right, or (b) provided in the Award Agreement, a Stock Appreciation Right may be exercised by a Participant, in accordance with and subject to all of the procedures established by the Committee, in whole or in part at such time or timesand/or based on the achievement of such performance goals as determined by the Committee in its sole discretion. Notwithstanding the preceding sentence, in no event shall a Stock Appreciation Right be exercisable prior to the exercisability of any Non-Qualified Stock Option with which it is granted in tandem. The Committee may also provide, as set forth in the relevant Award Agreement and without limitation, that some Stock Appreciation Rights shall be automatically exercised and settled on one or more fixed dates specified therein by the Committee. 7.6. Form of Payment.Upon exercise of a Stock Appreciation Right, payment may be made to the Participant in respect thereof in cash, in Restricted Shares or in shares of unrestricted Common Stock, or in any combination thereof, as the Committee, in its sole discretion, shall determine and provide in the relevant Award Agreement. 7.7. Tandem Grant.The right of a Participant to exercise a tandem Stock Appreciation Right shall terminate to the extent such Participant exercises the Non-Qualified Stock Option to which such Stock Appreciation Right is related. 8. RESTRICTED SHARES AND RESTRICTED SHARE UNITS. 8.1. Restricted Share and Restricted Share Unit Grants.A grant of Restricted Shares is an Award of shares of Common Stock granted to a Participant, subject to such restrictions, terms and conditions as the Committee deems appropriate, including, without limitation, (a) restrictions on the sale, assignment, transfer, hypothecation or other disposition of such shares, (b) the requirement that the Participant deposit such shares with the Company while such shares are subject to such restrictions, and (c) the requirement that such shares be forfeited upon termination of employment for specified reasons within a specified period of time or for other reasons (including, without limitation, the A-6
failure to achieve designated performance goals). A grant of Restricted Share Units is a notional Award of shares of Common Stock which entitle the Participant to a number of unrestricted shares of Common Stock equal to (or a cash amount equal in value to such number of unrestricted shares of Common Stock) the number of Restricted Share Units upon the lapse of similar restrictions, terms and conditions. 8.2. Terms and Conditions.Grants of Restricted Shares and Restricted Share Units shall be subject to the terms and conditions set forth in this Section 8 and any additional terms and conditions, not inconsistent with the express terms and provisions of the Plan, as the Committee shall set forth in the relevant Award Agreement. Restricted Shares and Restricted Share Units may be granted alone or in addition to any other Awards under the Plan. Subject to the terms of the Plan, the Committee shall determine the number of Restricted Shares and Restricted Share Units to be granted to a Participant and the Committee may provide or impose different terms and conditions on any particular Restricted Share or Restricted Share Units grant made to any Participant. With respect to each Participant receiving an Award of Restricted Shares, there shall be issued a stock certificate (or certificates) in respect of such Restricted Shares. Such stock certificate(s) shall be registered in the name of such Participant, shall be accompanied by a stock power duly executed by such Participant, and shall bear, among other required legends, the following legend: “The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including, without limitation, forfeiture events) contained in the Kellogg Company 2009 Long-Term Incentive Plan and an Award Agreement entered into between the registered owner hereof and Kellogg Company. Copies of such Plan and Award Agreement are on file in the office of the Secretary of Kellogg Company, One Kellogg Square, Battle Creek, MI 49016. Kellogg Company will furnish to the recordholder of the certificate, without charge and upon written request at its principal place of business, a copy of such Plan and Award Agreement. Kellogg Company reserves the right to refuse to record the transfer of this certificate until all such restrictions are satisfied, all such terms are complied with and all such conditions are satisfied.” Such stock certificate evidencing such shares shall, in the sole discretion of the Committee, be deposited with and held in custody by the Company until the restrictions thereon shall have lapsed and all of the terms and conditions applicable to such grant shall have been satisfied. With respect to each Participant receiving an Award of Restricted Share Units that is settled in shares of Common Stock, there shall be issued a stock certificate (or certificates) in respect of the underlying shares of Common Stock upon the lapse of the restrictions associated with such Restricted Share Units. 8.3. Restriction Period.In accordance with Sections 8.1 and 8.2 of the Plan and unless otherwise determined by the Committee (in its sole discretion) at any time and from time to time, Restricted Shares and Restricted Share Units shall only become unrestricted and vested in accordance with the vesting schedule relating to such Restricted Shares and Restricted Share Units, if any, as the Committee may establish in the relevant Award Agreement, which may be based on the lapse of a specified time period or periods or on the attainment of specified performance goals (the“Restriction Period”). During the Restriction Period, such Restricted Shares and the underlying shares of Common Stock with respect to the Restricted Share Units shall be and remain unvested and a Participant may not sell, assign, transfer, pledge, encumber or otherwise dispose of or hypothecate such Award. Upon satisfaction of the vesting schedule and any other applicable restrictions, terms and conditions, the Participant shall be entitled to receive payment of the Restricted Shares or a portion thereof, as the case may be, as provided in Section 8.4 of the Plan. Restricted Share Units may be paid in cash, shares of Common Stock or any combination thereof, as determined by the Committee. To the extent that any Restricted Share Award or Restricted Share Unit Award is intended to be Performance-Based Compensation, such award shall be subject to the provisions of Sections 9.4, 9.6 and 9.7, and the certification requirements contained in Section 9.5. 8.4. Payment of Restricted Share and Restricted Share Unit Grants.After the satisfactionand/or lapse of the restrictions, terms and conditions established by the Committee in respect of a grant of Restricted Shares, a new or additional certificate, without the legend set forth in Section 8.2 of the Plan, for the number of shares of Common Stock which are no longer subject (or deemed subject) to such restrictions, terms and conditions shall, as soon as practicable thereafter, be delivered to the Participant. Restricted Share Units may be paid or settled in cash or in shares of Common Stock, or in combination thereof, as the Committee, in its sole discretion, shall determine and provide in the relevant Award Agreement. 8.5. Shareowner Rights.A Participant shall have, with respect to the shares of Common Stock underlying a grant of Restricted Shares (but not under Restricted Share Units), all of the rights of a shareowner of such shares (except as such rights are limited or restricted under the Plan or in the relevant Award Agreement). A-7
9. PERFORMANCE UNITS AND PERFORMANCE SHARE UNITS. 9.1. Terms and Conditions.Performance Units and Performance Share Units shall be subject to the terms and conditions set forth in this Section 9 and any additional terms and conditions, not inconsistent with the express provisions of the Plan, as the Committee shall set forth in the relevant Award Agreement. 9.2. Performance Unit and Performance Share Unit Grants.A grant of Performance Units is a notional Award of units (with each unit representing such monetary amount or value as is designated by the Committee in the Award Agreement) granted to a Participant, subject to such terms and conditions as the Committee deems appropriate, including, without limitation, the requirement that the Participant forfeit such units (or a portion thereof) in the event certain performance criteria or other conditions are not met within a designated period of time. A grant of Performance Share Units is an Award of actual or notional shares of Common Stock which entitle the Participant to a number of shares of Common Stock equal to the number of Performance Share Units upon achievement of specified performance goals and such other terms and conditions as the Committee deems appropriate. 9.3. Grants.Performance Units and Performance Share Units may be granted alone or in addition to any other Awards under the Plan. Subject to the terms of the Plan, the Committee shall determine the number of Performance Units and Performance Share Units to be granted to a Participant and the Committee may impose different terms and conditions on any particular Performance Units and Performance Share Units granted to any Participant. 9.4. Performance Goals and Performance Periods.Participants receiving a grant of Performance Units and Performance Share Units shall be entitled to payment in respect of such Awards if the Companyand/or the Participant achieves specified performance goals (the“Performance Goals”) during and in respect of a designated performance period (the“Performance Period”). The Performance Goals and the Performance Period shall be established in writing by the Committee, in its sole discretion. The Committee shall establish Performance Goals for each Performance Period prior to, or as soon as practicable after, the commencement of such Performance Period (and, in any event, no later than ninety (90) days after the commencement of the Performance Period or such other period required by applicable law). At the time of the granting of Performance Units and Performance Share Units which are intended to constitute Performance-Based Compensation, or at any time thereafter, in either case to the extent permitted under Section 162(m) of the Code without adversely affecting the treatment of the Award as Performance-Based Compensation, the Committee may provide for the manner in which performance will be measured against the Performance Goals (or may adjust the Performance Goals) to reflect the impact of specified corporate transactions, accounting or tax law changes and other extraordinary or nonrecurring events. The Committee shall also establish a schedule or schedules for Performance Units and Performance Share Units setting forth the portion of the Award which will be earned or forfeited based on the degree of achievement, or lack thereof, of the Performance Goals at the end of the relevant Performance Period. In setting Performance Goals, the Committee may use, but shall not be limited to, such measures as total shareowner return, return on equity, net earnings growth, sales or revenue growth, cash flow, or such other measure or measures of performance as the Committee, in its sole discretion, may deem appropriate (which may include those measures set forth in Section 9.6). Such performance measures shall be defined as to their respective components and meaning by the Committee (in its sole discretion) and may be based on the attainment of specified levels of Company (or Subsidiary, division, or other operational or administrative department of the Company) performance relative to the performance of other corporations or based on individual participant Performance Goals. 9.5. Payment of Units.With respect to each Performance Unit and Performance Share Unit, the Participant shall, if the applicable Performance Goals have been achieved, or partially achieved, as determined by the Committee in its sole discretion, by the Companyand/or the Participant during the relevant Performance Period, be entitled to receive payment in an amount equal to the designated value of each Performance Unit and Performance Share Unit times the number of such units so earned. Prior to the vesting, payment, settlement or lapsing of any restrictions with respect to any Performance Unit and Performance Share Unit that is intended to constitute Performance-Based Compensation made to a Participant who is subject to Section 162(m) of the Code, the Committee shall certify in writing that the applicable Performance Goals have been satisfied to the extent necessary for such Award to qualify as Performance-Based Compensation. Payment in settlement of earned Performance Units shall be made in cash as soon as practicable in the calendar year following the conclusion of the respective Performance Period. Payment in settlement of earned Performance Share Units shall be made in unrestricted Common Stock or in Restricted Shares, or any combination thereof, as the Committee in its sole discretion shall determine and provide in the relevant Award Agreement, and in any case as soon as practicable in the calendar year following the conclusion of the respective Performance Period. 9.6. Performance-Based Awards.Performance Units, Performance Share Units, Restricted Shares, and Restricted Share Units and other Awards subject to performance criteria that are intended to be Performance-Based Compensation A-8
shall be paid solely on account of the attainment of one or more pre-established, objective Performance Goals within the meaning of Section 162(m) and the regulations thereunder. Until otherwise determined by the Committee, the Performance Goals shall be the attainment of pre-established levels of (or pre-established changes or improvements in) any of net sales, net income, market price per share, earnings per share, return on equity, return on capital employed, return on invested capital, cash flow, discounted cash flow, cumulative cash flow, operating profit, gross or pre-tax profits, post-tax profits, gross or net margins, consolidated net income, unit sales volume, economic value added, costs or cost reduction initiatives, production, unit production volume, improvements in financial ratings, regulatory compliance, achievement of balance sheet or income statement objectives, market or category share, organizational objectives (including diversity, safety and K-values), productivity initiatives, acquisition integration, total return to shareowners (including both the market value of the Company’s stock and dividends thereon) or any other performance measure the Committee deems appropriate. Performance Goals may be in respect of the performance of the Company, any of its Subsidiaries or affiliates or any combination thereof on either a consolidated, business unit or divisional level. Performance Goals may be absolute or relative (to prior performance of the Company or to the performance of one or more other entities or external indices) and may be expressed in terms of a progression within a specified range. The payout of any such Award to a Covered Employee may be reduced, but not increased, based on the degree of attainment of other performance criteria or otherwise at the discretion of the Committee. For purposes of the Plan,“Covered Employee”has the same meaning as set forth in Section 162(m) of the Code. 9.7. Termination of Employment.If the Participant ceases to be an employee before the end of any Performance Period due to the Participant’s death, Retirement or Disability before the end of any Performance Period, such Participant (or the Participant’s legal representative or designated beneficiary) shall receive all of the amount which would have been paid to the Participant had the Participant continued as an employee to the end of the Performance Period, payable at the same time as it would otherwise would have been paid in the absence of any such termination. Unless otherwise determined by the Committee, if a Participant ceases to be an employee for any other reason, any unpaid amounts for outstanding Performance Periods shall be forfeited. 10. DEFERRAL ELECTIONS/TAX REIMBURSEMENTS. The Committee may permit or require a Participant to elect to defer receipt of any payment of cash or any delivery of shares of Common Stock or other item that would otherwise be due to such Participant by virtue of the exercise, settlement or payment of any Award made under the Plan. If any such election is permitted or required, the Committee may impose any restrictions it deems to be necessary or appropriate with respect to (i) any deferral election made with respect to an Award under the Plan and (ii) the timing of the payment of any deferred amounts, in each case, in order to cause such deferral election and payment timing to comply with the requirements of Section 409A(a) of the Code. The Committee may also provide in the relevant Award Agreement for a tax reimbursement payment to be made by the Company in cash in favor of any Participant in connection with the tax consequences resulting from the grant, exercise, settlement, or payment of any Award made under the Plan. 11. DIVIDEND AND DIVIDEND EQUIVALENTS. As specified in the relevant Award Agreement, the Committee may provide that Awards (other than Stock Options, Stock Appreciation Rights and unvested Performance Share Units) denominated in shares earn dividends or dividend equivalents. Dividends or any such dividend equivalents may be paid currently in cash or shares of Common Stock or may be credited to an account established by the Committee under the Plan in the name of the Participant. To the extent that such Dividends or dividend equivalents are credited to an account and are not paid currently, such credited amounts shall be paid at such time or times as determined by the Committee and set forth in an Award Agreement consistent with the requirements of Section 409A of the Code. Any crediting of dividends or dividend equivalents may be subject to such restrictions and conditions as the Committee may establish, including reinvestment in additional shares or share equivalents. Any stock dividends paid in respect of unvested Restricted Shares or unvested Restricted Share Units shall be treated as additional Restricted Shares or Restricted Share Units and shall be subject to the same restrictions and other terms and conditions that apply to the unvested Restricted Shares or unvested Restricted Share Units in respect of which such stock dividends are issued. 12. NON-TRANSFERABILITY OF AWARDS. Except as provided below, no Award under the Plan or any Award Agreement, and no rights or interests herein or therein, shall or may be assigned, transferred, sold, exchanged, encumbered, pledged, or otherwise hypothecated or disposed of by a Participant or any beneficiary(ies) of any Participant, except by testamentary disposition by the Participant or the laws of intestate succession. No such interest shall be subject to execution, attachment or similar legal process, including, without limitation, seizure for the payment of the Participant’s debts, judgments, alimony, or separate maintenance. Except as provided below, during the lifetime of a Participant, Stock Options and Stock Appreciation Rights are exercisable only by the Participant or his or her legal representative. Notwithstanding the foregoing, the Committee may from time to time permit Awards to be transferable to “family members” (within the meaning of the General Instructions toForm S-8) subject to such terms and conditions as the A-9
Committee may impose and applicable law;provided, however,no Award may be transferred for value (as defined in the General Instructions toForm S-8). Any transfer contrary to this Section 12 will nullify the Award. 13. CHANGES IN CAPITALIZATION AND OTHER MATTERS. 13.1. No Corporate Action Restriction.The existence of the Plan, any Award Agreementand/or the Awards granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the shareowners of the Company to make or authorize (a) any adjustment, recapitalization, reorganization or other change in the Company’s or any Subsidiary’s capital structure or its business, (b) any merger, consolidation or change in the ownership of the Company or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stocks ahead of or affecting the Company’s or any Subsidiary’s capital stock or the rights thereof, (d) any dissolution or liquidation of the Company or any Subsidiary, (e) any sale or transfer of all or any part of the Company’s or any Subsidiary’s assets or business, or (f) any other corporate act or proceeding by the Company or any Subsidiary. No Participant, beneficiary or any other person shall have any claim against any member of the Board or the Committee, the Company or any Subsidiary, or any employees, officers, shareowners or agents of the Company or any Subsidiary, as a result of any such action. 13.2. Recapitalization Adjustments.In the event of a dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property) other than regular cash dividends, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation,split-up, spin-off, combination, Change in Control or exchange of Common Stock or other securities of the Company, or other corporate transaction or event affects the Common Stock such that an adjustment is necessary or appropriate in order to prevent dilution or enlargement of benefits or potential benefits intended to be made available under the Plan, the Board shall equitably adjust (i) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted, (ii) the maximum share limitation applicable to each type of Award that may be granted to any individual participant in any calendar year, (iii) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards, and (iv) the exercise price with respect to any Stock Option or the Base Value with respect to any Stock Appreciation Right. 13.3. Mergers.If the Company enters into or is involved in any merger, reorganization, Change in Control or other business combination with any person or entity (a“Merger Event”), the Board may, prior to such Merger Event and effective upon such Merger Event, take such action as it deems appropriate, including, but not limited to, replacing Awards with substitute Awards in respect of the shares, other securities or other property of the surviving corporation or any affiliate of the surviving corporation on such terms and conditions, as to the number of shares, pricing and otherwise, which shall substantially preserve the value, rights and benefits of any affected Awards granted hereunder as of the date of the consummation of the Merger Event. Notwithstanding anything to the contrary in the Plan, if any Merger Event or Change in Control occurs, the Company shall have the right, but not the obligation, to cancel each Participant’s Stock Optionsand/or Stock Appreciation Rights and to pay to each affected Participant in connection with the cancellation of such Participant’s Stock Optionsand/or Stock Appreciation Rights, an amount equal to the excess (if any) of the Change in Control Price (as defined below), as determined by the Board, of the Common Stock underlying any unexercised Stock Options or Stock Appreciation Rights (whether then exercisable or not) over the aggregate exercise price of such unexercised Stock Optionsand/or Stock Appreciation Rights, and make additional adjustmentsand/or settlements of other outstanding Awards as it determines to be fair and equitable to affected Participants. Upon receipt by any affected Participant of any such substitute Award (or payment) as a result of any such Merger Event, such Participant’s affected Awards for which such substitute Awards (or payment) were received shall be thereupon cancelled without the need for obtaining the consent of any such affected Participant. For purposes of the Plan,“Change in Control Price”means the highest price per share of Common Stock paid in any transaction related to a Change in Control of the Company or a Merger Event. To the extent that the consideration paid in any such transaction described above consists all or in part of securities or other non-cash consideration, the value of such securities or other non-cash consideration shall be determined in the good-faith discretion of the Board consistent with provisions of Section 409A of the Codeand/or other applicable law. A-10
14. CHANGE IN CONTROL PROVISIONS. 14.1. Impact of Event.Notwithstanding any other provision of the Plan to the contrary and unless otherwise determined by the Committee, prior to a Change in Control, in the event of a Change in Control: (i) Any Stock Options and Stock Appreciation Rights outstanding as of the date such Change in Control is determined to have occurred, and which are not then exercisable and vested, shall become fully exercisable and vested; (ii) The restrictions and deferral limitations applicable to any Restricted Shares shall lapse, and such Restricted Shares shall become free of all restrictions and become fully vested and transferable; (iii) All Performance Units shall be considered to be earned and payable in full, and any deferral or other restrictions shall lapse, and such Performance Units shall be settled in cash (with the value being determined by the Committee, in its sole discretion), and all Restricted Share Units and Performance Share Units shall become fully vested and payable, in each case, as promptly as is practicable on or following the Change in Control;provided, however,that in the event that the Change in Control does not constitute a “change in the ownership or effective control,” or a “change in the ownership of a substantial portion of the assets,” of the Company, in each case within the meaning of Section 409A(a)(2)(A)(v) of the Code, Performance Units, Restricted Share Units and Performance Share Units shall not be payable until the date such Performance Units, Restricted Share Units and Performance Share Units would have been payable in the absence of this Section 14.1 if the acceleration of such payment would cause the tax consequences set forth in Section 409A(a)(1) of the Code to apply to such Performance Units, Restricted Share Units and Performance Share Units; and (iv) The Committee may also make additional adjustmentsand/or settlements of outstanding Awards as it deems appropriate and consistent with the Plan’s purposes (including Section 13.3). 14.2. Definition of Change in Control.For purposes of the Plan, a“Change in Control”shall mean the happening of any of the following events: (i) An acquisition after the date hereof by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a“Person”) of beneficial ownership (within the meaning ofRule 13d-3 promulgated under the Exchange Act) of 20% or more of either (a) the then outstanding shares of common stock of the Company (the“Outstanding Company Common Stock”) or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the“Outstanding Company Voting Securities”); excluding, however, the following: (1) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company or approved by the Incumbent Board (as defined below), (2) any increase in beneficial ownership of a Person as a result of any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, (4) any acquisition by an underwriter temporarily holding Company securities pursuant to an offering of such securities, or (5) any acquisition pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (iii) of this Section 14.2; or (ii) A change in the composition of the Board such that the individuals who, as of the Effective Date of the Plan, constitute the Board (such Board shall be hereinafter referred to as the“Incumbent Board”) cease for any reason to constitute at least a majority of the Board;provided, however,for purposes of this Section, that any individual who becomes a member of the Board subsequent to the Effective Date of the Plan, whose election, or nomination for election by the Company’s shareowners, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso), either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination shall be considered as though such individual were a member of the Incumbent Board; but,provided further,that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or (iii) Consummation of a reorganization, merger or consolidation (or similar transaction), a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity; in each case, unless immediately following such transaction (1) all or substantially all of the individuals and A-11
entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such transaction will beneficially own, directly or indirectly, more than 60% of, respectively, the outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such transaction, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (other than the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such transaction) will beneficially own, directly or indirectly, 20% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such transaction or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors, except to the extent that such ownership existed prior to the transaction, and (3) individuals who were members of the Incumbent Board at the time of the Board’s approval of the execution of the initial agreement providing for such transaction will constitute at least a majority of the members of the board of directors of the corporation resulting from such transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries); or (iv) The approval by the shareowners of the Company of a complete liquidation or dissolution of the Company. 15. AMENDMENT, SUSPENSION, AND TERMINATION. 15.1. In General.The Board may suspend or terminate the Plan (or any portion thereof) at any time and may amend the Plan at any time and from time to time in such respects as the Board may deem advisable to ensure that any and all Awards conform to or otherwise reflect any change in applicable laws or regulations, or to permit the Company or the Participants to benefit from any change in applicable laws or regulations, or in any other respect the Board may deem to be in the best interests of the Company or any Subsidiary. No such amendment, suspension or termination shall (a) subject to Section 16.6, materially adversely affect the rights of any Participant under any outstanding Awards, without the consent of such Participant, (b) make any change that would disqualify the Plan, or any other plan of the Company or any Subsidiary intended to be so qualified, from the benefits provided under Section 422 of the Code, or any successor provisions thereto, or (c) except as contemplated by Section 13, increase the number of shares available for Awards pursuant to Section 4.2 without shareowner approval. In addition, the Company will obtain shareowner approval of any modification of the Plan or Awards to the extent required by applicable laws or regulations or the regulations of any stock exchange upon which the Common Stock is then listed that purport to (i) materially modify the requirements as to eligibility for participation in the Plan, (ii) allow the repurchase of Stock Options or Stock Appreciation Rights for cash, other types of Awards under the Plan or other property (other than in connection with a Change in Control) or (iii) extend the termination date of the Plan. 15.2. No Repricing. Except as contemplated by Section 13, in the event of a decline in stock price the Board may not amend the Plan or any Award Agreement to decrease the purchase price of any outstanding Stock Option or the Base Value of any outstanding Stock Appreciation Right to a price less than Fair Market Value on the date of grant, either by decreasing the exercise price of any outstanding Stock Option or the Base Value of any outstanding Stock Appreciation Right, or through the cancellation of outstanding Stock Options or Stock Appreciation Rights in connection with granting Awards at a lower exercise price or Base Value. 15.3. Award Agreement Modifications.Subject to Section 15.1, the Committee may (in its sole discretion) amend or modify at any time and from time to time the terms and provisions of any outstanding Stock Options, Stock Appreciation Rights, Performance Units, Performance Share Units, Restricted Share Units, or Restricted Share grants, in any manner to the extent that the Committee under the Plan or any Award Agreement could have initially determined the restrictions, terms and provisions of such Stock Options, Stock Appreciation Rights, Performance Units, Performance Share Units, Restricted Share Unitsand/or Restricted Share grants, including, without limitation, changing or accelerating (a) the date or dates as of which such Stock Options or Stock Appreciation Rights shall become exercisable, (b) the date or dates as of which such Restricted Share grants or Restricted Share Units shall become vested, or (c) the performance period or goals in respect of any Performance Share Units or Performance Units. Subject to Section 16.6, no such amendment or modification shall, however, materially adversely affect the rights of any Participant under any such Award without the consent of such Participant. Notwithstanding the foregoing, without the consent of affected Participants, Awards may be amended or revised when necessary to avoid the imposition of additional tax under Section 409A of the Code. A-12
16. MISCELLANEOUS. 16.1. Tax Withholding.The Company shall have the right to deduct from any payment or settlement under the Plan, including, without limitation, the exercise of any Stock Option or Stock Appreciation Right, or the delivery, transfer or vesting of any Common Stock or Restricted Shares, any domestic or foreign federal, state, local or other taxes of any kind which the Committee, in its sole discretion, deems necessary to be withheld to comply with the Codeand/or any other applicable law, rule or regulation. Shares of Common Stock may be used to satisfy any such tax withholding. Such shares of Common Stock shall be valued based on the Fair Market Value of such shares as of the date the tax withholding is required to be made, such date to be determined by the Committee. In addition, the Company shall have the right to require payment from a Participant to cover any applicable withholding or other employment taxes due upon any payment or settlement under the Plan. 16.2. No Right to Employment.Neither the adoption of the Plan, the granting of any Award, nor the execution of any Award Agreement, shall confer upon any employee of the Company or any Subsidiary any right to continued employment with the Company or any Subsidiary, as the case may be, nor shall it interfere in any way with the right, if any, of the Company or any Subsidiary to terminate the employment of any employee at any time for any reason. 16.3. Unfunded Plan.The Plan shall be unfunded and the Company shall not be required to segregate any assets in connection with any Awards under the Plan. Any liability of the Company to any person with respect to any Award under the Plan or any Award Agreement shall be based solely upon the contractual obligations that may be created as a result of the Plan or any such Award Agreement. No such obligation of the Company shall be deemed to be secured by any pledge of, encumbrance on, or other interest in, any property or asset of the Company or any Subsidiary. Nothing contained in the Plan or any Award Agreement shall be construed as creating in respect of any Participant (or beneficiary thereof or any other person) any equity or other interest of any kind in any assets of the Company or any Subsidiary or creating a trust of any kind or a fiduciary relationship of any kind between the Company, any Subsidiaryand/or any such Participant, any beneficiary thereof or any other person. 16.4. Payments to a Trust.The Committee is authorized to cause to be established a trust agreement or several trust agreements or similar arrangements from which the Committee may make payments of amounts due or to become due to any Participants under the Plan. 16.5. Other Company Benefit and Compensation Programs.Payments and other benefits received by a Participant under an Award made pursuant to the Plan shall not be deemed a part of a Participant’s compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Company or any Subsidiary unless expressly provided in such other plans or arrangements, or except where the Board expressly determines in writing that inclusion of an Award or portion of an Award should be included to accurately reflect competitive compensation practices or to recognize that an Award has been made in lieu of a portion of competitive annual base salary or other cash compensation. Awards under the Plan may be made in addition to, in combination with, or as alternatives to, grants, awards or payments under any other plans or arrangements of the Company or its Subsidiaries. The existence of the Plan notwithstanding, the Company or any Subsidiary may adopt such other compensation plans or programs and additional compensation arrangements as it deems necessary to attract, retain and motivate employees. 16.6. Listing, Registration and Other Legal Compliance.No Awards or shares of the Common Stock shall be required to be issued or granted under the Plan unless legal counsel for the Company shall be satisfied that such issuance or grant will be in compliance with all applicable securities laws and regulations and any other applicable laws or regulations. The Committee may require, as a condition of any payment or share issuance, that certain agreements, undertakings, representations, certificates,and/or information, as the Committee may deem necessary or advisable, be executed or provided to the Company to assure compliance with all such applicable laws or regulations. Certificates for shares of the Restricted Sharesand/or Common Stock delivered under the Plan may be subject to such stock-transfer orders and such other restrictions as the Committee may deem advisable under the rules, regulations, or other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed, and any applicable laws. In addition, if, at any time specified herein (or in any Award Agreement or otherwise) for (a) the making of any Award, or the making of any determination, (b) the issuance or other distribution of Restricted Sharesand/or Common Stock, or (c) the payment of amounts to or through a Participant with respect to any Award, any law, rule, regulation or other requirement of any governmental authority or agency shall require either the Company, any Subsidiary or any Participant (or any estate, designated beneficiary or other legal representative thereof) to take any action in connection with any such determination, any such shares to be issued or distributed, any such payment, or the making of any such determination, as the case may be, shall be deferred until such required action is taken. With respect to A-13
Section 16 Officers, transactions under the Plan are intended to comply with all applicable conditions ofRule 16b-3 promulgated under the Exchange Act. In addition, the Company or Committee may, at the time of grant or thereafter, impose additional or different conditions or take other actions with respect to Awards made to Participants in countries outside of the United States of America, to the extent required or made advisable by applicable laws and regulations. 16.7. Award Agreements.Each Participant receiving an Award under the Plan shall enter into an Award Agreement with the Company in a form specified by the Committee. Each such Participant shall then agree to the restrictions, terms and conditions of the Award set forth therein and in the Plan. An Award Agreement may provide that, notwithstanding any other provision in this Plan to the contrary, if the Participant breaches provisions in the Award Agreement during or after the Participant’s employment, then the Participant will forfeitand/or repay all Awards (whether unvested or vested) and profits realized in connection therewith. 16.8. Designation of Beneficiary.Each Participant to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or to receive any payment which under the terms of the Plan and the relevant Award Agreement may become exercisable or payable on or after the Participant’s death. At any time, and from time to time, any such designation may be changed or cancelled by the Participant without the consent of any such beneficiary. Any such designation, change or cancellation must be on a form provided for that purpose by the Committee and shall not be effective until received by the Committee. If no beneficiary has been designated by a deceased Participant, or if the designated beneficiaries have predeceased the Participant, the beneficiary shall be the Participant’s estate. If the Participant designates more than one beneficiary, any payments under the Plan to such beneficiaries shall be made in equal shares unless the Participant has expressly designated otherwise, in which case the payments shall be made in the shares designated by the Participant. 16.9. Leaves of Absence/Transfers.The Committee shall have the power to promulgate rules and regulations and to make determinations, as it deems appropriate, under the Plan in respect of any leave of absence from the Company or any Subsidiary granted to a Participant. Without limiting the generality of the foregoing, the Committee may determine whether any such leave of absence shall be treated as if the Participant has terminated employment with the Company or any such Subsidiary. If a Participant transfers within the Company, or to or from any Subsidiary, such Participant shall not be deemed to have terminated employment as a result of such transfers. 16.10. Governing Law.The Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. Any titles and headings herein are for reference purposes only, and shall in no way limit, define or otherwise affect the meaning, construction or interpretation of any provisions of the Plan. 16.11. Effective Date.The Plan shall be effective as of February 20, 2009 (the“Effective Date”) subject to approval by the shareowners of the Company. Prior to such shareowner approval, the Committee may grant Awards conditioned on shareowner approval. If such shareowner approval is not obtained at or before the first annual meeting of shareowners to occur after the adoption of the Plan by the Board (including any adjournments or postponements thereof), the Plan and any Awards made thereunder shall terminateab initioand be of no further force and effect. In no event shall awards be granted under the Plan after February 19, 2019 (or such earlier date that the Plan may be terminated by the Board), but the term and exercise of Awards granted theretofore may extend beyond that date. 16.12. Section 409A of the Code.The Plan is intended to comply with the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent. To the extent that any Award is subject to Section 409A of the Code, it shall be paid in a manner that will comply with Section 409A of the Code, including the final treasury regulations or any other official guidance issued by the Secretary of the Treasury or the Internal Revenue Service with respect thereto. Notwithstanding anything herein to the contrary, any provision on the Plan that is inconsistent with Section 409A of the Code shall be deemed to be amended to comply with Section 409A of the Code and to the extent such provision cannot be amended to comply therewith, such provision shall be null and void. A-14
APPENDIX B KELLOGG COMPANY 2009 NON-EMPLOYEE DIRECTOR STOCK PLAN 1. PURPOSE. The purpose of the Kellogg Company 2009 Non-Employee Director Stock Plan is to promote the long-term growth of Kellogg Company by increasing the proprietary interest of non-employee directors in Kellogg Company and to attract and retain highly qualified and capable non-employee directors. 2. DEFINITIONS. Unless the context clearly indicates otherwise, for the purposes of the Plan, the following terms shall have the following meanings: 2.1. “Award”means an award granted to a Non-Employee Director under the Plan in the form of Shares or Restricted Shares 2.2. “Award Agreement”means a written agreement between a Participant and the Company evidencing an Award. 2.3. “Board”means the Board of Directors of Kellogg Company, as constituted from time to time. 2.4. “Change in Control”has the meaning set forth in Section 9.4. 2.5. “Code”means the Internal Revenue Code of 1986, as in effect and as amended from time to time, or any successor statute thereto, together with any rules, regulations and interpretations promulgated thereunder or with respect thereto. 2.6. “Committee”means the committee of the Board designated to administer the Plan, as described in Section 3 of the Plan. 2.7. “Company”means Kellogg Company, a Delaware corporation, or any successor corporation to Kellogg Company. 2.8. “Effective Date”has the meaning set forth in Section 12. 2.9. “Exchange Act”means the Securities Exchange Act of 1934, as in effect and as amended from time to time, or any successor statute thereto, together with any rules, regulations and interpretations promulgated thereunder or with respect thereto. 2.10. “Fair Market Value”means, with respect to any date, (a) the officially quoted closing price in the primary trading session for a Share on the New York Stock Exchange — Composite Transactions Tape or on any other stock exchange, if any, on which the Shares are primarily traded (or if no Shares were traded on such date, then on the most recent previous date on which any Shares were so traded) or (b) if clause (a) is not applicable, the value of a Share for such date as established by the Committee, using any reasonable method of valuation consistent with the requirements of Section 409A of the Code. 2.11. “Incumbent Board”has the meaning set forth in Section 9.4. 2.12. “Merger Event”has the meaning set forth in Section 9.3. 2.13. “Non-Employee Director”means a director of the Company who is not an employee of the Company or any subsidiary of the Company. 2.14. “Outstanding Company Common Stock”has the meaning set forth in Section 9.4. 2.15. “Outstanding Company Voting Securities”has the meaning set forth in Section 9.4. 2.16. “Participant”means a Non-Employee Director who has been selected to receive an Award under the Plan. 2.17. “Person”has the meaning set forth in Section 9.4. 2.18. “Plan”means the Kellogg Company 2009 Non-Employee Director Stock Plan, as amended and restated from time to time (together with any rules and regulations promulgated by the Committee with respect thereto). 2.19. “Restricted Shares”means Shares subject to such restrictions, terms and conditions as the Committee deems appropriate, including, without limitation (a) restrictions on the sale, assignment, transfer, hypothecation or other disposition of such Shares, (b) the requirement that the Participant deposit such Shares with the Company B-1
which such Shares are subject to such restrictions and (c) the requirement that such Shares be forfeited upon termination of Board service for specified reasons within a specified period of time or for other reasons. 2.20. “Shares”means Shares of the common stock, par value $.25 per share, of the Company or any security of the Company issued by the Company in substitution or exchange therefor. 2.21. “Stock Account”has the meaning set forth in Section 7.7. 2.22. “Subsidiary(ies)”means any corporation or other entity of which outstanding shares or ownership interests representing 50% or more of the combined voting power of such corporation or other entity entitled to elect the management thereof, or such lesser percentages as may be approved by the Committee, are owned directly or indirectly by the Company. 2.23. “Trusthas the meaning set forth in Section 7.7. 3. ADMINISTRATION. 3.1. Administrator of the Plan. The Plan shall be administered by the Nominating and Governance Committee of the Board, as constituted from time to time. The Committee shall consist of two or more Non-Employee Directors, each of whom shall be (a) a “non-employee director” within the meaning ofRule 16b-3 promulgated under the Exchange Act and (b) an “independent director” as defined under Section 303A of the Listed Company Manual of the New York Stock Exchange or such other applicable stock exchange rule. To the extent no Committee exists that has the authority to administer the Plan, the functions of the Committee shall be exercised by the Board. If for any reason the appointed Committee does not meet the requirements ofRule 16b-3 of the Exchange Act or Section 303A of the Listed Company Manual, such noncompliance shall not affect the validity of Awards, grants, interpretations or other actions of the Committee. 3.2. Authority of Committee. The Committee shall have full power and authority to: (i) interpret and construe the Plan and adopt such rules and regulations as it shall deem necessary and advisable to implement and administer the Plan, and (ii) designate persons other than members of the Committee to carry out its responsibilities, subject to such limitations, restrictions and conditions as it may prescribe, such determinations to be made in accordance with the Committee’s best business judgment as to the best interests of the Company and its shareowners and in accordance with the purposes of the Plan. Subject to applicable law, the Committee may delegate administrative duties under the Plan to one or more agents as it shall deem necessary or advisable. 3.3. Determinations of Committee. A majority of the Committee’s members shall constitute a quorum at any meeting of the Committee, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or a meeting of the Committee by a written consent signed by all members of the Committee. 3.4. Liability Limitation. Neither the Board nor the Committee, nor any member of either, or any of their designees, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan (or any Award or Award Agreement) or any transaction hereunder, and the members of the Board and the Committee shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by lawand/or under any directors and officers liability insurance coverage which may be in effect from time to time. 4. AWARDS. Awards in the form of Shares or Restricted Shares shall be granted to Non-Employee Directors in accordance with Section 7. Each Award granted under the Plan shall be evidenced by an Award Agreement. 5. ELIGIBILITY. Non-Employee Directors of the Company shall be eligible to participate in the Plan in accordance with Section 7 hereof. 6. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided in Section 9.2, the aggregate number of Shares available for all grants of Awards under the Plan shall not exceed 500,000,plus the aggregate number of Shares described in the immediately following sentence. If any Awards under the Plan and the Kellogg Company 2000 Non-Employee Director Stock Plan (the“2000 Plan”) are forfeited, surrendered, cancelled, terminated or settled in cash in lieu of common stock, the Shares which were thereto subject (or potentially subject) to such Awards shall again be available for Awards under the Plan to the extent of such expiration, forfeiture, surrender, cancellation, termination or settlement of such Awards (as may be adjusted pursuant to Section 9.2). Shares withheld or deducted by the Company for tax withholding obligations in accordance with Section 11.1 hereof or the 2000 Plan shall not again be available for issuance under the Plan. Shares that as of the Effective Date have not been issued under the 2000 Plan, and are not covered by B-2
outstanding Awards under the 2000 Plan granted on or before the Effective Date, shall not be available for Awards under the Plan. 7. GRANTS OF AWARDS. 7.1. Annual Share Grants. Each year during the term of the Plan, beginning in 2009, an annual Award of Shares or Restricted Shares shall be made to each Participant on the second business day following the earlier of (a) the Company’s announcement by press release or other widely disseminated means of its results of operations for the first fiscal quarter of the Company, or (b) the Company’s filing with the Securities and Exchange Commission of its Quarterly Report onForm 10-Q for the first fiscal quarter of the Company. The number of Shares granted pursuant to each annual Award shall be determined by the Committee, and the Committee will also have the authority under the Plan to change the timing of the annual Awards. Non-Employee Directors first elected or appointed to the Board at any time other than the Annual Meeting of Shareowners shall receive an initial Award on the date on which that person first begins to serve as a Non-Employee Director equal to the most recently granted annual Award, pro-rated based upon the number of days remaining until the next Annual Meeting of Shareowners divided by 365. 7.2. Other Share Grants. The Committee may make other grants of Shares or Restricted Shares to Non-Employee Directors at such times and subject to such terms and conditions as it may determine in its sole discretion. 7.3. Terms and Conditions. Grants of Shares or Restricted Shares shall be subject to the terms and conditions set forth in this Section 7 and additional terms and conditions, not inconsistent with the express terms and provisions of the Plan, as the Committee shall set forth in the relevant Award Agreement. With respect to each Participant receiving an Award, there shall be issued a stock certificate (or stock certificates) in respect of such Shares or Restricted Shares. Such stock certificate(s) shall be registered in the name of such Participant, shall be accompanied by a stock power duly executed by such Participant if required by the Award Agreement, and shall bear legends required by the Award Agreement. Such stock certificate(s) evidencing such Shares shall, in the sole discretion of the Committee, be deposited with and held in custody of the Company until the restrictions thereon, if any, shall have lapsed and all of the terms and conditions applicable to such grant have been satisfied. 7.4. Restriction Period. Unless otherwise determined by the Committee (in its sole discretion) at any time and from time to time, Restricted Shares shall only become unrestricted and vested in accordance with the Plan and the vesting schedule relating to such Restricted Shares, as the Committee may establish in the relevant Award Agreement. 7.5. Payment of Restricted Share Grants. After the satisfactionand/or lapse of the restrictions, terms and conditions established by the Committee in respect of a grant of Restricted Shares, a new or additional certificate (without legends) for the number of Shares which are no longer subject (or deemed to be subject) to such restrictions, terms and conditions shall, as soon as practicable thereafter, be delivered to Participant. 7.6. Shareowner Rights. A Participant shall have, with respect to the Shares underlying a grant of Restricted Shares, all of the rights of a shareowner of such Shares (except as such rights are limited or restricted under the Plan or in the relevant Award Agreement). Any stock dividends paid in respect of unvested Restricted Shares shall be treated as additional Restricted Shares and shall be subject to the same restrictions and other terms and conditions that apply to the unvested Restricted Shares in respect of which such stock dividends are issued. 7.7. Stock Account. The Committee may provide that annual Awards shall be made by entry into a stock account. If the Committee does so, the Company shall establish a bookkeeping account in the name of each Participant (the“Stock Account”). For any Award made by Stock Account entry, the Participant’s Stock Account shall be adjusted to reflect such Shares and an aggregate number of Shares credited to each Participant on such date shall be transferred by the Company to the Kellogg Company Grantor Trust (the“Trust”) for Participants. Except for the right to direct the trustee as to the manner which the Shares are to be voted, a Participant shall not have any rights with respect to any Shares credited to the Participant’s Stock Account and transferred to the Trust until the date the Participant ceases, for any reason, to serve as a director of the Company. Dividends on the Shares held in Stock Accounts will be credited to the Participant’s Stock Account to be used to acquire additional Shares. 8. AMENDMENT, SUSPENSION, AND TERMINATION. 8.1. In General. The Board may suspend or terminate the Plan (or any portion thereof) at any time and may amend the Plan at any time and from time to time in such respects as the Board may deem advisable to ensure that any and all Awards conform to or otherwise reflect any change in applicable laws or regulations, or to permit the Company, or the Participants to benefit from any change in applicable laws or regulations, or in any other respect the Board may deem to be in the best interests of the Company or any Subsidiary. No such amendment, suspension, or termination shall (a) subject B-3
to Section 11.2, materially adversely affect the rights of any Participant under any outstanding Awards, without the consent of such Participant, or (b) except as contemplated by Section 9, increase the number of Shares available for Awards pursuant to Section 6 without shareowner approval. In addition, the Company will obtain shareowner approval of any modification of the Plan or Awards to the extent required by applicable laws or regulations or the regulations of any stock exchange upon which the Shares are then listed that purport to (i) materially modify the requirements as to eligibility for participant in the Plan, (ii) allow the repurchase of unvested Awards for cash or other property (other than in connection with a Change in Control), or (iii) extend the termination date of the Plan. 8.2. Award Agreement Modifications. The Committee may (in its sole discretion) amend or modify at any time and from time to time the terms and provisions of any outstanding Awards in any manner to the extent that the Committee under the Plan or any Award Agreement could have initially determined the restrictions, terms and provisions of such Awards, including, without limitation, changing or accelerating the date or dates as of which such Awards shall become unrestricted. No such amendment or modification shall, however, materially adversely affect the rights of any Participant under any such Award without the consent of such Participant. Notwithstanding the foregoing, without the consent of affected Participants, Awards may be amended or revised when necessary to avoid the imposition of additional tax under Section 409A of the Code. 9. CHANGES IN CAPITALIZATION AND OTHER MATTERS. 9.1. No Corporate Action Restriction. The existence of the Plan, any Award Agreementand/or the Awards granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the shareowners of the Company to make or authorize (a) any adjustment, recapitalization, reorganization or other change in the Company’s or any Subsidiary’s capital structure or its business, (b) any merger, consolidation or change in the ownership of the Company or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stocks ahead of or affecting the Company’s or any Subsidiary’s capital stock or the rights thereof, (d) any dissolution or liquidation of the Company or any Subsidiary, (e) any sale or transfer of all or any part of the Company’s or any Subsidiary’s assets or business, or (f) any other corporate act or proceeding by the Company or any Subsidiary. No Participant, beneficiary or any other person shall have any claim against any member of the Board or the Committee, the Company or any Subsidiary, or any employees, officers, shareowners or agents of the Company or any Subsidiary, as a result of any such action. 9.2. Recapitalization Adjustments. In the event of a dividend or other distribution (whether in the form of cash, Shares, other securities or other property) other than regular cash dividends, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation,split-up, spin-off, combination, Change in Control or exchange of common stock or other securities of the Company, or other corporate transaction or event affects the Shares such that an adjustment is necessary or appropriate in order to prevent dilution or enlargement of benefits or potential benefits intended to be made available under the Plan, the Board shall equitably adjust (i) the number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted and (ii) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards or make provision for an immediate cash payment to the holder of an outstanding Award in consideration for the cancellation of such Award. 9.3. Mergers. If the Company enters into or is involved in any merger, reorganization, Change in Control or other business combination with any person or entity (a“Merger Event”), the Board may, prior to such Merger Event and effective upon such Merger Event, take such action as it deems appropriate, including, but not limited to, replacing any Restricted Shares with substitute awards in respect of the shares, other securities or other property of the surviving corporation or any affiliate of the surviving corporation on such terms and conditions, as to the number of shares and otherwise, which shall substantially preserve the value, rights and benefits of any affected Restricted Shares granted hereunder as of the date of the consummation of the Merger Event, and make additional adjustmentsand/or settlements of other outstanding Restricted Shares as it determines to be fair and equitable to affected Participants. Upon receipt by any affected Participant of any such awards (or payment) as a result of any such Merger Event, such Participant’s affected Restricted Shares for which such substitute awards (or payment) were received shall be thereupon cancelled without the need for obtaining the consent of any such affected Participant. B-4
9.4. Change in Control Provisions. (a) Impact of Event. Notwithstanding any other provision of the Plan to the contrary and unless otherwise determined by the Committee prior to the occurrence of a Change in Control, in the event of a Change in Control: (i) Any Restricted Shares outstanding as of the date such Change in Control is determined to have occurred, and which are not then vested, shall become fully vested; and (ii) The Committee may also make additional adjustmentsand/or settlements of outstanding Restricted Shares as it deems appropriate and consistent with the Plan’s purposes. (b) Definition of Change in Control. For purposes of the Plan, a“Change in Control”shall mean the happening of any of the following events: (i) An acquisition after the date hereof by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a“Person”) of beneficial ownership (within the meaning ofRule 13d-3 promulgated under the Exchange Act) of 20% or more of either (a) the then outstanding shares of common stock of the Company (the“Outstanding Company Common Stock”) or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the“Outstanding Company Voting Securities”); excluding, however, the following: (A) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company or approved by the Incumbent Board (as defined below), (B) any increase in beneficial ownership of a Person as a result of any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, (D) any acquisition by an underwriter temporarily holding Company securities pursuant to an offering of such securities, or (E) any acquisition pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (iii) of this Section 9.4(b); or (ii) A change in the composition of the Board such that the individuals who, as of the Effective Date of the Plan, constitute the Board (such Board shall be hereinafter referred to as the“Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this Section, that any individual who becomes a member of the Board subsequent to the Effective Date of the Plan, whose election, or nomination for election by the Company’s shareowners, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso), either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or (iii) Consummation of a reorganization, merger or consolidation (or similar transaction), a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity; in each case, unless immediately following such transaction: (A) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such transaction will beneficially own, directly or indirectly, more than 60% of, respectively, the outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such transaction, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, B-5
(B) no Person (other than the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such transaction) will beneficially own, directly or indirectly, 20% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such transaction or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors except, to the extent that such ownership existed prior to the transaction, and (C) individuals who were members of the Incumbent Board at the time of the Board’s approval of the execution of the initial agreement providing for such transaction will constitute at least a majority of the members of the board of directors of the corporation resulting from such transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries); or (iv) The approval by the shareowners of the Company of a complete liquidation or dissolution of the Company. 10. FOREIGN DIRECTORS. Without amending the Plan, Awards granted to Participants who are foreign nationals may have such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to foster and promote achievement of the purposes of the Plan and, in furtherance of such purposes, the Committee may make such modifications, amendments, procedures, subplans and the like as may be necessary or advisable to comply with provisions of laws in other countries or jurisdictions in which the Company or its Subsidiaries operate or have Non-Employee Directors. 11. MISCELLANEOUS. 11.1. Tax Withholding. The Company shall have the right to deduct from any payment or settlement under the Plan, or the delivery, transfer or vesting of any Shares or Restricted Shares, any domestic or foreign federal, state, local or other taxes of any kind which the Committee, in its sole discretion, deems necessary to be withheld to comply with the Codeand/or any other applicable law, rule or regulation. Shares may be used to satisfy any such tax withholding. Such Shares will be valued based on the Fair Market Value of such Shares of the date the tax withholding is required to be made, such date to be determined by the Committee. In addition, the Company shall have the right to require payment from a Participant to cover any applicable withholding or other employment taxes due upon any payment or settlement under the Plan. 11.2. Listing, Registration and Other Legal Compliance. No Awards shall be required to be issued or granted under the Plan unless legal counsel for the Company shall be satisfied that such issuance or grant will be in compliance with all applicable federal and state securities laws and regulations and any other applicable laws or regulations. The Committee may require, as a condition of any payment or share issuance, that certain agreements, undertakings, representations, certificates,and/or information, as the Committee may deem necessary or advisable, be executed or provided to the Company to assure compliance with all such applicable laws or regulations. Certificates for Shares delivered under the Plan may be subject to such stock-transfer orders and such other restrictions as the Committee may deem advisable under the rules, regulations, or other requirements of the Securities and Exchange Commission, any stock exchange upon which the common stock is then listed, and any applicable federal or state securities law. In addition, if at any time specified herein (or in any Award Agreement or otherwise) for (a) the making of any Award, or the making of any determination, (b) the issuance or other distribution of Shares, or (c) the payment of amounts to or through a Participant with respect to any Award, any law, rule, regulation or other requirement of any governmental authority or agency shall require either the Company, any Subsidiary or any Non-Employee Director (or any estate, designated beneficiary or other legal representative thereof) to take any action in connection with any such determination, any such Shares to be issued or distributed, any such payment, or the making of any such determination, as the case may be, shall be deferred until such required action is taken. With respect to persons subject to Section 16 of the Exchange Act, transactions under the Plan are intended to comply with all applicable conditions ofRule 16b-3 promulgated under the Exchange Act. 11.3. Award Agreements. Each Non-Employee Director receiving an Award under the Plan shall enter into an Award Agreement with the Company in a form specified by the Committee. Each such Participant shall agree to the restrictions, terms and conditions of the Award set forth therein and in the Plan. 11.4. Designation of Beneficiary. Each Non-Employee Director to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to receive any payment which under the terms of the Plan and the relevant Award Agreement may become payable on or after the Participant’s death. At any time, and from time to time, any such designation may be changed or cancelled by the Participant without the consent of any such beneficiary. Any such designation, change or cancellation must be on a form provided for that purpose by the Committee and shall not be B-6
effective until received by the Committee. If no beneficiary has been designated by a deceased Participant, or if the designated beneficiaries have predeceased the Participant, the beneficiary shall be the Participant’s estate. If the Participant designates more than one beneficiary, any payments under the Plan to such beneficiaries shall be made in equal shares unless the Participant has expressly designated otherwise, in which case the payments shall be made in the shares designated by the Participant. 11.5. No Obligation to Re-elect. Nothing in the Plan shall be deemed to create any obligation on the part of the Board of Directors to nominate any Director for re-election by the Company’s shareowners. 11.6. Plan Not Exclusive. The adoption of the Plan shall not preclude the adoption by appropriate means of any other equity or other incentive plan for Non-Employee Directors. 11.7. Governing Law. The Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. Any titles and headings herein are for reference purposes only, and shall in no way limit, define or otherwise affect the meaning, construction or interpretation of any provisions of the Plan. 12. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall be effective as of February 20, 2009 (the“Effective Date”), subject to approval by the Company’s shareowners. If shareowner approval is not obtained at the 2009 Annual Meeting of Shareowners, the Plan shall be nullified. The Plan shall terminate on February 19, 2019 (or such earlier date that the Plan may be terminated by the Board), but the term of Awards granted theretofore may extend beyond that date. B-7
KELLOGG COMPANY, BATTLE CREEK, MICHIGAN49017-3534
[Graphic Appears Here] POST OFFICE BOX 3599 ONE KELLOGG SQUARE BATTLE CREEK, MI 49016-3599 VOTE BY INTERNET — www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time on April 24, 2008.the day before the cutoff date or meeting date. Have your proxy card in hand when you access the web sitewebsite and follow the instructions to obtain your records and to create an electronic voting instruction form.POST OFFICE BOX 3599ELECTRONIC DELIVERY OF FUTURE SHAREOWNERONE KELLOGG SQUARECOMMUNICATIONSBATTLE CREEK, MI 49016-3599If you would like to reduce the costs incurred by Kellogg Company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareowner communications electronically in future years.VOTE BY PHONE -— 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time on April 24, 2008.the day before the cutoff date or meeting date. Have your proxy card in hand when you call and then follow the instructions.VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Kellogg Company, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KELOG1 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.DETACH AND RETURN THIS PORTION ONLYKELLOGG COMPANY The Kellogg Company Board of Directors recommends a vote FOR the following proposal. If you sign and return this card without marking a vote, this proxy card will be treated as being FOR the following proposal. 1. ELECTION OF DIRECTORS (terms expiring in 2011) Nominees: 01) David Mackay 02) Sterling Speirn 03) John Zabriskie For All Withhold All For All Except 0 ForAllTo withhold authority to vote for any individualAll All Except nominee(s), mark “For All Except” and write theThe Board of Directors recommends a vote FOR number(s) of the nominee(s) on the line below.each of the nominees for director in Proposal1. 0 0 0 Vote on Directors 1. Election Of Directors (term expires 2012)Nominees: 01) John T. Dillon 02) James M. Jenness 03) Donald R. Knauss 04) Robert A. SteeleFor Against Abstain The Kellogg Company Board of Directors recommends a vote FOR the following proposal. If you signProposals 2, 3 and return this card without marking a vote, this proxy card will be treated as being FOR such proposal.4. 2. Ratification of the appointment of PricewaterhouseCoopers LLP as Kellogg’s independent registered public accounting firm for 200820090 0 0 3. Approval of the Kellogg Company 2009 Long-Term Incentive Plan0 0 0 4. Approval of the Kellogg Company 2009 Non-Employee Director Stock Plan0 0 0 The Board of Directors recommends a vote AGAINST Proposals 5 and 6.5. Enact a majority vote requirement for the following shareowner proposal. If you sign and return this card without marking a vote, this proxy card will be treated as being AGAINST such proposal. 3. Shareowner proposal to enact a Majority Vote Requirementelection of directors0 0 0 6. Elect each director annually0 0 0 NOTE:Please sign exactly as name(s) appear(s) hereon. When signing as attorney, executor, administrator, trustee, or guardian, please give full name as such. For Against 0 0 Abstain 0 For Against Abstain 0 0 0 Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date [Graphic Appears Here] |
KELLOGG COMPANY ADMISSION TICKET (not transferable) You are cordially invited to attend the Annual Meeting of Shareowners of Kellogg Company to be held on Friday, April 25, 200824, 2009 at 1:00 p.m. (Eastern Time) at the W. K. Kellogg Auditorium, 50 West Van Buren Street, Battle Creek, Michigan. You shouldPlease present this admission ticket in order to gain admittance to the meeting. This ticket admits only the shareowner(s) listed on the reverse side and is not transferable. If these shares are held in the name of a broker, trust, bank or other nominee, you should bring a proxy or letter from the broker, trustee, bank or nominee confirming the beneficial ownership of the shares. IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREOWNERS TO BE HELD ON APRIL 25, 2008:24, 2009: The Notice andof the Annual Meeting, the Proxy Statement, and accompanying Annual Reportthe annual report, including Form 10-K, are available at www.proxyvote.com. http://investor.kelloggs.com. KELOG2KELLOGG COMPANY PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR ANNUAL MEETING OF SHAREOWNERS, APRIL 25, 2008 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.24, 2009 The undersigned appoints James M. Jenness and Gordon Gund, or each one of them as shall be in attendance at the meeting, as proxy or proxies, with full power of substitution, to represent the undersigned at the Annual Meeting of Shareowners of Kellogg Company to be held on April 25, 200824, 2009 and at any adjournmentspostponement or adjournment of the meeting, and to vote on behalf of the undersigned as specified on this Proxy the number of shares of common stock of Kellogg Company as the undersigned would be entitled to vote if personally present, upon the matters referred to on the reverse side hereof, and, in their discretion, upon any other business as may properly come before the meeting. The undersigned acknowledges receipt of the Notice of the Annual Meeting of Shareowners and of the accompanying proxy statement and revokes any proxy heretofore given with respect to such meeting. The votes entitled to be cast by the undersigned will be cast as instructed. If this Proxy is executed, but no instruction is given, the votes entitled to be cast by the undersigned will be cast “FOR” each of the nominees for director in proposal 1, “FOR” proposals 2, 3 and 4, and “AGAINST” proposals 5 and 6, each of which is set forth on the reverse side hereof. The votes entitled to be cast by the undersigned will be cast in the discretion of the Proxy holder on any other matter that may properly come before the meeting and any adjournment or postponement thereof.IMPORTANT— This Proxy is continued and must be signed and dated on the reverse side. [Graphic Appears Here] |
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