1
KELLOGG COMPANY
SENIOR EXECUTIVE OFFICER PERFORMANCE BONUS PLAN
SECTION 1.
PURPOSE AND ELIGIBILITY
The purpose of this Plan is to motivate the Company's executive
officers through awards of annual cash bonuses to achieve strategic, financial
and operating objectives, reward their contribution toward improvement in
financial performance, provide the executive officers with an additional
incentive to contribute to the success of the Company and offer a total
compensation package that is competitive in the industry, and to include a
bonus component which is intended to qualify as performance-based compensation
deductible by the Company under the Code. Such executive officers of the
Company as determined by the Compensation Committee of the Board will be
eligible to receive payments hereunder.
SECTION 2.
DEFINITIONS
"Award" shall have the meaning set forth in Section 3.
"Board" shall mean the Board of Directors of the Company.
"Bonus" shall mean a cash award payable to a participant pursuant to
the terms of the plan, including an Award.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Compensation Committee of the Board.
"Company" shall mean Kellogg Company, a Delaware corporation, and its
subsidiaries.
"Compensation Survey" shall mean a survey of compensation practices of
comparable companies as selected by the Committee.
"Corporate Incentive Factor" shall mean the Company's earnings per
share (as adjusted for certain extraordinary or non-recurring items) as
compared to the pre-established target earnings per share.
42
2
"Covered Employees" shall mean participants designated by the
Committee prior to the award of a Bonus opportunity hereunder who are or are
expected to be "covered employees" within the meaning of Section 162(m) of the
Code for the Measurement Period in which a Bonus hereunder is payable.
"Disinterested Person" shall mean a member of the Board who qualifies
as an "outside director" for purposes of Section 162(m) of the Code.
"Measurement Period" shall mean a period of one fiscal year, unless a
shorter period is otherwise selected and established in writing by the
Committee at the time the Performance Goals are established with respect to a
particular Award.
"Net Income" shall mean net income available for common stockholders
as reported in the Company's audited financial statements, but not including
extraordinary items and the cumulative effect of accounting changes.
"Payment Date" shall mean the date following the conclusion of a
particular Measurement Period on which the Committee certifies that applicable
Performance Goals have been satisfied and authorizes payment of corresponding
Bonuses.
"Performance Goals" shall have the meaning set forth in Section 3
hereof.
SECTION 3.
ADMINISTRATION AND CALCULATION OF AWARDS
The Plan shall be administered by the Committee, consisting of
Disinterested Persons, in conformance with Section 162(m) of the Code ("Section
162(m)"). Any action by the Committee that would be violative of Section 162(m)
shall be void. The Committee shall have the authority to determine eligibility
of executive officers and the financial and other performance criteria
applicable to the maximum potential recommended bonus (the "Award") which a
participating executive officer may receive for services performed during that
year. Target awards, which are a percentage of the midpoint of the applicable
salary range, shall be determined using as an objective the 75th percentile of
the Compensation Survey. Recommended Awards shall be determined by adjusting
the target awards based on individual performance factors. The result is then
adjusted further based on the Corporate Incentive Factor. This adjustment of
the recommended bonus may result in a bonus payment ranging from 0% to 150% of
the recommended bonus. The Committee shall evaluate individual performance by
such performance factors as it deems appropriate. The performance factors shall
be determined by the Committee in advance of each Measurement Period or such
period as may be permitted by the regulations issued under Section 162(m), and
may include long-term financial and non-financial objectives and Company
performance ("Performance Goals"). With respect to the Chief Executive Officer,
the factors shall be the same as those utilized by the Committee in its annual
determination of performance including the Company's earnings per share, return
on equity, return on
43
3
assets, growth in sales and earnings, market share and total return to
stockholders (including both the market value of the Company's stock and
dividends thereon) and the extent to which strategic and business plan goals
are met. Awards are based on the achievement of such performance criteria.
Negative discretion may be used by the Committee to reduce the Award. In no
event, however, will an exercise of negative discretion to reduce the Award of
a participating executive officer have the effect of increasing the amount of
an Award otherwise payable to any other participating executive officer.
SECTION 4.
MAXIMUM BONUS AWARDS
The total of all Awards payable to any Covered Employee shall not
under any circumstances exceed 3/4 of 1 percent (.0075) of the Net Income of
the Company (the "Maximum Bonus Awards Pool") and no one individual may receive
more than 60% of such pool. In the event that the total of all Awards payable
to Covered Employees should exceed the Maximum Bonus Awards Pool as specified
above, the Award of each Covered Employee will be proportionately reduced such
that the total of all such Awards paid is equal to the Maximum Bonus Awards
Pool.
SECTION 5.
PAYMENT OF AWARDS
If the Performance Goals established by the Committee are satisfied
and upon written certification by the Committee that the Performance Goals have
been satisfied, payment shall be made on the Payment Date in accordance with
the terms of the Award unless the Committee determines in its sole discretion
to reduce the payment to be made.
SECTION 6.
TERMINATION OF EMPLOYMENT
In the event that a participating executive officer's employment with
the Company terminates for any reason prior to the Payment Date with respect to
any Bonus, the balance of any Bonus which remains unpaid at the time of such
termination shall be payable to the participant, or forfeited by the
participant, in accordance with the terms of the Award granted by the
Committee; provided, however, that no amount shall be payable unless the
Performance Goals are satisfied unless the termination of employment of the
Covered Employee is due to death or disability. Participating executive
officers who remain employed through the Measurement Period but are terminated
prior to the Payment Date shall be entitled to receive Bonuses payable with
respect to such Measurement Period.
SECTION 7.
44
4
AMENDMENT AND TERMINATION
The Board shall have the right to modify the Plan from time to time
but no such modification shall, without prior approval of the Company's
stockholders, change Section 3 of this Plan, alter the business criteria on
which the Performance Goals may be based or to increase the amount set forth in
Section 4, materially increase the amount available for Awards, materially
increase the benefits accruing to participating executive officers, materially
modify the requirements regarding eligibility for participation in the Plan or,
without the consent of the participant affected, impair any Award made prior to
the effective date of the modification.
SECTION 8.
MISCELLANEOUS
Bonus payments shall be made from the general funds of the Company and
no special or separate fund shall be established or other segregation of assets
made to assure payment. No participant or other person shall have under any
circumstances any interest in any particular property or assets of the Company.
The Plan shall be governed by and construed in accordance with the laws of the
State of Delaware, without regard to its principles of conflict of laws.
Neither the establishment of this Plan nor the payment of any Award
hereunder nor any action of the Company or the Committee with respect to this
Plan shall be held or construed to confer upon any participating executive
officer any legal right to be continued in the employ of the Company or to
receive any particular rate of cash Compensation other than pursuant to the
terms of this Plan and the determination of the Committee, and the Company
expressly reserves the right to discharge any participating executive officer
whenever the interest of the Company may so permit or require without liability
to the Company, the Board of Directors or the Committee, except as to any
rights which may be expressly conferred upon a participating executive officer
under this Plan.
The adoption of this Plan shall not affect any other compensation
plans in effect for the Company or any subsidiary or affiliate of the Company,
nor shall the Plan preclude the Company or any subsidiary or affiliate thereof
from establishing any other forms of incentive or other compensation for the
participating executive officers.
SECTION 9.
EFFECTIVE DATE
This Plan shall become effective upon approval by the stockholders.
45