Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): June 30, 2015

 

 

The Kraft Heinz Company

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-37482   46-2078182

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification Number)

One PPG Place

Pittsburgh, Pennsylvania

  15222
(Address of principal executive offices)   (Zip Code)

(412) 456-5700

Registrant’s telephone number, including area code

H.J. Heinz Holding Corporation

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Introductory Note

On July 2, 2015, Kraft Foods Group, Inc., a Virginia corporation (“Kraft”), became a wholly owned subsidiary of The Kraft Heinz Company, a Delaware corporation (formerly H.J. Heinz Holding Corporation and referred to herein as the “Company”), as a result of the merger of Kite Merger Sub Corp., a Virginia corporation and a wholly owned subsidiary of the Company (“Merger Sub I”), with and into Kraft, with Kraft surviving as a wholly owned subsidiary of the Company (the “Merger”). The Merger was effected pursuant to the Agreement and Plan of Merger, dated as of March 24, 2015 (the “Merger Agreement”), by and among the Company, Merger Sub I, Kite Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of the Company, and Kraft. Immediately prior to the closing of the Merger, the Amended and Restated Certificate of Incorporation of the Company was amended and restated and H.J. Heinz Holding Corporation was renamed “The Kraft Heinz Company”.

 

Item 1.01 Entry into a Material Definitive Agreement.

Registration Rights Agreement

On July 2, 2015, the Company entered into an amended and restated registration rights agreement (the “Registration Rights Agreement”), by and among the Company, 3G Global Food Holdings LP, a Cayman Islands exempted limited partnership (“3G”), and Berkshire Hathaway Inc., a Delaware corporation (“Berkshire Hathaway”). A description of the material terms and conditions of the Registration Rights Agreement can be found in the section titled “Other Related Agreements—Registration Rights Agreement” in the Company’s Registration Statement on Form S-4 (File No. 333-203364), as amended (the “S-4”), initially filed with the Securities and Exchange Commission on April 10, 2015 and declared effective on June 2, 2015. The description of the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Registration Rights Agreement, which is filed herewith as Exhibit 4.1 and incorporated herein by reference.

Subscription Agreement

On June 30, 2015, the Company entered into a Subscription Agreement, by and among the Company, 3G and Berkshire Hathaway (the “Subscription Agreement”) for the issuance of 500,000,000 shares of the Company’s common stock, par value $0.01 per share (“Company Common Stock”), to 3G and Berkshire Hathaway, in a private placement exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), for an aggregate purchase price of $10,000,000,000. The shares of Company Common Stock were issued pursuant to the Subscription Agreement on July 1, 2015. The foregoing description of the Subscription Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Subscription Agreement, which is filed as Exhibit 10.1 hereto.

 

Item 2.01 Completion of Acquisition or Disposition of Assets.

On July 2, 2015, Merger Sub I merged with and into Kraft, with Kraft surviving as a wholly owned subsidiary of the Company.

Pursuant to the terms of the Merger Agreement, upon the completion of the Merger, each issued and outstanding share of common stock, without par value, of Kraft (“Kraft Common Stock”), other than deferred shares and restricted shares, was converted into the right to receive one fully paid nonassessable share of Company Common Stock. In addition, on June 22, 2015, Kraft declared a special cash dividend in the amount of $16.50 per share of Kraft Common Stock payable to Kraft’s shareholders of record immediately prior to the closing of the Merger.

The issuance of Company Common Stock in connection with the Merger was registered under the Securities Act pursuant to the S-4. The proxy statement/prospectus included the S-4 (the “Proxy Statement/Prospectus”) contains additional information about the Merger.

Upon the closing of the Merger, shares of Kraft Common Stock, which previously traded under the ticker symbol “KRFT” on the NASDAQ Stock Market (“NASDAQ”), ceased trading on, and were delisted from, NASDAQ. Shares of Company Common Stock have been approved for listing on NASDAQ under the ticker symbol “KHC” and will begin trading on July 6, 2015.

The foregoing description of the Merger Agreement and the Merger does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which was filed as Exhibit 2.1 to the S-4 and is incorporated herein by reference.

 

Item 3.02 Unregistered Sales of Equity Securities.

The information under the heading “Subscription Agreement” set forth in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 3.02.


Item 3.03. Material Modification to Rights of Security Holders.

Immediately prior to the closing of the Merger, each issued and outstanding share of Company Common Stock (including those issued pursuant to the Subscription Agreement) was automatically reclassified and changed into 0.443332 of a share of Company Common Stock (the “Conversion”).

The information set forth in Items 2.01 and 5.03 of this Current Report on Form 8-K is incorporated by reference in this Item 3.03.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Board of Directors

Upon the closing of the Merger and pursuant to the terms of the Merger Agreement, the size of the Board of Directors of the Company (the “Board”) was increased from six directors to 11 directors and each of John T. Cahill, L. Kevin Cox, Jeanne P. Jackson, Mackey J. McDonald and John C. Pope were elected to the Board. In addition, Gregory Abel, Alexandre Behring, Warren E. Buffett, Tracy Britt Cool, Jorge Paulo Lemann and Marcel Herrmann Telles will continue to serve on the Board. Effective upon the closing of the Merger, the Board also confirmed Alexandre Behring’s appointment as Chairman of the Board and appointed John T. Cahill as Vice Chairman of the Board.

Effective upon the closing of the Merger, the Board dissolved all existing committees of the Board and established an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee and an Operations and Strategy Committee. The individuals set forth below were appointed to such committees:

Audit Committee

John C. Pope (Chairman)

L. Kevin Cox

Mackey J. McDonald

Jeanne P. Jackson

Compensation Committee

Alexandre Behring (Chairman)

L. Kevin Cox

Jorge Paulo Lemann

Mackey J. McDonald

Marcel Herrmann Telles

Nominating and Corporate Governance Committee

Alexandre Behring (Chairman)

L. Kevin Cox

Jorge Paulo Lemann

Mackey J. McDonald

Marcel Herrmann Telles

Operations and Strategy Committee

John T. Cahill (Chairman)

Gregory Abel

Alexandre Behring

Appointment of Officers

Upon the closing of the Merger, the previously announced appointments of the Company’s senior leadership team became effective. The names of the Company’s officers, including those who served prior to the Merger or who were appointed or promoted effective upon the closing of the Merger, and their respective positions are indicated below:

 

Bernardo Hees Chief Executive Officer
Paulo Basilio EVP and Chief Financial Officer
Georges El-Zoghbi Chief Operating Officer of U.S. commercial business
Matt Hill Zone President of Europe
Emin Mammadov Zone President of Russia, India and Middle East, Turkey & Africa
Michael Mullen SVP of Corporate and Government Affairs
Eduardo Pelleissone EVP of Global Operations
Marcos Romaneiro Zone President of Asia Pacific
Francisco Sa Zone President of Latin America
James Savina SVP, General Counsel and Corporate Secretary
Melissa Werneck SVP Global Human Resources, Performance and IT

 


Bernardo Hees, 45, is the Chief Executive Officer of the Company. Previously, Mr. Hees served as Chief Executive Officer of Burger King Worldwide Holdings, Inc. from 2010 to June 2013 and Burger King Worldwide, Inc. from June 2012 to June 2013 and as Chief Executive Officer of ALL from January 2005 to September 2010. Mr. Hees joined the Company in June 2013.

Paulo Basilio, 40, was appointed EVP and Chief Financial Officer. Mr. Basilio joined the Company in June 2013 as Chief Financial Officer. He is responsible for all the finance functions and the investor relations area.

Georges El-Zoghbi, 48, was appointed Chief Operating Officer of U.S. commercial business. In his role, Mr. Zoghbi will lead the Company’s more than $19 billion U.S. business comprised of five commercial business units. Mr. Zoghbi has been COO at Kraft since February 2015. Mr. Zoghbi joined Kraft in 2007 as Vice President and Area Director of Australia and New Zealand.

Matt Hill, 44, was appointed Zone President of Europe. Mr. Hill has been Zone President of Heinz Europe since June 2013. Prior to his current appointment, Mr. Hill was President of Heinz UK & Ireland. Mr. Hill joined the Company in 2010 as Chief Marketing Officer for Heinz UK.

Emin Mammadov, 38, was appointed Zone President of Russia, India and Middle East, Turkey & Africa. Mr. Mammadov joined the Company in 2006 as Marketing Director for Heinz Russia and has been President of RIMEA since 2013.

Michael Mullen, 46, was appointed SVP of Corporate and Government Affairs. He will be responsible for leading internal and external communications, CSR and government affairs. He will also have responsibility for the Company Foundation, real estate and facilities. Mr. Mullen joined the Company in 1998.

Eduardo Pelleissone, 41, was appointed EVP of Global Operations. In this role, Mr. Pelleissone will have direct accountability for the Company’s supply chain, quality, procurement and operations functions in North America and globally. Mr. Pelleissone joined the Company in July 2013 as Head of Operations.

Marcos Romaneiro, 32, was appointed Zone President of Asia Pacific. Mr. Romaneiro has been Zone president of Heinz Asia Pacific since June 2014. Mr. Romaneiro joined the Company in 2013 as SVP Global Finance.

Francisco Sa, 49, was appointed Zone President of Latin America. Mr. Sa joined the Company in June 2014 as Zone President of Heinz Latin America. Mr. Sa served as Zone President for AB InBev’s Latin America South business from 2012 to 2014.

James Savina, 41, was appointed SVP, General Counsel and Corporate Secretary. Mr. Savina joined Kraft in 2013, serving in legal leadership positions and as Chief Compliance Officer. In his new role, Mr. Savina will lead the Company’s legal function, including corporate governance & securities, transactions, regulatory, intellectual property, litigation and labor & employment.

Melissa Werneck, 42, was appointed SVP Global Human Resources, Performance and IT. Ms. Werneck joined the Company in July of 2013 and led the Company’s talent development and the Integrated Management System, which includes the Management by Objectives (MBO) Program.

On June 29, 2015, the Company issued a press release announcing the appointment of the Company’s senior leadership team. A copy of that press release was attached as Exhibit 99.2 to the Company’s Current Report on Form 8-K (File No. 333-203364), which was filed on June 29, 2015, and is incorporated herein by reference.

Compensatory Plans

In connection with the closing of the Merger, the Company assumed the sponsorship of certain of Kraft’s compensatory plans, including each of (i) the Kraft Foods Group, Inc. Deferred Compensation Plan For Non-Management Directors, (ii) the Kraft Foods Group, Inc. 2012 Performance Incentive Plan and (iii) the Kraft Foods Group, Inc. Management Stock Purchase Plan, and also assumed any outstanding awards granted under each such plan, the award agreements evidencing the grants of such awards and the remaining shares available under each such plan, including any awards granted to the Company’s directors and executive officers, in each case subject to applicable adjustments in the manner set forth in the Merger Agreement.

 

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

In accordance with the Merger Agreement, immediately prior to the closing of the Merger, the Amended and Restated Certificate of Incorporation of the Company and the Amended and Restated Bylaws of the Company were each amended and restated. A description of the material terms and conditions of the Amended and Restated Certificate of Incorporation and the Amended and Restated Bylaws as currently in effect can be found in the section titled “Description of Kraft Heinz Capital Stock” in the S-4. The descriptions of the Amended and Restated Certificate of Incorporation and the Amended and Restated Bylaws do not purport to be complete and are qualified in their entirety by reference to the full text of the Amended and Restated Certificate of Incorporation and the Amended and Restated Bylaws, which are filed as Exhibit 3.1 and Exhibit 3.2, respectively, hereto and are incorporated herein by reference.


Item 5.04. Temporary Suspension of Trading Under Registrant’s Employee Benefit Plans.

On June 12, 2015, Kraft received a notice required by Section 101(i)(2)(E) of the Employment Retirement Income Security Act of 1974, as amended, regarding an anticipated blackout period under Kraft’s 401(k) savings plans (the “401(k) Plans”). The blackout period for the 401(k) Plans was implemented in connection with the closing of the Merger. The blackout period is necessary to ensure that the administrator of the 401(k) Plans can process the exchange of Kraft Common Stock for Company Common Stock.

Participants in the 401(k) Plans have been advised that they are unable to direct or diversify investments, process an exchange or rollover, request a loan, withdrawal or distribution, or engage in other activities with respect to amounts in their accounts. The blackout period is currently expected to end no later than three or four business days following the closing of the Merger, but could end later.

Because following the Merger the 401(k) Plans include the Company Stock Fund as an investment option, the Company sent a separate notice (the “Insider Notice”) to its directors and executive officers informing them of the blackout period and certain trading prohibitions that they will be subject to during the blackout period.

During the blackout period and for a period of two years after the end date thereof, a security holder or other interested person may obtain, without charge, information regarding the blackout period, including the actual beginning and end dates of the blackout period. This information is available by calling Fidelity at 1-877-208-0782. In addition, they may contact the Company’s General Counsel at One PPG Place, Pittsburgh, Pennsylvania 15222 or via telephone at (412) 456-5700 regarding questions they may have about the blackout period.

A copy of the Insider Notice is attached hereto as Exhibit 99.3 and is incorporated herein by reference.

 

Item 8.01. Other Events.

On July 2, 2015, the Company issued a press release announcing the closing of the Merger. A copy of that press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

 

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

The audited consolidated financial statements of Kraft as of and for each of the years ended December 27, 2014, December 28, 2013 and December 29, 2012 and the unaudited condensed consolidated financial statements of Kraft as of and for the three months ended March 28, 2015 and March 29, 2014, in each case including the notes related thereto, are filed herewith as Exhibits 99.4 and 99.5, respectively, and are incorporated herein by reference.

(b) Pro Forma Financial Information.

The unaudited pro forma condensed combined financial statements of the Company as of and for the year ended December 28, 2014 and as of and for the three months ended March 29, 2015 were previously reported and are filed herewith as Exhibit 99.6 and incorporated herein by reference.

(d) Exhibits.

 

Exhibit

No.

  

Description

  2.1    Agreement and Plan of Merger, dated as of March 24, 2015, by and among H.J. Heinz Holding Corporation, Kite Merger Sub Corp., Kite Merger Sub LLC and Kraft Foods Group, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form S-4 (File No. 333-203364), initially filed on April 10, 2015, as amended).
  3.1    Second Amended and Restated Certificate of Incorporation of H.J. Heinz Holding Corporation.
  3.2    Amended and Restated Bylaws of The Kraft Heinz Company.
  4.1    Amended and Restated Registration Rights Agreement, dated as of July 2, 2015, by and among the Company, 3G Global Food Holdings LP and Berkshire Hathaway Inc.
10.1    Subscription Agreement, dated as of July 1, 2015, by and among H.J. Heinz Holding Corporation, 3G Global Food Holdings LP and Berkshire Hathaway Inc.
99.1    Press Release, dated July 2, 2015.
99.2    Press Release, dated June 29, 2015 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K (File No. 333-203364), filed on June 29, 2015).
99.3    Notice Regarding Blackout Period and Regulation BTR Trading Restrictions, dated July 2, 2015.
99.4    Audited consolidated financial statements of Kraft Foods Group, Inc. as of and for each of the years ended December 27, 2014, December 28, 2013 and December 29, 2012, and the notes related thereto.
99.5    Unaudited condensed consolidated financial statements of Kraft Foods Group, Inc. as of and for the three months ended March 28, 2015 and March 29, 2014, and the notes related thereto.
99.6    Unaudited Pro Forma Condensed Combined Statement of Operations of the Company for the three months ended March 29, 2015; Unaudited Pro Forma Condensed Combined Statement of Operations of the Company for the year ended December 28, 2014; Unaudited Pro Forma Condensed Combined Balance Sheet of the Company as of March 29, 2015 (incorporated by reference to the Company’s Registration Statement on Form S-4 (File No. 333-203364), initially filed on April 10, 2015, as amended).


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

THE KRAFT HEINZ COMPANY
By:

/s/ Paulo Basilio

Name: Paulo Basilio
Title:

Executive Vice President and

Chief Financial Officer

Date: July 2, 2015


Exhibit Index

 

Exhibit

No.

  

Description

  2.1    Agreement and Plan of Merger, dated as of March 24, 2015, by and among H.J. Heinz Holding Corporation, Kite Merger Sub Corp., Kite Merger Sub LLC and Kraft Foods Group, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form S-4 (File No. 333-203364), filed on April 10, 2015, as amended).
  3.1    Second Amended and Restated Certificate of Incorporation of H.J. Heinz Holding Corporation.
  3.2    Amended and Restated Bylaws of The Kraft Heinz Company.
  4.1    Amended and Restated Registration Rights Agreement, dated as of July 2, 2015, by and among the Company, 3G Global Food Holdings LP and Berkshire Hathaway Inc.
10.1    Subscription Agreement, dated as of July 1, 2015, by and among H.J. Heinz Holding Corporation, 3G Global Food Holdings LP and Berkshire Hathaway Inc.
99.1    Press Release, dated July 2, 2015.
99.2    Press Release, dated June 29, 2015 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K (File No. 333-203364), filed on June 29, 2015).
99.3    Notice Regarding Blackout Period and Regulation BTR Trading Restrictions, dated July 2, 2015.
99.4    Audited consolidated financial statements of Kraft Foods Group, Inc. as of and for each of the years ended December 27, 2014, December 28, 2013 and December 29, 2012, and the notes related thereto.
99.5    Unaudited condensed consolidated financial statements of Kraft Foods Group, Inc. as of and for the three months ended March 28, 2015 and March 29, 2014, and the notes related thereto.
99.6    Unaudited Pro Forma Condensed Combined Statement of Operations of the Company for the three months ended March 29, 2015; Unaudited Pro Forma Condensed Combined Statement of Operations of the Company for the year ended December 28, 2014; Unaudited Pro Forma Condensed Combined Balance Sheet of the Company as of March 29, 2015 (incorporated by reference to the Company’s Registration Statement on Form S-4 (File No. 333-203364), initially filed on April 10, 2015, as amended).
EX-3.1

Exhibit 3.1

SECOND AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

H.J. HEINZ HOLDING CORPORATION

H.J. Heinz Holding Corporation, a corporation organized and existing under the laws of the State of Delaware, DOES HEREBY CERTIFY AS FOLLOWS:

The corporation was originally incorporated on February 8, 2013 under the name Hawk Acquisition Holding Corporation. The Amended and Restated Certificate of Incorporation of H.J. Heinz Holding Corporation as in effect as of this date was filed with the Secretary of State of the State of Delaware on June 7, 2013 (as in effect immediately prior to the adoption and effectiveness hereof, the “Existing Certificate of Incorporation”).

This Second Amended and Restated Certificate of Incorporation (the “Second Amended and Restated Certificate of Incorporation”) has been duly adopted in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware and shall be effective as of 4:00 p.m. Eastern time on July 2, 2015 (the “Effective Time”).

The Existing Certificate of Incorporation is hereby amended and restated to read in its entirety as follows:

ARTICLE I

The name of the corporation (the “Corporation”) is “The Kraft Heinz Company”.

ARTICLE II

The Corporation’s purpose is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (as it may be amended from time to time, the “DGCL”).

ARTICLE III

At the Effective Time, each share of the Corporation’s common stock, par value $0.01 per share, either issued and outstanding or held by the Corporation as treasury stock immediately prior to the Effective Time (“Old Common Shares”) shall, automatically and without any action on the part of the holder thereof, be reclassified and changed into 0.443332 of a share of common stock, par value $0.01 per share (“Common Stock”), of the Corporation (such reclassification and change, the “Reverse Stock Split”). All fractional shares that would otherwise be held by any holder of Common Stock as a result of the Reverse Stock Split shall be aggregated into the total number of whole shares of Common Stock represented by all of the fractional shares of Common Stock held by such holder as a result of the Reverse Stock Split. If any fractional share would remain after such aggregation, the Corporation shall, in lieu of issuing any such fractional share, pay cash in an amount equal to the fair value of such fractional share (as determined in good faith by the Board of Directors of the Corporation (the “Board of Directors”)). All references to numbers of shares of Common Stock, including all amounts stated on a per share or percentage ownership basis, contained in this Second Amended and


Restated Certificate of Incorporation or any Certificate of Designation relating to any class or series of Preferred Stock (this Second Amended and Restated Certificate of Incorporation, together with any Certificate of Designation relating to any class or series of Preferred Stock, and any amendments thereto from time to time, the “Charter”) are stated after giving effect to the Reverse Stock Split and no further adjustment shall be made as a consequence of the Reverse Stock Split. Each certificate previously representing Old Common Shares shall, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent that number of whole shares of Common Stock into which the Old Common Shares represented by such certificate shall have been reclassified and changed; provided, however, that each holder of record of a certificate that represented Old Common Shares shall receive, upon surrender of such certificate, a new certificate representing the number of whole shares of Common Stock into which the Old Common Shares represented by such certificate have been reclassified and changed as a result of the Reverse Stock Split.

The total number of shares of all classes of capital stock which the Corporation shall have the authority to issue is 5,001,000,000 shares, consisting of 1,000,000 shares of Preferred Stock, par value $0.01 per share (“Preferred Stock”), and 5,000,000,000 shares of Common Stock, par value $0.01 per share.

Subject to the rights of the holders of any outstanding class or series of Preferred Stock, the number of authorized shares of either the Preferred Stock or the Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the capital stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), and no vote of the holders of either the Preferred Stock or the Common Stock voting separately as a class shall be required therefor.

The powers, preferences and rights and the qualifications, limitations and restrictions of the authorized capital stock shall be as follows:

(A) Voting Powers

1. Each holder of Common Stock, as such, shall be entitled to one vote in person or by proxy for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote; provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Charter that relates solely to the terms of one or more outstanding class or series of Preferred Stock if the holders of such affected class or series are entitled, either separately or together with the holders of one or more other such class or series, to vote thereon pursuant to this Charter or pursuant to the DGCL.

2. Except as otherwise required by law, holders of a class or series of Preferred Stock, as such, shall be entitled only to such voting rights, if any, as shall expressly be granted to such holders by this Charter.

3. Except as otherwise set forth in this Charter, the By-Laws of the Corporation (the “By-Laws”) shall set forth the vote required to authorize all actions with respect to which holders of capital stock in the Corporation are entitled to vote or, if not otherwise set forth in the Charter or in the By-Laws, the vote required shall be that set forth in the DGCL.

 

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(B) Common Stock

1. Dividends

Subject to the rights of the holders of any outstanding class or series of Preferred Stock, holders of Common Stock shall be entitled to receive such dividends and other distributions in cash, stock or property of the Corporation as the Board of Directors may declare thereon from time to time and shall share equally on a per share basis in all such dividends and other distributions.

2. Dissolution

In the event of the Corporation’s dissolution, whether voluntary or involuntary, after payment in full of the amounts required to be paid to the holders of any outstanding class or series of Preferred Stock, the remaining assets and funds of the Corporation shall be distributed to the holders of Common Stock in proportion to the number of shares held by them and to the holders of any class or series of Preferred Stock entitled thereto. For purposes of this Article III(B)2 (and, for the avoidance of doubt, except with respect to any class or series of Preferred Stock if provided for in the Charter with respect to such class or series of Preferred Stock), the voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the assets of the Corporation or a merger involving the Corporation and one or more other entities (whether or not the Corporation is the entity surviving such merger) shall not be deemed to be a dissolution of the Corporation.

(C) Preferred Stock

In addition to the Series A Preferred Stock established pursuant to Article IV, and subject to the rights of the holders of any outstanding class or series of Preferred Stock, including the Series A Preferred Stock established pursuant to Article IV, the Board of Directors is hereby expressly authorized, by resolution or resolutions, to provide, out of the unissued shares of Preferred Stock, for classes and series of Preferred Stock. The Board of Directors may fix the number of shares constituting such class or series and the designation of such class or series and the powers (including voting, if any), preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such class or series. Each class or series shall be appropriately designated by a distinguishing designation prior to the issuance of any shares thereof.

The powers (including voting, if any), preferences and relative, participating, optional and other special rights of each class or series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other classes and series at any time outstanding.

(D) Action by Written Consent

Any action required or permitted to be taken at any annual or special meeting of the stockholders of the Corporation may be taken without a meeting, without prior notice and

 

3


without a vote if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding capital stock of the Corporation entitled to vote thereon having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of capital stock of the Corporation entitled to vote thereon were present and voted.

ARTICLE IV

(A) Designation

The distinctive designation of the series of Preferred Stock of the Corporation established pursuant to this Article IV is 9.00% Cumulative Compounding Preferred Stock, Series A (“Series A Preferred Stock”). The authorized number of shares of Series A Preferred Stock shall be 80,000. Each share of Series A Preferred Stock shall be identical in all respects to every other share of Series A Preferred Stock. Each share of Series A Preferred Stock that is redeemed, purchased or otherwise acquired by the Corporation shall be cancelled and shall be automatically retired upon such redemption, purchase or other acquisition and may not be reissued by the Corporation and, following such redemption, purchase or other acquisition, the Corporation shall file a certificate of retirement with respect to such shares so as to reduce accordingly the number of authorized shares of Preferred Stock of the Corporation.

(B) Number of Common Shares

For so long as any shares of Series A Preferred Stock are outstanding, the Corporation shall not, without the consent of holders of not less than a majority of the shares of Series A Preferred Stock then outstanding, issue shares of Common Stock in an amount such that after giving effect to such issuance, the Corporation would have less than 2,000,000,000 shares of authorized but unissued shares of Common Stock, unless such issuance is made for the purpose of (a) a sale of such shares, the proceeds of which are used solely to redeem shares of Series A Preferred Stock in accordance with this Article IV or (b) a Net Proceeds Redemption. For the avoidance of doubt, this Article IV shall not prohibit the Corporation from authorizing additional shares of Common Stock in excess of the 5,000,000,000 shares authorized as of the Effective Time by amendment of this Charter or from issuing any such additional shares.

(C) Certain Definitions

For purposes of this Article IV, the following terms shall have the meanings indicated:

1. “Affiliate” means, with respect to any Person, any other Person controlling, controlled by or under common control with such particular Person, where “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, contract or otherwise.

2. “Base Amount” means one of the following amounts, as applicable:

 

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(i) $104,000 per share of Series A Preferred Stock for any payment made from and including the third anniversary of the Original Issue Date to but excluding the fourth anniversary of the Original Issue Date;

(ii) $105,000 per share of Series A Preferred Stock for any payment made from and including the fourth anniversary of the Original Issue Date to but excluding the fifth anniversary of the Original Issue Date;

(iii) $106,000 per share of Series A Preferred Stock for any payment made from and including the fifth anniversary of the Original Issue Date to but excluding the sixth anniversary of the Original Issue Date;

(iv) $107,000 per share of Series A Preferred Stock for any payment made from and including the sixth anniversary of the Original Issue Date to but excluding the seventh anniversary of the Original Issue Date; and

(v) $108,000 per share of Series A Preferred Stock for any payment made from and including the seventh anniversary of the Original Issue Date.

3. “Berkshire” means Berkshire Hathaway Inc., a Delaware corporation.

4. “Business Day” means a day that is a Monday, Tuesday, Wednesday, Thursday or Friday and is not a day on which banking institutions in New York City generally are authorized or obligated by law, regulation or executive order to close.

5. “Dividend Period” means the period from and including any Regular Dividend Payment Date (or, prior to the first Regular Dividend Payment Date, from and including the Original Issue Date) to, but excluding the next Regular Dividend Payment Date.

6. “Eligible Institution” means either Wells Fargo Bank, N.A. or JPMorgan Chase Bank, N.A.

7. “Junior Stock” means the Common Stock and any other class or series of stock of the Corporation that ranks junior to the Series A Preferred Stock either (or both) as to the payment of dividends and/or as to the distribution of assets on any liquidation, dissolution or winding up of the Corporation.

8. “Net Proceeds” means the difference between (i) the Offering Proceeds minus (ii) the direct expenses for the fees and costs of the underwriters and legal counsel for the Corporation incurred and paid by the Corporation in effecting the Redemption Offering, and no other fees, expenses or other amounts.

9. “Net Proceeds Redemption” means a redemption of Series A Preferred Stock as contemplated by Article IV(F)2.

10. “Offering Proceeds” means the gross cash proceeds of all sales of any shares of any series of Common Stock in a Redemption Offering.

11. “Original Issue Date” means June 7, 2013.

 

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12. “Parity Stock” means any class or series of stock of the Corporation (other than Series A Preferred Stock) that both ranks equally with the Series A Preferred Stock in the payment of dividends and ranks equally with the Series A Preferred Stock in the distribution of assets on any liquidation, dissolution or winding up of the Corporation (without regard to whether dividends accrue on a cumulative or non-cumulative basis).

13. “Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.

14. “Preferred Stock” means any and all classes or series of stock of the Corporation that rank senior to the Common Stock as to the payment of dividends or as to the distribution of assets on any liquidation, dissolution or winding up of the Corporation, including the Series A Preferred Stock.

15. “Redemption Date” means a Net Proceeds Redemption Date or an Optional Redemption Date.

16. “Redemption Offering” means the issuance by the Corporation of Common Stock in (i) an underwritten primary public offering pursuant to an effective registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act of 1933, as amended (whether alone or in connection with a secondary public offering), or (ii) any other primary issuance in an arm’s length transaction with parties other than Berkshire or its Affiliates, in either case, pursuant to the notice given by holders of a majority of the shares of Series A Preferred Stock in accordance with Article IV(F)2, which issuance is effected after the eighth anniversary of the Original Issue Date and prior to the date on which all shares of Series A Preferred Stock have been redeemed.

(D) Dividends

1. Rate, Accrual and Payment

Holders of Series A Preferred Stock, in preference to the holders of shares of Common Stock and other Junior Stock of the Corporation shall be entitled to receive, on each share of Series A Preferred Stock, cumulative cash dividends payable quarterly in arrears on each March 7, June 7, September 7 and December 7, (each, a “Regular Dividend Payment Date”), commencing on September 7, 2013; provided, however, that if any Regular Dividend Payment Date occurs on a day that is not a Business Day, then any dividend otherwise payable on such Regular Dividend Payment Date will instead be payable on the immediately succeeding Business Day, without any adjustment to the amount payable (and each such succeeding Business Day, when applicable and, in every other case, each Regular Dividend Payment Date is referred to herein as a “Dividend Payment Date”). Dividends on each share of Series A Preferred Stock shall accrue daily on a cumulative basis at a per annum rate of 9.00% on the amount of $100,000 per share of Series A Preferred Stock, whether or not declared by the Board of Directors, and will be payable quarterly in arrears in cash on each Dividend Payment Date (such quarterly amount for a full Dividend Period, the “Regular Quarterly Dividend”), when, as and if declared by the Board of Directors. If a Regular Quarterly Dividend is not declared in full by the

 

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Board of Directors or is not paid in full on a Dividend Payment Date to the holders of all shares of Series A Preferred Stock, from and after such Dividend Payment Date such unpaid amount shall be a “Past Due Dividend”. In addition to the Regular Quarterly Dividends, dividends (“Additional Dividends”) on each share of Series A Preferred Stock shall accrue daily on a cumulative basis at a per annum rate of 9.00% on the amount of all Past Due Dividends with respect to such share of Series A Preferred Stock, compounded quarterly on each Dividend Payment Date, whether or not declared by the Board of Directors (and upon such compounding, such Additional Dividends shall be added to and shall constitute Past Due Dividends hereunder), until the date the same are declared by the Board of Directors and paid in cash to the holders of the shares of Series A Preferred Stock.

Dividends accrued and/or payable on the Series A Preferred Stock in respect of any Dividend Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends accrued and/or payable with respect to the shares of Series A Preferred Stock on any date prior to the end of a Dividend Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months, and actual days elapsed over a 30-day month.

Dividends paid in cash on Series A Preferred Stock on any Dividend Payment Date will be payable to holders of record of Series A Preferred Stock as they appear on the stock ledger of the Corporation on the applicable record date, which record date shall be the 15th calendar day before such Regular Dividend Payment Date or such other record date fixed by the Board of Directors that does not precede the date upon which the resolution fixing the record date is adopted, and is not more than 60 days prior to such Regular Dividend Payment Date (each, a “Dividend Record Date”). A Dividend Record Date shall not be required to be on a Business Day.

2. Priority of Dividends

So long as any share of Series A Preferred Stock remains outstanding, no dividend shall be declared or paid on the Common Stock, any other share of Junior Stock or any Parity Stock, and no Common Stock, other Junior Stock or Parity Stock shall be purchased, redeemed or otherwise acquired for consideration by the Corporation or any of its subsidiaries, directly or indirectly, unless on the date of such declaration, payment, purchase, redemption or other acquisition for consideration (i) all Past Due Dividends, and accrued and unpaid Additional Dividends thereon to the date of payment of such Past Due Dividends, for all prior Dividend Periods, on all outstanding shares of Series A Preferred Stock, shall have been declared and paid in full and (ii) an amount equal to the full Regular Quarterly Dividend for all outstanding shares of Series A Preferred Stock for the then-current Dividend Period shall have been declared and paid in full (or declared and such amount shall have been deposited by the Corporation in trust for the pro rata benefit of the holders of shares of Series A Preferred Stock on the applicable record date therefor with an Eligible Institution). The foregoing sentence shall not prohibit purchases, redemptions or other acquisitions of Common Stock in connection with cashless exercises of options and similar actions under any equity incentive plan (including any stock option plan) of the Corporation adopted by the Board of Directors, in each case, in the ordinary course of business.

 

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(E) Liquidation Rights

1. Voluntary or Involuntary Liquidation

In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Series A Preferred Stock shall be entitled to receive for each share of Series A Preferred Stock, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution to stockholders of the Corporation, and after satisfaction of all liabilities and obligations to creditors of the Corporation, before any distribution of such assets or proceeds is made to or set aside for the holders of Common Stock, other Junior Stock or any other stock of the Corporation ranking junior to the Series A Preferred Stock as to such distribution, payment in full in cash in an amount equal to the sum of (i) $100,000 per share, plus (ii) the accrued and unpaid dividends per share, including any and all Past Due Dividends and Additional Dividends on such Past Due Dividends, in each case, whether or not declared, to the date of payment (such sum, the “Series A Liquidation Preference”).

2. Partial Payment

If in any distribution described in this Article IV(E) the assets of the Corporation or proceeds thereof are not sufficient to pay in full the aggregate Series A Liquidation Preference and the aggregate Liquidation Preferences (as defined below) of all Parity Stock, the amounts paid to the holders of Series A Preferred Stock and to the holders of Parity Stock shall be paid pro rata in accordance with the respective aggregate Series A Liquidation Preference and the aggregate Liquidation Preference of such Parity Stock. The “Liquidation Preference” of Parity Stock means the amount otherwise payable to the holders of such Parity Stock with respect to any distribution described in this Article IV(E) (assuming no limitation on the assets of the Corporation available for such distribution), including the amount of declared but unpaid dividends to the extent provided in the Charter with respect to such Parity Stock.

3. Residual Distributions

If the Series A Liquidation Preference has been paid in full on all shares of Series A Preferred Stock to each respective holder thereof, the holders of other stock of the Corporation shall be entitled to receive all remaining assets of the Corporation (or proceeds thereof) according to their respective rights and preferences.

4. Merger, Consolidation and Sale of Assets Not Liquidation

For purposes of this Article IV(E), the merger or consolidation of the Corporation with any other corporation or other entity, including a merger or consolidation in which the holders of Series A Preferred Stock receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the assets of the Corporation, shall not constitute a liquidation, dissolution or winding up of the Corporation.

(F) Redemption

1. Optional Redemption

 

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The Corporation may not redeem the Series A Preferred Stock for the first three years following the Original Issue Date. On or after the third anniversary of the Original Issue Date, the Corporation may, at its option, redeem, in whole at any time or in part from time to time, shares of Series A Preferred Stock at the time outstanding, upon notice given as provided in Article IV(F)3, at a redemption price paid in cash for each share of Series A Preferred Stock redeemed equal to the sum of (i) the Base Amount per share, plus (ii) the accrued and unpaid dividends on each share, including any and all Past Due Dividends and Additional Dividends on such Past Due Dividends, whether or not declared, to the date of payment (such sum, the “Redemption Price”, and such date of payment, the “Optional Redemption Date”). Any redemption of less than all of the shares of Series A Preferred Stock at the time outstanding pursuant to an optional redemption shall be in an amount of not less than 8,000 shares of Series A Preferred Stock.

2. Net Proceeds Redemption

If any shares of Series A Preferred Stock remain outstanding after the eighth anniversary of the Original Issue Date and the holders of a majority of the shares of Series A Preferred Stock deliver to the Secretary of the Corporation a notice of request for redemption pursuant to this Article IV(F)2, the Corporation shall, to the fullest extent permitted by law (i) take any action necessary or appropriate to cause the occurrence of one or more Redemption Offerings, and (ii) redeem on each Net Proceeds Redemption Date (as defined below) from the Net Proceeds of a Redemption Offering the maximum number of outstanding shares of Series A Preferred Stock that it is able to redeem in cash from such Net Proceeds, at a price equal to the Redemption Price for each share of Series A Preferred Stock, upon notice given to all holders of Series A Preferred Stock as provided in Article IV(F)3. The “Net Proceeds Redemption Date” shall mean, with respect to any Redemption Offering, the date of receipt by the Corporation of any Offering Proceeds from such Redemption Offering. For the avoidance of doubt, if Net Proceeds from a Redemption Offering are insufficient to redeem all outstanding shares of Series A Preferred Stock, the Net Proceeds of each successive Redemption Offering shall be applied to redeem shares of Series A Preferred Stock, at the Redemption Price, until all outstanding shares of Series A Preferred Stock have been redeemed. For the purpose of determining whether redemption is permitted by law, the Corporation shall value its assets at the highest amount permissible under applicable law.

3. Notice of Redemption

Notice of every redemption of shares of Series A Preferred Stock shall be given by first class mail, postage prepaid, addressed to the holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption, in the event of an optional redemption pursuant to Article IV(F)1, or on the date of receipt of Offering Proceeds in the event of a Net Proceeds Redemption. Any notice mailed as provided in this Article IV(F)3 shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series A Preferred Stock called for redemption shall not affect the validity of the redemption of any other shares of Series A Preferred Stock, nor shall it excuse the Corporation from its obligation to redeem shares of Series A Preferred Stock to the extent

 

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required hereunder. Each notice of redemption given to a holder shall state: (1) the Redemption Date; (2) the number of shares of Series A Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the Redemption Price; and (4) the place or places where certificates for such shares are to be surrendered against payment of the Redemption Price.

4. Redemption Generally

The Redemption Price for any share of Series A Preferred Stock called for redemption shall be payable in cash on the Redemption Date to the holder of such share against surrender of the certificate(s) evidencing such share to the Corporation (or, if such holder alleges that such certificate has or certificates have been lost, stolen or destroyed, upon delivery of a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate). Any declared but unpaid dividends payable on a Redemption Date that occurs subsequent to the Dividend Record Date for a Dividend Period (“Additional Regular Dividends”) shall not be paid to the holder entitled to receive the Redemption Price on the Redemption Date, but rather shall be paid to the holder of record of the redeemed shares on such Dividend Record Date relating to the Dividend Payment Date as provided in Article IV(D).

5. Partial Redemption

In case of any redemption of fewer than all of the shares of Series A Preferred Stock at the time outstanding, and if there is more than one Holder, the shares of Series A Preferred Stock shall be redeemed on a pro rata basis. If fewer than all the shares of Series A Preferred Stock represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the holder thereof promptly following the Redemption Date.

6. Effectiveness of Redemption

If notice of redemption has been duly given and if on or before the Redemption Date specified in such notice all funds necessary for the payment of the aggregate Redemption Price (plus Additional Regular Dividends, if any) have been deposited by the Corporation, in trust for the pro rata benefit of the holders of the shares called for redemption, with an Eligible Institution, so as to be and continue to be available solely therefor, then, notwithstanding that any certificate for any share of Series A Preferred Stock so called for redemption has not been surrendered for cancellation, on and after the Redemption Date, dividends shall cease to accrue on all shares so called for redemption, all shares so called for redemption shall no longer be deemed outstanding and all rights of the respective holders with respect to such shares shall forthwith on such Redemption Date cease and terminate, except only the right of the respective holders thereof to receive the Redemption Price from such Eligible Institution, without interest, and the respective holders on the Dividend Record Date to receive the Additional Regular Dividend, if any. Any funds unclaimed at the end of three years from the Redemption Date shall, to the extent permitted by law, be released by such Eligible Institution (or its successor, which must also be an Eligible Institution) to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the Redemption Price of such shares or the Additional Regular Dividend, if any, with respect to such shares.

 

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7. Authorization and Issuance of Shares of Common Stock after Eighth Anniversary of Original Issue Date; Effecting Net Proceeds Redemption

The provisions of this Article IV(F)7 have been adopted pursuant to the final clause of the first sentence, and the second sentence, of Section 141(a) of the DGCL. If, at any time after the 180th day after the eighth anniversary of the Original Issue Date, (i) the Corporation has not redeemed all outstanding shares of Series A Preferred Stock and (ii) a notice (the “Electing Notice”) from the holders of a majority of the shares of Series A Preferred Stock (the “Electing Holders”), stating that such Electing Holders wish to effect the provisions of this Article IV(F)7 has been delivered to the Secretary of the Corporation and not subsequently withdrawn by the holders of a majority of the shares of Series A Preferred Stock, then the business and affairs of the Corporation, solely with respect to Redemption Offering Matters (as defined below), shall be managed by or under the direction of the Person or Persons (which, for the avoidance of doubt, may include an entity to the fullest extent permitted by law) listed in the Electing Notice (the “Redemption Offering Board”), and the Redemption Offering Board shall have the full power and authority of the Board of Directors with respect to Redemption Offering Matters. Except as otherwise provided in the Charter, the provisions of the DGCL that otherwise apply to directors or a board of directors shall apply to the Redemption Offering Board. The term “Redemption Offering Matters” means any matter determined in good faith by the Redemption Offering Board to be necessary or convenient to effecting a Redemption Offering (including, for the avoidance of doubt, the approval of the issuance of, and determination of consideration for, shares of Common Stock in a Redemption Offering) and effecting a related Net Proceeds Redemption.

(G) Certain Other Provisions Relating to Ranking

So long as any shares of Series A Preferred Stock are issued and outstanding, no other class or series of stock of the Corporation shall (a) rank equally with the Series A Preferred Stock in the payment of dividends (without regard to whether dividends accrue on a cumulative or non-cumulative basis) and rank junior or senior to the Series A Preferred Stock with respect to the distribution of assets on any liquidation, dissolution or winding up of the Corporation or (b) rank equally with the Series A Preferred Stock with respect to the distribution of assets on any liquidation, dissolution or winding up of the Corporation and rank junior or senior to the Series A Preferred Stock in the payment of dividends (without regard to whether dividends accrue on a cumulative or non-cumulative basis).

(H) Conversion

Shares of Series A Preferred Stock shall not be convertible into any other securities.

(I) Voting Rights

1. General

 

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The holders of Series A Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time required by law.

2. Series A Preferred Stock Voting Rights as to Particular Matters

In addition to any other vote or consent of stockholders required by law or by this Charter, so long as any shares of Series A Preferred Stock are outstanding, the vote or consent of the holders of a majority of the shares of Series A Preferred Stock at the time outstanding, voting in person or by proxy and separately as a class, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating any of the following, whether by merger, consolidation or otherwise, and any of the following taken, whether by merger, consolidation or otherwise, without such consent or vote shall be null and void ab initio, and of no force or effect:

i. Authorization or Creation of Stock of the Corporation. Any amendment or alteration of the Charter to authorize or create, or increase the authorized amount of, any shares of any class or series of stock of the Corporation, or the issuance of any shares of any class or series of stock of the Corporation, in each case, ranking senior to or equally with the Series A Preferred Stock with respect to either or both the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of the Corporation, or having or sharing any voting or consent rights with respect to any matter described in this Article IV(I)2;

ii. Authorization or Issuance of Additional Shares of Series A Preferred Stock or Certain Other Stock. The authorization or issuance of (or obligation to issue) (a) any shares of Series A Preferred Stock in addition to the 80,000 shares of Series A Preferred Stock authorized and issued on the Original Issue Date, (b) any shares of any class or series of stock of the Corporation constituting Parity Stock or ranking senior to the Series A Preferred Stock with respect to either the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of the Corporation, or (c) any shares of any class or series of stock of the Corporation that is not perpetual and has a term that ends on or before the ninth anniversary of the Original Issue Date, or provides for mandatory redemption thereof on any date on or before the ninth anniversary of the Original Issue Date, or provides for any right of the holder thereof, whether or not contingent on the occurrence of any event, the passage of time or any other circumstance, to put such shares to the Corporation or otherwise cause or require the purchase of such shares by the Corporation on or before the ninth anniversary of the Original Issue Date, or that is convertible or exchangeable into any of the foregoing;

iii. Amendments. Any amendment, alteration or repeal of any provision of the Charter or the By-Laws of the Corporation that affects or changes the rights, preferences, privileges or powers of the Series A Preferred Stock, and the defined terms in the Charter as used with respect to this Article IV or otherwise with respect to the Series A Preferred Stock;

iv. Share Exchanges, Reclassifications, Mergers and Consolidations. Any consummation of a binding share exchange or reclassification involving the Series A

 

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Preferred Stock, or of a merger or consolidation of the Corporation with another corporation or other entity, unless as a result thereof (x) the Series A Preferred Stock remains outstanding or is converted into or exchanged for preference securities of the surviving entity with rights, preferences, privileges and powers substantially identical to those of the Series A Preferred Stock, and (y) there is no other class or series of equity outstanding that would not be permitted to be issued and outstanding pursuant to Article IV(G) or that would require the approval of holders of a majority of the shares of Series A Preferred Stock outstanding as provided in this Article IV(I)2 if the same were to be issued by the Corporation on the date of consummation of such exchange, reclassification, merger or consolidation (provided, that if pursuant to such transaction the holders of Series A Preferred Stock hold preference securities in a surviving entity, the equity of such surviving entity shall comply with the requirements of this clause (y)); and

v. Decrease of Authorized Shares of Stock of the Corporation. Any amendment or alteration of the Charter to decrease the authorized number of shares of any class or series of stock of the Corporation from such number of shares authorized as of the Effective Time.

3. No Voting Parity Stock

No other class or series of stock of the Corporation shall have or share any voting or consent rights with the holders of shares of Series A Preferred Stock with respect to any matter described in Article IV(I).

4. Changes After Redemption or Provision for Redemption

No vote or consent of the holders of Series A Preferred Stock shall be required pursuant to Article IV(I) if at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of Series A Preferred Stock (i) shall have been redeemed or (ii) shall have been called for redemption, upon proper notice given in accordance with Article IV(F), all funds necessary for the payment of the aggregate Redemption Price shall have been deposited by the Corporation with an Eligible Institution pursuant to Article IV(F)6 and the Redemption Date shall have occurred.

(J) Notices

All notices or communications in respect of Series A Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in the Second Amended and Restated Certificate of Incorporation.

(K) Other Rights

The shares of Series A Preferred Stock shall not have any rights, preferences, privileges or voting powers or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth in this Charter or as provided by applicable law. For the avoidance of doubt, the Series A Preferred Stock described in this Article IV shall constitute the same security as the 9.00% Cumulative Compounding Preferred Stock, Series A established pursuant to the Existing Certificate of Incorporation.

 

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ARTICLE V

The registered office of the Corporation shall be located at 2711 Centreville Road, Suite 400, Wilmington, County of New Castle, Delaware 19808, and the Corporation’s registered agent at such address shall be Corporation Service Company.

ARTICLE VI

(A) Number of Directors

Subject to the rights of the holders of any outstanding class or series of Preferred Stock, the number of directors shall be established at eleven directors as of the Effective Time and, thereafter, the number of directors shall be determined solely by the Board of Directors from time to time.

(B) Terms of Directors

Subject to the rights of the holders of any outstanding class or series of Preferred Stock, each director shall be elected at each annual meeting of stockholders and shall hold office until the next succeeding annual meeting of stockholders and until his or her successor shall be elected and shall qualify, but subject to prior death, resignation, disqualification or removal from office. The election of directors need not be by written ballot. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

Subject to the rights of the holders of any outstanding class or series of Preferred Stock, advance notice of nominations for the election of directors shall be given in the manner and to the extent provided in the By-Laws of the Corporation.

(C) Removal of Directors

The Board of Directors or any individual director may be removed from office at any time (a) with cause by the affirmative vote of the holders of a majority of the outstanding capital stock of the Corporation entitled to vote in an election of directors or (b) without cause by (i) the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding capital stock of the Corporation entitled to vote in an election of directors or (ii) solely if such removal is recommended by at least sixty-six and two-thirds percent (66 2/3%) of the Board of Directors, by the affirmative vote of the holders of a majority of the outstanding capital stock of the Corporation entitled to vote in an election of directors.

(D) Vacancies

Subject to the rights of the holders of any outstanding class or series of Preferred Stock, any vacancy on the Board of Directors, including a vacancy resulting from an increase in the number of directors, shall only be filled by the affirmative vote of a majority of the Board of Directors then in office, even though fewer than a quorum.

 

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ARTICLE VII

(A) Definitions

For purposes of this Article VII, the following terms shall have the meanings indicated:

1. “eligible person” means a person who is or was a director, a member of the Redemption Offering Board or an officer of the Corporation or a person who is or was a director, a member of the Redemption Offering Board or an officer and who is or was serving at the request of the Corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans);

2. “expenses” includes, without limitation, attorneys’ fees;

3. “liability” means the obligation to pay expenses, judgments, fines or settlements incurred with respect to a proceeding or an action or suit by or in the right of the Corporation to procure a judgment in its favor;

4. “party” includes, without limitation, an individual who was, is, or is threatened to be made a party in or witness to a proceeding or an action or suit by or in the right of the Corporation to procure a judgment in its favor; and

5. “proceeding” means any threatened, pending or completed action, suit, or proceeding whether civil, criminal, administrative or investigative (other than any action or suit by or in the right of the Corporation to procure a judgment in its favor), provided, however, that, except with respect to proceedings to enforce rights to indemnification and advancement permitted by paragraph H of this Article VII, no action, suit or proceeding initiated by an eligible person shall be a “proceeding” for purposes of this Article VII unless such action, suit or proceeding (or part thereof) was authorized by the Board of Directors.

(B) Limitation of Liability

To the full extent the DGCL, as it exists at the Effective Time, permits the limitation or elimination of the liability of directors, no director made party to any proceeding shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, officers or other eligible persons, then the liability of a director or officer of the Corporation or other eligible person shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. All references in this Article VII(B) to a director shall also be deemed to refer to a member of the Redemption Offering Board.

 

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(C) Indemnification

To the full extent permitted by the DGCL, as it exists at the Effective Time or as hereafter amended (but, in the case of such amendment, only to the extent such amendment permits broader indemnification), the Corporation shall indemnify any eligible person:

1. against expenses and other liabilities actually and reasonably incurred by such person in connection with any proceeding by reason of the fact that such person is or was an eligible person and, with respect to any criminal proceeding, if such person had no reasonable cause to believe such person’s conduct was unlawful; and

2. against expenses in connection with the defense or settlement of any suit or action by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was an eligible person;

if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation.

(D) Termination of Proceeding

The termination of any proceeding or action or suit by or in the right of the Corporation to procure a judgment in its favor by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that the eligible person did not meet any standard of conduct that is or may be a prerequisite to the limitation or elimination of liability provided in Article VII(B) or to such person’s entitlement to indemnification under Article VII(C).

(E) Determination of Availability

The Corporation shall indemnify under Article VII(C) any eligible person who has been successful on the merits in the defense of any proceeding or action or suit by or in the right of the Corporation to procure a judgment in its favor. Any other indemnification under Article VII(C) (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification is proper in the circumstances because the eligible person has met any standard of conduct that is a prerequisite to his or her entitlement to indemnification under Article VII(C). With respect to a person who is a director or officer of the Corporation at the time of such determination, such determination shall be made:

1. By a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum; or

2. By a committee of such directors designated by majority vote of such directors, even though less than a quorum; or

3. If there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion; or

4. By the stockholders.

(F) Advances

The Corporation shall advance expenses incurred by an eligible person who is a party to or otherwise involved in a proceeding or action or suit by or in the right of the Corporation to procure a judgment in its favor in advance of the final disposition of such proceeding, action or

 

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suit upon receipt of an undertaking by or on behalf of such eligible person to repay such amount if it is ultimately determined that such person is not entitled to be indemnified by the Corporation under Article VII(C).

(G) Indemnification of Others

The Corporation is empowered to indemnify or contract to indemnify any person not specified in Article VII(C) who was, is or may become a party to or otherwise involved in any proceeding or suit or action by or in the right of the Corporation, by reason of the fact that he or she is or was an employee or agent of the Corporation, to the same or a lesser extent as if such person were specified as one to whom indemnification is granted in Article VII(C).

(H) Application; Amendment

The provisions of this Article VII shall be applicable to all proceedings and suits and actions by or in the right of the Corporation arising from any act or omission, whether occurring before or after the Effective Time. No amendment or repeal of this Article VII shall impair or otherwise diminish the rights provided under this Article VII (including those created by contract) with respect to any act or omission occurring prior to such amendment or repeal. The Corporation shall promptly take all such actions and make all such determinations and authorizations as shall be necessary or appropriate to comply with its obligation to make any indemnity against liability, or to advance any expenses, under this Article VII. If a claim under Paragraph C, E or F of this Article VII is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the eligible person may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. To the fullest extent permitted by law, if successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the eligible person shall be entitled to be paid also the expense of prosecuting or defending such suit.

(I) Insurance

The Corporation may purchase and maintain insurance on behalf of any eligible person against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article VII.

(J) Further Indemnity

Nothing herein shall prevent or restrict the power of the Corporation to make or provide for any further indemnity and advancement, or provisions for determining entitlement to indemnity, pursuant to one or more indemnification agreements, By-Laws, vote of stockholders or disinterested directors or other arrangements (including, without limitation, creation of trust funds or security interests funded by letters of credit or other means) approved by the Board of Directors (whether or not any of the directors of the Corporation shall be a party to or beneficiary of any such agreements, By-Laws or other arrangements).

 

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(K) Severability

Each provision of this Article VII shall be severable, and an adverse determination as to any such provision shall in no way affect the validity of any other provision.

ARTICLE VIII

The Corporation hereby expressly elects that Section 203 of the DGCL shall not govern the Corporation.

ARTICLE IX

The Corporation reserves the right to amend, alter or repeal any provision contained in this Charter, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders in the Charter are subject to this reservation.

In furtherance and not in limitation of the powers conferred upon it by law, but subject to Article IV(I)2, the Board of Directors is expressly authorized to adopt, repeal, alter or amend the By-Laws of the Corporation by the affirmative vote of a majority of the entire Board of Directors. In addition to any requirements of applicable law and any other provision of this Charter and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of a majority of the combined voting power of the then outstanding shares of all classes and series of capital stock of the Corporation entitled generally to vote in the election of directors of the Corporation, voting together as a single class, shall be required for stockholders to adopt, amend, alter or repeal any provision of the By-Laws of the Corporation.

ARTICLE X

Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, or (iv) any action asserting a claim governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware except as to each of (i) through (iv) above, for any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction.

 

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EX-3.2

Exhibit 3.2

AMENDED AND RESTATED

BY-LAWS

of

THE KRAFT HEINZ COMPANY

(Effective as of July 2, 2015)

ARTICLE I

Offices

The Kraft Heinz Company (the “Corporation”) may have an office or offices, and keep the books and records of the Corporation, except as may otherwise be required by law, at such place or places, either within or without the State of Delaware, as the Board of Directors of the Corporation (the “Board of Directors”) may from time to time determine or the business of the Corporation may require.

ARTICLE II

Meetings of Stockholders

Section 1. Annual Meetings. The annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting, and any postponement or adjournment thereof, shall be held on such date and at such time as the Board of Directors may in its discretion determine.

Section 2. Special Meetings.

(a) A majority of the Board of Directors or the Chairman of the Board of Directors (the “Chairman”) may call special meetings of the stockholders. Special meetings shall be held solely for the purposes specified in the notice of meeting.

(b) The Board of Directors shall call a special meeting of stockholders after the Secretary of the Corporation (the “Secretary”) receives a valid request or requests for a special meeting of stockholders from the record holders of shares representing at least twenty percent (the “Requisite Percentage”) of the combined voting power of the then outstanding shares of all classes and series of the Corporation’s capital stock entitled to vote on the matter(s) proposed to be voted on at such meeting. To be valid, the request or requests must (i) be written; (ii) be delivered to the Secretary at the Corporation’s principal executive office (the date on which the Secretary receives the request is the “Delivery Date”); (iii) include (1) the specific purpose(s) of the special meeting of stockholders and the matter(s) proposed to be voted on at the special meeting, (2) with respect to stockholders requesting the special meeting (except for any stockholder that (A) is not an affiliate or associate of or acting in concert with any other requesting stockholder and (B) has requested the special meeting in response to a solicitation statement filed by another stockholder seeking support from the Requisite Percentage of stockholders for such special meeting pursuant to, and in accordance with, Section 14(a) of the Exchange Act (a “Solicited Stockholder”)), the information specified in the third paragraph of Article II, Section 6 of these By-Laws of the Corporation (the “By-Laws”) (as if such special meeting was an annual meeting), and (3) documentary evidence that the requesting record holders own the Requisite Percentage at the time the Secretary receives the request; and (iv) be signed and dated by the record holder(s). If the requesting record holder(s) are not the beneficial owners of the shares representing the Requisite Percentage, then to be valid, the written request must also include documentary evidence that the beneficial owners on whose behalf the request(s) are made (collectively, the “Requesting Holders”) beneficially own the Requisite Percentage on the Delivery Date. The stockholders (except for any Solicited Stockholders) requesting the special meeting shall (i) notify the Corporation of any inaccuracy or change (within two business days of becoming aware of such

 

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inaccuracy or change) in any information previously provided to the Corporation pursuant to this By-Law and (ii) promptly update and supplement any information previously provided to the Corporation pursuant to this By-Law, if necessary, so that the information provided or required to be provided shall be true and complete (1) as of the voting record date for the special meeting and (2) as of the date that is 10 days prior to the special meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary at the Corporation’s principal executive offices. Any stockholder who submitted a written request for a special meeting of stockholders may revoke that written request at any time by delivering a written revocation to the Secretary at the Corporation’s principal executive offices. In addition, any Requesting Holder’s failure to appear at the special meeting of stockholders or to send the Requesting Holder’s qualified representative to the special meeting of stockholders to present such matter(s) to be voted on at the special meeting of stockholders also constitutes a revocation of such request.

The Corporation is not required to call a special meeting of stockholders pursuant to this Section 2(b) with respect to any matter if (i) an identical or substantially similar matter was included on the agenda of any annual or special meeting of stockholders held within 60 days prior to the Delivery Date or will be included on the agenda at an annual or special meeting to be held within 90 days after the Delivery Date (for purposes of this clause (i), the election or removal of directors shall be considered an identical or substantially similar matter with respect to all matters involving election or removal of directors), or (ii) the purpose of the special meeting of stockholders is not a proper matter for stockholder action or is otherwise unlawful, or (iii) the written request for a special meeting of stockholders itself violated applicable law(s) or was not made in accordance with these By-Laws.

The business conducted at the special meeting of stockholders called in accordance with this Section 2(b) shall be limited to the business set forth in the notice of the special meeting; provided that the Board of Directors may submit additional matters to the stockholders at the special meeting by including those matters in the notice of the special meeting of stockholders.

Section 3. Place of Meetings. All meetings of the stockholders shall be held at such places as from time to time may be fixed by the Board of Directors, either within or without the State of Delaware. In addition to or instead of holding a meeting at a physical location, the Board of Directors may, in its sole discretion, determine that any meeting of stockholders shall be held by remote communications in any manner permitted by the DGCL.

Section 4. Notice of Meetings. (a) Notice, stating the place, day and time and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than 10 nor more than 60 days before the date of the meeting (except as a different time is specified in the Second Amended and Restated Certificate of Incorporation of the Corporation (as amended and together with any Certificate of Designation relating to any class or series of Preferred Stock, the “Certificate of Incorporation”), herein or by law), to each stockholder of record in respect of the business to be transacted thereat. Notwithstanding the foregoing, notice may be given to stockholders sharing an address in the manner and to the extent permitted by the DGCL. Notice may be given in any manner permitted by the DGCL.

Notwithstanding the foregoing, a written waiver of notice signed by the person or persons entitled to such notice, either before or after the time stated therein, shall be equivalent to the giving of such notice. A stockholder who attends a meeting shall be deemed to have (a) waived objection to lack of notice or defective notice of the meeting, unless at the beginning of the meeting he or she objects to holding the meeting or transacting business at the meeting, and (b) waived objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless he or she objects to considering the matter when it is presented. No notice shall be required for actions taken by written consent.

(b) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of capital stock or for the purposes of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be less than 10 days nor more than 60 days before the date of such meeting, nor more than 60 days prior to any other action.

 

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Section 5. Quorum and Adjournment. At all meetings of the stockholders, unless a greater number or voting by classes or series is required by law, by the Certificate of Incorporation or by the rules of any stock exchange upon which shares of the Corporation’s capital stock are listed, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting, unless a new voting record date is set for that meeting. The chairman of the meeting of stockholders shall have the right and authority to adjourn or recess the meeting. The stockholders, even though less than a quorum, may adjourn the meeting.

Section 6. Organization and Order of Business.

(a) The Chairman, the Vice Chairman of the Board of Directors (the “Vice Chairman”), the Chief Executive Officer of the Corporation (the “Chief Executive Officer”) or any such other person as the Chairman, Vice Chairman or Chief Executive Officer may appoint, shall act as chairman of all meetings of the stockholders. The Secretary, or an Assistant Secretary of the Corporation (an “Assistant Secretary”), in the Secretary’s absence, shall act as secretary at all meetings of the stockholders. In the absence of the Secretary or an Assistant Secretary, the chairman of the meeting may appoint any person to act as secretary of the meeting.

(b) The Board of Directors may adopt such rules, regulations and procedures for the conduct of any meeting of stockholders that it deems appropriate. Except to the extent inconsistent with such rules, regulations and procedures adopted by the Board of Directors, the chairman of the meeting shall have the right and authority to prescribe and enforce such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of an agenda or order of business, the dismissal of business not properly presented, the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof and the opening and closing of the voting polls.

(c) At each annual meeting of stockholders, only such business shall be conducted as shall have been properly brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 6; provided, that notice procedures in connection with the election of directors shall be determined in accordance with Article III, Section 4. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary. To be timely, a stockholder’s notice must be given, either by personal delivery or by United States certified mail, postage prepaid, and received at the principal executive offices of the Corporation (i) not less than 120 days nor more than 150 days before the first anniversary of the preceding year’s annual meeting or (ii) if the date of the annual meeting is more than 30 days before or more than 60 days after the first anniversary of the preceding year’s annual meeting, not more than 150 days prior to the date of such annual meeting and not less than 120 days prior to the date of such annual meeting or, if the first public announcement of the date of such annual meeting is less than 120 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. A stockholder’s notice to the Secretary, whether pursuant to this Section 6 or Section 2 of this Article II (other than with respect to Solicited Stockholders), shall set forth as to each matter the stockholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting, including the complete text of any resolutions to be presented at the meeting, and the reasons for conducting such business at the meeting; (ii) the name and address, as they appear on the Corporation’s stock transfer books, of such stockholder proposing such business, and the name and address of any beneficial owner on whose behalf the proposal is being made; (iii) a representation that such stockholder is a stockholder of record and intends to appear in person or by proxy at such meeting to bring the business before the meeting specified in the notice; (iv) the class, series and number of shares of capital stock of the Corporation owned, directly or indirectly, beneficially and of record by the stockholder and any beneficial owner on whose behalf the proposal is made, and any of their respective affiliates or associates or other parties with whom they are acting in concert, as well as any derivative instrument or similar contract or agreement the value of or return on which is based on or linked to the value of or return of any of the Corporation’s securities; (v) any proxy (other than a revocable proxy given in response to a solicitation statement filed pursuant to, and in accordance with, Section 14(a) of the Exchange Act), voting trust, voting agreement or similar contract, arrangement, agreement or understanding pursuant to which the stockholder and any beneficial owner on whose behalf the proposal is being

 

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made, or any of their respective affiliates or associates or other parties with whom they are acting in concert, has a right to vote or direct the voting of any of the Corporation’s securities; and (vi) any material interest of the stockholder, and any beneficial owner on whose behalf the proposal is made and their respective affiliates or associates or other parties with whom they are acting in concert, in such business. The stockholder shall (A) notify the Corporation of any inaccuracy or change (within two business days of becoming aware of such inaccuracy or change) in any information previously provided to the Corporation pursuant to this By-Law and (B) promptly update and supplement information previously provided to the Corporation pursuant to this By-Law, if necessary, so that the information provided or required to be provided shall be true and complete (1) as of the voting record date for the meeting and (2) as of the date that is 10 days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary at the Corporation’s principal executive offices. The Secretary shall deliver each such stockholder’s notice that has been timely received to the Board of Directors or a committee designated by the Board of Directors for review. Unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the meeting of stockholders to present such business, such proposal shall be disregarded and such business shall not be transacted, notwithstanding that the Corporation may have received proxies in respect of such vote.

Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 6. The chairman of the meeting shall, if the facts warrant, determine that the business was not brought before the meeting in accordance with the procedures prescribed by this Section 6. If the chairman of the meeting should so determine, he or she shall so declare to the meeting and the business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 6, a stockholder seeking to have a proposal included in the Corporation’s proxy statement shall comply with the requirements of Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Section 7. Voting. A stockholder may vote his, her or its shares in person or by proxy. Any proxy shall be delivered to the secretary of the meeting or to the inspectors of election appointed in accordance with Section 9, at or prior to the time designated by the chairman of the meeting or in the order of business for so delivering such proxies. No proxy shall be valid after 11 months from its date, unless otherwise provided in the proxy. Each holder of record of capital stock of any class or series shall, as to all matters in respect of which capital stock of such class or series has voting power, be entitled to such vote as is provided in the Certificate of Incorporation for each share of capital stock of such class or series standing in the holder’s name on the books of the Corporation as of the voting record date for the meeting of stockholders. Unless required by statute or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting or by such stockholder’s proxy, if there be such proxy; provided, however, that if authorized by the Board of Directors, any stockholder vote to be taken by written ballot may be satisfied by a ballot submitted by electronic transmission by the stockholder or the stockholders proxy, provided, further that any such electronic transmission shall either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder or the stockholders proxy.

Except as otherwise required by law, the Certificate of Incorporation, these By-Laws or by the rules of any stock exchange upon which shares of the Corporation’s capital stock are listed, at each meeting of the stockholders, all corporate actions to be taken by vote of the stockholders shall be authorized by a majority of the votes cast by the stockholders entitled to vote thereon who are present in person or represented by proxy, and where a separate vote by class or series is required, a majority of the votes cast by the stockholders of such class or series who are present in person or represented by proxy shall be the act of such class or series; provided, that the election of directors shall be determined in accordance with Article III, Section 4(b), and provided further that if a different or minimum vote is required or provided for such matter by law, the Certificate of Incorporation, these By-laws or by the rules of any stock exchange upon which shares of the Corporation’s capital stock are listed, such different or minimum vote shall be the required vote on such matter. For purposes of this Section 7, a majority of the votes cast means that the number of shares voted “for” a proposal must exceed the number of shares voted “against” that proposal, with “abstentions” and “broker non-votes” not counted as a vote cast with respect to that proposal.

Section 8. Proxies. A stockholder or stockholder’s authorized officer or agent may appoint a proxy to vote or otherwise act for the stockholder by signing an appointment form or by an electronic transmission. An electronic

 

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transmission shall set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder. For purposes of this Section 8 and the remainder of these By-Laws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission permitted by this Section 8 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

Section 9. Inspectors. At every meeting of the stockholders, one or more inspectors shall receive and take in charge the proxies, receive and count all votes, and decide questions concerning the qualifications of voters, the validity of proxies and the acceptance or rejection of votes. The Corporation or the chairman of the meeting shall appoint such inspectors. The inspectors shall be sworn faithfully to perform their duties and shall in writing certify to the returns. No candidate for election as director shall be appointed or act as inspector.

ARTICLE III

Board of Directors

Section 1. General Powers. Except as provided in the Certificate of Incorporation, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, the Board of Directors.

Section 2. Number. The number of directors shall be fixed, or determined in the manner provided by, the Certificate of Incorporation.

Section 3. Term of Office. Each director shall serve for the term expiring at the next annual meeting of stockholders following their election or appointment and until a successor shall have been duly elected and qualified.

Section 4. Nomination and Election of Directors.

(a) At each annual meeting of stockholders, the stockholders entitled to vote shall elect the directors.

(b) Except as provided in subsection (c) of this Section 4, each director shall be elected by a vote of the majority of the votes cast with respect to that director-nominee’s election at a meeting for the election of directors at which a quorum is present. For purposes of this subsection (b), a majority of the votes cast means that the number of shares voted “for” a director must exceed the number of shares voted “against” that director, with “abstentions” and “broker non-votes” not counted as a vote cast with respect to that director.

(c) Subsection (b) shall not apply to any election of directors if, as of the expiration of the time when a stockholder may give notice of a nomination of a director pursuant to subsection (d) of this Section 4, there are more nominees for election than the number of directors to be elected, one or more of whom are properly proposed by stockholders. A nominee for director in an election to which this subsection (c) applies shall be elected by a plurality of the votes cast in such election.

(d) Subject to the rights of any series of Preferred Stock, no person shall be eligible for election as a director unless nominated in accordance with the procedures set forth in this subsection (d). Nominations of persons for election to the Board of Directors may be made (i) by the Board of Directors or any committee designated by the Board of Directors or (ii) by any stockholder entitled to vote for the election of directors at the applicable meeting of stockholders who complies with the notice procedures set forth in this subsection (d). Such nominations, other than those made by the Board of Directors or any committee designated by the Board of Directors, may be made only if written notice of a stockholder’s intent to nominate one or more persons for election as directors at the applicable meeting of stockholders has been given, either by personal delivery or by United States certified mail, postage

 

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prepaid, to the Secretary and received (i) not less than 120 days nor more than 150 days before the first anniversary of the preceding year’s annual meeting, or (ii) if the date of the annual meeting is more than 30 days before or more than 60 days after the first anniversary of the preceding year’s annual meeting, not more than 150 days prior to the date of such annual meeting and not less than 120 days prior to the date of such annual meeting or, if the first public announcement of the date of such annual meeting is less than 120 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation, or (iii) with respect to any special meeting of stockholders called for the election of directors, not later than the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such stockholder’s notice shall set forth (i) as to the stockholder giving the notice, (1) the name and address, as they appear on the Corporation’s stock transfer books, of such stockholder, and the name and address of any beneficial owner on whose behalf the nomination is being made; (2) a representation that such stockholder is a stockholder of record and intends to appear in person or by proxy at such meeting to nominate the person or persons specified in the notice; (3) the class, series and number of shares of capital stock of the Corporation owned beneficially, directly or indirectly, and of record by such stockholder and any beneficial owner on whose behalf the notice is given and any of their respective affiliates or associates or other parties with whom they are acting in concert, as well as any derivative instrument or similar contract or agreement the value of or return on which is based on or linked to the value of or return of any of the Corporation’s securities; (4) any proxy (other than a revocable proxy given in response to a solicitation statement filed pursuant to, and in accordance with, Section 14(a) of the Exchange Act), voting trust, voting agreement or similar contract, arrangement, agreement or understanding pursuant to which the stockholder and any beneficial owner on whose behalf the nomination has been made, or any of their respective affiliates or associates or other parties with whom they are acting in concert, has a right to vote or direct the voting of any of the Corporation’s securities; and (5) a description of all arrangements or understandings between such stockholder or such beneficial owner or any of their respective affiliates or associates or other parties with whom they are acting in concert and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder; and (ii) as to each person whom the stockholder proposes to nominate for election as a director, (1) the name, age, business address and, if known, residence address of such person; (2) the principal occupation or employment of such person; (3) the class, series and number of shares of capital stock of the Corporation that are beneficially owned by such person; (4) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors or is otherwise required by the rules and regulations of the U.S. Securities and Exchange Commission promulgated under the Exchange Act; and (5) the written consent of such person to be named in the proxy statement as a nominee and to serve as a director if elected. The stockholder shall (i) notify the Corporation of any inaccuracy or change (within two business days of becoming aware of such inaccuracy or change) in any information previously provided to the Corporation pursuant to this By-Law and (ii) promptly update and supplement information previously provided to the Corporation pursuant to this By-Law, if necessary, so that the information provided or required to be provided shall be true and complete (1) as of the voting record date for the meeting and (2) as of the date that is 10 days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary at the Corporation’s principal executive offices. The Secretary shall deliver each such stockholder’s notice that has been timely received to the Board of Directors or a committee designated by the Board of Directors for review. Any person nominated for election as director by the Board of Directors or any committee designated by the Board of Directors shall, upon the request of the Board of Directors or such committee, furnish to the Secretary all such information pertaining to such person that is required to be set forth in a stockholder’s notice of nomination. Unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the meeting of stockholders to present such nomination, such nomination shall be disregarded, notwithstanding that the Corporation may have received proxies in respect of such vote.

Notwithstanding anything in these By-Laws to the contrary, except as otherwise fixed by or pursuant to the provisions of the Certificate of Incorporation or any Certificate of Designation relating to any class or series of Preferred Stock, no persons may be nominated for election to the Board of Directors except in accordance with the procedures set forth in this Section 4. The chairman of the meeting of stockholders shall, if the facts warrant, determine that a nomination was not made in accordance with the procedures prescribed by this subsection (d). If the chairman should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded.

 

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Section 5. Chairman; Vice Chairman. The Board of Directors shall elect from among its members (i) a director designated as the Chairman and (ii) a director designated as the Vice Chairman . The Chairman shall serve as chairman of the Board of Directors and preside at meetings of the stockholders and of the Board of Directors. Each of the Chairman and the Vice Chairman shall have such duties as may be assigned to him or her by the Board of Directors.

Section 6. Organization. At all meetings of the Board of Directors, the Chairman, or, in the absence of the chairman, the Vice Chairman, shall act as chairman of the meeting. In the absence of the Chairman and the Vice Chairman, a director chosen by a majority of the directors present shall act as chairman of the meeting. The Secretary or, in the Secretary’s absence, an Assistant Secretary shall act as secretary of meetings of the Board of Directors. In the absence of the Secretary or an Assistant Secretary at such meeting, the chairman of the meeting shall appoint any person to act as secretary of the meeting.

Section 7. Place of Meeting and Action Without Meeting. Meetings of the Board of Directors, regular or special, may be held either within or without the State of Delaware. The Board of Directors may meet in person or by telephone, video conference or other communications equipment by means of which all persons participating in such meeting can hear each other. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all of the members of the Board of Directors or any such committee consent thereto in writing, by electronic transmission or transmissions, or as otherwise permitted by law and, if required by law, the writing or electronic transmission or transmissions are filed with the minutes of the proceedings of the Board of Directors or of such committee.

Section 8. Organizational Meeting. The annual organizational meeting of the Board of Directors shall be held immediately following the annual meeting of stockholders and at the same place, without the requirement of any notice other than this provision of the By-Laws, or at such other date, time and place as the Board of Directors may determine.

Section 9. Regular Meetings: Notice. Regular meetings of the Board of Directors shall be held at such times and places as the Board of Directors or the Chairman may from time to time determine. Notice of such meetings need not be given if the time and place have been fixed previously.

Section 10. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by (i) order of the Chief Executive Officer, the Chairman or the majority of the directors then in office, or (ii) order of the Vice Chairman or the chair of any committee with the support of at least two other directors. Notice of each such meeting, which need not specify the business to be transacted thereat, shall (i) be mailed to each director, addressed to his or her residence or usual place of business, at least three days before the day of the meeting, (ii) be delivered at least twenty-four hours before the time of the meeting by a form of electronic transmission or (iii) be delivered personally or by telephone, not later than the day before the day on which the meeting is to be held.

Section 11. Waiver of Notice. Whenever any notice is required to be given to a director of any meeting of the Board of Directors or any committee thereof for any purpose under the provisions of law, the Certificate of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, either before or after the time stated therein, shall be equivalent to the giving of such notice. A director’s attendance at or participation in a meeting waives any required notice to him or her of the meeting unless at the beginning of the meeting or promptly upon the director’s arrival, he or she objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.

Section 12. Quorum and Manner of Acting. Except where otherwise provided by law, a majority of the number of directors fixed by resolution of the Board of Directors at the time of any regular or special meeting shall constitute a quorum for the transaction of business at such meeting, and the affirmative vote of a majority of the directors present at any such meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of those present may adjourn the meeting from time to time until a quorum is present. Notice of any such adjourned meeting need not be given.

 

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Section 13. Order of Business. At all meetings of the Board of Directors business may be transacted in such order as from time to time the Board of Directors may determine.

Section 14. Resignation of Director. Any director may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors, the Chairman or the Secretary. Unless the resignation is contingent on acceptance by the Board of Directors, or as otherwise stated in the notice of resignation, it shall take effect when delivered.

Section 15. Committees. (a) In addition to the operations and strategy committee authorized by Article IV of these By-Laws, other committees may be designated by the Board of Directors by a resolution adopted by the number of directors required to take action under Article III, Section 12 hereof. Any such committee, to the extent provided in the resolution of the Board of Directors designating the committee, shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, except as limited by law.

(b) The Board of Directors may appoint members to each committee meeting any applicable qualifications set forth in that committee’s charter at the Board of Directors’ annual organizational meeting or at such other time as the Board of Directors may determine. The Board of Directors may designate one or more directors as alternate members of any committee who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present and not disqualified from voting, whether or not a quorum, may appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Unless the Board of Directors otherwise prescribes by resolution, such committee member will serve until he or she ceases to be a director, resigns or is removed. Any vacancy occurring on any committee may be filled by the Board of Directors. Each committee may delegate any of its responsibilities to the chair or another committee member, unless prohibited by law, regulation or national securities exchange listing standards (if any).

(c) A committee may meet in person or by telephone, video conference or other communications equipment by means of which all persons participating in such meeting can hear each other, and may act by unanimous written consent.

(d) Unless the Board of Directors otherwise prescribes by resolution, a majority of a committee’s members constitutes a quorum for the transaction of business at a committee meeting, and the affirmative vote of a majority of the committee members present at a meeting at which there is a quorum present will be the act of that committee. Each committee of the Board of Directors may prescribe its own rules for calling and holding meetings and its method of procedure, subject to any rules prescribed by the Board of Directors.

ARTICLE IV

Operations and Strategy Committee

Section 1. How Constituted and Powers. The Board of Directors, by resolution adopted pursuant to Article III, Section 15 hereof, may designate three directors to constitute an operations and strategy committee, who shall serve at the pleasure of the Board of Directors. The operations and strategy committee, to the extent provided in such resolution and permitted by law, shall have and may exercise all of the authority of the Board of Directors.

Section 2. Meetings. Meetings of the operations and strategy committee may be called by the chairman of the committee or by any two members of the committee. Notice of each such meeting, which need not specify the business to be transacted thereat, shall (i) be mailed to each member of the committee, addressed to his or her residence or usual place of business, at least three days before the day of the meeting, (ii) be delivered at least twenty-four hours before the time of the meeting by a form of electronic transmission or (iii) be delivered personally or by telephone, not later than the day before the day on which the meeting is to be held.

 

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ARTICLE V

Officers

Section 1. Election and Designation. The officers of the Corporation shall be elected by the Board of Directors and may include a Chief Executive Officer, a President of the Corporation (the “President”), a Chief Financial Officer of the Corporation (the “Chief Financial Officer”), one or more Vice Presidents (each, a “Vice President”), a Controller of the Corporation, a Treasurer of the Corporation (the “Treasurer”), a Secretary, and such other officers or assistant officers as the Board of Directors deems necessary or advisable with such powers and duties as prescribed herein or by the Board of Directors. The same person may hold any two or more offices.

Section 2. Appointment, Term of Office and Qualifications. The Board of Directors may authorize any duly elected officer to appoint one or more other officers or assistant officers. Unless the Board of Directors otherwise prescribes by resolution, each officer shall hold office until his or her respective successor shall have been duly chosen and qualified or until such officer’s resignation, death or removal.

Section 3. Vacancies. If any vacancy shall occur among the officers or assistant officers of the Corporation, the Board of Directors, or any duly elected officer authorized by the Board of Directors to appoint such officer or assistant officer, may fill such vacancy.

Section 4. Removal. The Board of Directors may remove any officer or assistant officer at any time either with or without cause. Any officer or assistant officer appointed by another officer may likewise be removed by such officer.

Section 5. Chief Executive Officer. The Chief Executive Officer shall be in charge of the Corporation’s business and affairs under the basic policies set by the Board of Directors and shall from time to time report to the Board of Directors on matters within his or her knowledge that the interests of the Corporation may require be brought to the Board of Directors’ notice. The Chief Executive Officer shall be responsible to the Board of Directors and shall perform such other duties as shall be assigned to him or her by the Board of Directors.

Section 6. President. The President shall perform such senior duties as he may agree with the Chief Executive Officer or as shall be assigned to him or her by the Board of Directors.

Section 7. Vice Presidents. One or more Vice Presidents, including Executive Vice Presidents of the Corporation (each, an “Executive Vice President”), shall assist the Chief Executive Officer in carrying out his or her respective duties and shall perform those duties that may from time to time be assigned to them by the Board of Directors or the Chief Executive Officer. A Vice President need not be an officer of the Corporation and shall not be deemed an officer of the Corporation unless elected by the Board of Directors.

Section 8. Chief Financial Officer. The Chief Financial Officer shall be an Executive Vice President and shall be responsible for the management and supervision of the financial affairs of the Corporation.

Section 9. Secretary. The Secretary shall keep the minutes of all meetings of the stockholders and of the Board of Directors in a book or books kept for that purpose. He or she shall keep in safe custody the seal of the Corporation, and shall affix such seal to any instrument requiring it. The Secretary shall have charge of such books and papers as the Board of Directors may direct. He or she shall attend to the giving and serving of all notices of the Corporation and shall also have such other powers and perform such other duties as pertain to the Secretary’s office, or as the Board of Directors, Chairman or Chief Executive Officer may from time to time prescribe.

Section 10. Assistant Officers. In the absence or disability of an officer, one or more assistant officers shall perform all of the duties of the officer and, when so acting, shall have all of the powers of, and be subject to all the restrictions upon, the officer. Assistant officers shall also perform such other duties as from time to time may be assigned to them by the Board of Directors or an officer. Assistant officers need not be officers of the Corporation and shall not be deemed officers of the Corporation unless elected by the Board of Directors.

 

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ARTICLE VI

Contracts, Checks, Drafts, Bank Accounts, Etc.

Section 1. Contracts. Except as the Board of Directors may, from time to time, otherwise provide, the Chief Executive Officer, any Executive Vice President and such other persons as the Chief Executive Officer or the Board of Directors may authorize shall have the power to execute any contract or other instrument on behalf of the Corporation. The Board of Directors, in its discretion, may authorize the power to execute any contract or other instrument on behalf of the Corporation to the chairman of a committee of the Corporation. Except as the Board of Directors may, for time to time, otherwise provide, no other officer, agent or employee shall, unless otherwise in these By-Laws provided, have any power or authority to bind the Corporation by any contract or acknowledgement, or pledge its credit or render it liable pecuniarily for any purpose or to any amount.

Section 2. Loans. The Chief Executive Officer, any Executive Vice President and such other persons as the Chief Executive Officer or the Board of Directors may authorize shall have the power to borrow money for the Corporation from any bank, trust company or other institution, or from any corporation, firm or individual, and in connection with such loans and advances may make, execute and deliver promissory notes or other evidences of indebtedness of the Corporation, and, as security for the payment of any and all loans, advances, indebtedness and liability of the Corporation, may pledge, hypothecate or transfer any and all stocks, securities and other property at any time held by the Corporation, and to that end endorse, assign and deliver the same.

Section 3. Voting of Stock and Other Interests Held. The Chief Executive Officer, any Executive Vice President or the Secretary may from time to time appoint an attorney or attorneys or agent or agents of the Corporation to cast the votes that the Corporation may be entitled to cast as a stockholder or otherwise in any other entity at meetings of the holders of the capital stock or other interests of such other entity, or to consent in writing to any action by such other entity, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed on behalf of the Corporation such written proxies, consents, waivers or other instruments as such officer may deem necessary or proper in the premises; or the Chief Executive Officer, any Executive Vice President or the Secretary may attend in person any meeting of the holders of capital stock or other interests of such other entity and thereat vote or exercise any and all powers of the Corporation as the holder of such capital stock or other interests of such other entity.

ARTICLE VII

Certificates Representing Shares

Shares of the Corporation may but need not be certificated and the Board of Directors may provide by resolution or resolutions that some or all of the shares of one or more classes or series of capital stock of the Corporation be uncertificated. Shares represented by certificates shall be signed by the Chairman, President or any Vice President and the Treasurer, Secretary or any Assistant Treasurer or Assistant Secretary. Any and all signatures on such certificates, including signatures of officers, transfer agents and registrars, may be facsimile. The Board of Directors may make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificated or uncertificated shares of capital stock of each class and series of the Corporation. The Corporation shall replace certificates that become destroyed, stolen, mutilated or lost at the holder’s expense upon delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen, mutilated or lost, together with any indemnity that may be reasonably required by the Corporation. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars and may require stock certificates to be countersigned or registered by one or more of such transfer agents and/or registrars.

 

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ARTICLE VIII

Distributions

Subject to the rights of any class or series of stock set forth in the Certificate of Incorporation, the Board of Directors may from time to time, in its discretion, declare payment of dividends or other distributions on its outstanding shares of capital stock in such manner and upon such terms and conditions as are permitted by the Certificate of Incorporation and the DGCL.

ARTICLE IX

Seal

The Board of Directors may provide a suitable seal or seals, which shall be in the form of a circle, and shall have inscribed thereon the full name of the Corporation, the year of its incorporation and the words “Corporate Seal, Delaware.”

ARTICLE X

Fiscal Year

The fiscal year of the Corporation shall end on the Sunday nearest to December 31 of each year.

ARTICLE XI

Amendment

Subject to any limitations provided in the Certificate of Incorporation, the Board of Directors may adopt, amend or repeal the By-Laws. Notwithstanding the foregoing, the stockholders may adopt amend, amend or repeal the By-Laws as provided in the Certificate of Incorporation.

ARTICLE XII

Unavailability of Officers

In the event an officer of the Corporation is unavailable to perform his or her duties for any reason, and notwithstanding any provision of these By-Laws to the contrary, the Board of Directors is authorized to elect any director or officer of the Corporation to fill such position on a temporary basis. Any person so elected shall have such title as the Board of Directors may confer and, unless limited by the resolution electing such person, have all the powers and duties of the office being temporarily filled as set forth in these By-Laws and shall hold such office until the Board of Directors determines the original officer is again available to serve or until such temporary officer resigns or the Board of Directors removes such officer.

 

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EX-4.1

Exhibit 4.1

 

 

AMENDED AND RESTATED

REGISTRATION RIGHTS AGREEMENT

by and among

The Kraft Heinz Company,

3G Global Food Holdings LP

and

Berkshire Hathaway Inc.

 

 

Dated as of July 2, 2015

 

 


TABLE OF CONTENTS

 

          Page  

Section 1.

   Certain Definitions      1   

Section 2.

   Demand Registration      6   

Section 3.

   Piggyback Registrations      9   

Section 4.

   S-3 Shelf Registration      11   

Section 5.

   Reserved      13   

Section 6.

   Redemption Offering      13   

Section 7.

   Holdback Agreements      13   

Section 8.

   Suspension Periods; Other      14   

Section 9.

   Registration Procedures      15   

Section 10.

   Registration Expenses      19   

Section 11.

   Confidentiality      20   

Section 12.

   Indemnification      20   

Section 13.

   Securities Act Restrictions      22   

Section 14.

   Transfers of Rights      23   

Section 15.

   Miscellaneous      23   


THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this “Agreement”), is made and entered into as of July 2, 2015, by and among The Kraft Heinz Company, a Delaware corporation (the “Company”), 3G Global Food Holdings LP, a Cayman Islands exempted limited partnership (“3G”), and Berkshire Hathaway Inc., a Delaware corporation (“Berkshire”; each of 3G and Berkshire, together with the Permitted Transferees that become a party to this Agreement in accordance with Section 13, an “Investor” and, collectively, the “Investors”).

WHEREAS, the Company and each of the Investors are party to that certain Registration Rights Agreement, dated as of June 7, 2013 (the “Original Agreement”); and

WHEREAS, in connection with the consummation of the transactions contemplated by the Agreement and Plan of Merger, dated as of March 24, 2015 (the “Merger Agreement”), among the Company, Kite Merger Sub Corp., a Virginia corporation, Kite Merger Sub LLC a Delaware limited liability company, and Kraft Foods Group, Inc., a Virginia corporation, the Company and each of the Investors desire, as of the Effective Time, to amend and restate the Original Agreement in its entirety to be in the form of this Agreement. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Merger Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valid consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:

Section 1. Certain Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms shall have the following meanings:

3G” has the meaning set forth in the introductory paragraph hereto.

3G Permitted Transferee” means any Affiliate of 3G that has acquired Shares by means of a Permitted Transfer.

Affiliate” of any Person means any other Person which, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. For purposes of this Agreement, the current principals of 3G Capital Partners Ltd. and the current managing partner of 3G Capital Partners Ltd. (together with (a) any trust that is formed by any such individuals for estate planning purposes, (b) any investment fund that is controlled by such individuals (or, upon death or incapacity of such individual, such individual’s immediate family), and (c) any personal investment holding entity that is formed by any such individual and is majority-owned and controlled by such individual (or, upon death or incapacity of such individual, such individual’s immediate family)) shall each be deemed to be an Affiliate of 3G. The term “control” (including the terms “controlling,” “controlled” and “under common control with”) as used with respect to any Person means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.


Agreement” means this Amended and Restated Registration Rights Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to this Amended and Restated Registration Rights Agreement as the same may be in effect at the time such reference becomes operative.

Automatic Shelf Registration Statement” has the meaning set forth in Section 2(a).

beneficially own” means, with respect to any Person, securities of which such Person or any of such Person’s Affiliates, directly or indirectly, has “beneficial ownership” as determined pursuant to Rule 13d-3 and Rule 13d-5 of the Exchange Act, including securities beneficially owned by others with whom such Person or any of its Affiliates has agreed to act together for the purpose of acquiring, holding, voting or disposing of such securities; provided that a Person shall not be deemed to “beneficially own” (i) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person’s Affiliates until such tendered securities are accepted for payment, purchase or exchange, (ii) any security as a result of an oral or written agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (a) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the Exchange Act, and (b) is not also then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report). Without limiting the foregoing, a Person shall be deemed to be the beneficial owner of all Registrable Shares owned of record by any majority-owned subsidiary of such Person.

Berkshire” has the meaning set forth in the introductory paragraph hereto.

Berkshire Permitted Transferee” means any Affiliate of Berkshire that has acquired Shares by means of a Permitted Transfer.

Business Day” means any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the City of New York, New York.

Certificate of Incorporation” means the Company’s Second Amended and Restated Certificate of Incorporation, as amended and restated from time to time (including any certificate of designations adopted by the Company’s board of directors pursuant to the Certificate of Incorporation).

Chosen Courts” has the meaning set forth in Section 14(e).

Common Stock” means the common stock of the Company, par value $0.01 per share.

Company” has the meaning set forth in the introductory paragraph hereto.

Demand Registration” has the meaning set forth in Section 2(a).

Demand Registration Statement” has the meaning set forth in Section 2(a).

 

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Effectiveness Deadline” shall mean, with respect to any Registration Statement required to be filed to cover the resale by an Investor of the Registrable Shares, (i) the date such Registration Statement is filed, if the Company is a WKSI as of such date and such Registration Statement is an Automatic Shelf Registration Statement eligible to become immediately effective upon filing pursuant to Rule 462, or (ii) if the Company is not a WKSI as of the date such Registration Statement is filed, the 5th Business Day following the date on which the Company is notified by the SEC that such Registration Statement will not be reviewed or is not subject to further review and comments and will be declared effective upon request by the Company.

Equity Shares” means the Shares owned by each of 3G and Berkshire on the date hereof after giving effect to the Equity Investment, the Merger and the other Transactions.

Exchange Act” means the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder.

Exercise Shares” means the shares of Common Stock acquired by Berkshire upon exercise of the Warrant.

Filing Deadline” shall mean, with respect to any Registration Statement required to be filed to cover the resale by an Investor of the Registrable Shares, (i) 30 days following a Request, if the Company is a WKSI as of the date of such Request, or (ii) if the Company is not a WKSI as of the date of such Request, (x) 40 days following such Request if the Company is then eligible to register for resale of the Registrable Shares on Form S-3 or (y) if the Company is not then eligible to use Form S-3, 60 days following such Request, provided that, to the extent that the Company has not been provided the information regarding an Investor and the Registrable Shares required to be included in such Registration Statement at least fifth Business Days prior to the applicable Filing Deadline, then such Filing Deadline shall be extended to the fifth Business Day following the date on which such information is provided to the Company.

Form S-3” means a registration statement on Form S-3 under the Securities Act or such successor forms thereto permitting registration of securities under the Securities Act.

Governmental Entity” means any national, federal, state, municipal, local, territorial, foreign or other government or any department, commission, board, bureau, agency, regulatory authority or instrumentality thereof, or any court, judicial, administrative or arbitral body or public or private tribunal.

Holdback Agreement” has the meaning set forth in Section 7.

Holdback Period” has the meaning set forth in Section 7.

Investors” has the meaning set forth in the introductory paragraph hereto. References herein to an Investor shall apply to Permitted Transferees who become Investors pursuant to Section 13, provided that for purposes of all thresholds and

 

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limitations herein, the actions of each Permitted Transferee shall be aggregated with the Investor who was a shareholder of the Company on the date hereof and from whom such Permitted Transferee directly or indirectly acquired Shares.

Long-Form Registration” has the meaning set forth in Section 2(a).

Merger Agreement” has the meaning set forth in the Recitals hereto.

Original Agreement” has the meaning set forth in the Recitals hereto.

Permitted Transfer” means a Transfer of Shares by (a) Berkshire or any Affiliate of Berkshire to any Affiliate of Berkshire or (b) 3G or any Affiliate of 3G to any Affiliate of 3G; provided that any Transfer of Shares under clause (a) or (b) to a limited partner or member shall be by means of distribution of Shares to such Person, with no value paid by such limited partner or member in exchange for distribution of such Shares; provided, further, that neither Berkshire nor 3G shall avoid the provisions of clause (a) or (b), as applicable, by making one or more Transfers to one or more Permitted Transferees and then disposing of all or any portion of such party’s interest in any such Permitted Transferee. On subsequent Transfers by a Permitted Transferee, the determination of whether the transferee is a Permitted Transferee shall be determined by reference to the Investor who was an original party to this Agreement, not by reference to the transferring Permitted Transferee in such subsequent Transfer. If at any time after a Permitted Transfer, a transferee ceases to be a Permitted Transferee of the Investor who Transferred the Shares to the transferee, then such transferee must Transfer the Shares to such Investor or a Permitted Transferee of such Investor as promptly as practicable. No Permitted Transfer shall conflict with or result in any violation of a judgment, order, decree, statute, law, ordinance, rule or regulation.

Permitted Transferee” means any 3G Permitted Transferee or Berkshire Permitted Transferee, as applicable.

Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, Governmental Entity or any other entity.

Piggyback Registration” has the meaning set forth in Section 3(a).

Preferred Stock” means the 80,000 shares of 9.00% Cumulative Compounding Preferred Stock, Series A, of the Company.

Prospectus” means the prospectus or prospectuses (whether preliminary or final) included in any Registration Statement and relating to Registrable Shares, as amended or supplemented and including all material incorporated by reference in such prospectus or prospectuses.

Redemption Offering” has the meaning set forth in the Certificate of Incorporation.

 

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Registrable Shares” means, at any time, (i) the Equity Shares, (ii) the Exercise Shares, and (iii) any securities issued by the Company after the date hereof in respect of the Equity Shares or the Exercise Shares by way of a share dividend or share split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, but excluding (iv) any and all Equity Shares, Exercise Shares and other securities referred to in clauses (i), (ii) and (iii) that at any time after the date hereof (a) have been sold pursuant to an effective registration statement or Rule 144 under the Securities Act, (b) have been sold in a transaction where a subsequent public distribution of such securities would not require registration under the Securities Act, (c) are eligible for sale pursuant to Rule 144 under the Securities Act without limitation thereunder on volume or manner of sale, (d) are not outstanding, or (e) have been transferred in violation of Section 12 hereof (or any combination of clauses (a), (b), (c), (d) and (e)). It is understood and agreed that, once a security of the kind described in clause (i), (ii) or (iii) above becomes a security of the kind described in clause (iv) above, such security shall cease to be a Registrable Share for all purposes of this Agreement and the Company’s obligations regarding Registrable Shares hereunder shall cease to apply with respect to such security.

Registration Expenses” has the meaning set forth in Section 10(a).

Registration Statement” means any registration statement of the Company which covers any of the Registrable Shares pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all documents incorporated by reference in such Registration Statement.

Request” has the meaning set forth in Section 2(a).

S-3 Shelf Registration” has the meaning set forth in Section 2(a).

S-3 Shelf Registration Statement” has the meaning set forth in Section 4(a).

SEC” means the Securities and Exchange Commission or any successor agency.

Securities Act” means the Securities Act of 1933, and the rules and regulations promulgated thereunder.

Shares” means any shares of Common Stock.

Shelf Takedown” has the meaning set forth in Section 4(b).

Short-Form Registration” has the meaning set forth in Section 2(a).

Suspension Period” has the meaning set forth in Section 8(a).

Termination Date” means the first date on which there are no Registrable Shares held by any Investor or, if later, the date on which no Preferred Stock remains outstanding.

 

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Third-Party Holdback Period” means any Holdback Period imposed on an Investor pursuant to Section 7 in respect of an underwritten offering of Shares in which (i) such Investor elected not to participate or (ii) such Investor’s participation was reduced or eliminated pursuant to Section 3(b) or 3(c).

Transfer” means to transfer, sell, assign, pledge, hypothecate, give, create a security interest in or lien on, place in trust (voting or otherwise), assign or in any other way encumber or dispose of (including any deprivation or divestiture of any right, title or interest), directly or indirectly and whether or not by operation of law or for value, any legal, economic or beneficial interest in Shares, or the Warrant.

underwritten offering” means a registered offering in which securities of the Company are sold to one or more underwriters on a firm-commitment basis for reoffering to the public, and “underwritten Shelf Takedown” means an underwritten offering effected pursuant to an S-3 Shelf Registration.

Warrant” means Berkshire’s warrant to purchase 46,195,652 shares of Common Stock pursuant to Warrant No. 1, dated as of June 7, 2013.

WKSI” shall mean a “well known seasoned issuer” as defined in Rule 405 under the Securities Act.

In addition to the above definitions, unless the context requires otherwise:

(i) any reference to any statute, regulation, rule or form as of any time shall mean such statute, regulation, rule or form as amended or modified and shall also include any successor statute, regulation, rule or form, as amended, from time to time;

(ii) “including” shall be construed as inclusive without limitation, in each case notwithstanding the absence of any express statement to such effect, or the presence of such express statement in some contexts and not in others;

(iii) references to “Section” are references to Sections of this Agreement;

(iv) words such as “herein”, “hereof”, “hereinafter” and “hereby” when used in this Agreement refer to this Agreement as a whole; and

(v) references to “dollars” and “$” mean U.S. dollars.

Section 2. Demand Registration.

(a) Right to Request Registration. Subject to the provisions hereof, until the Termination Date, each Investor or any group of Investors shall have the right to make requests in writing (each, a “Request”) (which Request shall specify the Registrable Shares intended to be disposed and the intended method of distribution thereof) that the Company register all or part of the Registrable Shares held by such Investor(s) on Form

 

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S-1 or any similar long-form registration (“Long-Form Registrations”) or Form S-3 or any similar short-form registration (“Short-Form Registrations”), if available, provided that, in either case, the number of Registrable Shares included in the Request (i) would, if fully sold, yield gross proceeds to the Investor(s) making the Request of at least $200,000,000 (based on the then-current market prices of the Common Stock) or (ii) consists of all Registrable Shares then owned by 3G and all of the 3G Permitted Transferees, or Berkshire and all of the Berkshire Permitted Transferees, as applicable. The Investor(s) making any Request shall send a copy of such Request to the other Investors at the same time as it is sent to the Company, and each other Investor may elect to include Registrable Shares owned by it in the same registration by providing written notice of such election to the Company and the Investor(s) making the Request within five (5) Business Days of receiving the Request (which notice shall specify the Registrable Securities intended to be included). All registrations requested pursuant to this Section 2(a) are referred to herein as “Demand Registrations.” Each Investor may request that the registration be made pursuant to Rule 415 under the Securities Act (an “S-3 Shelf Registration”) and, if the Company is a WKSI at the time any request for a Registration Statement is submitted pursuant to this Section 2(a) (a “Demand Registration Statement”) to the Company, that such S-3 Shelf Registration be an automatic shelf registration statement (as defined in Rule 405 under the Securities Act) (an “Automatic Shelf Registration Statement”). The Company shall file such Registration Statement as promptly as practicable, but no later than the applicable Filing Deadline, and shall use its reasonable best efforts to cause the Registration Statement to be declared effective or otherwise become effective under the Securities Act as promptly as practicable but, in any event, no later than the Effectiveness Deadline.

(b) Number of Demand Registrations. Subject to the limitations of Sections 2(a), 2(d) and 4(a), 3G and the 3G Permitted Transferees that have become Investors pursuant to Section 13 below shall be entitled to request up to three Demand Registrations in the aggregate, and Berkshire and the Berkshire Permitted Transferees that have become Investors pursuant to Section 13 below shall be entitled to request up to three Demand Registrations in the aggregate; provided, however, that a registration shall not count as a Demand Registration pursuant to this Section 2 unless the holders of Registrable Shares are able to register and sell at least 90% of the Registrable Shares requested to be included in such registration. Demand Registrations shall be Short-Form Registrations whenever the Company is permitted to use any applicable short form registration and if the managing underwriter, if any, agrees to the use of a Short-Form Registration. The Company shall use its reasonable best efforts to make Short-Form Registrations available for the sale of Registrable Shares.

(c) Priority on Demand Registrations. The Company may include Shares other than Registrable Shares in a Demand Registration for any accounts (including for the account of the Company) on the terms provided below if such Demand Registration is an underwritten offering, and only with the consent of the managing underwriters of such offering. If the managing underwriters of the requested Demand Registration advise the Company and the Investors participating in such Demand Registration that in their opinion the number of Shares proposed to be included in the Demand Registration exceeds the number of Shares which can be sold in such underwritten offering without

 

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delaying or otherwise affecting the success of the offering (including the price per share of the Shares proposed to be sold in such underwritten offering), the Company shall include in such Demand Registration (i) first, the number of Registrable Shares that the Investors propose to sell, and (ii) second, unless any additional Shares exceed the amount that the managing underwriter(s) determine can be sold without delaying or otherwise adversely affecting the success of the offering, the number of Shares proposed to be included therein by any other Persons (including Shares to be sold for the account of the Company) allocated among such other Persons in such manner as the Company may determine. If more than one Investor is participating in such Demand Registration, and the number of Shares which can be sold, as so determined by the managing underwriters, is less than the number of Shares proposed to be registered pursuant to clause (i) above by the Investor(s), then the Registrable Shares that are included in such Demand Registration shall be allocated pro rata among the participating Investors on the basis of the number of Registrable Shares owned by each such Investor.

(d) Restrictions on Demand Registrations. Notwithstanding any contrary provision of this Agreement, no Investor shall be entitled to request a Demand Registration at any time when (i) a Redemption Offering has been initiated (and not withdrawn) by Berkshire and such Redemption Offering has not yet been consummated, or (ii) the Company is diligently pursuing a primary or secondary underwritten offering pursuant to a Piggyback Registration, unless, in the case of this clause (ii), the offering to be effected pursuant to the requested Demand Registration can be effected pursuant to an S-3 Shelf Registration and the Company, in accordance with Section 4, effects or has effected an S-3 Shelf Registration pursuant to which such offering can be effected.

(e) Underwritten Offerings. An Investor or group of Investors making a Request shall only be entitled to request an underwritten offering pursuant to a Demand Registration (subject to the same minimum proceeds test set forth in subsection (a) above) if the request is not made within 120 days after such Investor(s) (or the Investor from which Registrable Shares were acquired directly or indirectly by any such Investor, or any Permitted Transferee who acquired its Registrable Shares directly or indirectly from any such Investor) have sold at least 90% of the Shares requested to be included in an underwritten offering pursuant to a Demand Registration or an S-3 Shelf Registration. The Investor(s) participating in such an underwritten Demand Registration shall together (i) select the investment banking firm or firms to act as the managing underwriter or underwriters in connection with such offering, and (ii) otherwise mutually manage and direct all decisions required for effecting such Demand Registration; provided that (i) any investment banking firm or firms selected pursuant to clause (i) above shall be selected subject to the approval of the Company, which approval shall not be unreasonably withheld and (ii) the Company shall select the investment banking firm(s) if the Investors cannot agree on such selection.

(f) Effective Period of Demand Registrations. Upon the date of effectiveness of any Demand Registration for an underwritten offering and if such offering is priced promptly on or after such date, the Company shall use reasonable best efforts to keep such Demand Registration Statement effective for a period equal to 120 days from such date or such shorter period which shall terminate when all of the Registrable Shares covered by such Demand Registration have been sold by the participating Investor(s).

 

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(g) Other Registration Rights. Until the time when Berkshire and the Berkshire Permitted Transferees no longer hold any shares of Preferred Stock and the Investors collectively own 10% or less of the outstanding Shares, the Company shall not grant to any Persons the right to request the Company to register any equity securities of the Company, or any securities convertible or exchangeable into or exercisable for such securities, without the prior written consent of both 3G (as long as it and/or the 3G Permitted Transferees hold Registrable Shares) and Berkshire (as long as it and/or the Berkshire Permitted Transferees hold Registrable Shares or shares of Preferred Stock); provided that the Company may grant rights to employees of the Company and its Subsidiaries who are not Affiliates of the Investors, and not persons eligible to acquire Shares from an Investor in a Permitted Transfer, to participate in Piggyback Registrations so long as such rights are subordinate to the rights of the Investors with respect to such Piggyback Registrations as provided in Section 3 below.

Section 3. Piggyback Registrations.

(a) Subject to Section 3(b), whenever prior to the Termination Date the Company proposes to register any Shares under the Securities Act (other than on a registration statement on Form S- 8, F-8, S-4 or F-4 or any successor form thereto), whether for its own account or for the account of one or more holders of Shares (other than the Investors), and the form of registration statement to be used may be used for any registration of Registrable Shares (a “Piggyback Registration”), the Company shall give written notice to each Investor of its intention to effect such a registration and, subject to Sections 3(b) and 3(c), shall include in such registration statement and in any offering of Shares to be made pursuant to that registration statement all Registrable Shares with respect to which the Company has received a written request for inclusion therein from an Investor within five (5) Business Days after such Investor’s receipt of the Company’s notice or, in the case of a primary offering, such shorter time as is reasonably specified by the Company in light of the circumstances (provided that only Registrable Shares of the same class or classes as the Shares being registered may be included). The provisions of this Section 3(a) shall apply without regard to whether the Company proposes to register such Shares at its own option or as set forth in any other agreement by which the Company is bound. This Agreement alone shall not be interpreted to impose on the Company any obligation to proceed with any Piggyback Registration and the Company may abandon, terminate and/or withdraw such registration for any reason at any time prior to the pricing thereof. If the Company or any other Person other than an Investor proposes to sell Shares in an underwritten offering pursuant to a registration statement on Form S-3 under the Securities Act, such offering shall be treated as a primary or secondary underwritten offering pursuant to a Piggyback Registration.

(b) Priority on Primary Piggyback Registrations. Except in the case of a Redemption Offering, if a Piggyback Registration is initiated as a primary underwritten offering on behalf of the Company and the managing underwriters advise the Company that in their opinion the number of Shares proposed to be included in such offering

 

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exceeds the number of Shares (of any class) which can be sold in such offering without delaying or otherwise adversely affecting the success of the offering (including the price per share of the Shares proposed to be sold in such offering), the Company shall include in such registration and offering (i) first, the number of Shares that the Company proposes to sell, and (ii) second, the number of Shares requested to be included therein by the Investors, pro rata among such Investors on the basis of the number of Registrable Shares owned by each such Investor up to such number, if any, that the managing underwriters determine can be included in such offering without delaying or otherwise adversely affecting the success of the offering. Notwithstanding the foregoing, if a Piggyback Registration is a Redemption Offering, the Investors shall only be permitted to include Shares in such Piggyback Registration if and to the extent the managing underwriters conclude that Shares can be sold in excess of the Shares proposed by Berkshire to be sold in such Redemption Offering without delaying or otherwise adversely affecting the success of the Redemption Offering (including the price per share of the Shares proposed to be sold in such Redemption Offering). If the managing underwriters so conclude that excess Shares can be sold by Investors in a Redemption Offering without delaying or otherwise adversely affecting the success of the Redemption Offering, the Company shall include in such Redemption Offering (i) first, the number of Shares that Berkshire proposes to include, and (ii) second, the number of Registrable Shares requested to be included by any Investors, pro rata among such Investors on the basis of the number of Registrable Shares owned by each such Investor up to such number, if any, that the managing underwriters determine can be included in such offering without delaying or otherwise adversely affecting the success of the offering.

(c) Priority on Secondary Piggyback Registrations. If a Piggyback Registration is not a Redemption Offering and is initiated as an underwritten registration on behalf of a holder of Shares other than the Investors, and the managing underwriters advise the Company that in their opinion the number of Shares proposed to be included in such registration exceeds the number of Shares (of any class) which can be sold in such offering without delaying or otherwise adversely affecting the success of the offering (including the price per share of the Shares to be sold in such offering), then the Company shall include in such registration (i) first, the number of Shares requested to be included therein by the holder(s) requesting such registration, (ii) second, the number of Shares requested to be included therein by the Investors pro rata among such Investors on the basis of the number of Registrable Shares owned by each such Investor and (iii) third, the number of Shares proposed to be included therein by any other Persons (including Shares to be sold for the account of the Company) allocated among such other Persons in such manner as the Company may determine.

(d) Selection of Underwriters. If any Piggyback Registration is a primary or secondary underwritten offering, subject to Sections 5 and 6, the Company shall have the right to select the managing underwriter or underwriters to administer any such offering.

(e) Basis of Participations. No Investor may sell Registrable Shares in any offering pursuant to its right to participate in a Piggyback Registration unless it (a) agrees to sell such Shares on the same basis provided in the underwriting or other distribution arrangements approved by the Company and that apply to the Company or any other

 

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holders involved in such Piggyback Registration and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, lockups and other documents required under the terms of such arrangements.

Section 4. S-3 Shelf Registration.

(a) Right to Request Registration. Subject to the provisions hereof and the Company’s eligibility to use Form S-3, as promptly as practicable after the Company receives written notice of a request for an S-3 Shelf Registration from either of 3G or Berkshire, the Company shall file with the SEC a registration statement under the Securities Act for the S-3 Shelf Registration (a “S-3 Shelf Registration Statement”). A request for an S-3 Shelf Registration Statement may not be made within 120 days after the requesting Investor (or any Permitted Transferees who acquired their Registrable Shares directly or indirectly from such original Investor) has sold at least 90% of the Shares requested to be included in a Demand Registration or at any time when an S-3 Shelf Registration covering Shares of the requesting Investor or any of its direct or indirect Permitted Transferees is in effect or a Redemption Offering has been initiated (and not withdrawn) by Berkshire and not yet consummated. Once effective, the Company shall cause such S-3 Shelf Registration Statement to remain continuously effective for such time period as is specified in such request but for no time period longer than the period ending on the earliest of (A) the date on which all Registrable Shares covered by such S-3 Shelf Registration have been sold pursuant to the S-3 Shelf Registration, (B) the date as of which there are no longer any Registrable Shares covered by such S-3 Shelf Registration in existence and (C) the date on which such S-3 Shelf Registration Statement expires, provided that the Company shall renew such S-3 Shelf Registration Statement upon such expiration. If permitted under the Securities Act, such Registration Statement shall be an Automatic Shelf Registration Statement. The right to request an S-3 Shelf Registration hereunder is in addition to the rights of 3G and Berkshire under Section 2 with respect to Demand Registrations. The right to request an S-3 Shelf Registration hereunder may be exercised no more than once by each of 3G and Berkshire; provided that if, 12 calendar months after the first day of the month following the date hereof, the Company does not meet the eligibility requirements of Form S-3 or loses its eligibility to use Form S-3, then 3G and Berkshire shall (subject to satisfying the conditions to a Demand Registration set forth in Section 2) each be entitled to request up to three additional Demand Registrations in the aggregate per year, until such time as the Company meets the eligibility requirements of Form S-3; provided, further that if either 3G or Berkshire has used its right to a S-3 Shelf Registration pursuant to this Section 4 and has (inclusive of its direct and indirect Permitted Transferees who have become Investors under Section 13 below) exercised fewer than three Demand Registrations, then either 3G or Berkshire, as applicable, may elect a second S-3 Shelf Registration and, upon such election, the number of Demand Registrations available to it and its direct and indirect Permitted Transferees who have become Investors under Section 13 below shall be reduced by one.

(b) Right to Effect Shelf Takedowns. Subject to Section 7, each Investor shall be entitled, at any time and from time to time when an S-3 Shelf Registration Statement is effective and until the Termination Date, to sell such Registrable Shares as are then

 

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registered pursuant to such S-3 Shelf Registration Statement (each, a “Shelf Takedown”), but only upon not less than three Business Days’ prior written notice to the Company (if such takedown is to be underwritten). Such Investor or a group of Investors shall be entitled to request that a Shelf Takedown be an underwritten offering; provided, however, that the number of Registrable Shares included in each such underwritten Shelf Takedown (i) would reasonably be expected to yield gross proceeds to such Investor(s) of at least $100,000,000 (based on the then-current market prices), or (ii) consists of all Registrable Shares then owned by 3G and all of the 3G Permitted Transferees, or Berkshire and all of the Berkshire Permitted Transferees, as applicable, and provided, further, that such Investor(s) shall not be entitled to request any underwritten Shelf Takedown (x) within 120 days after any such Investor (or the Investor from which Registrable Shares were acquired directly or indirectly by such Investor, or any Permitted Transferee who acquired its Registrable Shares directly or indirectly from such Investor) have sold at least 90% of the Shares requested to be included in a Demand Registration or S-3 Shelf Registration or (y) at any time when a Redemption Offering has been initiated (and not withdrawn) by Berkshire and not yet consummated. Such Investor(s) shall give the Company prompt written notice of the consummation of each Shelf Takedown (whether or not underwritten).

(c) Priority on Underwritten Shelf Takedowns. The Company may include Shares other than Registrable Shares in an underwritten Shelf Takedown for any accounts on the terms provided below, but only with the consent of the managing underwriters of such offering, and whichever of the Investors has requested such Shelf Takedown (such consent not to be unreasonably withheld or delayed). If the managing underwriters of the requested underwritten Shelf Takedown advise the Company and the requesting Investors that in their opinion the number of Shares proposed to be included in the underwritten Shelf Takedown exceeds the number of Shares which can be sold in such offering without delaying or otherwise adversely affecting the success of the offering (including the price per share of the Shares proposed to be sold in such offering), the Company shall include in such underwritten Shelf Takedown (i) first, the number of Shares that the requesting Investor(s) proposes to sell, and (ii) second, the number of Shares proposed to be included therein by any other Persons (including Shares to be sold for the account of the Company) allocated among such other Persons in such manner as the Company may determine. If the number of Shares which can be sold without delaying or otherwise adversely affecting the success of the offering is less than the number of Registrable Shares proposed to be included in the underwritten Shelf Takedown pursuant to clause (i) above, the amount of Shares to be so sold shall be allocated to the Investors pro rata according to the number of Registrable Shares owned by each such Investor. The provisions of this paragraph (c) apply only to a Shelf Takedown that an Investor has requested be an underwritten offering.

(d) Selection of Underwriters. If any of the Registrable Shares are to be sold in an underwritten Shelf Takedown initiated by an Investor and the other Investors are participating in such Shelf Takedown, the Investor requesting the Shelf Takedown shall have the right to select the investment banking firm(s) and manager(s) to administer the offering, subject to the other Investors’ approval (which approval shall not be unreasonably withheld or delayed); provided that (i) any investment banking firm or

 

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manager selected by the Investors shall be selected subject to the approval of the Company, which approval shall not be unreasonably withheld, and (ii) the Company shall select the investment banker(s) and manager(s) if the Investors cannot agree on such selection.

Section 5. Reserved.

Section 6. Redemption Offering. In the event Berkshire elects to effectuate a Redemption Offering in accordance with the terms of the Certificate of Incorporation, Berkshire, on behalf of the Company, shall select the investment banking firm or firms to act as the managing underwriter or underwriters in connection with such offering and shall otherwise manage and direct all decisions required for effecting one or more Redemption Offerings, as required, and effecting a redemption of the Preferred Stock in accordance with Article IV of the Certificate of Incorporation; provided that any investment banking firm or manager selected by Berkshire shall be selected subject to the approval of the Company, which approval shall not be unreasonably withheld.

Section 7. Holdback Agreements. The restrictions in this Section 7 shall apply for as long as any Investor is the beneficial owner of any Registrable Shares. (1) In connection with a Redemption Offering, (2) if the Company sells Shares or other securities convertible into or exchangeable for (or otherwise representing a right to acquire) Shares in any other primary underwritten offering pursuant to any registration statement under the Securities Act (but only if the Investors are provided their piggyback rights, if any, in accordance with Sections 3(a) and 3(b)), or (3) if any other Person sells Shares in a secondary underwritten offering pursuant to a Piggyback Registration in accordance with Sections 3(a) and 3(b), and if the managing underwriters for such offering (under any of clauses (1), (2) or (3)) advise the Company (in which case the Company promptly shall notify each Investor) that a public sale or distribution of Shares outside such offering would adversely affect such offering, then, if requested by the Company or, in the case of a Redemption Offering, if requested by Berkshire, each Investor shall agree, as contemplated in this Section 7, not to (and to cause its majority-controlled Affiliates not to) sell, transfer, pledge, issue, grant or otherwise dispose of, directly or indirectly (including by means of any short sale), or request the registration of, any Registrable Shares (or any securities of any Person that are convertible into or exchangeable for, or otherwise represent a right to acquire, any Registrable Shares) for a period (each such period, a “Holdback Period”) beginning on the 10th day before the pricing date for the Redemption Offering or other applicable offering and extending through the earlier of (i) the 120th day after such pricing date (subject to customary automatic extension in the event of the release of earnings results of or material news relating to the Company) and (ii) such earlier day (if any) as may be designated for this purpose by the managing underwriters for such offering (each such agreement of each Investor, a “Holdback Agreement”). Each Holdback Agreement shall be in writing in form and substance reasonably satisfactory to the Company and the managing underwriters and, in the case of a Redemption Offering, Berkshire. Notwithstanding the foregoing, except for a Redemption Offering, no Investor shall be obligated to make any Holdback Agreement unless the Company and each selling shareholder in such offering also execute agreements substantially similar to such Holdback Agreements. A Holdback

 

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Agreement shall not apply to (i) the exercise of any warrants or options to purchase shares of the Company (provided that such restrictions shall apply with respect to the securities issuable upon such exercise) or (ii) any Shares included in the underwritten offering giving rise to the application of this Section 7.

Section 8. Suspension Periods; Other.

(a) The Company may delay or suspend the filing, effectiveness or use of a Registration Statement (including by withdrawing or declining to amend any Registration Statement that has been filed or by declining to take other actions otherwise required hereunder with regard to any Registration Statement; provided, that, if a registration is withdrawn, such registration shall not count against the limitation on the number of such registrations set forth in Section 2 or Section 4), but only if the Company determines in its sole discretion (x) that proceeding with the use or effectiveness of such Registration Statement would require the Company to disclose material information that would not otherwise be required to be disclosed at that time and that the disclosure of such information at that time would not be in the Company’s best interests, or (y) that the registration or offering to be delayed or suspended would, if not delayed or suspended, materially adversely affect the Company and its subsidiaries taken as a whole or delay or otherwise materially adversely affect the success of, any pending or proposed material transaction, including any debt or equity financing, any acquisition or disposition, any recapitalization or reorganization or any other material transaction, whether due to commercial reasons, a desire to avoid premature disclosure of information or any other reason. Any period during which the Company has delayed or suspended a filing, an effective date or an offering or otherwise delayed or suspended use of a Registration Statement pursuant to this Section 8 is herein called a “Suspension Period”. If pursuant to this Section 8 the Company delays or withdraws a Demand Registration or S-3 Shelf Registration requested by an Investor, such Investor shall be entitled to withdraw such request and, if it does so, such request shall not count against the limitation on the number of such registrations set forth in Section 2 or Section 4. The Company shall provide prompt written notice to any effected Investor of the commencement and termination of any Suspension Period (and any withdrawal of a registration statement pursuant to this Section 8), but shall not be obligated under this Agreement to disclose the reasons therefor. Each Investor who becomes aware of a Suspension Period shall keep the existence of each Suspension Period confidential and refrain from making offers and sales of Registrable Shares (and direct any other Persons making such offers and sales to refrain from doing so) during each Suspension Period. In no event (i) may the Company deliver notice of a Suspension Period to an Investor more than twice in any calendar year and (ii) shall a Suspension Period or Suspension Periods be in effect for an aggregate of 120 days or more in any calendar year.

(b) Other Lockups. Notwithstanding any other provision of this Agreement, the Company shall not be obligated to take any action hereunder that would violate any lockup or similar restriction binding on the Company and that was approved in advance by 3G and Berkshire, or in the case of a Redemption Offering, that was approved in advance by Berkshire, in connection with a prior or pending registration or underwritten offering.

 

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(c) Certificate of Incorporation. In the event of any conflict between the terms of this Agreement and the Certificate of Incorporation, the Certificate of Incorporation shall prevail.

Section 9. Registration Procedures.

(a) Subject to the limitations set forth herein, whenever an Investor requests that any Registrable Shares be registered pursuant to this Agreement, the Company shall use reasonable best efforts to effect, as soon as practical as provided herein, the registration and the sale of such Registrable Shares in accordance with the intended methods of disposition thereof, and, pursuant thereto, the Company shall, as soon as practical as provided herein:

(i) subject to the other provisions of this Agreement, use reasonable best efforts to prepare and file with the SEC a Registration Statement with respect to such Registrable Shares and cause such Registration Statement to become effective (unless it is automatically effective upon filing);

(ii) use reasonable best efforts to prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to comply with the applicable requirements of the Securities Act and to keep such Registration Statement effective for the relevant period required hereunder, but no longer than is necessary to complete the distribution of the Shares covered by such Registration Statement, and to comply with the applicable requirements of the Securities Act with respect to the disposition of all the Shares covered by such Registration Statement during such period in accordance with the intended methods of disposition set forth in such Registration Statement;

(iii) use reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of any Registration Statement, or the lifting of any suspension of the qualification or exemption from qualification of any Registrable Shares for sale in any jurisdiction in the United States;

(iv) deliver, without charge, such number of copies of the preliminary and final Prospectus and any supplement thereto as each participating Investor may reasonably request in order to facilitate the disposition of the Registrable Shares of such Investor covered by such Registration Statement in conformity with the requirements of the Securities Act;

(v) use reasonable best efforts to register or qualify such Registrable Shares under such other securities or blue sky laws of such U.S. jurisdictions as any participating Investor reasonably requests and continue such registration or qualification in effect in such jurisdictions for as long as the applicable Registration Statement may be required to be kept effective under this Agreement (provided that the Company will not be required to (I) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph (v), (II) subject itself to taxation in any such jurisdiction or (III) consent to general service of process in any such jurisdiction);

 

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(vi) notify each participating Investor and each distributor of such Registrable Shares identified by such Investor, at any time when a Prospectus relating thereto would be required under the Securities Act to be delivered by such distributor, of the occurrence of any event as a result of which the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and, at the request of such Investor, the Company shall use reasonable best efforts to prepare, as soon as practical, a supplement or amendment to such Prospectus so that, as thereafter delivered to any prospective purchasers of such Registrable Shares, such Prospectus shall not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

(vii) in the case of an underwritten offering in which an Investor participates pursuant to a Demand Registration, a Piggyback Registration or an S-3 Shelf Registration, enter into a customary underwriting agreement for offerings of that kind, containing such provisions (including provisions for indemnification, lockups, opinions of counsel and comfort letters), and take all such other customary and reasonable actions as the managing underwriters of such offering may request in order to facilitate the disposition of such Registrable Shares (including, making members of senior management of the Company available at reasonable times and places to participate in “road-shows” that the managing underwriter determines are necessary to effect the offering);

(viii) in the case of an underwritten offering in which an Investor participates pursuant to a Demand Registration, a Piggyback Registration or an S-3 Shelf Registration, and to the extent not prohibited by applicable law, (A) make reasonably available, for inspection by the managing underwriters of such offering and one law firm and accounting firm acting for such managing underwriters, pertinent corporate documents and financial and other records of the Company and its subsidiaries and controlled Affiliates, (B) cause the Company’s officers and employees to supply information reasonably requested by such managing underwriters or law firm in connection with such offering, (C) make the Company’s independent accountants available for any such managing underwriters’ due diligence and have them provide customary comfort letters to such underwriters in connection therewith, and (D) cause the Company’s counsel to furnish customary legal opinions to such underwriters in connection therewith; provided, however, that such records and other information shall be subject to such confidential treatment as is customary for underwriters’ due diligence reviews;

 

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(ix) use reasonable best efforts to cause all such Registrable Shares to be listed on each primary securities exchange (if any) on which securities of the same class issued by the Company are then listed;

(x) provide a transfer agent and registrar for all such Registrable Shares not later than the effective date of such Registration Statement and, a reasonable time before any proposed sale of Registrable Shares pursuant to a Registration Statement, provide the transfer agent with printed certificates for the Registrable Shares to be sold, subject to the provisions of Section 13;

(xi) make generally available to its shareholders a consolidated earnings statement (which need not be audited) for a period of 12 months beginning after the effective date of the Registration Statement as soon as reasonably practicable after the end of such period, which earnings statement shall satisfy the requirements of an earning statement under Section 11(a) of the Securities Act and Rule 158 thereunder; and

(xii) promptly notify each participating Investor, as applicable, and the managing underwriters of any underwritten offering:

(1) when the Registration Statement, any pre-effective amendment, the Prospectus or any Prospectus supplement or any post-effective amendment to the Registration Statement has been filed and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective;

(2) of any request by the SEC for amendments or supplements to the Registration Statement or the Prospectus or for any additional information regarding such Investor;

(3) of the notification to the Company by the SEC of its initiation of any proceeding with respect to the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement; and

(4) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Shares for sale under the applicable securities or blue sky laws of any jurisdiction.

For the avoidance of doubt, the provisions of clauses (vii), (viii), (xi) and (xii) of this Section 9(a) shall apply only in respect of an underwritten offering and only if the number of Registrable Shares to be sold in the offering would reasonably be expected to yield gross proceeds to the participating Investor(s) of at least $200,000,000 (based on the then-current market prices) in a Demand Registration pursuant to Section 2 or $100,000,000 (based on the then-current market prices) in an S-3 Shelf Takedown pursuant to Section 4.

(b) No Registration Statement (including any amendments thereto) shall contain any untrue statement of a material fact or omit to state a material fact required to

 

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be stated therein, or necessary to make the statements therein not misleading, and no Prospectus (including any supplements thereto) shall contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case, except for any untrue statement or alleged untrue statement of a material fact or omission or alleged omission of a material fact made in reliance on and in conformity with written information furnished to the Company by or on behalf of an Investor or any underwriter or other distributor specifically for use therein.

(c) Each Investor shall furnish to the Company in writing such information regarding itself and the distribution proposed by it as the Company may reasonably request for use in connection with any such Registration Statement or Prospectus, including, without limitation, providing the Company with questionnaires as are customary for similar transactions, and which the Company may reasonably request or as may be required by applicable securities laws and regulations, and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. Each Investor agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished to the Company or of the happening of any event, in either case as a result of which any Prospectus contains an untrue statement of a material fact regarding the Investor or the distribution of such Registrable Securities or omits to state any material fact regarding the Investor or the distribution of such Registrable Securities required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and to furnish to the Company promptly any additional information required to correct and update any previously furnished information or required such that such Prospectus shall not contain, with respect to the Investor or the distribution of such Registrable Securities, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(d) At all times after the Company has filed a registration statement with the SEC pursuant to the requirements of the Securities Act and until the Termination Date, the Company shall use reasonable best efforts to continuously maintain in effect the registration statement of Common Stock under Section 12 of the Exchange Act and to use reasonable best efforts to file all reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder, all to the extent required to enable each applicable Investor to be eligible to sell Registrable Shares (if any) pursuant to Rule 144 under the Securities Act.

(e) The Company may require each applicable Investor and each distributor of Registrable Shares as to which any registration is being effected to furnish to the Company information regarding such Person and the distribution of such securities as the Company may from time to time reasonably request in connection with such registration.

(f) Each Investor agrees by having its Common Stock treated as Registrable Shares hereunder that, upon being advised in writing by the Company of the occurrence of an event pursuant to Section 9(a)(vi), such Investor will immediately discontinue (and

 

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direct any other Persons making offers and sales of Registrable Shares to immediately discontinue) offers and sales of Registrable Shares pursuant to any Registration Statement (other than those pursuant to a plan that is in effect prior to such time and that complies with Rule 10b5-1 of the Exchange Act) until it is advised in writing by the Company that the use of the Prospectus may be resumed and is furnished with a supplemented or amended Prospectus as contemplated by Section 9(a)(vi), and, if so directed by the Company, each Investor will deliver to the Company all copies, other than permanent file copies then in such Investor’s possession, of the Prospectus covering such Registrable Shares current at the time of receipt of such notice.

(g) The Company may prepare and deliver an issuer free-writing prospectus (as such term is defined in Rule 405 under the Securities Act) in lieu of any supplement to a prospectus, and references herein to any “supplement” to a Prospectus shall include any such issuer free-writing prospectus. No Investor nor any other seller of Registrable Shares may use a free-writing prospectus to offer or sell any such shares unless it has been provided by the Company or unless the Investor has received the Company’s prior written consent.

(h) It is understood and agreed that any failure of the Company to file a registration statement or any amendment or supplement thereto or to cause any such document to become or remain effective or usable within or for any particular period of time as provided in Sections 2, 4 or 9 or otherwise in this Agreement, due to reasons that are not reasonably within its control, or due to any refusal of the SEC to permit a registration statement or prospectus to become or remain effective or to be used because of unresolved SEC comments thereon (or on any documents incorporated therein by reference) despite the Company’s good faith and reasonable best efforts to resolve those comments, shall not be a breach of this Agreement.

(i) It is further understood and agreed that the Company shall not have any obligations under this Section 9 at any time on or after the Termination Date, unless an underwritten offering initiated pursuant to this Agreement has been priced but not completed prior to the Termination Date, in which event the Company’s obligations under this Section 9 shall continue with respect to such offering until it is so completed (but not more than 120 days after the commencement of the offering).

Section 10. Registration Expenses.

(a) All expenses incident to the Company’s performance of or compliance with this Agreement, including all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, FINRA fees, listing application fees, printing expenses, transfer agent’s and registrar’s fees, cost of distributing Prospectuses in preliminary and final form as well as any supplements thereto, and fees and disbursements of counsel for the Company and one counsel for each of the participating Investors and all independent certified public accountants and other Persons retained by the Company (all such expenses being herein called “Registration Expenses”) (but not including any underwriting discounts or commissions attributable to the sale of Registrable Shares or fees and expenses of counsel and any other advisor representing

 

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any underwriters or other distributors), shall be borne by the Company. Each Investor shall bear the cost of all underwriting discounts and commissions associated with any sale of its Registrable Shares, pro rata based on the number of Registrable Shares being sold by that Investor, and shall pay all of its own costs and expenses.

(b) The obligation of the Company to bear the expenses described in Section 10(a) shall apply irrespective of whether a registration, once properly demanded or requested becomes effective or is withdrawn or suspended, provided that the Registration Expenses for any Registration Statement withdrawn solely at the request of one or more Investors (unless withdrawn following commencement of a Suspension Period) shall be borne by such Investor(s).

Section 11. Confidentiality.

(a) Each Investor will, and will cause its officers, directors, employees, legal counsel, accountants, financial advisors and other agents and representatives to, hold in confidence any material nonpublic information received by them pursuant to this Agreement, including without limitation any Request made pursuant to Section 2(a), any written notice of the Company’s intention to effect a registration provided pursuant to Section 3(a), and any material nonpublic information included in any Registration Statement or Prospectus proposed to be filed with the SEC (until such Registration Statement or Prospectus has been filed) or provided pursuant to Section 9(a)(viii). This Section 11(a) shall not apply to any information which (a) is or becomes generally available to the public, (b) was already in the Investor’s possession from a non-confidential source prior to its disclosure by the Company, (c) is or becomes available to the Investor on a non-confidential basis from a source other than the Company, provided that such source is not known by the Investor to be bound by confidentiality obligations or (d) is required to be disclosed by law.

Section 12. Indemnification.

(a) The Company shall indemnify, to the fullest extent permitted by law, each Investor and each Person who controls such Investor (within the meaning of the Securities Act) against all losses, claims, damages, liabilities, judgments, costs (including reasonable costs of investigation) and expenses (including reasonable attorneys’ fees) arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or any amendment thereof or supplement thereto or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are made in reliance and in conformity with information furnished in writing to the Company by or on behalf of such Investor expressly for use therein. In connection with an underwritten offering in which an Investor participates conducted pursuant to a registration effected hereunder, the Company shall indemnify each participating underwriter and each Person who controls such underwriter (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of such Investor.

 

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(b) In connection with any Registration Statement in which an Investor is offering Shares, such Investor shall furnish to the Company in writing such information as the Company reasonably requests pursuant to Section 9(a), or amendment or supplement thereto, and shall indemnify, to the fullest extent permitted by law, the Company, its officers and directors and each Person who controls the Company (within the meaning of the Securities Act) against all losses, claims, damages, liabilities, judgments, costs (including reasonable costs of investigation) and expenses (including reasonable attorneys’ fees) arising out of or based upon any untrue or alleged untrue statement of material fact contained in the Registration Statement or Prospectus, or any amendment or supplement thereto, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that the same are made in reliance and in conformity with information furnished in writing to the Company by or on behalf of such Investor expressly for use therein.

(c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying Person of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying Person to assume the defense of such claim with counsel reasonably satisfactory to the indemnified Person. Failure so to notify the indemnifying Person shall not relieve it from any liability that it may have to an indemnified Person except to the extent that the indemnifying Person is materially and adversely prejudiced thereby. The indemnifying Person shall not be subject to any liability for any settlement made by the indemnified Person without its consent (but such consent will not be unreasonably withheld). An indemnifying Person who is entitled to, and elects to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel (in addition to one local counsel) for all Persons indemnified (hereunder or otherwise) by such indemnifying Person with respect to such claim (and all other claims arising out of the same circumstances), unless in the reasonable judgment of any indemnified Person there may be one or more legal or equitable defenses available to such indemnified Person which are in addition to or may conflict with those available to another indemnified Person with respect to such claim, in which case such maximum number of counsel for all indemnified Persons shall be two rather than one). If an indemnifying Person is entitled to, and elects to, assume the defense of a claim, the indemnified Person shall continue to be entitled to participate in the defense thereof, with counsel of its own choice, but, except as set forth above, the indemnifying Person shall not be obligated to reimburse the indemnified Person for the costs thereof. The indemnifying Person shall not consent to the entry of any judgment or enter into or agree to any settlement relating to a claim or action for which any indemnified Person would be entitled to indemnification by any indemnified Person hereunder unless such judgment or settlement imposes no ongoing obligations on any such indemnified Person and includes as an unconditional term the giving, by all relevant claimants and plaintiffs to such indemnified Person, a release, reasonably satisfactory in form and substance to such indemnified Person, from all liabilities in respect of such claim or action for which such indemnified Person would be entitled to such indemnification. The indemnifying Person shall not be liable hereunder for any amount paid or payable or incurred pursuant to or in connection with any judgment entered or settlement effected with the consent of an indemnified Person unless the indemnifying Person has also consented to such judgment or settlement.

 

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(d) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified Person or any officer, director or controlling Person of such indemnified Person and shall survive the transfer of securities and the Termination Date but only with respect to offers and sales of Registrable Shares made before the Termination Date or during the period following the Termination Date referred to in Section 8(h).

(e) If the indemnification provided for in or pursuant to this Section 11 is due in accordance with the terms hereof, but is held by a court to be unavailable or unenforceable in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying Person, in lieu of indemnifying such indemnified Person, shall contribute to the amount paid or payable by such indemnified Person as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying Person on the one hand and of the indemnified Person on the other in connection with the statements or omissions which result in such losses, claims, damages, liabilities or expenses as well as any other relevant equitable considerations. The relative fault of the indemnifying Person on the one hand and of the indemnified Person on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying Person or by the indemnified Person, and by such Person’s relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. In no event shall the liability of the indemnifying Person be greater in amount than the amount for which such indemnifying Person would have been obligated to pay by way of indemnification if the indemnification provided for under Section 11(a) or 11(b) hereof had been available under the circumstances. No indemnified Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any indemnifying party who was not guilty of such fraudulent misrepresentation.

Section 13. Securities Act Restrictions. The Registrable Shares are restricted securities under the Securities Act and may not be offered or sold except pursuant to an effective registration statement or an available exemption from registration under the Securities Act. Accordingly, no Investor shall, directly or through others, offer or sell any Registrable Shares except pursuant to a Registration Statement as contemplated herein or pursuant to Rule 144 or another exemption from registration under the Securities Act, if available. Prior to any transfer of Registrable Shares other than pursuant to an effective registration statement, the Investor desiring to transfer such Registrable Shares shall notify the Company of such transfer and the Company may require such Investor to provide, prior to such transfer, such evidence that the transfer will comply with the Securities Act (including written representations or an opinion of counsel) as the Company may reasonably request. The Company may impose stop-transfer instructions with respect to any Registrable Shares that are to be transferred in contravention of this Agreement. Any certificates representing the Registrable Shares may bear a legend (and

 

22


the Company’s share registry may bear a notation) referencing the restrictions on transfer contained in this Agreement, until such time as such securities have ceased to be (or are to be transferred in a manner that results in their ceasing to be) Registrable Shares. Subject to the provisions of this Section 12, the Company will replace any such legended certificates with unlegended certificates promptly upon surrender of the legended certificates to the Company or its designee and cause shares that cease to be Registrable Shares to bear a general unrestricted CUSIP number, in order to facilitate a lawful transfer or at any time after such shares cease to be Registrable Shares.

Section 14. Transfers of Rights. If 3G or Berkshire (or any Permitted Transferee thereof) transfers any rights to a Permitted Transferee, such Permitted Transferee shall, together with 3G, Berkshire and all other such Permitted Transferees, also have the rights of an Investor under this Agreement, but only if the Permitted Transferee signs and delivers to the Company a written acknowledgment (in form and substance satisfactory to the Company, 3G and Berkshire) that it has joined as a party to this Agreement and has assumed the rights and obligations of an Investor hereunder with respect to the rights transferred to it by 3G or Berkshire, as applicable. Each such transfer shall be effective when (but only when) the Permitted Transferee has signed and delivered the written acknowledgment to the Company. Upon any such effective transfer, the Permitted Transferee shall automatically have the rights so transferred, and the obligations of an Investor under this Agreement. Notwithstanding any other provision of this Agreement, no Person who acquires securities transferred in violation of this Agreement, or who acquires securities that are not or upon acquisition cease to be Registrable Shares, shall have any rights under this Agreement with respect to such securities as an Investor or otherwise, and such securities shall not have the benefits afforded hereunder to Registrable Shares.

Section 15. Miscellaneous.

(a) Notices. To be effective under this Agreement, all notices, requests, claims, demands and other communications under this Agreement shall be effected in writing through electronic mail followed within one Business Day by either hand delivery via courier (providing proof of delivery) or facsimile transmission (with confirmation) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

 

                   (i)         If to the Company, to
   
          The Kraft Heinz Company
          Phone:   (412) 456-5700
          Facsimile:         (412) 456-6115
     
          Attention:   General Counsel
          E-mail:   jim.savina@kraftheinzcompany.com

 

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with a copy (which shall not constitute notice) to:

Cravath, Swaine & Moore LLP

825 8th Avenue

New York, New York 10019

  Phone: (212) 474-1000
  Facsimile: (212) 474-3700

 

  Attention: Scott A. Barshay, Esq.
       Eric L. Schiele, Esq.
       Jonathan L. Davis, Esq.
  E-mail: sbarshay@cravath.com
       eschiele@cravath.com
       jdavis@cravath.com

 

  (ii) If to 3G, to

3G Global Food Holdings, L.P.

c/o 3G Capital, Inc.

600 Third Avenue, 37th Floor

New York, New York 10016

  Phone: (212) 893-6727
  Facsimile: (704) 409-0968

 

  Attention: Bradley Brown
  E-mail: bbrown@3G-Capital.com

with a copy (which shall not constitute notice) to:

Cravath, Swaine & Moore LLP

825 8th Avenue

New York, New York 10019

  Phone: (212) 474-1000
  Facsimile: (212) 474-3700

 

  Attention: Scott A. Barshay, Esq.
       Eric L. Schiele, Esq.
       Jonathan L. Davis, Esq.

 

  E-mail: sbarshay@cravath.com
       eschiele@cravath.com
       jdavis@cravath.com

 

  (iii) If to Berkshire, to

Berkshire Hathaway Inc.

3555 Farnam Street Omaha, Nebraska 68131

  Phone: (402) 346-1400
  Facsimile: (402) 346-3375

 

  Attention: Marc D. Hamburg
  E-mail: mdhamburg@brka.com

 

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with a copy (which shall not constitute notice) to:

Munger, Tolles & Olson LLP

355 S. Grand Avenue, 35th Floor

Los Angeles, California 90071

Phone:                (213) 683-9100

Facsimile:           (213) 683-5104

Attention:           Robert E. Denham

                            Mary Ann Todd

E-mail:               robert.denham@mto.com

                            maryann.todd@mto.com

If to any other Investor, to such address and facsimile number as is designated in the agreement to be delivered to the Company pursuant to Section 12.

(b) No Waivers. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

(c) Assignment. Neither this Agreement nor any right, remedy, obligation nor liability arising hereunder or by reason hereof shall be assignable by any party hereto without the prior written consent of the other parties, and any attempt to assign any right, remedy, obligation or liability hereunder without such consent shall be void, except (i) an assignment, in the case of a merger or consolidation where such party is not the surviving entity, or a sale of substantially all of its assets, to the entity which is the survivor of such merger or consolidation or the purchaser in such sale or (ii) an assignment by an Investor to a Permitted Transferee in accordance with Section 12. In the event of any merger or consolidation by the Company, where the Company is not the surviving entity, or a sale of substantially all of the assets of the Company to an entity which is the survivor of such merger or consolidation or the purchaser in such sale, the Company shall cause the surviving entity in such merger, consolidation or purchase to assume this Agreement and all rights, remedies, obligations and liabilities of the Company hereunder.

(d) No Third-Party Beneficiaries. Nothing contained in this Agreement, expressed or implied, is intended to confer upon any person or entity other than the Company and the Investors any benefits, rights, or remedies (except as specified in Section 11 hereof).

(e) Governing Law; Submission to Jurisdiction; Waiver of Jury Trial, Etc. The corporate law of the State of Delaware shall govern all issues and questions concerning the relative rights of the Company and its stockholders. All other issues and questions concerning the construction, validity, interpretation and enforceability of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Delaware,

 

25


without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the Court of Chancery of the State of Delaware, or, if the Court of Chancery of the State of Delaware declines to accept jurisdiction over a particular matter, any federal court within the State of Delaware, or, if both the Court of Chancery of the State of Delaware and the federal courts within the State of Delaware decline to accept jurisdiction over a particular matter, any other state court within the State of Delaware, and, in each case, any appellate court therefrom (together, the “Chosen Courts”), for the purposes of any suit, action or other proceeding arising out of this Agreement (and agrees that no such action, suit or proceeding relating to this Agreement shall be brought by it except in such courts). Each of the parties further agrees that, to the fullest extent permitted by applicable law, service of any process, summons, notice or document by U.S. registered mail to such person’s respective address set forth in Section 13(a) shall be effective service of process for any action, suit or proceeding in the State of Delaware with respect to any matters to which it has submitted to jurisdiction as set forth above in the immediately preceding sentence. Each of the parties hereto irrevocably and unconditionally waives (and agrees not to plead or claim) any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement in the Chosen Courts, or that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. To the extent permitted by applicable law, each of the parties hereto hereby unconditionally waives trial by jury in any legal action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

(f) Counterparts; Effectiveness. This Agreement may be executed in any number of counterparts (including by e-mail or facsimile) and by different parties hereto in separate counterparts, with the same effect as if all parties had signed the same document. Each such counterparts shall be deemed an original, shall be construed together with the other such originals and shall constitute one and the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto.

(g) Amendment and Restatement. The parties hereto agree that the Original Agreement shall be amended and restated in the form of this Agreement as of the date hereof.

(h) Entire Agreement. This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes and replaces all other prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof.

(i) Captions. The headings and other captions in this Agreement are for convenience and reference only and shall not be used in interpreting, construing or enforcing any provision of this Agreement.

 

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(j) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

(k) Amendments. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the prior written consent of the Company and of 3G (as long as it and/or the 3G Permitted Transferees hold Registrable Shares) and Berkshire (as long as it and/or the Berkshire Permitted Transferees hold Registrable Shares).

[Signature Page Follows]

 

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IN WITNESS WHEREOF, this Amended and Restated Registration Rights Agreement has been duly executed by each of the parties hereto as of the date first written above.

 

THE KRAFT HEINZ COMPANY
By:

/s/ Paulo Basilio

Name: Paulo Basilio
Title: Chief Financial Officer

3G GLOBAL FOOD HOLDINGS LP

 

By:

/s/ Bernardo Piquet

Name: Bernardo Piquet
Title: Director

BERKSHIRE HATHAWAY INC.

 

By:

/s/ Marc D. Hamburg

Name: Marc D. Hamburg
Title: Senior Vice President

[Signature Page to Registration Rights Agreement]

EX-10.1

Exhibit 10.1

EXECUTION VERSION

SUBSCRIPTION AGREEMENT

This Subscription Agreement (this “Agreement”) is dated as of June 30, 2015, by and between 3G Global Food Holdings LP, a Cayman Islands exempted limited partnership (“3G”), Berkshire Hathaway Inc., a Delaware corporation (“Berkshire Hathaway” and, together with 3G, the “Subscribers”), and H.J. Heinz Holding Corporation, a Delaware corporation (the “Company”). Unless otherwise indicated herein, capitalized terms used in this Agreement have the meanings set forth in Section 1 of this Agreement.

In consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the parties agree as follows:

Section 1. Definitions. For the purposes of this Agreement, the following terms have the meanings set forth below:

3G Equity Commitment Letter” means that certain equity commitment letter of 3G, dated March 24, 2015, delivered to the Company in connection with the transactions contemplated by the Merger Agreement.

Berkshire Equity Commitment Letter” means that certain equity commitment letter of Berkshire, dated March 24, 2015, delivered to the Company in connection with the transactions contemplated by the Merger Agreement.

Closing” shall have the meaning set forth in the Agreement and Plan of Merger dated as of March 24, 2015, by and among the Company, Kite Merger Sub Corp., a Virginia corporation and wholly owned subsidiary of the Company, Kite Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of the Company, and Kraft Foods Group, Inc., a Virginia corporation (the “Merger Agreement”).

Company Common Stock” means the common stock of the Company, with a par value of one cent ($0.01) per share.

Company Preferred Stock” means the 9.00% Cumulative Compounding Preferred Stock, Series A, of the Company.

Equity Commitment Letter” means the 3G Equity Commitment Letter or the Berkshire Equity Commitment Letter, as applicable.

Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.

Securities Act” means the Securities Act of 1933, as amended, and the rules promulgated thereunder.


Section 2. Sale and Purchase. Prior to the Closing and subject to the terms and conditions hereof, and, with respect to each Subscriber, subject to the conditions set forth in Section 2 of such Subscriber’s Equity Commitment Letter:

2A. Berkshire Hathaway agrees to purchase from the Company, and the Company agrees to sell to Berkshire Hathaway the number of shares of Company Common Stock set forth in the Berkshire Equity Commitment Letter, free and clear of any liens, claims, encumbrances and restrictions of any kind whatsoever, for a purchase price equal to the amount set forth in the Berkshire Equity Commitment Letter (the “Berkshire Shares”); and

2B. 3G agrees to purchase from the Company, and the Company agrees to sell to 3G the number of shares of Company Common Stock set forth in the 3G Equity Commitment Letter, free and clear of any liens, claims, encumbrances and restrictions of any kind whatsoever, for a purchase price equal to the amount set forth in the 3G Equity Commitment Letter (the “3G Shares” and, together with the Berkshire Shares, the “Shares”).

Section 3. Representations and Warranties of the Subscribers. Each Subscriber hereby represents and warrants to the Company (severally and not jointly) that:

3A. Enforceability. This Agreement constitutes a valid and binding obligation of such Subscriber enforceable in accordance with its terms, except as such enforceability may be limited by (i) applicable insolvency, bankruptcy, reorganization, moratorium or other similar laws affecting creditors’ rights generally or (ii) applicable equitable principles (whether considered in a proceeding at law or in equity).

3B. No Other Representations. Except as set forth in Section 4, such Subscriber hereby acknowledges and agrees that the Company makes no representation or warranty, express or implied, at law or in equity, in respect of the Company, any of its subsidiaries, or any of their respective assets, liabilities or operations, including with respect to merchantability or fitness for any particular purpose.

Section 4. Representations and Warranties of the Company. The Company represents and warrants to each Subscriber that:

4A. Organization and Power. The Company is validly organized, existing and in good standing under the laws of Delaware, and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its obligations under or with respect to this Agreement, and to issue the Shares to the Subscribers in accordance with the terms hereof.

4B. Authority. This Agreement has been duly executed and delivered by the Company, the Shares have been duly and validly authorized and, when issued in accordance with this Agreement, the Shares will be duly and validly issued to the Subscribers, fully paid and non-assessable.

4C. Enforceability. This Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered in a proceeding at law or equity)).

 

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4D. Certificate of Incorporation; Capitalization. The Company has duly adopted and filed with the Secretary of State of the State of Delaware the Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit B (the “Certificate of Incorporation”). The authorized capital stock of the Company consists solely of 4,000,000,000 shares of Common Stock and 80,000 shares of Company Preferred Stock. As of the date hereof, and prior to giving effect to the transactions contemplated by this Agreement, 897,157,601 shares of Company Common Stock, 80,000 shares of Company Preferred Stock, 122,000 Restricted Stock Units and no other securities of the Company are issued and outstanding. Other than this Agreement, the Shareholders’ Agreement, dated as of June 7, 2013, by and among the Company, 3G Special Situations Fund III, L.P., a Cayman Islands exempted limited partnership, and Berkshire Hathaway, and the Merger Agreement, the Company is not a party to any agreement, either oral or written, pursuant to which it is obligated to issue any shares of Company Common Stock or Company Preferred Stock or other equity securities.

Section 5. Miscellaneous.

5A. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

5B. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

5C. Amendments. This Agreement may be amended only upon the written consent of all of the parties hereto.

5D. Counterparts; Facsimile. This Agreement may be executed simultaneously in two or more counterparts (each of which may be transmitted via facsimile), any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same agreement.

5E. Descriptive Headings; Interpretation. Section headings used in this Agreement are for convenience only and are not to affect the construction of, or to be taken into consideration in interpreting, such agreement. The use of the word “including” or any variation or derivative thereof in this Agreement is by way of example rather than by limitation.

5F. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any rules, principles or provisions of choice of law or conflict of laws.

5G. Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.

 

3


5H. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

5I. Remedies. The parties to this Agreement shall be entitled to enforce their rights under this Agreement by specific performance, injunctive relief and other equitable remedies (without posting a bond or other security), to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties agree and acknowledge that the Company and the Shares are unique, (ii) a breach of this Agreement would cause substantial and irreparable harm to the Company and the non-breaching parties, (iii) money damages would not be an adequate remedy for any such breach and (iv) in addition to any other rights and remedies existing hereunder, any party shall be entitled to specific performance, other injunctive relief and other equitable remedies from any court of law or equity of competent jurisdiction (without posting any bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement. Without limiting the foregoing, if any dispute arises concerning the transfer of any of the Shares subject to this Agreement or concerning any other provisions hereof or the obligations of the parties hereunder, the parties to this Agreement agree that an injunction may be issued (without posting a bond or other security) in connection therewith (including, without limitation, restraining the transfer of such Shares or rescinding any such transfer). Such remedies shall be cumulative and non-exclusive and shall be in addition to any other rights and remedies the parties may have under this Agreement or otherwise. Notwithstanding the foregoing or anything to the contrary set forth herein, each Subscriber agrees that they shall take any and all actions necessary or appropriate, including granting any consent or approval, to carry out the provisions of this Agreement.

5J. Entire Agreement. This Agreement and the other documents referred to herein contain the entire agreement between the parties hereto and supersede any prior understandings, agreements or representations by or between the parties hereto, written or oral, which may have related to the subject matter hereof in any way.

* * * * *

 

4


IN WITNESS WHEREOF, the parties have executed this Subscription Agreement as of the date first written above.

 

H.J. HEINZ HOLDING CORPORATION
By:

/s/ Paulo Basilio

Name: Paulo Basilio
Title: Chief Financial Officer

 

[Signature Page to Subscription Agreement]


3G GLOBAL FOOD HOLDINGS LP
By:

/s/ Bernardo Piquet

Name: Bernardo Piquet
Title: Director

 

[Signature Page to Subscription Agreement]


BERKSHIRE HATHAWAY INC.
By:

/s/ Marc D. Hamburg

Name: Marc D. Hamburg
Title: Senior Vice President

 

 

[Signature Page to Subscription Agreement]

EX-99.1

Exhibit 99.1

LOGO

The Kraft Heinz Company Announces Successful Completion of the Merger between

Kraft Foods Group and H.J. Heinz Holding Corporation

Combination Creates Unparalleled Portfolio of Powerful and Iconic Brands

Thursday, July 2, 2015

PITTSBURGH, Pa. and NORTHFIELD, Ill. – The Kraft Heinz Company (NASDAQ: KHC) is pleased to announce the successful completion of the merger between Kraft and Heinz.

The transaction creates the third-largest food and beverage company in North America and the fifth-largest food and beverage company in the world with an unparalleled portfolio of iconic brands. The complementary nature of the two brand portfolios presents substantial opportunity for synergies, which will result in increased investments in marketing and innovation. This historic transaction unites two powerful businesses and iconic brands, and provides a platform for leadership in the food industry both domestically and internationally.

Management and Governance

As previously announced, The Kraft Heinz Company’s Board of Directors is comprised of the following 11 directors: Alex Behring (who will serve as Chairman of the Board), Gregory Abel, Tracy Britt Cool, Warren Buffett, John T. Cahill (who will serve as Vice Chairman of the Board), L. Kevin Cox, Jeanne P. Jackson, Jorge Paulo Lemann, Mackey J. McDonald, John C. Pope, and Marcel Telles.

Also as previously announced, Bernardo Hees is Chief Executive Officer of The Kraft Heinz Company. The rest of the Kraft Heinz Company senior leadership team was announced on June 29, 2015.

“I am honored and humbled to be the CEO of The Kraft Heinz Company,” said Mr. Hees. “Kraft and Heinz are both world-class organizations with storied pasts and together, an even brighter future.”

KHC

Effective as of the close of trading today, July 2, 2015, Kraft Foods Group, Inc. common shares will cease trading on the NASDAQ. The Kraft Heinz Company common shares will begin trading on the NASDAQ under the trading symbol KHC on Monday, July 6, 2015.

Dividend

On July 31, 2015, The Kraft Heinz Company will pay a cash dividend of $0.55 per share to all stockholders of record at the close of business on July 27, 2015. This dividend will be in lieu of the dividend declared on June 22, 2015, by Kraft to its shareholders of record as of July 27, 2015, the payment of which was conditional on the merger not having closed by that date.

Next Steps

The Company’s immediate focus is on integrating the two businesses and establishing a new organizational structure, while delivering its financial objectives for 2015.

The Kraft Heinz Company remains committed to its hometowns with co-headquarters in Pittsburgh and the Chicago area. The Heinz brand and business will remain headquartered in Pittsburgh and the Kraft brand and business will remain headquartered in the Chicago area.


ABOUT HEINZ

H.J. Heinz Company, offering “Good Food Every Day,”™ is one of the world’s leading marketers and producers of healthy, convenient and affordable foods specializing in ketchup, sauces, meals, soups, snacks and infant nutrition. Heinz provides superior quality, taste and nutrition for all eating occasions whether in the home, restaurants, the office or “on-the-go.” Heinz is a global family of leading branded products, including Heinz® Ketchup, sauces, soups, beans, pasta and infant foods (representing over one third of Heinz’s total sales), Ore-Ida® potato products, Weight Watchers® Smart Ones® entrées, T.G.I. Friday’s® snacks, and Plasmon infant nutrition. Heinz is famous for its iconic brands on six continents, showcased by Heinz® Ketchup, The World’s Favorite Ketchup®.

ABOUT KRAFT FOODS GROUP

Kraft Foods Group, Inc. (NASDAQ: KRFT) is one of North America’s largest consumer packaged food and beverage companies, with annual revenues of more than $18 billion. The company’s iconic brands include Kraft, Capri SunJell-OKool-Aid, Lunchables, Maxwell House, Oscar Mayer, Philadelphia, Planters and Velveeta. Kraft’s 22,000 employees in the U.S. and Canada have a passion for making the foods and beverages people love. Kraft is a member of the Standard & Poor’s 500 and the NASDAQ-100 indices. For more information about Kraft, visit www.kraftfoodsgroup.com and www.facebook.com/kraft.

Contact:

Media:

Michael Mullen

SVP, Corporate & Government Affairs

Phone: +1 (412) 456-5751

Email: michael.mullen@kraftheinzcompany.com

Investors:

ir@kraftheinzcompany.com

Forward-Looking Statements

Except for the historical information contained herein, certain of the matters discussed in this communication constitute “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, both as amended by the Private Securities Litigation Reform Act of 1995. Words such as “may,” “might,” “will,” “should,” “could,” “anticipate,” “estimate,” “expect,” “predict,” “project,” “future”, “potential,” “intend,” “seek to,” “plan,” “assume,” “believe,” “target,” “forecast,” “goal,” “objective,” “continue” or the negative of such terms or other variations thereof and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding benefits of the merger, integration plans and expected synergies, anticipated future financial and operating performance and results, including estimates for growth. There are a number of risks and uncertainties that could cause actual results to


differ materially from the forward-looking statements included in this communication. For example, the ability to successfully integrate the businesses of Kraft and Heinz, risks related to disruption of management time from ongoing business operations due to the transaction and the risk that the merger could have an adverse effect on the ability of Kraft and Heinz to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers and on their operating results and businesses generally, problems may arise in successfully integrating the businesses of the companies, which may result in the combined company not operating as effectively and efficiently as expected, the combined company may be unable to achieve cost-cutting synergies or it may take longer than expected to achieve those synergies, and other factors. All such factors are difficult to predict and are beyond our control. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this report, except as required by applicable law or regulation.

EX-99.3

Exhibit 99.3

The Kraft Heinz Company

 

To: Directors and Executive Officers of The Kraft Heinz Company
Date: July 2, 2015
Re: Notice Regarding Blackout Period and Regulation BTR Trading Restrictions

On June 12, 2015, Kraft Foods Group, Inc. (“Kraft”) received a notice required by Section 101(i)(2)(E) of the Employment Retirement Income Security Act of 1974, as amended, regarding a blackout period under Kraft’s 401(k) savings plans (the “401(k) Plans”). The blackout period for the 401(k) Plans was implemented in connection with the anticipated closing of the transaction (the “Merger”) with H.J. Heinz Holding Corporation (“Heinz”) in accordance with the Agreement and Plan of Merger, dated March 24, 2015, among Kraft, Heinz, and two wholly owned subsidiaries of Heinz, Kite Merger Sub Corp. and Kite Merger Sub LLC, to create The Kraft Heinz Company (“Kraft Heinz”). On July 2, 2015, the Merger closed. The blackout period is expected to last three or four business days following the closing of the Merger but may last longer, and is necessary to ensure that the administrator of the 401(k) Plans can process the exchange of Kraft common stock for Kraft Heinz common stock.

Pursuant to The Sarbanes-Oxley Act of 2002 (the “Act”) and Rule 104 under Securities and Exchange Commission Regulation BTR, Kraft Heinz is hereby notifying you of a temporary restrictions on your ability to engage in certain activities regarding Kraft Heinz equity securities, namely Kraft Heinz common stock. These temporary restrictions are mandated by the Act in the event of a blackout period impacting the 401(k) Plans including the Kraft Heinz Stock Fund as an investment option thereunder.

Because the 401(k) Plans include the Kraft Heinz Stock Fund as an investment option, the Act requires that you be prohibited from directly or indirectly purchasing, exercising, selling, or otherwise transferring equity securities (including options and other derivative securities) of Kraft Heins during the blackout period for the 401(k) Plans if those securities were acquired in connection with your service or employment as a director or executive officer of Kraft or Kraft Heinz. Transactions covered by this trading prohibition are not limited to those involving your direct ownership, but include any transaction in which you may have a pecuniary interest (e.g., transactions by members of your immediate family who share your household, as well as by certain entities in which you have financial involvement).


Although certain transactions are exempt from this trading prohibition (such as bona fide gifts, transfers by will or laws of descent and distribution, and sales of stock not acquired in connection with service or employment as a director or officer), those exemptions are limited. If you hold both covered securities and non-covered securities, any sale or other transfer of securities by you during the blackout period, if it occurs, will be treated as a transaction involving covered securities, unless you can identify the source of the sold securities and demonstrate that you use the same identification for all related purposes (such as tax reporting and disclosure requirements). Given the applicable rules and the short time period involved, we recommend that you avoid any change in your beneficial ownership of Kraft Heinz equity and derivative securities during the blackout period. The restrictions on trading during the blackout period are in addition to those under Kraft Heinz’s insider trading policy or its successor (and associated regularly scheduled blackout periods) that restrict or will restrict your ability to trade in Kraft Heinz common stock.

The rules are complex and criminal and civil penalties may be imposed upon directors and executive officers who violate the rules. Therefore, please contact Kraft Heinz’s General Counsel at One PPG Place, Pittsburgh, Pennsylvania 15222 or via telephone at (412) 456-5700 if you have any questions or if you believe that a transaction in which you have a pecuniary interest may occur during the blackout period.

EX-99.4

Exhibit 99.4

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Kraft Foods Group, Inc.:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a) present fairly, in all material respects, the financial position of Kraft Foods Group, Inc. and its subsidiaries at December 27, 2014 and December 28, 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 27, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 27, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois

February 19, 2015

 

1


Kraft Foods Group, Inc.

Consolidated Statements of Earnings

(in millions of U.S. dollars, except per share data)

 

     For the Years Ended  
     December 27,
2014
    December 28,
2013
    December 29,
2012
 

Net revenues

   $ 18,205      $ 18,218      $ 18,271   

Cost of sales

     13,360        11,395        12,499   
  

 

 

   

 

 

   

 

 

 

Gross profit

  4,845      6,823      5,772   

Selling, general and administrative expenses

  2,956      2,124      2,961   

Asset impairment and exit costs

  (1   108      141   
  

 

 

   

 

 

   

 

 

 

Operating income

  1,890      4,591      2,670   

Interest and other expense, net

  (484   (501   (258

Royalty income from Mondelēz International

  —        —        41   
  

 

 

   

 

 

   

 

 

 

Earnings before income taxes

  1,406      4,090      2,453   

Provision for income taxes

  363      1,375      811   
  

 

 

   

 

 

   

 

 

 

Net earnings

$ 1,043    $ 2,715    $ 1,642   
  

 

 

   

 

 

   

 

 

 

Per share data:

Basic earnings per share

$ 1.75    $ 4.55    $ 2.77   

Diluted earnings per share

$ 1.74    $ 4.51    $ 2.75   

Dividends declared

$ 2.15    $ 2.05    $ 0.50   

See accompanying notes to the consolidated financial statements.

 

2


Kraft Foods Group, Inc.

Consolidated Statements of Comprehensive Earnings

(in millions of U.S. dollars)

 

     For the Years Ended  
     December 27,
2014
    December 28,
2013
    December 29,
2012
 

Net earnings

   $ 1,043      $ 2,715      $ 1,642   

Other comprehensive (losses) / earnings:

      

Currency translation adjustment

     (91     (68     36   

Postemployment benefits:

      

Prior service credits arising during the period

     58        31        —     

Amortization of prior service credits and other amounts reclassified from accumulated other comprehensive losses

     (20     (22     (6

Tax (expense) / benefit

     (14     (3     2   

Derivatives accounted for as hedges:

      

Net derivative gains / (losses)

     90        33        (322

Amounts reclassified from accumulated other comprehensive losses

     (84     4        112   

Tax (expense) / benefit

     (2     (14     80   
  

 

 

   

 

 

   

 

 

 

Total other comprehensive losses

  (63   (39   (98
  

 

 

   

 

 

   

 

 

 

Comprehensive earnings

$ 980    $ 2,676    $ 1,544   
  

 

 

   

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

3


Kraft Foods Group, Inc.

Consolidated Balance Sheets

(in millions of U.S. dollars)

 

     December 27,
2014
    December 28,
2013
 

ASSETS

    

Cash and cash equivalents

   $ 1,293      $ 1,686   

Receivables (net of allowances of $21 in 2014 and $26 in 2013)

     1,080        1,048   

Inventories

     1,775        1,616   

Deferred income taxes

     384        360   

Other current assets

     259        198   
  

 

 

   

 

 

 

Total current assets

  4,791      4,908   

Property, plant and equipment, net

  4,192      4,115   

Goodwill

  11,404      11,505   

Intangible assets, net

  2,234      2,229   

Other assets

  326      391   
  

 

 

   

 

 

 

TOTAL ASSETS

$ 22,947    $ 23,148   
  

 

 

   

 

 

 

LIABILITIES

Current portion of long-term debt

$ 1,405    $ 4   

Accounts payable

  1,537      1,548   

Accrued marketing

  511      685   

Accrued employment costs

  163      184   

Dividends payable

  324      313   

Accrued postretirement health care costs

  192      197   

Other current liabilities

  641      479   
  

 

 

   

 

 

 

Total current liabilities

  4,773      3,410   

Long-term debt

  8,627      9,976   

Deferred income taxes

  340      662   

Accrued pension costs

  1,105      405   

Accrued postretirement health care costs

  3,399      3,080   

Other liabilities

  338      428   
  

 

 

   

 

 

 

TOTAL LIABILITIES

  18,582      17,961   

Commitments and Contingencies (Note 11)

EQUITY

Common stock, no par value (5,000,000,000 shares authorized; 601,402,816 shares issued at December 27, 2014 and 596,843,449 at December 28, 2013)

  —        —     

Additional paid-in capital

  4,678      4,434   

Retained earnings

  1,045      1,281   

Accumulated other comprehensive losses

  (562   (499

Treasury stock, at cost

  (796   (29
  

 

 

   

 

 

 

TOTAL EQUITY

  4,365      5,187   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND EQUITY

$ 22,947    $ 23,148   
  

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

4


Kraft Foods Group, Inc.

Consolidated Statements of Equity

(in millions of U.S. dollars, except per share data)

 

     Common
Stock
     Additional
Paid-in
Capital
     Parent
Company
Investment
    Retained
Earnings
/ (Deficit)
    Accumulated
Other
Comprehensive
Losses
    Treasury
Stock
    Total
Equity
 

Balance at December 31, 2011

   $ —         $ —         $ 16,713      $ —        $ (125   $ —        $ 16,588   

Comprehensive earnings / (losses):

                

Net earnings

     —           —           1,552        90        —          —          1,642   

Other comprehensive losses, net of income taxes

     —           —           —          —          (98     —          (98

Consummation of spin-off transaction on October 1, 2012

     —           4,208         (7,670     —          (233     —          (3,695

Net transfers to / from Mondelēz International

     —           —           (10,595     —          (4     —          (10,599

Exercise of stock options, issuance of other stock awards, and other

     —           32         —          —          —          (2     30   

Dividends declared ($0.50 per share)

     —           —           —          (296     —          —          (296
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 29, 2012

$ —      $ 4,240    $ —      $ (206 $ (460 $ (2 $ 3,572   

Comprehensive earnings / (losses):

Net earnings

  —        —        —        2,715      —        —        2,715   

Other comprehensive losses, net of income taxes

  —        —        —        —        (39   —        (39

Exercise of stock options, issuance of other stock awards, and other

  —        194      —        —        —        (27   167   

Dividends declared ($2.05 per share)

  —        —        —        (1,228   —        —        (1,228
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 28, 2013

$ —      $ 4,434    $ —      $ 1,281    $ (499 $ (29 $ 5,187   

Comprehensive earnings / (losses):

Net earnings

  —        —        —        1,043      —        —        1,043   

Other comprehensive losses, net of income taxes

  —        —        —        —        (63   —        (63

Exercise of stock options, issuance of other stock awards, and other

  —        244      —        —        —        (21   223   

Repurchase of common stock under share repurchase program

  —        —        —        —        —        (746   (746

Dividends declared ($2.15 per share)

  —        —        —        (1,279   —        —        (1,279
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 27, 2014

$ —      $ 4,678    $ —      $ 1,045    $ (562 $ (796 $ 4,365   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

5


Kraft Foods Group, Inc.

Consolidated Statements of Cash Flows

(in millions of U.S. dollars)

 

     For the Years Ended  
     December 27,
2014
    December 28,
2013
    December 29,
2012
 

CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES

      

Net earnings

   $ 1,043      $ 2,715      $ 1,642   

Adjustments to reconcile net earnings to operating cash flows:

      

Depreciation and amortization

     385        393        428   

Stock-based compensation expense

     95        65        54   

Deferred income tax provision

     (361     708        470   

Asset impairments

     —          28        28   

Market-based impacts to postemployment benefit plans

     1,341        (1,561     223   

Other non-cash expense, net

     67        138        159   

Change in assets and liabilities:

      

Receivables, net

     (22     35        220   

Inventories

     (53     235        21   

Accounts payable

     45        45        (241

Other current assets

     (41     (9     (61

Other current liabilities

     (164     (217     205   

Change in pension and postretirement assets and liabilities, net

     (315     (532     (113
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

  2,020      2,043      3,035   
  

 

 

   

 

 

   

 

 

 

CASH (USED IN) / PROVIDED BY INVESTING ACTIVITIES

Capital expenditures

  (535   (557   (440

Proceeds from sale of property, plant and equipment

  2      131      18   

Other investing activities

  (2   —        —     
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

  (535   (426   (422
  

 

 

   

 

 

   

 

 

 

CASH (USED IN) / PROVIDED BY FINANCING ACTIVITIES

Dividends paid

  (1,266   (1,207   —     

Repurchase of common stock under share repurchase program

  (740   —        —     

Proceeds from stock option exercises

  115      96      14   

Long-term debt proceeds

  —        —        5,963   

Net transfers to Mondelēz International

  —        —        (7,210

Other financing activities

  25      (60   (125
  

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

  (1,866   (1,171   (1,358
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

  (12   (15   —     
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents:

(Decrease) / increase

  (393   431      1,255   

Balance at beginning of period

  1,686      1,255      —     
  

 

 

   

 

 

   

 

 

 

Balance at end of period

$ 1,293    $ 1,686    $ 1,255   

Cash paid:

Interest

$ 487    $ 481    $ 152   

Income taxes

$ 745    $ 799    $ 236   

See accompanying notes to the consolidated financial statements.

 

6


Kraft Foods Group, Inc.

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Description of Business:

Kraft Foods Group, Inc. (“Kraft Foods Group,” “we,” “us,” and “our”) manufactures and markets food and beverage products, including cheese, meats, refreshment beverages, coffee, packaged dinners, refrigerated meals, snack nuts, dressings, and other grocery products, primarily in the United States and Canada. Our product categories span breakfast, lunch, and dinner meal occasions.

On October 1, 2012, Mondelēz International, Inc. (“Mondelēz International,” formerly known as Kraft Foods Inc.) created us as an independent public company through a spin-off of its North American grocery business to Mondelēz International’s shareholders (the “Spin-Off”). Mondelēz International distributed 592 million shares of Kraft Foods Group common stock to Mondelēz International’s shareholders. Holders of Mondelēz International common stock received one share of Kraft Foods Group common stock for every three shares of Mondelēz International common stock held on September 19, 2012.

Principles of Consolidation:

The consolidated financial statements include Kraft Foods Group, as well as our wholly-owned subsidiaries. All intercompany transactions are eliminated. Our period end date for financial reporting purposes is the last Saturday of the fiscal year, which aligns with the financial close dates of our operating segments.

Prior to the Spin-Off on October 1, 2012, our financial statements were prepared on a stand-alone basis and were derived from the consolidated financial statements and accounting records of Mondelēz International. Our financial statements included certain expenses of Mondelēz International that were allocated to us for certain functions, including general corporate expenses related to finance, legal, information technology, human resources, compliance, shared services, insurance, employee benefits and incentives, and stock-based compensation. These expenses were allocated in our historical results of operations on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenue, operating income, or headcount. We consider the expense allocation methodology and results to be reasonable for all periods presented. However, these allocations were not necessarily indicative of the actual expenses we would have incurred as an independent public company or of the costs we will incur in the future, and may differ substantially from the allocations we agreed to in the various separation agreements.

Use of Estimates:

We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make accounting policy elections, estimates, and assumptions that affect a number of amounts in our consolidated financial statements. We base our estimates on historical experience and other assumptions that we believe are reasonable. If actual amounts differ from estimates, we include the revisions in our consolidated results of operations in the period the actual amounts become known. Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a material effect on our consolidated financial statements.

Cash and Cash Equivalents:

Cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less.

Inventories:

Inventories are stated at the lower of cost or market. We value all our inventories using the average cost method.

Long-Lived Assets:

Property, plant and equipment are stated at historical cost and depreciated by the straight-line method over the estimated useful lives of the assets. Machinery and equipment are depreciated over periods ranging from 3 to 20 years and buildings and improvements over periods up to 40 years. Capitalized software costs are included in property, plant and equipment and amortized on a straight-line basis over the estimated useful lives of the software, which do not exceed seven years.

We review long-lived assets for impairment when conditions exist that indicate the carrying amount of the assets may not be fully recoverable. Such conditions include significant adverse changes in the business climate, current-period operating or cash flow losses, significant declines in forecasted operations, or a current expectation that an

 

7


asset group will be disposed of before the end of its useful life. We perform undiscounted operating cash flow analyses to determine if an impairment exists. When testing for impairment of assets held for use, we group assets and liabilities at the lowest level for which cash flows are separately identifiable. If an impairment is determined to exist, the loss is calculated based on estimated fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.

Goodwill and Intangible Assets:

We test goodwill and indefinite-lived intangible assets for impairment at least annually in the fourth quarter or when a triggering event occurs. The first step of the goodwill impairment test compares the reporting unit’s estimated fair value with its carrying value. We estimate a reporting unit’s fair value using planned growth rates, market-based discount rates, estimates of residual value, and estimates of market multiples. If the carrying value of a reporting unit’s net assets exceeds its fair value, the second step would be applied to measure the difference between the carrying value and implied fair value of goodwill. If the carrying value of goodwill exceeds its implied fair value, the goodwill would be considered impaired and would be reduced to its implied fair value.

We test indefinite-lived intangible assets for impairment by comparing the fair value of each intangible asset with its carrying value. Fair value of indefinite-lived intangible assets is determined using planned growth rates, market-based discount rates, and estimates of royalty rates. If the carrying value exceeds fair value, the intangible asset would be considered impaired and would be reduced to fair value.

Estimating the fair value of individual reporting units or intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry and economic conditions. These assumptions and estimates include projected revenues and income, interest rates, cost of capital, royalty rate, and tax rates.

Insurance and Self-Insurance:

We use a combination of insurance and self-insurance for a number of risks, including workers’ compensation, general liability, automobile liability, product liability, and our obligation for employee health care benefits. We estimate the liabilities associated with these risks by considering historical claims experience and other actuarial assumptions.

Revenue Recognition:

We recognize revenues when title and risk of loss pass to our customers. We record revenues net of consumer incentives and trade promotions and include all shipping and handling charges billed to customers. We also record provisions for estimated product returns and customer allowances as reductions to revenues within the same period that the revenue is recognized. We base these estimates principally on historical and current period experience, however, it is reasonably likely that actual experiences will vary from the estimates we make.

Marketing and Research and Development:

We promote our products with advertising and consumer promotions, consumer incentives, and trade promotions. Consumer incentives and trade promotions include, but are not limited to, discounts, coupons, rebates, in-store display incentives, and volume-based incentives. Consumer incentive and trade promotion activities are recorded as a reduction to revenues based on amounts estimated as being due to customers and consumers at the end of a period. We base these estimates principally on historical utilization and redemption rates.

For interim reporting purposes, we charge advertising and consumer promotion expenses to operations as a percentage of volume, based on estimated volume and related expense for the full year. We review and adjust these estimates each quarter based on actual experience and other information. Advertising expense was $652 million in 2014, $747 million in 2013, and $640 million in 2012. We record marketing expense in selling, general and administrative expense, except for consumer incentives and trade promotions, which are recorded in net revenues.

We expense costs as incurred for product research and development within selling, general and administrative expenses. Research and development expense was $149 million in 2014, $142 million in 2013, and $143 million in 2012. The amounts disclosed in prior periods have been revised to exclude market-based impacts to postemployment benefit plans and certain other costs that are not directly associated with our research and development activities. The impacts of these revisions to the disclosure were not material to any prior period.

 

8


Environmental Costs:

We are subject to various laws and regulations in the United States and Canada relating to the protection of the environment. We accrue for environmental remediation obligations on an undiscounted basis when amounts are probable and can be reasonably estimated. The accruals are adjusted based on new information or as circumstances change. We record recoveries of environmental remediation costs from third parties as assets when we believe these amounts are receivable. As of December 27, 2014, we were involved in 56 active proceedings in the United States under the Comprehensive Environmental Response, Compensation and Liability Act (and other similar state actions and legislation) related to our current operations and certain closed, inactive or divested operations for which we retain liability.

As of December 27, 2014, we had accrued an amount we deemed appropriate for environmental remediation. Based on information currently available, we believe that the ultimate resolution of existing environmental remediation actions and our compliance in general with environmental laws and regulations will not have a material effect on our financial condition or results from operations. However, we cannot quantify with certainty the potential impact of future compliance efforts and environmental remediation actions.

Postemployment Benefit Plans:

We provide a range of benefits to our eligible employees and retirees. These include defined benefit pension, postretirement health care, defined contribution, and multiemployer pension and medical benefits. Our pension, postretirement, and other postemployment (collectively, “postemployment”) benefit plans cover most salaried and certain hourly employees. The cost of these plans is charged to expense over the working life of the covered employees.

We account for defined benefit costs using a mark-to-market policy. Under this accounting method, we recognize net actuarial gains or losses and changes in the fair value of plan assets in cost of sales and selling, general and administrative expenses immediately upon remeasurement, which is at least annually.

Financial Instruments:

As we operate primarily in North America but source our commodities on global markets and periodically enter into financing or other arrangements abroad, we use a variety of risk management strategies and financial instruments to manage commodity price, foreign currency exchange rate, and interest rate risks. Our risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on our operating results. One way we do this is through actively hedging our risks through the use of derivative instruments. As a matter of policy, we do not use highly leveraged derivative instruments, nor do we use financial instruments for speculative purposes.

Derivatives are recorded on our consolidated balance sheets at fair value, which fluctuates based on changing market conditions.

Certain derivatives are designated as cash flow hedges and qualify for hedge accounting treatment, while others do not qualify and are marked to market through earnings. For cash flow hedges, changes in fair value are deferred in accumulated other comprehensive earnings / (losses) within equity until the underlying hedged items are recognized in net earnings. Accordingly, we record deferred cash flow hedge gains or losses in cost of sales when the related inventory is sold and in interest and other expense, net, when the related debt interest expense is recorded. Cash flows from derivative instruments are also classified in the same manner as the underlying hedged items in the consolidated statement of cash flows. For additional information on derivative activity within our operating results, see Note 10, Financial Instruments.

To qualify for hedge accounting, a specified level of hedging effectiveness between the hedging instrument and the item being hedged must be achieved at inception and maintained throughout the hedged period. Any hedging ineffectiveness is recognized in net earnings when the change in the value of the hedge does not offset the change in the value of the underlying hedged item. We formally document our risk management objectives, strategies for undertaking the various hedge transactions, the nature of and relationships between the hedging instruments and hedged items, and method for assessing hedge effectiveness. Additionally, for qualified hedges of forecasted transactions, we specifically identify the significant characteristics and expected terms of the forecasted transactions. If it becomes probable that a forecasted transaction will not occur, the hedge will no longer be effective and all of the derivative gains or losses would be recognized in earnings in the current period.

Unrealized gains and losses on our derivatives not designated as hedging instruments as well as the ineffective portion of unrealized gains and losses on our derivatives designated as hedging instruments, are recorded in Corporate until realized. Once realized, the gains and losses are recorded within the applicable segment operating results.

 

9


When we use financial instruments, we are exposed to credit risk that a counterparty might fail to fulfill its performance obligations under the terms of our agreement. We minimize our credit risk by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure we have with each counterparty, and monitoring the financial condition of our counterparties. We also maintain a policy of requiring that all significant, non-exchange traded derivative contracts with a duration of greater than one year be governed by an International Swaps and Derivatives Association master agreement. We are also exposed to market risk as the value of our financial instruments might be adversely affected by a change in foreign currency exchange rates, commodity prices, or interest rates. We manage market risk by incorporating monitoring parameters within our risk management strategy that limit the types of derivative instruments and derivative strategies we use and the degree of market risk that we hedge with derivative instruments.

Commodity cash flow hedges – We are exposed to price risk related to forecasted purchases of certain commodities that we primarily use as raw materials. We enter into commodity forward contracts primarily for coffee beans, meat products, sugar, wheat, and dairy products. Commodity forward contracts generally are not subject to the accounting requirements for derivative instruments and hedging activities under the normal purchases exception. We also use commodity futures and options to hedge the price of certain commodity costs, including dairy products, coffee beans, meat products, wheat, corn products, soybean oils, sugar, and natural gas. Some of these derivative instruments are highly effective and qualify for hedge accounting treatment. We also sell commodity futures to unprice future purchase commitments, and we occasionally use related futures to cross-hedge a commodity exposure.

Foreign currency cash flow hedges – We use various financial instruments to mitigate our exposure to changes in exchange rates from third-party and intercompany actual and forecasted transactions. These instruments may include forward foreign exchange contracts and foreign currency options. We primarily use these instruments to hedge our exposure to the Canadian dollar. Substantially all of these derivative instruments are highly effective and qualify for hedge accounting treatment.

Interest rate cash flow hedges – We use derivative instruments, including interest rate swaps, as part of our interest rate risk management strategy. We primarily use interest rate swaps to hedge the variability of interest payment cash flows on a portion of our future debt obligations. Substantially all of these derivative instruments are highly effective and qualify for hedge accounting treatment.

Income Taxes:

We recognize income taxes based on amounts refundable or payable for the current year and record deferred tax assets or liabilities for any difference between U.S. GAAP accounting and tax reporting. We also recognize deferred tax assets for temporary differences, operating loss carryforwards, and tax credit carryforwards. Inherent in determining our annual tax rate are judgments regarding business plans, planning opportunities, and expectations about future outcomes. Realization of certain deferred tax assets, primarily net operating loss and other carryforwards, is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the carryforward periods. See Note 12, Income Taxes, for additional information.

We apply a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. Accordingly, we recognize the amount of tax benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement. Future changes in judgment related to the expected ultimate resolution of uncertain tax positions will affect earnings in the quarter of such change.

New Accounting Pronouncements:

In April 2014, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard update (“ASU”) that modified the criteria for reporting the disposal of a component of an entity as discontinued operations. In addition, the ASU requires additional disclosures about discontinued operations. The ASU will be effective for all disposals of components of an entity that occur during our fiscal year 2015 and thereafter. We do not expect the adoption of this guidance to have a material impact on our financial statements and related disclosures.

In May 2014, the FASB issued an ASU that supersedes existing revenue recognition guidance. Under the new ASU, an entity will apply a principles-based five step model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The ASU will be effective beginning in the first quarter of our fiscal year 2017. Early adoption is not permitted. We are currently evaluating the impact that this ASU will have on our financial statements and related disclosures.

 

10


Note 2. Inventories

Inventories at December 27, 2014 and December 28, 2013 were:

 

     December 27,
2014
     December 28,
2013
 
     (in millions)  

Raw materials

   $ 481       $ 453   

Work in process

     296         294   

Finished product

     998         869   
  

 

 

    

 

 

 

Inventories

$ 1,775    $ 1,616   
  

 

 

    

 

 

 

Note 3. Property, Plant and Equipment

Property, plant and equipment at December 27, 2014 and December 28, 2013 were:

 

     December 27,
2014
     December 28,
2013
 
     (in millions)  

Land

   $ 79       $ 72   

Buildings and improvements

     1,881         1,806   

Machinery and equipment

     5,619         5,584   

Construction in progress

     464         360   
  

 

 

    

 

 

 
  8,043      7,822   

Accumulated depreciation

  (3,851   (3,707
  

 

 

    

 

 

 

Property, plant and equipment, net

$ 4,192    $ 4,115   
  

 

 

    

 

 

 

In 2013, we sold and leased back two of our headquarters facilities for a loss of approximately $36 million. We received net proceeds of $101 million in connection with the sales.

Note 4. Goodwill and Intangible Assets

Goodwill by reportable segment at December 27, 2014 and December 28, 2013 was:

 

     December 27,
2014
     December 28,
2013
 
     (in millions)  

Cheese

   $ 3,000       $ 3,000   

Refrigerated Meals

     985         985   

Beverages

     1,290         1,290   

Meals & Desserts

     1,572         1,572   

Enhancers & Snack Nuts

     2,644         2,644   

Canada

     1,051         1,141   

Other Businesses

     862         873   
  

 

 

    

 

 

 

Goodwill

$ 11,404    $ 11,505   
  

 

 

    

 

 

 

The change in Goodwill during 2014 of $101 million reflects the impact of foreign currency.

Intangible assets consist primarily of indefinite-lived trademarks. Amortizing intangible assets were insignificant in both periods presented.

We test goodwill and indefinite-lived intangible assets for impairment at least annually in the fourth quarter or when a triggering event occurs. There were no impairments of goodwill or intangible assets in 2014, 2013, or 2012. During our annual 2014 indefinite-lived intangible asset impairment test, we noted that a $958 million trademark and

 

11


a $261 million trademark within our Enhancers business had excess fair values over their carrying values of less than 20%. While these trademarks passed the 2014 impairment test, if our projections of future operating income were to decline, or if valuation factors outside of our control, such as discount rates, change unfavorably, the estimated fair value of one or both of these trademarks could be adversely affected, leading to a potential impairment in the future.

Note 5. Cost Savings Initiatives

Cost savings initiatives are related to reorganization activities including severance, asset disposals, and other activities. Included within cost savings initiatives are activities related to the previously disclosed multi-year restructuring program (the “Restructuring Program”), which we completed as of December 27, 2014.

Total Cost Savings Initiatives Expenses:

We recorded expenses related to our cost savings initiatives in the consolidated financial statements as follows:

 

     For the Years Ended  
     December 27,
2014
     December 28,
2013
     December 29,
2012
 
     (in millions)  

Restructuring costs - Asset impairment and exit costs

   $ (1    $ 108       $ 141   

Implementation costs - Cost of sales

     12         77         97   

Implementation costs - Selling, general and administrative expenses

     —           65         34   

Spin-Off transition costs - Selling, general and administrative expenses

     4         32         31   

Other cost savings initiatives expenses - Cost of sales

     49         —           —     

Other cost savings initiatives expenses - Selling, general and administrative expenses

     43         8         —     
  

 

 

    

 

 

    

 

 

 
$ 107    $ 290    $ 303   
  

 

 

    

 

 

    

 

 

 

Cost Savings Initiatives Expenses by Segment:

During 2014, 2013, and 2012, we recorded cost savings initiatives expenses within segment operating income as follows:

 

     For the Year Ended December 27, 2014  
     Restructuring Program                
     Restructuring
Costs
    Implementation
Costs
     Spin-Off
Transition
Costs
     Other Cost
Savings
Initiatives
Expenses
     Total  
     (in millions)  

Cheese

   $ 1      $ 6       $ —         $ 12       $ 19   

Refrigerated Meals

     —          2         —           29         31   

Beverages

     (2     1         —           9         8   

Meals & Desserts

     —          2         —           28         30   

Enhancers & Snack Nuts

     —          —           —           8         8   

Canada

     —          1         —           2         3   

Other Businesses

     —          —           —           3         3   

Corporate expenses

     —          —           4         1         5   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ (1 $ 12    $ 4    $ 92    $ 107   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

12


     For the Year Ended December 28, 2013  
     Restructuring Program                
     Restructuring
Costs
     Implementation
Costs
     Spin-Off
Transition
Costs
     Other Cost
Savings
Initiatives
Expenses
     Total  
     (in millions)  

Cheese

   $ 26       $ 62       $ —         $ —         $ 88   

Refrigerated Meals

     18         17         —           —           35   

Beverages

     19         22         —           —           41   

Meals & Desserts

     14         12         —           —           26   

Enhancers & Snack Nuts

     12         12         —           —           24   

Canada

     10         7         —           —           17   

Other Businesses

     9         10         —           —           19   

Corporate expenses

     —           —           32         8         40   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 108    $ 142    $ 32    $ 8    $ 290   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     For the Year Ended December 29, 2012  
     Restructuring Program                
     Restructuring
Costs
     Implementation
Costs
     Spin-Off
Transition
Costs
     Other Cost
Savings
Initiatives
Expenses
     Total  
     (in millions)  

Cheese

   $ 26       $ 72       $ —         $ —         $ 98   

Refrigerated Meals

     19         11         —           —           30   

Beverages

     44         19         —           —           63   

Meals & Desserts

     15         9         —           —           24   

Enhancers & Snack Nuts

     17         8         —           —           25   

Canada

     9         5         —           —           14   

Other Businesses

     11         7         —           —           18   

Corporate expenses

     —           —           31         —           31   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 141    $ 131    $ 31    $ —      $ 303   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Restructuring Program:

Our Restructuring Program included the following:

 

    Restructuring costs that qualified for special accounting treatment as exit or disposal activities.

 

    Implementation costs that were directly attributable to the Restructuring Program, but did not qualify for special accounting treatment as exit or disposal activities. These costs primarily related to reorganization costs associated with our sales function, our information systems infrastructure, and accelerated depreciation on assets.

 

    Transition costs related to the Spin-Off. The Spin-Off transition costs were not allocated to the segments because they consisted mostly of professional service fees within our finance, legal, and information systems functions.

At December 27, 2014, we incurred Restructuring Program costs of $600 million since the inception of the Restructuring Program. We spent $291 million in cash. We spent cash related to our Restructuring Program of $30 million in 2014, $150 million in 2013, and $111 million in 2012. We did not incur any non-cash costs in 2014. We incurred non-cash costs of $157 million in 2013 and $151 million in 2012.

 

13


Restructuring Costs Liability:

At December 27, 2014, the restructuring costs liability balance within other current liabilities was as follows:

 

     Severance
and Related
Costs
 
     (in millions)  

Liability balance, December 28, 2013

   $ 19   

Restructuring costs

     (1

Cash spent on restructuring costs

     (12

Foreign exchange

     (1
  

 

 

 

Liability balance, December 27, 2014

$ 5   
  

 

 

 

Note 6. Debt

Borrowing Arrangements:

On May 29, 2014, we entered into a new $3.0 billion five-year senior unsecured revolving credit facility that expires on May 29, 2019 unless extended. The credit facility enables us to borrow up to $3.0 billion, which may be increased by up to $1.0 billion in the aggregate with the agreement of the lenders providing any increased commitments. All committed borrowings under the facility bear interest at a variable annual rate based on the London Inter-Bank Offered Rate or a defined base rate, at our election, plus an applicable margin based on the ratings of our long-term senior unsecured indebtedness. The credit facility requires us to maintain a minimum total shareholders’ equity (excluding accumulated other comprehensive income or losses and any income or losses recognized in connection with “mark-to-market” accounting in respect of pension and other retirement plans) of at least $2.4 billion and also contains customary representations, covenants, and events of default. At December 27, 2014 and for the year ended December 27, 2014, no amounts were drawn on this credit facility. The credit facility replaced our $3.0 billion five-year credit agreement dated as of May 18, 2012.

Long-Term Debt:

Our long-term debt consists of the following at December 27, 2014 and December 28, 2013:

 

     December 27,
2014
    December 28,
2013
    Maturity Date      Fixed Interest
Rate
    Payment Period  
     (in millions)                     

Senior unsecured notes

   $ 1,000      $ 1,000        June 4, 2015         1.625     Semiannually   

Senior unsecured notes

     400        400        June 15, 2015         7.550     Semiannually   

Senior unsecured notes

     1,000        1,000        June 5, 2017         2.250     Semiannually   

Senior unsecured notes

     1,035        1,035        August 23, 2018         6.125     Semiannually   

Senior unsecured notes

     900        900        February 10, 2020         5.375     Semiannually   

Senior unsecured notes

     2,000        2,000        June 6, 2022         3.500     Semiannually   

Senior unsecured notes

     878        878        January 26, 2039         6.875     Semiannually   

Senior unsecured notes

     787        787        February 9, 2040         6.500     Semiannually   

Senior unsecured notes

     2,000        2,000        June 4, 2042         5.000     Semiannually   

Capital lease obligations

     30        31          

Other

     2        (51       
  

 

 

   

 

 

        

Total debt

  10,032      9,980   

Current portion of long-term debt

  (1,405   (4
  

 

 

   

 

 

        

Total long-term debt

$ 8,627    $ 9,976   
  

 

 

   

 

 

        

 

14


At December 27, 2014, aggregate maturities of our long-term debt were (in millions):

 

2015

$ 1,406   

2016

  6   

2017

  1,006   

2018

  1,039   

2019

  3   

Thereafter

  6,616   

Our long-term debt contains customary representations, covenants, and events of default. We were in compliance with all covenants at December 27, 2014.

Fair Value of Our Debt:

At December 27, 2014, the aggregate fair value of our total debt was $11.0 billion as compared with the carrying value of $10.0 billion. We determined the fair value of our long-term debt using Level 1 quoted prices in active markets for the publicly traded debt obligations.

Interest and Other Expense, Net:

Interest and other expense, net was $484 million in 2014, $501 million in 2013, and $258 million in 2012. Other expense within interest and other expense, net was insignificant for all periods presented.

Note 7. Capital Stock

Our Amended and Restated Articles of Incorporation authorize the issuance of up to 5.0 billion shares of common stock and 500 million shares of preferred stock.

Shares of common stock issued, in treasury and outstanding were:

 

     Shares
Issued
     Treasury
Shares
     Shares
Outstanding
 

Consummation of Spin-Off on October 1, 2012

     592,257,298         —           592,257,298   

Exercise of stock options, issuance of other stock awards and other

     526,398         (19,988      506,410   
  

 

 

    

 

 

    

 

 

 

Balance at December 29, 2012

  592,783,696      (19,988   592,763,708   

Exercise of stock options, issuance of other stock awards and other

  4,059,753      (589,011   3,470,742   
  

 

 

    

 

 

    

 

 

 

Balance at December 28, 2013

  596,843,449      (608,999   596,234,450   

Shares of common stock repurchased

  —        (13,073,863   (13,073,863

Exercise of stock options, issuance of other stock awards and other

  4,559,367      (388,010   4,171,357   
  

 

 

    

 

 

    

 

 

 

Balance at December 27, 2014

  601,402,816      (14,070,872   587,331,944   
  

 

 

    

 

 

    

 

 

 

At December 27, 2014, we had approximately 0.3 million shares of restricted stock outstanding that were issued to current and former employees. There were no preferred shares issued or outstanding at December 27, 2014, December 28, 2013 or December 29, 2012.

On December 17, 2013, our Board of Directors authorized a $3.0 billion share repurchase program with no expiration date. Under the share repurchase program, we are authorized to repurchase shares of our common stock in the open market or in privately negotiated transactions. The timing and amount of share repurchases are subject to management’s evaluation of market conditions, applicable legal requirements, and other factors. We are not obligated to repurchase any shares of our common stock and may suspend the program at our discretion. In 2014, we repurchased approximately 13.1 million shares in the aggregate for approximately $746 million under this program. Approximately $6 million of the $746 million was accrued at December 27, 2014 and settled in the subsequent month. No shares were repurchased under this program in 2013.

 

15


Note 8. Stock Plans

Under the Kraft Foods Group, Inc. 2012 Performance Incentive Plan (the “2012 Plan”), we may grant eligible employees awards of stock options, stock appreciation rights, restricted stock, and restricted stock units (“RSUs”) as well as performance based long-term incentive awards (“Performance Shares”). In addition, we may grant shares of our common stock to members of the Board of Directors who are not our full-time employees under the 2012 Plan. We are authorized to issue a maximum of 72.0 million shares of our common stock under the 2012 Plan. Stock options and stock appreciation rights granted under the plan reduce the authorized shares available for issue at a ratio of one share per award granted. All other awards granted, such as restricted stock, RSUs, and Performance Shares, reduce the authorized shares available for issue at a ratio of three shares per award granted. At December 27, 2014, there were 32,293,456 shares available to be granted under the 2012 Plan. All stock awards are issued to employees from authorized shares of common stock.

Stock Options:

Stock options are granted with an exercise price equal to the market value of the underlying stock on the grant date, generally become exercisable in three annual installments beginning on the first anniversary of the grant date, and have a maximum term of ten years.

We account for our employee stock options under the fair value method of accounting using a modified Black-Scholes methodology to measure stock option expense at the grant date. The grant date fair value is amortized to expense over the vesting period. We recorded compensation expense related to stock options of $18 million in 2014, $18 million in 2013, and $5 million in 2012 subsequent to the Spin-Off. The deferred tax benefit recorded related to this compensation expense was $6 million in 2014, $6 million in 2013, and $2 million in 2012. The unamortized compensation expense related to our outstanding stock options was $15 million at December 27, 2014 and is expected to be recognized over a weighted average period of two years. Our weighted average Black-Scholes fair value assumptions were as follows:

 

     Risk-Free
Interest Rate
    Expected Life      Expected
Volatility
    Expected
Dividend Yield
    Grant Date
Fair Value
 

Kraft Foods Group grants

           

2014

     1.84     6 years         19.33     3.57   $ 6.16   

2013

     1.04     6 years         19.40     4.26   $ 4.41   

Mondelēz International grants

           

2012

     1.16     6 years         20.13     3.08   $ 4.78   

The risk-free interest rate represents the constant maturity U.S. government treasuries rate with a remaining term equal to the expected life of the options. The expected life is the period over which our employees are expected to hold their options. Due to the lack of historical data, we use the Safe Harbor method which uses the weighted average vesting period and the contractual term of the options to calculate the expected life. Volatility reflects a blended approach which uses historical movements in our stock price and in our peer group for a period commensurate with the expected life of the options. Dividend yield is estimated over the expected life of the options based on our stated dividend policy.

The stock option awards granted in 2012 were prior to the Spin-Off. Therefore, we estimated the value of those awards based on Mondelēz International’s share price and assumptions.

 

16


A summary of stock option activity related to our shares for both our and Mondelēz International employees for the year ended December 27, 2014 is presented below. Stock option activity for the year ended December 27, 2014 was:

 

     Options
Outstanding
     Weighted
Average
Exercise Price
     Average
Remaining
Contractual
Term
     Aggregate
Intrinsic

Value
 

Balance at December 28, 2013

     16,320,655       $ 35.26         

Options granted

     2,601,423         55.26         

Options exercised

     (3,610,773      32.08         

Options canceled

     (441,139      44.39         
  

 

 

          

Balance at December 27, 2014

  14,870,166      39.26      7 years    $ 367 million   
  

 

 

          

Exercisable at December 27, 2014

  9,666,165      34.02      6 years    $ 289 million   
  

 

 

          

All awards granted prior to the Spin-Off have been adjusted to reflect the conversion as of the Spin-Off. With respect to the Mondelēz International stock options granted prior to the Spin-Off, the converted options retained the vesting schedule and expiration date of the original stock options.

The total intrinsic value of our stock options exercised was $93 million in 2014, $69 million in 2013, and $8 million in 2012 subsequent to the Spin-Off. Cash received from options exercised was $115 million in 2014, $96 million in 2013, and $15 million in 2012. The incremental tax benefit realized for the tax deductions from the option exercises totaled $22 million in 2014, $20 million in 2013, and $1 million in 2012.

Restricted Stock, RSUs, and Performance Shares:

We may grant shares of restricted stock or RSUs to eligible employees and directors, giving them, in most instances, all of the rights of shareholders, except that they may not sell, assign, pledge, or otherwise encumber the shares. Shares of restricted stock and RSUs granted to employees are subject to forfeiture if certain employment conditions are not met. Restricted stock and RSUs generally vest on the third anniversary of the grant date.

Performance Shares vest based on varying performance, market, and service conditions. Our Performance Shares pay accrued dividends at the time of vesting. Shares granted in connection with Mondelēz International’s long-term incentive plan prior to the Spin-Off do not pay dividends. The unvested shares have no voting rights.

The grant date fair value of the restricted stock, RSUs, and Performance Shares is amortized to earnings over the restriction period. We recorded compensation expense related to restricted stock, RSUs, and Performance Shares of $77 million in 2014, $47 million in 2013, and $11 million in 2012 subsequent to the Spin-Off. The deferred tax benefit recorded related to this compensation expense was $28 million in 2014, $17 million in 2013, and $4 million in 2012. The unamortized compensation expense related to our restricted stock, RSUs, and Performance Shares was $97 million at December 27, 2014 and is expected to be recognized over a weighted average period of two years.

Our restricted stock, RSU, and Performance Share activity for the year ended December 27, 2014 was:

 

     Number
of Shares
     Weighted Average
Grant Date Fair
Value Per Share
 

Balance at December 28, 2013

     4,149,797       $ 44.99   

Granted

     1,697,965         57.49   

Vested

     (1,424,627      36.49   

Forfeited

     (365,483      51.52   
  

 

 

    

Balance at December 27, 2014

  4,057,652      52.62   
  

 

 

    

In February 2014, as part of our equity compensation program:

 

    We granted 0.5 million RSUs with a grant date fair value of $55.17 per share.

 

    We granted 0.8 million Performance Shares with a grant date fair value of $59.97 per share. These awards measure performance over a multi-year period, during which the employee may earn shares based on internal financial metrics and the performance of our stock relative to a defined peer group. We measured the grant date fair value using the Monte Carlo simulation model, which assists in estimating the probability of achieving the market conditions stipulated in the award grant.

 

    We granted 0.1 million additional Performance Shares with a weighted average grant date fair value of $34.37 per share (based on the original 2011 award date), which vested immediately. We granted these shares based on the final business performance rating for the 2011-2013 award cycle. These shares were adjusted and converted into new equity awards using a formula designed to preserve the value of the awards immediately prior to the Spin-Off.

 

17


Also during 2014, we granted 0.3 million off-cycle RSUs and Performance Shares with a weighted average grant date fair value per share of $56.80.

During 2014, 1.4 million shares of restricted stock, RSUs, and Performance Shares vested with an aggregate fair value of $79 million.

Prior to the Spin-Off, our employees participated in various Mondelēz International stock-based compensation plans. As such, we were allocated stock-based compensation expense of $39 million in 2012 associated with these plans. In connection with the Spin-Off, we were required to reimburse Mondelēz International for their stock awards that were granted to our employees, and Mondelēz International was required to reimburse us for our stock awards that were granted to their employees. We settled the net amount we owed for this reimbursement of $55 million in March 2013.

Note 9. Postemployment Benefit Plans

We provide a range of benefits to our employees and retirees. These include pension benefits, postretirement health care benefits, and other postemployment benefits, as follows:

 

    Pension benefits – We provide pension coverage to certain U.S. and non-U.S. employees through separate plans. Local statutory requirements govern many of these plans. Salaried and non-union hourly employees hired prior to 2009 in the U.S. and 2011 in Canada are eligible to participate in our pension plans. We will freeze U.S. pension plans for U.S. salaried and non-union hourly employees who are currently earning pension benefits as of December 31, 2019 and non-U.S. pension plans for non-U.S. salaried and non-union hourly employees who are currently earning pension benefits as of December 31, 2023. We will calculate the pension benefits using the continuing pay and service through December 31, 2019 for the U.S. plans and December 31, 2023 for the non-U.S. plans. The pension benefits of our unionized workers are in accordance with the applicable collective bargaining agreement covering their employment.

 

    Postretirement benefits – Our U.S. and Canadian subsidiaries provide health care and other postretirement benefits to most retirees. U.S. salaried and non-union hourly employees hired prior to 2004 and non-U.S. salaried and non-union hourly employees hired prior to 2007 are eligible to participate in our U.S. postretirement benefit plans. The postretirement benefits of our unionized workers are in accordance with the applicable collective bargaining agreement covering their employment.

 

    Other postemployment benefits – Our other postemployment benefits consist primarily of severance. These plans cover most salaried and certain hourly employees, and their cost is charged to expense over the working life of the covered employees.

 

18


Pension Plans

Obligations and Funded Status:

The projected benefit obligations, plan assets, and funded status of our pension plans at December 27, 2014 and December 28, 2013 were:

 

     U.S. Plans      Non-U.S. Plans  
     December 27,
2014
     December 28,
2013
     December 27,
2014
     December 28,
2013
 
     (in millions)  

Benefit obligation at beginning of year

   $  5,978       $  7,130       $  1,267       $  1,418   

Service cost

     84         100         14         21   

Interest cost

     287         287         55         55   

Benefits paid

     (518      (316      (80      (79

Actuarial losses / (gains)

     1,160         (778      153         (47

Plan amendments

     16         9         —           —     

Currency

     —           —           (101      (98

Settlements

     (13      (512      —           —     

Curtailments

     —           (3      —           (9

Special termination benefits

     —           61         —           1   

Other

     —           —           4         5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Benefit obligation at end of year

  6,994      5,978      1,312      1,267   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair value of plan assets at beginning of year

  5,721      5,460      1,253      1,089   

Actual return on plan assets

  629      654      194      144   

Contributions

  145      435      16      181   

Benefits paid

  (518   (316   (80   (79

Currency

  —        —        (101   (82

Settlements

  (13   (512   —        —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair value of plan assets at end of year

  5,964      5,721      1,282      1,253   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net pension liability recognized at end of year

$ (1,030 $ (257 $ (30 $ (14
  

 

 

    

 

 

    

 

 

    

 

 

 

The accumulated benefit obligation, which represents benefits earned to the measurement date, was $6,777 million at December 27, 2014 and $5,781 million at December 28, 2013 for the U.S. pension plans. The accumulated benefit obligation for the non-U.S. pension plans was $1,231 million at December 27, 2014 and $1,191 million at December 28, 2013.

The combined U.S. and non-U.S. pension plans resulted in a net pension liability of $1,060 million at December 27, 2014 and $271 million at December 28, 2013. We recognized these amounts in our consolidated balance sheets at December 27, 2014 and December 28, 2013 as follows:

 

     December 27,
2014
     December 28,
2013
 
     (in millions)  

Other assets

   $ 64       $ 162   

Other current liabilities

     (19      (28

Accrued pension costs

     (1,105      (405
  

 

 

    

 

 

 
$ (1,060 $ (271
  

 

 

    

 

 

 

 

19


Certain of our U.S. and non-U.S. plans are underfunded based on accumulated benefit obligations in excess of plan assets. For these plans, the projected benefit obligations, accumulated benefit obligations, and the fair value of plan assets at December 27, 2014 and December 28, 2013 were:

 

     U.S. Plans      Non-U.S. Plans  
     December 27,
2014
     December 28,
2013
     December 27,
2014
     December 28,
2013
 
     (in millions)  

Projected benefit obligation

   $  6,994       $  203       $  55       $  52   

Accumulated benefit obligation

     6,777         186         50         44   

Fair value of plan assets

     5,964         17         —           —     

We used the following weighted average assumptions to determine our benefit obligations under the pension plans at December 27, 2014 and December 28, 2013:

 

     U.S. Plans     Non-U.S. Plans  
     December 27,
2014
    December 28,
2013
    December 27,
2014
    December 28,
2013
 

Discount rate

     4.17     4.94     3.87     4.56

Rate of compensation increase

     4.00     4.00     3.00     3.00

Components of Net Pension Cost / (Benefit):

Net pension cost / (benefit) consisted of the following for the years ended December 27, 2014, December 28, 2013, and December 29, 2012:

 

     U.S. Plans     Non-U.S. Plans  
     For the Years Ended     For the Years Ended  
     December 27,
2014
    December 28,
2013
    December 29,
2012
    December 27,
2014
    December 28,
2013
    December 29,
2012
 
     (in millions)  

Service cost

   $ 84      $ 100      $ 32      $ 14      $ 21      $ 12   

Interest cost

     287        287        70        55        55        32   

Expected return on plan assets

     (325     (315     (105     (60     (57     (43

Actuarial losses / (gains)

     783        (1,154     (41     12        (128     28   

Amortization of prior service costs

     5        4        1        —          —          —     

Settlements

     2        69        —          —          —          —     

Curtailments

     3        (3     —          —          (9     —     

Special termination benefits

     —          61        —          —          1        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net pension cost / (benefit)

$ 839    $ (951 $ (43 $ 21    $ (117 $ 29   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

We remeasure all of our postemployment benefit plans at least annually at the end of our fiscal year. We define the costs or benefits resulting from the change in discount rates, the difference between our estimated and actual return on plan assets, and other assumption changes driven by changes in the law or other external factors as market-based impacts from postemployment benefit plans. Market-based impacts are included in actuarial losses / (gains) and in settlements in the table above. We disclose market-based impacts separately in order to provide additional transparency of our operating results.

The remeasurement as of December 27, 2014, resulted in an aggregate expense from market-based impacts of $784 million primarily driven by a 75 basis point weighted average decrease in the discount rate and a $429 million impact from the adoption of the new Society of Actuaries RP-2014 mortality tables, partially offset by excess asset returns. We recorded $477 million of the expense from market-based impacts in cost of sales and $307 million in selling, general and administrative expenses in accordance with our policy for allocating employee costs.

The remeasurement as of December 28, 2013, resulted in an aggregate benefit from market-based impacts of $1,268 million primarily driven by an 80 basis point weighted average increase in the discount rate and excess asset returns. We recorded $707 million of the benefit from market-based impacts in cost of sales and $561 million in selling, general and administrative expenses. The annual remeasurement resulted in a benefit from market-based impacts of $29 million as of December 29, 2012.

 

20


In addition, as a result of the December 28, 2013 remeasurement, we capitalized an aggregate benefit of $34 million from market-based impacts related to our pension plans into inventory consistent with our capitalization policy. During 2014, the entire benefit previously capitalized was recognized in cost of sales. At December 27, 2014, we capitalized an aggregate expense of $41 million from market-based impacts into inventory.

Net pension costs included settlement losses of $69 million in 2013 related to retiring employees who elected lump-sum payments. Net pension costs also included special termination benefits associated with our voluntary early retirement program of $62 million in 2013, which were included in our Restructuring Program.

As of December 27, 2014, we expected to amortize an estimated $7 million of prior service costs from accumulated other comprehensive earnings / (losses) into net periodic pension cost for the combined U.S. and non-U.S. pension plans during 2015.

We used the following weighted average assumptions to determine our net pension cost for the years ended December 27, 2014, December 28, 2013, and December 29, 2012:

 

    U.S. Plans     Non-U.S. Plans  
    December 27,
2014
    December 28,
2013
    December 29,
2012
    December 27,
2014
    December 28,
2013
    December 29,
2012
 

Discount rate

    4.86     4.34     3.85     4.56     4.00     4.03

Expected rate of return on plan assets

    5.75     5.75     8.00     5.00     5.00     7.04

Rate of compensation increase

    4.00     4.00     4.00     3.00     3.00     3.00

Year-end discount rates for our U.S. and non-U.S. plans were developed from a model portfolio of high quality, fixed-income debt instruments with durations that match the expected future cash flows of the benefit obligations. We determine our expected rate of return on plan assets from the plan assets’ historical long-term investment performance, current and future asset allocation, and estimates of future long-term returns by asset class.

Plan Assets:

The fair value of pension plan assets at December 27, 2014 was determined using the following fair value measurements:

 

Asset Category    Total Fair Value      Quoted Prices
in Active Markets
for Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 
     (in millions)  

Non-U.S. equity securities

   $ 544       $ 526       $ 18       $ —     

Pooled funds equity securities

     2,694         6         2,688         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total equity securities

  3,238      532      2,706      —     

Government bonds

  776      625      151      —     

Pooled funds fixed-income securities

  876      —        876      —     

Corporate bonds and other fixed-income securities

  2,061      —        2,061      —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed-income securities

  3,713      625      3,088      —     

Real estate

  235      —        —        235   

Certain insurance contracts

  53      —        —        53   

Other

  7      7      —        —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 7,246    $ 1,164    $ 5,794    $ 288   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

21


The fair value of pension plan assets at December 28, 2013 was determined using the following fair value measurements:

 

Asset Category   Total Fair Value     Quoted Prices
in Active Markets
for Identical
Assets

(Level 1)
    Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs

(Level 3)
 
    (in millions)  

Non-U.S. equity securities

  $ 645      $ 645      $ —        $ —     

Pooled funds equity securities

    3,123        6        3,117        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

  3,768      651      3,117      —     

Government bonds

  719      621      98      —     

Pooled funds fixed-income securities

  642      —        642      —     

Corporate bonds and other fixed-income securities

  1,566      1      1,565      —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed-income securities

  2,927      622      2,305      —     

Real estate

  214      —        —        214   

Certain insurance contracts

  57      —        —        57   

Other

  8      8      —        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

$ 6,974    $ 1,281    $ 5,422    $ 271   
 

 

 

   

 

 

   

 

 

   

 

 

 

Fair value measurements:

 

    Level 1 – includes primarily non-U.S. equity securities and certain government bonds valued using quoted prices in active markets.

 

    Level 2 – includes primarily pooled funds valued using net asset values of participation units held in common collective trusts, as reported by the managers of the trusts and as supported by the unit prices of actual purchase and sale transactions. Level 2 plan assets also include corporate bonds and other fixed-income securities, valued using independent observable market inputs, such as matrix pricing, yield curves, and indices.

 

    Level 3 – includes primarily real estate and certain insurance contracts valued using unobservable inputs that reflect the plans’ assumptions that market participants would use in pricing the assets, based on the best information available. Fair value estimates for real estate investments are calculated using the present value of future cash flows expected to be received from the investments, based on valuation methodologies such as appraisals, local market conditions, and current and projected operating performance. Fair value estimates for certain insurance contracts are reported at contract value.

Changes in our Level 3 plan assets, which are recorded in operations, for the year ended December 27, 2014 included:

 

Asset Category   December 28,
2013

Balance
    Net Realized
and Unrealized
Gains/(Losses)
    Net Purchases,
Issuances and
Settlements
    Net Transfers
Into/(Out of)
Level 3
    December 27,
2014

Balance
 
    (in millions)  

Real estate

  $ 214      $ 22      $ (1   $ —        $ 235   

Certain insurance contracts

    57        1        (5     —          53   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Level 3 investments

$ 271    $ 23    $ (6 $ —      $ 288   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Changes in our Level 3 plan assets, which are recorded in operations, for the year ended December 28, 2013 included:

 

Asset Category   December 29,
2012

Balance
    Net Realized
and Unrealized
Gains/(Losses)
    Net Purchases,
Issuances and
Settlements
    Net Transfers
Into/(Out of)
Level 3
    December 28,
2013

Balance
 
    (in millions)  

Corporate bonds and other fixed-income securities

  $ 7      $ —        $ (2   $ (5   $ —     

Real estate

    186        27        1        —          214   

Certain insurance contracts

    66        4        (13     —          57   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Level 3 investments

$ 259    $ 31    $ (14 $ (5 $ 271   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The percentage of fair value of pension plan assets at December 27, 2014 and December 28, 2013 was:

 

     U.S. Plans     Non-U.S. Plans  
Asset Category    December 27,
2014
    December 28,
2013
    December 27,
2014
    December 28,
2013
 

Equity securities

     44     52     48     61

Fixed-income securities

     51     43     51     38

Real estate

     4     4     —       —  

Certain insurance contracts and other

     1     1     1     1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  100   100   100   100
  

 

 

   

 

 

   

 

 

   

 

 

 

During 2013, we began a new liability-driven investment strategy for pension assets. This strategy, which will be phased in over time, better aligns our pension assets with the projected benefit obligation to reduce volatility by targeting an investment of approximately 80% of our U.S. plan assets in fixed-income securities and approximately 20% in equity securities. The strategy uses actively managed and indexed U.S. investment grade fixed-income securities (which constitute 97% or more of fixed-income securities) with lesser allocations to high yield fixed-income securities, indexed U.S. equity securities, and actively managed and indexed international equity securities.

For pension plans outside the U.S., the investment strategy is subject to local regulations and the asset / liability profiles of the plans in each individual country. In aggregate, the long-term asset allocation targets of our non-U.S. plans are broadly characterized as a mix of 70% fixed-income securities and 30% equity securities.

We attempt to maintain our target asset allocation by rebalancing between asset classes as we make contributions and monthly benefit payments.

Employer Contributions:

We estimate that 2015 pension contributions will be approximately $170 million to our U.S. plans and approximately $25 million to our non-U.S. plans. Our actual contributions may differ due to many factors, including changes in tax, employee benefit, or other laws, tax deductibility, significant differences between expected and actual pension asset performance or interest rates, or other factors. In 2014, we contributed $145 million to our U.S. pension plans and $12 million to our non-U.S. pension plans. In addition, employees contributed $4 million in 2014 to our non-U.S. plans and $5 million in 2013.

Future Benefit Payments:

The estimated future benefit payments from our pension plans at December 27, 2014 were:

 

     U.S. Plans      Non-U.S. Plans  
     (in millions)  

2015

   $ 401       $ 66   

2016

     407         66   

2017

     418         66   

2018

     426         66   

2019

     434         67   

2020-2024

     2,268         355   

 

23


Other Costs:

We sponsor and contribute to employee savings plans that cover eligible salaried, non-union, and union employees. Our contributions and costs are determined by the matching of employee contributions, as defined by the plans. Amounts charged to expense for defined contribution plans totaled $70 million in 2014, $61 million in 2013, and $12 million in 2012 subsequent to the Spin-Off.

Postretirement Benefit Plans

Obligations:

Our postretirement health care plans are not funded. The changes in and the amount of the accrued benefit obligations at December 27, 2014 and December 28, 2013 were:

 

     December 27,
2014
     December 28,
2013
 
     (in millions)  

Accrued benefit obligations at beginning of year

   $ 3,277       $ 3,738   

Service cost

     26         35   

Interest cost

     148         143   

Benefits paid

     (190      (188

Actuarial losses / (gains)

     418         (403

Plan amendments

     (75      (40

Currency

     (14      (14

Special termination benefits

     —           6   

Other

     1         —     
  

 

 

    

 

 

 

Accrued benefit obligations at end of year

$ 3,591    $ 3,277   
  

 

 

    

 

 

 

We used the following weighted average assumptions to determine our postretirement benefit obligations at December 27, 2014 and December 28, 2013:

 

     December 27,
2014
    December 28,
2013
 

Discount rate

     4.08     4.69

Health care cost trend rate assumed for next year

     6.91     7.28

Ultimate trend rate

     5.00     5.03

Year that the rate reaches the ultimate trend rate

     2023        2023   

Year-end discount rates for our U.S. and non-U.S. plans were developed from a model portfolio of high-quality, fixed-income debt instruments with durations that match the expected future cash flows of the benefit obligations. Our expected health care cost trend rate is based on historical costs.

Assumed health care cost trend rates have a significant impact on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects as of December 27, 2014:

 

     One-Percentage-Point  
     Increase      Decrease  
     (in millions)  

Effect on annual service and interest cost

   $ 25       $ (20

Effect on postretirement benefit obligation

     433         (355

 

24


Components of Net Postretirement Health Care Cost / (Benefit):

Net postretirement health care cost / (benefit) consisted of the following for the years ended December 27, 2014, December 28, 2013, and December 29, 2012:

 

     For the Years Ended  
     December 27,
2014
     December 28,
2013
     December 29,
2012
 
     (in millions)  

Service cost

   $ 26       $ 35       $ 8   

Interest cost

     148         143         32   

Actuarial losses / (gains)

     370         (376      188   

Amortization of prior service credits

     (28      (26      (7

Special termination benefits

     —           5         —     
  

 

 

    

 

 

    

 

 

 

Net postretirement health care cost / (benefit)

$ 516    $ (219 $ 221   
  

 

 

    

 

 

    

 

 

 

As a result of the 2014 annual remeasurement of our postretirement health care plans, we recorded an expense from market-based impacts of $556 million as of December 27, 2014, primarily driven by a 60 basis point weighted average decrease in the discount rate and a $328 million impact from the adoption of the new Society of Actuaries RP-2014 mortality tables. We recorded $424 million of the expense from market-based impacts in cost of sales and $132 million in selling, general and administrative expenses in accordance with our policy for allocating employee costs. Market-based impacts are included in actuarial losses / (gains) in the table above.

As a result of the 2013 annual remeasurement of our postretirement health care plans, we recorded a benefit from market-based impacts of $292 million as of December 28, 2013, primarily driven by an 80 basis point weighted average increase in the discount rate. We recorded expense from market-based impacts of $250 million as of December 29, 2012.

In addition, as a result of the 2013 annual remeasurement, we recorded a benefit from market-based impacts of $15 million into inventory as of December 28, 2013 consistent with our capitalization policy. During 2014, the entire benefit previously capitalized was recognized in cost of sales. At December 27, 2014, we capitalized an aggregate expense of $36 million from market-based impacts into inventory.

The special termination benefits were associated with our voluntary early retirement program in 2013.

As of December 27, 2014, we expected to amortize an estimated $33 million of prior service credits from accumulated other comprehensive earnings / (losses) into net postretirement health care costs during 2015.

We used the following weighted average assumptions to determine our net postretirement health care cost for the years ended December 27, 2014, December 28, 2013, and December 29, 2012:

 

     December 27,
2014
    December 28,
2013
    December 29,
2012
 

Discount rate

     4.69     3.89     3.61

Health care cost trend rate

     7.28     7.53     7.06

Future Benefit Payments:

Our estimated future benefit payments for our postretirement health care plans at December 27, 2014 were:

 

     (in millions)  

2015

   $ 196   

2016

     196   

2017

     198   

2018

     199   

2019

     201   

2020-2024

     1,019   

 

25


Other Postemployment Benefit Plans

Obligations:

Our other postemployment plans are generally not funded. The changes in and the amount of the accrued benefit obligation at December 27, 2014 and December 28, 2013 were:

 

     December 27,
2014
     December 28,
2013
 
     (in millions)  

Accrued benefit obligation at beginning of year

   $ 55       $ 63   

Service cost

     2         2   

Interest cost

     2         2   

Benefits paid

     (10      (6

Actuarial losses / (gains)

     19         (2

Other

     (4      (4
  

 

 

    

 

 

 

Accrued benefit obligation at end of year

$ 64    $ 55   
  

 

 

    

 

 

 

We used the following weighted average assumptions to determine our other postemployment benefit obligations at December 27, 2014 and December 28, 2013:

 

     December 27,
2014
    December 28,
2013
 

Discount rate

     2.86     3.10

Assumed ultimate annual turnover rate

     0.50     0.50

Rate of compensation increase

     4.00     4.00

Other postemployment costs arising from actions that offer employees benefits in excess of those specified in the respective plans are charged to expense when incurred.

Components of Net Other Postemployment Cost:

Net other postemployment cost consisted of the following for the years ended December 27, 2014, December 28, 2013, and December 29, 2012:

 

     For the Years Ended  
     December 27,
2014
     December 28,
2013
     December 29,
2012
 

Service cost

   $ 2       $ 2       $ 4   

Interest cost

     2         2         2   

Actuarial losses / (gains)

     14         (2      1   

Other

     5         (1      —     
  

 

 

    

 

 

    

 

 

 

Net other postemployment cost

$ 23    $ 1    $ 7   
  

 

 

    

 

 

    

 

 

 

As of December 27, 2014, we did not expect to amortize any prior service costs / (credits) for the other postemployment benefit plans from accumulated other comprehensive earnings / (losses) into net postemployment costs during 2015.

Our Participation in Mondelēz International’s Pension and Other Postemployment Benefit Plans and the Spin-Off Impact

Prior to the Spin-off, Mondelēz International provided defined benefit pension, postretirement health care, defined contribution, and multiemployer pension and medical benefits to our eligible employees and retirees. As such, we applied the multiemployer plan accounting approach and these liabilities were not reflected in our consolidated balance sheets. We provided pension coverage for certain employees of our Canadian operations through separate plans and certain pension and postemployment benefits of our Canadian operations, which were included in our financial statements prior to the Spin-Off. As part of the Spin-Off, the plans were split and we assumed the obligations previously provided by Mondelēz International. Accordingly, Mondelēz International transferred to us the plan assets and liabilities associated with our active, retired, and other former employees, including liabilities for

 

26


most of the retired North American Mondelēz International employees. We assumed net benefit plan liabilities of $5.5 billion from Mondelēz International, which was in addition to the $0.1 billion of net benefit plan liabilities we had previously reported in our historical financial statements, for a total liability of $5.6 billion on October 1, 2012.

Total Mondelēz International benefit plan costs allocated to us were $491 million in the first nine months of 2012 prior to the Spin-Off. The expense allocations for these benefits were determined based on a review of personnel by business unit and based on allocations of corporate or other shared functional personnel. These allocated costs are reflected in our cost of sales and selling, general and administrative expenses. These costs were funded through intercompany transactions with Mondelēz International and were reflected within the parent company investment equity balance. Our allocated expenses in connection with the pension plans were $283 million in 2012. Our allocated expenses in connection with the postretirement plans were $142 million in 2012.

Note 10. Financial Instruments

Fair Value of Derivative Instruments:

The fair values and the levels within the fair value hierarchy of derivative instruments recorded on the consolidated balance sheets at December 27, 2014 and December 28, 2013 were:

 

    December 27, 2014  
    Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
    Significant
Other Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
    Total Fair Value  
    Assets     Liabilities     Assets     Liabilities     Assets     Liabilities     Assets     Liabilities  

Derivatives designated as hedging instruments:

               

Commodity contracts

  $ 2      $ 5      $ —        $ —        $ —        $ —        $ 2      $ 5   

Foreign exchange contracts

    —          —          80        —          —          —          80        —     

Derivatives not designated as hedging instruments:

               

Commodity contracts

    46        99        —          4        —          —          46        103   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fair value

$ 48    $ 104    $ 80    $ 4    $ —      $ —      $ 128    $ 108   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    December 28, 2013  
    Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
    Significant
Other Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
    Total Fair Value  
    Assets     Liabilities     Assets     Liabilities     Assets     Liabilities     Assets     Liabilities  

Derivatives designated as hedging instruments:

               

Commodity contracts

  $ 5      $ 4      $ —        $ —        $ —        $ —        $ 5      $ 4   

Foreign exchange contracts

    —          —          48        —          —          —          48        —     

Derivatives not designated as hedging instruments:

               

Commodity contracts

    39        20        1        1        —          —          40        21   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fair value

$ 44    $ 24    $ 49    $ 1    $ —      $ —      $ 93    $ 25   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The fair values of our asset derivatives are recorded within other current assets and other assets. The fair values of our liability derivatives are recorded within other current liabilities.

Level 1 financial assets and liabilities consist of commodity futures and options contracts and are valued using quoted prices in active markets for identical assets and liabilities.

 

27


Level 2 financial assets and liabilities consist of commodity forwards and foreign exchange forwards. Commodity forwards are valued using an income approach based on the observable market commodity index prices less the contract rate multiplied by the notional amount. Foreign exchange forwards are valued using an income approach based on observable market forward rates less the contract rate multiplied by the notional amount. Our calculation of the fair value of financial instruments takes into consideration the risk of nonperformance, including counterparty credit risk.

Derivative Volume:

The net notional values of our derivative instruments at December 27, 2014 and December 28, 2013 were:

 

     Notional Amount  
     December 27,
2014
     December 28,
2013
 
     (in millions)  

Commodity contracts

   $ 1,543       $ 1,349   

Foreign exchange contracts

     1,074         901   

Cash Flow Hedges:

Cash flow hedge activity, net of income taxes, within accumulated other comprehensive losses included:

 

     For the Years Ended  
     December 27,
2014
     December 28,
2013
     December 29,
2012
 
     (in millions)  

Accumulated other comprehensive losses at beginning of period

   $ (129    $ (152    $ (18

Unrealized gains / (losses):

        

Commodity contracts

     18         (16      (57

Foreign exchange contracts

     38         36         (5

Interest rate contracts

     —           —           (137
  

 

 

    

 

 

    

 

 

 
  56      20      (199

Transfer of realized (gains) / losses to earnings:

Commodity contracts

  (18   26      49   

Foreign exchange contracts

  (41   (31   1   

Interest rate contracts

  7      8      19   
  

 

 

    

 

 

    

 

 

 
  (52   3      69   

Transfer of realized losses from Mondelēz International

  —        —        (4
  

 

 

    

 

 

    

 

 

 

Accumulated other comprehensive losses at end of period

$ (125 $ (129 $ (152
  

 

 

    

 

 

    

 

 

 

The gains / (losses) on ineffectiveness recognized in pre-tax earnings were:

 

     For the Years Ended  
     December 27,
2014
     December 28,
2013
     December 29,
2012
 
     (in millions)  

Commodity contracts

   $ 1       $ —         $ (4

Interest rate contracts

     —           —           (23
  

 

 

    

 

 

    

 

 

 

Total

$ 1    $ —      $ (27
  

 

 

    

 

 

    

 

 

 

We record the pre-tax gain or loss reclassified from accumulated other comprehensive losses and the gain or loss on ineffectiveness in:

 

    cost of sales for commodity contracts;

 

    cost of sales for foreign exchange contracts related to forecasted transactions; and

 

    interest and other expense, net for foreign exchange contracts related to intercompany loans and interest rate contracts.

 

28


Based on our valuation at December 27, 2014, we would expect to transfer unrealized losses of $4 million (net of taxes) for commodity cash flow hedges, unrealized gains of $17 million (net of taxes) for foreign currency cash flow hedges, and unrealized losses of $8 million (net of taxes) for interest rate cash flow hedges to earnings during the next 12 months.

Hedge Coverage:

At December 27, 2014, we had hedged forecasted transactions for the following durations:

 

    commodity transactions for periods not exceeding the next two years;

 

    foreign currency transactions for periods not exceeding the next four years; and

 

    interest rate transactions for periods not exceeding the next 28 years.

Economic Hedges:

Gains recorded in pre-tax earnings for economic hedges that are not designated as hedging instruments included:

 

     For the Years Ended     

Location of

(Losses) / Gains

     December 27,
2014
     December 28,
2013
     December 29,
2012
    

Recognized

Earnings

     (in millions)       

Commodity contracts

   $ 26       $ 14       $ 36       Cost of sales

Foreign exchange contracts

     2         —           —         Selling, general and administrative expenses
  

 

 

    

 

 

    

 

 

    
$ 28    $ 14    $ 36   
  

 

 

    

 

 

    

 

 

    

Note 11. Commitments and Contingencies

Legal Proceedings:

We are routinely involved in legal proceedings, claims, and governmental inquiries, inspections or investigations (“Legal Matters”) arising in the ordinary course of our business.

We have been advised by the staff of the Commodity Futures Trading Commission (“CFTC”) that they are investigating activities related to the trading of December 2011 wheat futures contracts. These activities arose prior to the Spin-Off and involve the business now owned and operated by Mondelēz International or its affiliates. We are cooperating with the staff in its investigation. In October 2014, the staff advised us that the CFTC intends to commence a formal action. We and Mondelēz International continue to seek resolution of this matter. Our Separation and Distribution Agreement with Mondelēz International dated as of September 27, 2012, governs the allocation between Mondelēz International and us and, accordingly, Mondelēz International will predominantly bear the costs of this matter and any monetary penalties or other payments that the CFTC may impose. We do not expect this matter to have a material adverse effect on our financial condition or results of operations.

While we cannot predict with certainty the results of Legal Matters in which we are currently involved or may in the future be involved, we do not expect that the ultimate costs to resolve any of the Legal Matters that are currently pending will have a material adverse effect on our financial condition or results of operations.

Third-Party Guarantees:

We have third-party guarantees primarily covering long-term obligations related to leased properties. The carrying amounts of our third-party guarantees was $22 million at December 27, 2014 and $24 million at December 28, 2013. The maximum potential payment under these guarantees was $42 million at December 27, 2014 and $53 million at December 28, 2013. Substantially all of these guarantees expire at various times through 2027.

 

29


Leases:

Rental expenses were $148 million in 2014, $176 million in 2013, and $150 million in 2012. As of December 27, 2014, minimum rental commitments under non-cancelable operating leases in effect at year-end were (in millions):

 

2015

$ 106   

2016

  85   

2017

  62   

2018

  49   

2019

  41   

Thereafter

  84   
  

 

 

 

Total

$ 427   
  

 

 

 

Note 12. Income Taxes

Earnings before income taxes and the provision for income taxes consisted of the following:

 

     For the Years Ended  
     December 27,
2014
     December 28,
2013
     December 29,
2012
 
     (in millions)  

Earnings before income taxes:

        

United States

   $ 1,117       $ 3,596       $ 2,156   

Outside United States

     289         494         297   
  

 

 

    

 

 

    

 

 

 

Total

$ 1,406    $ 4,090    $ 2,453   
  

 

 

    

 

 

    

 

 

 

Provision for income taxes:

United States federal:

Current

$ 678    $ 591    $ 209   

Deferred

  (336   566      424   
  

 

 

    

 

 

    

 

 

 
  342      1,157      633   

State and local:

Current

  (34   34      54   

Deferred

  (26   61      43   
  

 

 

    

 

 

    

 

 

 
  (60   95      97   
  

 

 

    

 

 

    

 

 

 

Total United States

  282      1,252      730   
  

 

 

    

 

 

    

 

 

 

Outside United States:

Current

  80      42      78   

Deferred

  1      81      3   
  

 

 

    

 

 

    

 

 

 

Total outside United States

  81      123      81   
  

 

 

    

 

 

    

 

 

 

Total provision for income taxes

$ 363    $ 1,375    $ 811   
  

 

 

    

 

 

    

 

 

 

 

30


The effective income tax rate on pre-tax earnings differed from the U.S. federal statutory rate for the following reasons:

 

     For the Years Ended  
     December 27,
2014
    December 28,
2013
    December 29,
2012
 

U.S. federal statutory rate

     35.0     35.0     35.0

Increase / (decrease) resulting from:

      

U.S. state and local income taxes, net of federal tax benefit

     0.2     1.7     2.3

Domestic manufacturing deduction

     (4.6 )%      (1.2 )%      (2.7 )% 

Foreign rate differences

     (2.2 )%      (1.1 )%      (1.1 )% 

Changes in uncertain tax positions

     (0.9 )%      0.2     (0.8 )% 

Other

     (1.7 )%      (1.0 )%      0.4
  

 

 

   

 

 

   

 

 

 

Effective tax rate

  25.8   33.6   33.1
  

 

 

   

 

 

   

 

 

 

Our 2014 effective tax rate was favorably impacted by $64 million of domestic manufacturing deductions, favorable tax rates in foreign jurisdictions, most significantly Canada, changes in uncertain tax positions and the net impact of other discrete tax items.

Our 2013 effective tax rate was favorably impacted by $49 million of domestic manufacturing deductions, favorable tax rates in foreign jurisdictions, most significantly Canada, and the net impact of other discrete tax items. This favorability was partially offset by $68 million of state and local taxes.

Our 2012 effective tax rate was favorably impacted by $66 million of domestic manufacturing deductions, favorable tax rates in foreign jurisdictions, most significantly Canada, and changes in uncertain tax positions. This favorability was partially offset by $56 million of state and local taxes.

The calculation of the percentage point impact of domestic manufacturing deductions, uncertain tax positions and other discrete items on the effective tax rate was affected by earnings before income taxes. Fluctuations in earnings could impact comparability of reconciling items between periods.

Our unrecognized tax benefits of $256 million at December 27, 2014 are included in other current liabilities and other liabilities. If we had recognized all of these benefits, the net impact on our income tax provision would have been $167 million. Of the net unrecognized tax benefits, approximately $100 million to $140 million are expected to be resolved within the next 12 months.

The changes in our unrecognized tax benefits were:

 

     For the Years Ended  
     December 27,
2014
     December 28,
2013
     December 29,
2012
 
     (in millions)  

Beginning of year

   $ 259       $ 258       $ 371   

Increases from prior period tax positions

     26         2         11   

Decreases from prior period tax positions

     (74      (5      (90

Decreases from statute of limitations expirations

     (14      (28      —     

Increases from current period tax positions

     67         39         16   

Net transfers to Mondelēz International

     —           —           (9

Decreases relating to settlements with taxing authorities

     (3      (3      (33

Currency and other

     (5      (4      (8
  

 

 

    

 

 

    

 

 

 

End of year

$ 256    $ 259    $ 258   
  

 

 

    

 

 

    

 

 

 

We include accrued interest and penalties related to uncertain tax positions in our tax provision. Our provision for income taxes included a benefit of $30 million in 2014, expense of $13 million in 2013, and expense of $18 million in 2012 for interest and penalties. Accrued interest and penalties were $41 million as of December 27, 2014, and $74 million as of December 28, 2013.

 

31


We have entered into a tax sharing agreement with Mondelēz International, which provides that for periods prior to October 1, 2012, Mondelēz International is liable for and will indemnify us against all U.S. federal income taxes and substantially all foreign income taxes, excluding Canadian income taxes; and that we are liable for and will indemnify Mondelēz International against U.S. state income taxes and Canadian federal and provincial income taxes.

Our U.S. operations were included in Mondelēz International’s U.S. federal consolidated income tax returns for tax periods through October 1, 2012. In August 2014, Mondelēz International reached a final resolution on a U.S. federal income tax audit of the 2007-2009 tax years. The U.S. federal statute of limitations remains open for tax year 2010 and forward, and federal income tax returns for 2010-2012 are currently under examination. As noted above we are indemnified for U.S. federal income taxes related to these periods.

We are regularly examined by federal, state and foreign authorities. We are currently under income tax examinations by the IRS for the post Spin-Off period 2012-2014. Our income tax filings are also currently under examination by tax authorities in various U.S. state and foreign jurisdictions. U.S. state and local and foreign jurisdictions have statutes of limitations generally ranging from three to five years unless we agree to an extension. In Canada, our only significant foreign jurisdiction, the earliest open tax year is 2007.

At December 27, 2014, we had outside tax basis in excess of book basis in certain foreign subsidiaries in which earnings are indefinitely reinvested. As of that date, applicable U.S. federal income taxes and foreign withholding taxes had not been provided on approximately $578 million of unremitted earnings of such foreign subsidiaries. If such earnings were to be remitted, our incremental tax cost would be approximately $118 million.

The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities consisted of the following at December 27, 2014 and December 28, 2013:

 

     December 27,
2014
     December 28,
2013
 
     (in millions)  

Deferred income tax assets:

     

Pension benefits

   $ 407       $ 104   

Postretirement benefits

     1,355         1,238   

Other employee benefits

     113         122   

Other

     471         497   
  

 

 

    

 

 

 

Total deferred income tax assets

  2,346      1,961   
  

 

 

    

 

 

 

Valuation allowance

  (20   (3
  

 

 

    

 

 

 

Net deferred income tax assets

$ 2,326    $ 1,958   
  

 

 

    

 

 

 

Deferred income tax liabilities:

Trade names

$ (828 $ (828

Property, plant and equipment

  (979   (949

Debt exchange

  (350   (384

Other

  (66   (65
  

 

 

    

 

 

 

Total deferred income tax liabilities

  (2,223   (2,226
  

 

 

    

 

 

 

Net deferred income tax assets / (liabilities)

$ 103    $ (268
  

 

 

    

 

 

 

Note 13. Accumulated Other Comprehensive Losses

Total accumulated other comprehensive losses consists of net earnings / (losses) and other changes in business equity from sources other than shareholders. It includes foreign currency translation gains and losses, postemployment benefit plan adjustments, and unrealized gains and losses from derivative instruments designated as cash flow hedges.

 

32


The components of, and changes in, accumulated other comprehensive losses were as follows (net of tax):

 

    Foreign
Currency
Adjustments
    Postemployment
Benefit Plan
Adjustments
    Derivative
Hedging
Adjustments
    Total
Accumulated Other
Comprehensive
Losses
 
    (in millions)  

Balance at December 29, 2012

  $ (359   $ 51      $ (152   $ (460

Other comprehensive (losses) / gains before reclassifications

    (68     19        20        (29

Amounts reclassified from accumulated other comprehensive losses

    —          (13     3        (10
 

 

 

   

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive (losses) / earnings

  (68   6      23      (39
 

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 28, 2013

$ (427 $ 57    $ (129 $ (499

Other comprehensive (losses) / gains before reclassifications

  (91   36      56      1   

Amounts reclassified from accumulated other comprehensive losses

  —        (12   (52   (64
 

 

 

   

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive (losses) / earnings

  (91   24      4      (63
 

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 27, 2014

$ (518 $ 81    $ (125 $ (562
 

 

 

   

 

 

   

 

 

   

 

 

 

Amounts reclassified from accumulated other comprehensive losses in the years ended December 27, 2014 and December 28, 2013 were as follows:

 

     Amount Reclassified from
Accumulated

Other Comprehensive Losses
     
     For the Years Ended      
Details about Accumulated Other Comprehensive
Losses Components
   December 27,
2014
    December 28,
2013
   

Affected Line Item in

the Statement Where
Net Income is Presented

     (in millions)      

Derivative hedging (gains) / losses

      

Commodity contracts

   $ (30   $  42      Cost of sales

Foreign exchange contracts

     (17     (11   Cost of sales

Foreign exchange contracts

     (50     (39   Interest and other expense, net

Interest rate contracts

     13        12      Interest and other expense, net
  

 

 

   

 

 

   

Total before tax

  (84   4    Earnings before income taxes

Tax benefit / (expense)

  32      (1 Provision for income taxes
  

 

 

   

 

 

   

Net of tax

$ (52 $ 3    Net earnings
  

 

 

   

 

 

   

Postemployment benefit plan adjustments

Amortization of prior service credits

$ (23 $ (22 (1)

Curtailments

  3      —      (1)
  

 

 

   

 

 

   

Total before tax

  (20   (22 Earnings before income taxes

Tax benefit

  8      9    Provision for income taxes
  

 

 

   

 

 

   

Net of tax

$ (12 $ (13 Net earnings
  

 

 

   

 

 

   

 

(1) These accumulated other comprehensive losses components are included in the computation of net periodic pension and postretirement health care costs. See Note 9, Postemployment Benefit Plans, for additional information.

 

33


Note 14. Earnings Per Share (“EPS”)

We grant shares of restricted stock and RSUs that are considered to be participating securities. Due to the presence of participating securities, we have calculated our EPS using the two-class method.

 

     For the Years Ended  
     December 27,
2014
     December 28,
2013
     December 29,
2012
 
     (in millions, except per share data)  

Basic EPS:

        

Net earnings

   $ 1,043       $ 2,715       $ 1,642   

Earnings allocated to participating securities

     5         12         5   
  

 

 

    

 

 

    

 

 

 

Earnings available to common shareholders - basic

$ 1,038    $ 2,703    $ 1,637   
  

 

 

    

 

 

    

 

 

 

Weighted average shares of common stock outstanding

  593      594      591   

Net earnings per share

$ 1.75    $ 4.55    $ 2.77   
  

 

 

    

 

 

    

 

 

 

Diluted EPS:

Net earnings

$ 1,043    $ 2,715    $ 1,642   

Earnings allocated to participating securities

  5      12      5   
  

 

 

    

 

 

    

 

 

 

Earnings available to common shareholders - diluted

$ 1,038    $ 2,703    $ 1,637   
  

 

 

    

 

 

    

 

 

 

Weighted average shares of common stock outstanding

  593      594      591   

Effect of dilutive securities

  5      5      5   
  

 

 

    

 

 

    

 

 

 

Weighted average shares of common stock, including dilutive effect

  598      599      596   

Net earnings per share

$ 1.74    $ 4.51    $ 2.75   
  

 

 

    

 

 

    

 

 

 

We excluded antidilutive stock options and Performance Shares from our calculation of weighted average shares of common stock outstanding for diluted EPS of 2.0 million for the year ended December 27, 2014 and 0.3 million for the year ended December 28, 2013. Antidilutive stock options and Performance Shares were zero for the year ended December 29, 2012.

Note 15. Segment Reporting

We manufacture and market food and beverage products, including cheese, meats, refreshment beverages, coffee, packaged dinners, refrigerated meals, snack nuts, dressings, and other grocery products, primarily in the United States and Canada. We manage and report our operating results through six reportable segments: Cheese, Refrigerated Meals, Beverages, Meals & Desserts, Enhancers & Snack Nuts, and Canada. Our remaining businesses, including our Foodservice and Exports businesses, are aggregated and disclosed as “Other Businesses”.

Management uses segment operating income to evaluate segment performance and allocate resources. We believe it is appropriate to disclose this measure to help investors analyze segment performance and trends. Segment operating income excludes the following items for each of the periods presented:

 

    Market-based impacts and certain other components of our postemployment benefit plans (which are components of cost of sales and selling, general and administrative expenses) because we centrally manage postemployment benefit plan funding decisions and the determination of discount rates, expected rate of return on plan assets, and other actuarial assumptions.

 

    Unrealized gains and losses on hedging activities (which are a component of cost of sales) in order to provide better transparency of our segment operating results. Unrealized gains and losses on hedging activities, which includes unrealized gains and losses on our derivatives not designated as hedging instruments as well as the ineffective portion of unrealized gains and losses on our derivatives designated as hedging instruments, are recorded in Corporate until realized. Once realized, the gains and losses are recorded within the applicable segment operating results.