SERVICES AGREEMENT
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This Services Agreement, dated as of January 1, 2001 by and between
Philip Morris Management Corp., a New York corporation ("PMMC"), and Kraft
Foods Inc., a Virginia corporation ("Kraft"), recites and provides:
WHEREAS, PMMC currently provides certain services to the wholly-owned
subsidiaries of Kraft (the "Kraft Subsidiaries"); and
WHEREAS, it is contemplated that an initial public offering will be
made of a portion of the capital stock of Kraft, resulting in partial public
ownership of Kraft, and that PMMC and Kraft both desire for PMMC to continue to
provide certain services to Kraft and the Kraft Subsidiaries following the
initial public offering; and
WHEREAS, PMMC and Kraft desire to enter into this Agreement to set
forth the roles and responsibilities with regard to services to be provided by
PMMC to Kraft.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1. Affiliate
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of a Person shall mean a Person that directly or indirectly controls,
is controlled by, or is under common control with, the first Person. For
purposes of this definition, "Control" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "Controlling" and "Controlled" have meanings
correlative to the foregoing.
1.2. AOP
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shall have the meaning specified in Section 5.1.
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1.3. Confidential Information
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shall have the meaning specified in Section 9.1.
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1.4. Governmental Authority
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shall mean any federal, state, local, or foreign government or
governmental, quasi-governmental, administrative or regulatory authority,
agency, body, or entity, including any court or other tribunal.
1.5. Kraft Subsidiaries
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shall have the meaning specified in the Recitals to this Agreement.
1.6. Parties
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shall mean PMMC and Kraft (Party means either PMMC or Kraft).
1.7. Person
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shall mean an individual, corporation, partnership, trust,
association, or entity of any kind or nature; or a Governmental Authority.
1.8. Records
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shall have the meaning specified in Section 2.4.
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1.9. Representative
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shall have the meaning specified in Section 4.1.
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1.10. Services
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shall have the meaning specified in Section 2.1.
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ARTICLE II
SERVICES TO BE PROVIDED
2.1. Exhibits.
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(a) Exhibits 1 through 13 attached to and made a part of this
Agreement describe the services to be provided by PMMC to Kraft and one or more
of the Kraft Subsidiaries, as designated from time to time by Kraft (the
"Services"). The Parties have made a good faith effort as of the date hereof to
identify each Service and to complete the content of the Exhibits accurately. It
is anticipated that the Parties will modify the Services from time to time. In
that case or to the extent that any Exhibit is incomplete, the Parties will use
good faith efforts to modify the Exhibits. There are certain terms that are
specifically addressed in the Exhibits attached hereto that may differ from the
terms provided hereunder. In those cases, the specific terms described in the
Exhibits shall govern that Service.
(b) The Parties may also identify additional Services that they wish
to incorporate into this Agreement. The Parties will create additional Exhibits
setting forth the description of such Services, the Fees for such Services and
any other applicable terms.
2.2. Independent Contractors.
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PMMC will provide the Services either through its own resources, the
resources of its subsidiaries or Affiliates, or by contracting with independent
contractors as agreed hereunder. To the extent that PMMC decides to provide a
Service through an independent contractor in the future, PMMC shall consult with
and obtain the prior approval of Kraft, which approval shall not be unreasonably
withheld.
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2.3. Standard of Care.
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In providing the Services hereunder PMMC will exercise the same
degree of care as it has historically exercised in providing such Services to
its Affiliates prior to the date hereof, including at least the same level of
quality, responsiveness and timeliness as has been exercised by PMMC with
respect to such Services.
2.4. Records.
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PMMC shall keep full and detailed records dealing with all aspects of
the Services performed by it hereunder (the "Records") and:
(a) shall provide access to the Records to Kraft at all reasonable
times; and
(b) shall maintain the Records in accordance with good record
management practices and with at least the same degree of completeness and care
as it maintains for its other similar business interests.
ARTICLE III
FEES
3.1. General.
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Kraft will pay to PMMC a fixed annual fee for each Service as set
forth in the attached Exhibits (collectively, the "Fees"). The Fees constitute
full compensation to PMMC for all charges, costs and expenses incurred by PMMC
on behalf of Kraft in providing the Services, unless otherwise specifically
provided in the Exhibits or agreed in an AOP (as defined below). Except as
specifically provided herein or in the Exhibits, or as subsequently agreed in an
AOP or otherwise by Kraft, Kraft will not be responsible to PMMC or to any
independent contractor retained by PMMC, for any additional fees, charges, costs
or expenses relating to the Services, unless such additional fees, charges,
costs or expenses are a direct result of Kraft's unilateral deviation from the
scope of the services defined in the Exhibits.
3.2. Payments.
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PMMC will deliver to Kraft, no later than the last day of each month,
an invoice for the aggregate Fees incurred for that month. Kraft will pay to
PMMC, through inter-company cash transfer monthly no later than the third
Wednesday of the following month, the aggregate Fees incurred during the
previous month.
3.3. Review of Fees.
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(a) At the end of each six months during the term of the Agreement,
commencing as of the date of the Agreement, PMMC will review the charges, costs
and expenses actually incurred by PMMC in providing any Service, as well as the
calculation of any related Fee (collectively, "Actual Cost") during the previous
six months. In the event that PMMC determines that the Actual Cost for any
Service differs from the aggregate Fees for that Service
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for that period by more than 2%, PMMC will deliver to Kraft documentation for
such Actual Cost and the Parties will renegotiate in good faith to adjust the
appropriate Fees accordingly, retroactively or prospectively.
(b) As a part of the AOP process referred to in Section 5.1, the
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Parties will set Fees or new budgets for each ensuing year, and may make other
changes to the Fees with respect to each Service, based upon an increase or
reduction to such Service. Once an AOP has been finalized (whether by agreement
or pursuant to the provisions of Section 5.1), the Fee for each Service set out
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in that AOP will apply for the ensuing year, subject to any subsequent written
agreements between Parties.
ARTICLE IV
REPRESENTATIVES
4.1. Representatives.
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(a) The Controller of Philip Morris Companies Inc. and the Controller
of Kraft will serve as administrative representatives ("Representative(s)") of
PMMC and Kraft, respectively, to facilitate day-to-day communications and
performance under this Agreement. Each Party may treat an act of a
Representative of the other Party as being authorized by such other Party. Each
Party may replace its Representative by giving written notice of the replacement
to the other Party.
(b) No additional Exhibits, modifications to existing Exhibits,
modifications to an AOP approved pursuant to Section 5.1, or amendments to this
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Agreement shall be effective unless and until executed by the Representatives of
each of PMMC and Kraft.
ARTICLE V
PLANNING PROCESS
5.1. Annual Operating Plan.
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The Representative of each Party will coordinate the development of
an annual operating plan ("AOP") setting forth the specific objectives, Service
standards, performance measures, activity levels and a detailed budget for each
of the Services. In the AOP process, the Parties agree to use their best efforts
to harmonize the interests of Kraft to have quality services at affordable cost
and the interest of PMMC to recover its costs of performing the Services. On or
before November 15 of each calendar year, an AOP for each Service for the next
calendar year will be submitted to the Controller and Chief Financial Officer
("CFO") of Kraft by the Treasurer and Controller of Philip Morris Companies Inc.
on behalf of PMMC, for review and approval. Approval by the CFO of Kraft and the
CFO of Philip Morris Companies Inc. will constitute approval by the Parties of
the AOP.
5.2. Performance Review.
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The Parties will meet annually on or about September 30 to review
progress against the AOP objectives, Service standards, performance measures and
activity levels. The
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Parties will use their good faith efforts to resolve any issues concerning
Service standards, performance measures or changes in Fees from the AOP during
these meetings. If the Parties are unable to resolve those issues, they will
refer the disputed issues to the CFO of Kraft and the CFO of Philip Morris
Companies Inc. on behalf of PMMC, pursuant to Article VII.
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ARTICLE VI
THIRD PARTY AGREEMENTS
To the extent that it is not practicable to have Kraft as the
contracting Party for a third party obligation, PMMC, with respect to all
Services supplied by PMMC or contracted for by PMMC on behalf of Kraft, shall
use commercially reasonable efforts to cause all such third party contracts to
extend to and be enforceable by Kraft, or to assign such contracts to Kraft. In
the event that such contracts are not extendable or assignable, PMMC shall act
as agent for Kraft in the pursuit of any claims, issues, demands or actions
against such third party provider at Kraft's expense. Kraft will indemnify PMMC
for any liability under third party contracts arising directly out of the acts
or omissions of Kraft.
ARTICLE VII
AUTHORITY; INFORMATION; COOPERATION; CONSENTS
7.1. Authority.
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Each Party warrants to the other Party that:
(a) it has the requisite corporate authority to enter into and
perform this Agreement;
(b) its execution, delivery, and performance of this Agreement have
been duly authorized by all requisite corporate action on its behalf;
(c) this Agreement is enforceable against it; and
(d) it has obtained all consents or approvals of Governmental
Authorities and other Persons that are conditions to its entering into this
Agreement.
7.2. Information Regarding Services.
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Each Party shall make available to the other Party any information
required or reasonably requested by that other Party regarding the performance
of any Service and shall be responsible for timely providing that information
and for the accuracy and completeness of that information; provided, however,
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that a Party shall not be liable for not providing any information that is
subject to a confidentiality obligation owed by it to a Person other than an
Affiliate of it or the other Party. PMMC shall not be liable for any impairment
of any Service caused by its not receiving information, either timely or at all,
or by its receiving inaccurate or incomplete information from Kraft that is
required or reasonably requested regarding that Service.
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7.3. Cooperation.
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The Parties will use good faith efforts to cooperate with each other
in all matters relating to the provision and receipt of Services. Such good
faith cooperation will include providing electronic access to systems used in
connection with Services and using commercially reasonable efforts to obtain all
consents, licenses, sublicenses or approvals necessary to permit each Party to
perform its obligations. The Parties will cooperate with each other in making
such information available as needed in the event of any and all internal or
external audits, whether in the United States or any other country. If this
Agreement is terminated in whole or in part, the Parties will cooperate with
each other in all reasonable respects in order to effect an efficient transition
and to minimize the disruption to the business of both Parties, including the
assignment or transfer of the rights and obligations under any contracts.
7.4. Further Assurances.
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Each Party shall take such actions, upon request of the other Party
and in addition to the actions specified in this Agreement, as may be necessary
or reasonably appropriate to implement or give effect to this Agreement.
ARTICLE VIII
AUTHORITY AS AGENT
PMMC is hereby authorized to act as agent for Kraft for the purpose
of performing Services hereunder and as is necessary or desirable to perform
such Services. Kraft will execute and deliver or cause the appropriate Kraft
Subsidiary to execute and deliver to PMMC any document or other evidence which
may be reasonably required by PMMC to demonstrate to third parties the authority
of PMMC described in this Article VIII.
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ARTICLE IX
CONFIDENTIAL INFORMATION
9.1. Definition.
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For the purposes of this Agreement, "Confidential Information" means
non-public information about the disclosing Party's or any of its Affiliates'
business or activities that is proprietary and confidential, which shall
include, without limitation, all business, financial, technical and other
information, including software (source and object code) and programming code,
of a Party or its Affiliates marked or designated "confidential" or
"proprietary" or by its nature or the circumstances surrounding its disclosure
should reasonably be regarded as confidential. Confidential Information includes
not only written or other tangible information, but also information transferred
orally, visually, electronically or by any other means. Confidential Information
will not include information that (i) is in or enters the public domain without
breach of this Agreement, or (ii) the receiving Party lawfully receives from a
third party without restriction on disclosure and to the receiving Party's
knowledge without breach of a nondisclosure obligation.
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9.2. Nondisclosure.
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Each of PMMC and Kraft agree that (i) it will not disclose to any
third party or use any Confidential Information disclosed to it by the other
except as expressly permitted in this Agreement, and (ii) it will take all
reasonable measures to maintain the confidentiality of all Confidential
Information of the other Party in its possession or control, which will in no
event be less than the measures it uses to maintain the confidentiality of its
own information of similar type and importance.
9.3. Permitted Disclosure.
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Notwithstanding the foregoing, each Party may disclose Confidential
Information (i) to the extent required by a court of competent jurisdiction or
other governmental authority or otherwise as required by law, including without
limitation disclosure obligations imposed under the federal securities laws,
provided that such Party has given the other Party prior notice of such
requirement when legally permissible to permit the other Party to take such
legal action to prevent the disclosure as it deems reasonable, appropriate or
necessary, or (ii) on a "need-to-know" basis under an obligation of
confidentiality to its consultants, legal counsel, Affiliates, accountants,
banks and other financing sources and their advisors.
9.4. Ownership of Confidential Information.
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All Confidential Information supplied or developed by either Party
shall be and remain the sole and exclusive property of the Party who supplied or
developed it.
ARTICLE X
TERM AND TERMINATION
10.1. Term.
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This Agreement shall remain in effect until such time as it has been
terminated as to all Services in accordance with Section 10.2 below.
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10.2. Termination.
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Either Party may terminate this Agreement without cause with respect
to one or more Services under this Agreement by providing twelve months' written
notice to the other Party or as otherwise agreed between the Parties hereto.
10.3. Termination Assistance Services.
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PMMC agrees that, upon termination of this Agreement or any of the
Exhibits, PMMC will cooperate in good faith with Kraft to provide Kraft (or its
designee) with reasonable assistance to make an orderly transition from PMMC to
another supplier of the Services. Transition assistance services shall include
the following:
(a) developing a transition plan with assistance from Kraft or its
designee;
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(b) providing training to Kraft personnel or its designee's
personnel to perform Services; and
(c) organizing and delivering to Kraft records and documents
necessary to allow continuation of the Services, including delivering such
materials in electronic forms and versions as requested by Kraft.
ARTICLE XI
LIMITATION OF LIABILITY; INDEMNIFICATION
11.1. Limitation of Liability.
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Except as may be provided in Section 11.2 below, PMMC, its
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controlling persons, if any, directors, officers, employees, agents and
permitted assigns (each, a "PMMC Party") shall not be liable to Kraft, the Kraft
Subsidiaries and their respective directors, officers, employees, agents or
permitted assigns (each, a "Kraft Party") and each Kraft Party shall not be
liable to any PMMC Party, in each case, for any liabilities, claims, damages,
losses or expenses, including, but not limited to, any special, indirect,
incidental or consequential damages, of a Kraft Party or a PMMC Party arising in
connection with this Agreement and the Services provided hereunder.
11.2. Indemnification.
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(a) PMMC shall indemnify, defend and hold harmless each of the Kraft
Parties from and against all liabilities, claims, damages, losses and expenses
(including, but not limited to, court costs and reasonable attorneys' fees)
(collectively referred to as "Damages") of any kind or nature, of third parties
unrelated to any Kraft Party caused by or arising in connection with the gross
negligence or willful misconduct of any employee of PMMC in connection with the
performance of the Services, except to the extent that Damages were caused
directly or indirectly by acts or omissions of any Kraft Party. Notwithstanding
the foregoing, PMMC shall not be liable for any special, indirect, incidental,
or consequential damages relating to such third party claims.
(b) Kraft shall indemnify, defend and hold harmless each of the PMMC
Parties from and against all Damages of any kind or nature, of third parties
unrelated to any PMMC Party caused by or arising in connection with the gross
negligence or willful misconduct of any employee of Kraft in connection with
Kraft's performance under this Agreement, except to the extent that Damages were
caused directly or indirectly by acts or omissions of any PMMC Party.
Notwithstanding the foregoing, Kraft shall not be liable for any special,
indirect, incidental, or consequential damages relating to such third party
claims.
11.3. Indemnification Procedures.
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(a) A party entitled to indemnification pursuant to this Agreement
(an "Indemnified Party") shall, with respect to any claim made against such
Indemnified Party for which indemnification is available, notify the other party
(the "Indemnifying Party") in writing of the nature of the claim as soon as
practicable but not more than ten days after the Indemnified Party receives
notice of the assertion of the claim. (The failure by an Indemnified Party to
give
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notice as provided above, shall not relieve the Indemnifying Party of its
obligations under this Section 11.3, except to the extent that the failure
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results in the failure of actual notice and the Indemnifying Party is damaged as
a result of the failure to give notice.) Upon receipt of notice of the assertion
of a claim, the Indemnifying Party may, at its option, assume the defense of the
claim, and if so, the Indemnifying Party shall employ counsel reasonably
acceptable to the Indemnified Party. If the Indemnifying Party assumes the
defense, the Indemnified Party shall have the right to employ separate counsel
and to participate in (but not control) any such action, but the fees and
expenses of such counsel shall be at the expense of the Indemnified Party unless
(a) the employment of counsel by the Indemnified Party has been authorized by
the Indemnifying Party, or (b) the Indemnified Party has been advised by its
counsel in writing that there is a conflict of interest between the Indemnifying
Party and the Indemnified Party in the conduct of the defense of the action (in
which case the Indemnifying Party shall not have the right to direct the defense
of the action on behalf of the Indemnified Party), in each of which cases the
reasonable fees and expenses of such counsel shall be at the expense of the
Indemnifying Party. If the Indemnifying Party does not assume the defense, the
Indemnified Party shall have the right to employ counsel and to control any such
action, and the reasonable fees and expenses of such counsel shall be at the
expense of the Indemnifying Party. An Indemnifying Party shall not be liable for
any settlement of an action effected without its written consent (which consent
shall not be unreasonably withheld), nor shall an Indemnifying Party settle any
such action without the written consent of the Indemnified Party (which consent
shall not be unreasonably withheld). No Indemnifying Party will consent to the
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to the
Indemnified Party a release from all liability with respect to the claim. Each
of the Indemnifying Party and the Indemnified Party shall cooperate in the
defense of any claim for which indemnification is available and shall furnish
such records, information, testimony and attend such conferences, discovery
proceedings, hearings, trials and appeals as may reasonably be requested.
ARTICLE XII
DISPUTE RESOLUTION
If any AOP is not submitted or is not approved by the Parties, or if
the Parties are unable to resolve any service, performance or budget issues or
if there is a material breach of this Agreement that has not been corrected
within thirty (30) days of receipt of notice of such breach, the Controller and
CFO of Kraft and the Treasurer and Controller of Philip Morris Companies Inc.,
on behalf of PMMC, will meet promptly to review and resolve those issues in good
faith.
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ARTICLE XIII
MISCELLANEOUS
13.1. Governing Law.
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This Agreement and performance hereunder will be governed by and
construed in accordance with the laws of the Commonwealth of Virginia without
regard to the principles of conflict of laws.
13.2. Assignment.
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This Agreement is not assignable in whole or in part by either Party
without the prior written consent of the other; provided that either Party may
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assign this Agreement in whole or in part to a parent, a direct or indirect
wholly-owned subsidiary, an Affiliate or a successor thereto.
13.3. Entire Agreement.
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This Agreement, including the attached Exhibits, is the complete and
exclusive statement of the agreement between the Parties and supersedes all
prior proposals, understandings and all other agreements, oral and written,
between the Parties relating to the subject matter of this Agreement. This
Agreement may not be modified or altered except by written instrument duly
executed by both Parties.
13.4. Force Majeure.
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Any delay or failure by either Party in the performance of this
Agreement will be excused to the extent that the delay or failure are due solely
to causes or contingencies beyond the reasonable control of such Party.
13.5. Severability.
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If any provision, clause or part of this Agreement, or the
application thereof under certain circumstances is held invalid or unenforceable
for any reason, the remainder of this Agreement, or the application of such
provision, clause or part under other circumstances shall not be affected
thereby.
13.6. Notices.
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All communications, notices and disclosures required or permitted by
this Agreement shall be in writing and shall be deemed to have been given one
day after being delivered personally or by messenger or being received via
telecopy, telex or other electronic transmission, or two days after being sent
by overnight delivery service, in all cases addressed to the person for whom it
is intended at the addresses as follows:
If to PMMC:
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Joseph A. Tiesi
Vice President and Controller
Philip Morris Companies Inc.
120 Park Avenue
New York, New York 10017
(917) 663-5000
If to Kraft:
John F. Mowrer III
Vice President and Controller
Kraft Foods Inc.
Three Lakes Drive
Northfield, IL 60093-2753
(847) 646-2000
or to such other address as a Party shall have designated by notice
in writing to the other Party in the manner provided by this Section 13.6.
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13.7. Counterparts; Headings.
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This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument. The Article and Section headings in this
Agreement are inserted for convenience of reference only and shall not
constitute a part hereof.
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IN WITNESS WHEREOF, the Parties have signed this Agreement on the
date first set forth above.
PHILIP MORRIS MANAGEMENT CORP.
By:_____________________________
Name:________________________
Title:_______________________
KRAFT FOODS INC.
By:_____________________________
Name:________________________
Title:_______________________
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EXHIBIT 1
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GOVERNMENT AND CORPORATE AFFAIRS SERVICES
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I DESCRIPTION OF SERVICES
A. SCOPE
Philip Morris Management Corp. ("PMMC") will provide government
and corporate affairs services to Kraft Foods Inc. ("Kraft") in
all states and local jurisdictions where it does business, on the
federal level and internationally, either through PMMC's own
resources, the resources of its subsidiaries or Affiliates, as
defined in the Services Agreement (the "Services Agreement"),
dated as of January 1, 2001, by and between PMMC and Kraft, or by
contracting with other independent contractors, all in accordance
with Section 2.2 of the Services Agreement.
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B. SPECIFIC SERVICES
The specific services that PMMC will provide are as follows:
1. Provide coverage and advocacy on international, federal,
state and local governmental issues affecting Kraft's
business and products.
2. Represent the business, political and local interests of
Kraft in international, federal and state industry business
coalitions and trade associations.
3. Administer charitable donations and corporate giving
programs.
4. Oversee media relations and corporate image campaigns.
5. Oversee community relations and community service programs.
Additional services may be included upon agreement of both
parties.
II SERVICE FEES
The Fee payable for Government and Corporate Affairs Services shall be
$89,831,660. The Fee is based on the following:
Federal, State and Local Government Affairs, External Affairs, Public
Policy, Corporate Reputation. The Fee will include: (i) for each
employee performing the Services the salaries, fringe benefits,
executive compensation benefits (if applicable) and
depreciation/amortization of office equipment and software attributed
to the employee in the group (the "Employee Costs"), based upon the
ratio of PMMC's estimate of the time spent by the employee on behalf of
Kraft divided by the total time spent by the employee multiplied by the
Employee Costs; (ii) a management fee equal to 5% of the aggregate
1.1
amount calculated pursuant to (i); and (iii) third-party expenses,
including travel and entertainment, consulting fees and printing costs,
incurred on behalf of Kraft by PMMC.
Corporate Contributions and Matching Gifts. The Fee will include: (i)
corporate contributions and matching gifts to be paid by Kraft based
upon Kraft's annual approved level of spending; (ii) the Employee Costs
for employees administering these programs based upon the ratio of
Kraft's charge for corporate contributions and matching gifts divided
by total Philip Morris contributions and matching gifts multiplied by
the Employee Costs; (iii) a management fee equal to 5% of the aggregate
amount calculated pursuant to (i) and (ii); and (iv) third-party
expenses, including travel and entertainment, consulting fees and
printing costs, incurred on behalf of Kraft by PMMC.
Corporate Image Campaign and Corporate Communications. The Fee will
include: (i) expenditures for the Corporate Image Campaign and
Corporate Communications based upon the number of commercials featuring
Kraft divided by the total number of commercials multiplied by the
total cost of the commercials; (ii) the Employee Costs attributed to
Corporate Communications employees administering the Corporate Image
Campaign in the same proportion as the Corporate Image Campaign; (iii)
a management fee equal to 5% of the aggregate amount calculated
pursuant to (ii); and (iv) third-party expenses, including travel and
entertainment and printing costs incurred on behalf of Kraft by PMMC.
Issues Management, Societal Alignment, and PM Invitational Costs. PMMC
will perform issues management and societal alignment studies for Kraft
at Kraft's request and will bill Kraft for those Services on a
project-by-project basis. With respect to the PM Invitational the Fee
will include an agreed-upon amount of participation determined between
Kraft and PMMC in July of each year. The Fee will also include: (i)
Employee Costs attributable to employees administering this group based
upon the ratio of Kraft's issues management, societal alignment and PM
Invitational charges divided by total charges for these functions
multiplied by the Employee Costs attributable to such employees; (ii) a
management fee equal to 5% of the aggregate amount calculated pursuant
to (i); and (ii) third-party expenses, including travel and
entertainment and printing costs, incurred on behalf of Kraft by PMMC.
III ADDITIONAL TERMS
Period of coverage will be ongoing subject to yearly reviews during the
annual budgeting process.
1.2
EXHIBIT 2
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HUMAN RESOURCES SERVICES
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I DESCRIPTION OF SERVICES
A. SCOPE
Philip Morris Management Corp. ("PMMC") will provide employee
benefit administration, training, staffing, health and welfare
planning, delivery services, financial plan administration
services, benefit communication services and compensation planning
and administrative services to Kraft Foods Inc. ("Kraft"), either
through PMMC's own resources, the resources of its subsidiaries or
Affiliates, as defined in the Services Agreement (the "Services
Agreement"), dated as of January 1, 2001, by and between PMMC and
Kraft, or by contracting with other independent contractors, all
in accordance with Section 2.2 of the Services Agreement.
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B. SPECIFIC SERVICES
The specific services that PMMC will provide are as follows:
1. CORPORATE BENEFITS
- Preparation, assistance and review of matters to be
presented to the PM and Kraft Boards involving
benefit program changes above certain dollar
thresholds.
- Development of company-wide benefit strategy for
Kraft.
- Internal Revenue Compliance for company-wide
controlled group issues (i.e. Discrimination testing;
5500 review; FAS 87/88 compliance; Voluntary
Compliance Reviews, etc.).
- Secular Trust and Executive Trust Agreement design,
administrative oversight and vendor/banking
management.
- Management of certain executive benefits issues
particularly related to transfers, promotions and
terminations.
- Coordination of company-wide benefit projects for
Kraft.
- Health care/benefit cost surveys, analysis and
reporting to Senior Management of Kraft.
- Business Travel Accident Plan design and
negotiations.
2.1
- International Insurance Pooling.
- All benefit issues related to Kraft employee
participation in Kraft and PM stock programs.
- Management of the International Mercer Database.
2. EMPLOYEE RELATIONS
- Manage compensation program including competitive
survey process, range setting and increase approvals
(annual, ad hoc and promotions).
- Support on benefit issues (including education
reimbursement, services awards, etc.) or employee
questions.
- Provide staffing and training.
- Provide health programs and guidance.
- Drafting, design, production and distribution of
communications to employees.
3. HR SERVICES
- Employee benefits data and vendor feeds.
- Arrangement for pension and retiree health and
welfare calculations, processing and set-ups.
- Arrangement for pension payments.
- Management of the HR Services Delivery Project.
4. COMPENSATION PLANING AND ADMINISTRATION
- Manage executive base program including competitive
survey process, range setting and increase approvals
(annual, ad hoc and promotions).
- Manage all aspects of shareholder-approved
performance incentive plan.
- Design executive compensation programs including cash
incentives (short and long-term) and equity. Ensure
programs are appropriate and competitive.
2.2
- Administer executive and management cash incentive
(annual incentive and long-term incentive) and equity
incentive (stock options, restricted stock, stock
appreciation rights and deferred
stock) program funding, award roll-up, senior
executive approval process and Compensation Committee
approval.
- Create compensation section of proxy statement for
the annual meeting of shareholders and related
materials including shareholder meeting briefing
books and media Q&As.
- Develop and produce all materials for Board
Compensation Committee meetings.
- Provide appropriate communication materials to
compensation program participants.
- Ensure compensation programs respond to worldwide
changes to tax laws and other regulatory
requirements.
5. HR INFORMATION SERVICES
- Responsible for the design, support and maintenance
of the global HR system.
6. DIVERSITY MANAGEMENT
- Direct and consult on the execution of Kraft's
diversity strategy.
- Provide coaching and counseling to support the
continued growth and development of local diversity,
compliance and work life staff.
- Conduct annual on-site diversity reviews to ensure
progress and resolution of barriers within the
operating unit's local environment.
- Conduct compliance checks and interpretation of
existing and new federal regulation requirements.
- Participate in formal presentations related to the
guiding principles of diversity and work of life at
Kraft employee council meetings, divisional
leadership development meetings, etc.
- Act as liaison between operating unit and Board of
Directors' Affirmative Action and Diversity Committee
(twice a year).
II SERVICE FEES
2.3
The Fee payable for human resources services shall be $4,405,097. The
Fee is based on the following:
Human Resources Support for Financial Services and the Information
Technology Service Center ("ITSC"). The Fee will include: (i) with
respect to human resources
support for employees in Financial Services functions in San Antonio
and Wilkes Barre, the proportion of San Antonio and Wilkes Barre
employees supported, divided by the total number of employees
supported, multiplied by the salaries, fringe benefits, executive
compensation benefits (if applicable) and depreciation/amortization of
office equipment and software (the "Employee Costs") attributed to the
Philip Morris Human Resources Group multiplied by the ratio of annual
Financial Services costs payable to Kraft (as determined under the
terms of Exhibit 4 of this Agreement) divided by total Financial
---------
Services costs; (ii) with respect to human resources support for
employees of the ITSC, based upon the number of ITSC employees
supported divided by the total number of employees supported multiplied
by the Employee Costs of the Philip Morris Human Resources Group
multiplied by the ratio of annual ITSC charges allocated to Kraft under
the ITSC agreement [(contained in the Addendum to Exhibit 6 of this
---------
Agreement)] divided by total annual charges of the ITSC; (iii) a
management fee equal to 5% of the aggregate amount calculated pursuant
to (i) and (ii); and (iv) third-party expenses, including travel and
entertainment and printing costs incurred on behalf of Kraft by PMMC.
Executive Compensation. The Fee will include: (i) the Employee Costs
attributed to each employee who manages executive compensation based
upon the ratio of PMMC's estimate of the spent by each employee on
behalf of Kraft divided by the total time spent by such employee
multiplied by the Employee Costs of such employee; (ii) a management
fee equal to 5% of the aggregate amount calculated pursuant to (i); and
(iii) third-party expenses, including travel and entertainment,
consultants fees and printing costs, incurred on behalf of Kraft by
PMMC.
Consulting Contracts. From time to time the Philip Morris Human
Resources Group engages consultants to perform work regarding the
benefits across the family of Philip Morris Companies (PM USA, PM
International, Kraft Foods North America, Kraft Foods International and
Miller) ("Group Contracts"). The Fee will include 40% of each Group
Contract. From time to time, the Philip Morris Human Resources Group
also engages consultants solely for the benefit of Kraft ("Kraft
Contracts" and, together with the Group Contracts, "Consulting
Contracts"). The Fee will include: (i) the total cost of each Kraft
Contract; (ii) the Employee Costs attributed to employees who engage
and work with these consultants based upon Kraft's allocated share of
the Consulting Contracts as determined above divided by the total value
of consulting services managed by such employees, multiplied by the
Employee Costs of these employees; (iii) a management fee equal to 5%
of the aggregate amount calculated pursuant to (i) and (ii); and (iv)
third-party expenses, including travel and entertainment and printing
costs, incurred on behalf of Kraft by PMMC.
2.4
Diversity Management, Management Development, Human Resources Services
Delivery and Human Resources Technical Support Groups. The Fee will
include: (i) the Employee Costs attributed to employees in these groups
based upon PMMC's estimate of annual time spent by employees of these
groups on behalf of Kraft divided by the total annual time spent by
these groups multiplied by Employee Costs of the employees of these
groups; (ii) a management fee equal to 5% of the aggregate amount
calculated pursuant to (i); (iii) 40% of the consultant costs for
projects undertaken on behalf of all
Philip Morris Companies; (iv) 100% of the cost of consultants used in
projects specifically for the benefit of Kraft; and (v) third-party
expenses, including travel and entertainment and printing costs,
incurred on behalf of Kraft by PMMC.
III ADDITIONAL TERMS
Period of coverage will be ongoing subject to yearly reviews during the
annual budgeting process.
2.5
EXHIBIT 3
---------
TREASURY SERVICES
-----------------
I DESCRIPTION OF SERVICES
A. SCOPE
Philip Morris Management Corp. ("PMMC") will provide treasury
services to Kraft, including cash management, risk management,
short and long-term borrowings, investment of benefit trusts,
arrangement of credit facilities and coordination with credit
rating agencies, either through PMMC's own resources, the
resources of its subsidiaries or Affiliates, as defined in the
Services Agreement (the "Services Agreement"), dated as of
January 1, 2001, by and between PMMC and Kraft, or by
contracting with other independent contractors, all in
accordance with Section 2.2 of the Services Agreement.
-----------
B. SPECIFIC SERVICES
The specific services that PMMC will provide are as follows:
1. CASH MANAGEMENT
- Calculate, document and initiate disbursement
requests for the payment of certain Kraft Treasury
items related to short-term and long-term debt,
common dividends, credit facility fees, Kraft share
repurchases and interest rate swap agreements.
- Poll daily bank account balances for Kraft's banks
and perform cash position.
- Post Kraft's cash desk activity to Kraft's general
ledger.
- Provide reporting on short-term borrowings and
investments and interface with Kraft's general
ledger.
- Support Kraft's bank accounts, including opening,
closing and modifying accounts at the request and
approval of Kraft.
- Pay Kraft bank fees.
- Obtain bank credit lines for Kraft's letter of
credit needs.
- Structure/maintain efficient bank network with banks
and analyze bank service needs.
- Execute foreign exchange trades as required and the
purchase and sale of foreign exchange forwards,
futures and options in accordance with hedging
strategies developed jointly between Kraft and PMMC.
- Planning, designing and implementing commercial
paper programs, including selection of and
negotiations with underwriters, financial advisors
and counsel.
3.1
2. RISK MANAGEMENT
- Administering risk management, safety and claim
services.
- Monitoring and planning of effective treasury risk
management strategies, particularly in emerging
markets.
- Monitoring and managing counter party risk.
- Negotiation and acquisition of insurance coverage,
including, but not limited to, property and business
interruption casualty (including worker's
compensation), directors', officers' and other
liability coverages.
- Risk, safety and claim vendor selection and
oversight.
- Risk, safety and claim processes and measurements.
3. CAPITAL MARKETS
- Planning, designing and implementing public debt
offerings, including selection of, and negotiation
with, underwriters, financial advisors and counsel.
- Planning, negotiating and implementing all credit
facilities.
- Planning, negotiating and implementing reporting
covenants contained within applicable borrowing
arrangements.
- Planning, negotiating and executing fixed/floating
and cross currency swaps to manage the portfolio.
- Coordinating all interactions with credit rating
agencies.
4. BENEFIT INVESTMENTS
- Provide administrative oversight for all Kraft
benefit trusts.
- Design and implement asset allocation strategies for
all Kraft defined benefit plan assets.
- Identify, select and monitor investment advisors for
Kraft's pension, 401(k) and other benefit plans.
- Provide information for reporting to the Pension
Benefit Guarantee Corp. and other government agencies
regarding Kraft's benefit plans and investments.
- Preparation of presentations to Kraft's Board of
Directors regarding benefit plan investments.
Additional services may be included upon agreement of both parties.
3.2
II SERVICE FEES
The Fee payable for the treasury services shall be $6,389,739. The Fee
is based on the following:
Cash Management - [Zug.] The Fee will include: (i) salaries, fringe
benefits, executive compensation benefits (if applicable) and
depreciation/amortization of office equipment and software (the
"Employee Costs") based upon the number of Kraft entities in the cash
pooling system divided by the total number of entities in the cash
pooling system multiplied by the total cost to manage the cash pools;
(ii) a management fee equal to 5% of the aggregate amount calculated
pursuant to (i); and (iii) third-party expenses, including travel and
entertainment, consulting fees, and costs to bring Nabisco entities
into the cash pool system, incurred on behalf of Kraft by PMMC.
Cash Management - New York. The Fee will include: (i) with respect to
each non-Kraft employee performing the Services, the Employee Costs
attributed to such employee based upon the ratio of PMMC's estimate of
the time spent on providing such Services for Kraft divided by the
total time spent by such employee multiplied by the total Employee Cost
attributed to such employee; (ii) a management fee equal to the
aggregate amount calculated pursuant to (i); and (iii) third-party
expenses, including travel and entertainment, consulting fees and costs
to bring Nabisco entities into the cash pool system, incurred on behalf
of Kraft by PMMC.
Risk Management. The Fee will include: (i) the costs of property
insurance based upon a calculation that reflects property values and
loss histories; (ii) workers' compensation based upon an actuarial
calculation that reflects Kraft's historical experience; (iii) the cost
of directors' and officers' insurance reflecting the insurance
carrier's premium for Kraft's separate coverage, if applicable; (iv)
the cost of liability insurance based upon an actuarial calculation
taking into consideration Kraft's historical liability experience; (v)
third-party expenses to bring Nabisco into Philip Morris' group
coverage; (vi) the cost of other insurance lines allocated as in the
past under previously agreed formulas; (vii) with respect to each type
of insurance, the Employee Costs attributed to each Philip Morris
employee working on the respective type of insurance coverage based
upon Kraft's percentage of the respective insurance coverage (as
determined above) multiplied by the Employee Costs of such employee;
(viii) a management fee equal to 5% of the aggregate amounts calculated
pursuant to (vii); and (ix) third-party expenses, including travel and
entertainment, consulting fees, insurance premiums and incurred losses
specific to Kraft.
Risk Management & Reporting. The Fee will include: (i) the Employee
Costs attributed to employees providing this Service based upon the
number of Kraft International entities outside the cash pooling system
that participate in the Annual Financial Policy ("AFP") process, plus
one-third of the number of Kraft International entities in the cash
pooling system that participate in the AFP process, divided by the
total number of international entities outside the cash pooling system
that participate in the AFP process, plus one-third of the number of
international entities in the cash pooling system that participate in
the AFP process, multiplied by the total cost to manage all treasury
risk management activities; (ii) a management fee equal to 5% of the
aggregate amounts calculated pursuant to (i); and (iii) third-party
expenses, including travel and entertainment,
3.3
consulting fees, and costs to bring Nabisco entities into the treasury
risk management framework.
Capital Markets. The Fee will include: (i) the Employee Costs
attributed to each Philip Morris employee in the Capital Markets group
based upon the ratio of the number of Kraft's revolving credit
agreements, rating agency presentations and debt issuances divided by
the total number of revolving credit agreements, rating agency
presentations and debt issuances performed by the Philip Morris Capital
Markets Group multiplied by the Employee Costs of such employee; (ii) a
management fee equal to 5% of the aggregate amounts calculated pursuant
to (i); and (iii) third-party expenses, such as bank commitment fees on
revolving credit arrangements, rating agency fees, road-show costs and
travel and entertainment costs, incurred on behalf of Kraft by PMMC.
Benefit Investments. The Fee will include: (i) the Employee Costs
attributed to each employee in the group based upon the ratio of PMMC's
estimate of the time spent by that employee on behalf of Kraft for the
investment of Kraft's pension and thrift plan funds, preparation of
reports to the Pension Benefits Guarantee Corp. and other government
agencies, preparation of presentations to Kraft's Board of Directors
and the integration of Nabisco divided by the total time spent by such
employee multiplied by the Employee Costs of such employee; (ii) a
management fee equal to 5% of the aggregate amounts calculated pursuant
to (i); and (iii) third-party expenses, including travel and
entertainment, consulting fees, investment advisor fees and actuarial
fees not qualifying for deduction from benefit fund assets in
accordance with ERISA regulations.
III ADDITIONAL TERMS
Period of coverage will be ongoing subject to yearly reviews during the
annual budgeting process.
3.4
EXHIBIT 4
---------
FINANCIAL SERVICES, REPORTING, RESEARCH AND LEDGER
--------------------------------------------------
I DESCRIPTION OF SERVICES
A. SCOPE
Philip Morris Management Corp. ("PMMC") will provide financial
reporting, advising and auditing services to Kraft Foods Inc.
("Kraft"), either through PMMC's own resources, the resources of
its subsidiaries or Affiliates, as defined in the Services
Agreement (the "Services Agreement"), dated as of January 1, 2001,
by and between PMMC and Kraft, or by contracting with other
independent contractors, all in accordance with Section 2.2 of the
-----------
Services Agreement. These services will include payroll, accounts
payable, external audit coordination, Securities and Exchange
Commission ("SEC") and other governmental reporting, financial
research and stock option plan administration.
B. SPECIFIC SERVICES
The specific services that PMMC will provide are as follows:
1. FINANCIAL SERVICES
- Preparation and distribution of weekly and bi-weekly
employee checks.
- Payment of related taxes, garnishment and other
deductions to appropriate parties.
- Preparation and filing of employer tax returns.
- Preparation of annual W-2's for employees.
- Response to employee questions through 1-800 telephone
line.
- Processing and paying invoices and purchase orders,
including input into the accounts payable system.
- Processing travel vouchers and balancing travel
advance accounts.
- Recording all payments and maintaining all related
files.
- Preparing all checks for vendor payment and employee
reimbursement.
- Preparation of Form 1099s and other governmental
reports.
4.1
- Processing and paying employee travel and
entertainment expense reports.
- Preparing and circulating weekly and monthly standard
reports.
- Preparing special reports on a timely basis and
responding to all inquiries for research and analysis.
- Preparing documentation for intercompany billing.
2. FINANCIAL CONSOLIDATIONS AND REPORTING
- Preparing quarterly, annual and any other required SEC
reports.
- Monthly consolidation of Kraft's financial statements.
- Assist in the preparation of Kraft's annual report and
earnings releases.
- Preparing monthly reporting of results of operations
for distribution to Kraft's Board of Directors.
- Assisting Kraft in the preparation of reports to
committees of its Board of Directors (e.g., Audit
----
Committee and Compensation Committee).
3. FINANCIAL RESEARCH
- Responding to requests for financial research from any
Kraft business unit.
- Evaluating and coordinating Kraft's compliance with
new regulatory requirements (SEC, FASB, EITF, etc.)
- Assisting Kraft in responding to accounting regulatory
bodies (SEC, FASB, EITF, etc.) regarding their
solicitation of comments on proposed regulation.
- Preparing other governmental reports.
- Preparing all required Form 11K and ERISA reports.
- Coordinating external audit services.
4. HEADQUARTERS LEDGER SERVICES
4.2
- Administering Kraft stock options granted under the
______ Plan, as well as Philip Morris stock awards to
Kraft employees under Philip Morris plans.
- Preparing all necessary reports related to stock
option exercises.
- Maintaining a general ledger for holding company and
accounting for debt, stock and intercompany
transactions at the holding company level.
Additional services may be included upon agreement of both parties.
II SERVICE FEES
The Fee payable for the financial services, financial consolidations
and reporting and financial research shall be $2,677,196. The Fee is
based on the following:
Financial Services. The Fee will include: (i) the cost of financial
services determined as per the separate Shared Service Center Agreement
already approved by Kraft; (ii) the total cost of financial services
(accounts payable, travel and entertainment, and payroll processing) as
defined above, performed at San Antonio and Wilkes Barre facilities
less specific one-time costs associated with the integration of
non-Kraft entities, specific one-time costs for assisting Kraft in
systems enhancements, conversions or upgrades; (iii) the cost of the
Leadership Team multiplied by the ratio of the number of Kraft
transactions processed annually divided by the total number of
transactions processed annually; (iv) the salaries, fringe benefits,
executive compensation benefits (if applicable) and
depreciation/amortization of office equipment and software (the
"Employee Costs") attributed to each member of the Leadership Team
based on the percentage of PMMC's estimate of the time spent by that
employee on Kraft projects and daily maintenance of operations divided
by the total time spent by each member of the Leadership Team; (v) a
management fee equal to 5% of the aggregate amounts calculated pursuant
to (i) and (iv); (vi) the cost of assisting Kraft in systems
enhancements, conversions or upgrades in an amount to be negotiated
between Kraft and PMMC prior to the commencement of the project, plus
or minus cost overruns or shortfalls, approved in advance by Kraft; and
(vii) third-party costs paid on behalf of Kraft, such as consultant
fees. The capitalized cost of systems enhancements, conversions or
upgrades that pertain or are planned to pertain to the entire Philip
Morris organization will be paid for by Philip Morris Companies Inc.
The Fee will also include the depreciation/amortization of such costs
each year based upon the proportion of transactions processed for Kraft
as described above, plus a management fee equal to 5% of such aggregate
amounts.
Financial Consolidations and Reporting. The Fee will include: (i) the
Employee Costs attributed to each employee in the group based upon the
ratio of PMMC's estimate of the time spent by that employee on behalf
of Kraft for the preparation of reports for Kraft's Board of Directors,
the preparation and review of Form S-1 and related road-show
4.3
presentations, the preparation of quarterly and annual Kraft Forms 10-Q
and 10-K filed with the SEC, the preparation of quarterly and annual
Nabisco Forms 10-Q and 10-K filed with the SEC, the monthly
consolidations of Kraft financial statement data, the acquisition and
integration of Nabisco and the preparation and validation of Kraft
annual report disclosures and press releases divided by the total time
spent by the employee multiplied by the total Employee Costs of such
employee; (ii) a management fee equal to 5% of the aggregate amount
calculated pursuant to (i); and (iii) third-party expenses, including
travel and entertainment, consulting fees and printing costs incurred
on behalf of Kraft by PMMC.
Financial Research. The Fee will include: (i) the Employee Costs
attributed to each employee in the group based upon the ratio of PMMC's
estimate of the time spent by that employee on behalf of Kraft for the
preparation and review of Kraft's Form S-1 and related road-show
presentations, Kraft's Forms 8-K, Kraft's debt filings and related
documentation, Kraft's and Nabisco's Forms 11-K, ERISA and other
governmental filings, the adoption of new accounting pronouncements
applicable to Kraft, the review and coordination of FASB and SEC
activities on behalf of Kraft, the acquisition and integration of
Nabisco and specific research projects applicable to Kraft divided by
the total time spent by the employee multiplied by the Employee Costs
of such employee; (ii) a management fee equal to 5% of the aggregate
amount calculated pursuant to (i); and (iii) third-party expenses,
including travel and entertainment, consulting fees and printing costs
incurred on behalf of Kraft by PMMC.
Headquarters Ledger Services. The Fee will include: (i) Employee Costs
attributed to each employee in this group based upon the ratio of
PMMC's estimate of the time spent by each employee on projects
applicable to Kraft in the maintenance of Kraft stock options, the
maintenance of Philip Morris stock options, stock awards, incentive
compensation, long-term incentive compensation and executive trusts in
the name of Kraft employees, and the maintenance of a holding company
general ledger for Kraft divided by the total time spent by such
employee multiplied by the Employee Costs of such employee; (ii) a
management fee equal to 5% of the aggregate amount calculated pursuant
to (i); and (iii) third-party expenses incurred on behalf of Kraft to
vendors for stock option maintenance, consultants and travel and
entertainment.
III ADDITIONAL TERMS
Period of coverage will be ongoing subject to yearly reviews during the
annual budgeting process.
4.4
EXHIBIT 5
---------
INTERNAL AUDITING SERVICES
--------------------------
I DESCRIPTION OF SERVICES
A. SCOPE
Philip Morris Management Corp. ("PMMC") will provide independent
and objective internal audit services for Kraft Foods Inc.
("Kraft"), either through PMMC's own resources, the resources of
its subsidiaries or Affiliates, as defined in the Services
Agreement (the "Services Agreement"), dated as of January 1, 2001,
by and between PMMC and Kraft, or by contracting with other
independent contractors, all in accordance with Section 2.2 of the
-----------
Services Agreement.
B. SPECIFIC SERVICES
The specific services that PMMC will provide are as follows:
- Conducting routine internal audits in accordance with
mutually agreed annual coverage plans.
- Processing compliance with Company policies relating
to matters such as facilitating payments, gifts,
contributions and business conduct.
- Conducting pre- and post-implementation reviews of
major computer system applications or upgrades, as
well as pre-and post-completion reviews of major
construction projects.
- Investigating instances of actual or potential
misconduct, including fraud and defalcations.
- Assisting Kraft, as requested, with internal control
reviews and development of suggestions to strengthen
the internal control environment.
Additional services may be included upon agreement of both
parties.
II SERVICE FEES
The Fee payable for the internal auditing services shall be
$13,235,455. The Fee is based on the following:
The Fee will include: (i) salaries, fringe benefits and executive
compensation benefits (if any) attributed to Philip Morris Internal
Audit Department employees at Kraft locations; and (ii) a management
fee equal to 5% of the aggregate amount calculated pursuant to (i).
5.1
Charges from Kraft for the use of office space at Kraft Foods
International's London office will be calculated in accordance with the
agreement attached as an addendum to this Exhibit.
-------
In addition to the Fee for Kraft Foods International's London office,
calculated under a separate agreement as described above, the Fee will
also include: (i) salaries, fringe benefits, executive compensation
benefits (if any) and depreciation/amortization of office equipment and
software (the "Employee Costs") attributed to Philip Morris Audit
Department employees at Philip Morris locations based upon the annual
time spent by each auditor in the performance of audits of Kraft
operations, divided by the total annual time spent by such auditor
multiplied by the Employee Costs attributed to the auditor; and (ii) a
management fee equal to the aggregate amount calculated pursuant to
(i).
The Fee will also include: (i) the Employee Costs attributed to
employees at Philip Morris locations who supervise the audit function
based upon PMMC's estimate of the annual time spent by each employee in
the supervision and administration of audits of Kraft operations,
divided by the total annual time spent by such employee multiplied by
the Employee Costs of such employee; (ii) a management fee equal to 5%
of the aggregate amount calculated pursuant to (i); and (iii)
third-party expenses incurred, including travel and entertainment,
incurred on behalf of Kraft by PMMC.
III ADDITIONAL TERMS
Period of coverage will be ongoing subject to yearly reviews during the
annual budgeting process.
5.2
EXHIBIT 6
---------
INFORMATION TECHNOLOGY SERVICES
-------------------------------
I DESCRIPTION OF SERVICES
A. SCOPE
Philip Morris Management Corp. ("PMMC") will provide Information
Technology services to Kraft Foods Inc. ("Kraft") to enable Kraft
to attain its business objectives of developing, implementing,
operating and supporting Information Technology requirements,
either through PMMC's own resources, the resources of its
subsidiaries or Affiliates, as defined in the Services Agreement
(the "Services Agreement"), dated as of January 1, 2001, by and
between PMMC and Kraft, or by contracting with other independent
contractors, all in accordance with Section 2.2 of the Services
-----------
Agreement.
B. SPECIFIC SERVICES
The specific services that PMMC will provide are as follows:
(definitions are included as an Addendum):
1. Basic Maintenance.
2. Operational Continuity.
- Each year an Annual Operating Plan (AOP) will be
prepared by PMMC's Information Technology services
working with Kraft's functional leaders.
- At least once a quarter, PMMC's Information Technology
services will provide an update on the status of work,
activity levels, development work and overall
spending. In addition, certain investment projects
identified by Kraft will be subject to Capital
Expenditure review and approval policies, which will
include scope, rate of return, functionality
milestones reviews, etc.
3. Chief technical office services, including:
- Enterprise architecture and design.
- Application technology, security and enterprise
programs.
- Information technology research and development.
- Project management.
6.1
- Network design, procurement and implementation.
- Enterprise and other information technology services
previously provided by the Nabisco Enterprise Group,
which includes the Nabisco employees assumed by PMMC.
4. Enhancements.
5. Investment Projects.
6. Support of PMMC systems used in the performance of financial
services and treasury services on behalf of Kraft.
7. Negotiation of contracts with major information technology
vendors, including AT&T, IBM, Oracle, Microsoft and SAP.
Additional services may be included upon agreement of both parties.
II SERVICE FEES
The Fee payable for the information technology services shall be
$7,803,998, which amount excludes ITSC charges that are calculated and
billed under a separate agreement that is attached hereto. The Fee is based
on the following:
Information Technology Services Centers ("ITSC"). ITSC charges will be
billed to Kraft in accordance with the Philip Morris ITSC agreement
attached hereto.
Global Information and Shared Service. The Fee will include: (i) certain
costs of the Global Information and Shared Services group, which supports
the Information Technology application used at PMMC, based upon the
percentage of costs incurred in each function (such as Insurance, Financial
Consolidations and Reporting, etc. contained in Exhibits 1 through 13
---------- --
attached to the Agreement) divided by total expenses incurred by the Global
Information and Shared Services group multiplied by the salaries, fringe
benefits, executive compensation benefits (if applicable) and
depreciation/amortization of office equipment and software attributed to
the respective employees in the group (the "Employee Costs"); (ii) a
management fee equal to 5% of the aggregate amount calculated pursuant to
(i); and (iii) third-party expenses, including travel and entertainment and
printing costs, incurred on behalf of Kraft by PMMC.
Global Information Technologies Group. The Fee will include: (i) the
Employee Costs attributed to each employee in the group based upon the
ratio of PMMC's estimate of the time spent by such employee divided by the
total time spent by such employee multiplied by the Employee Costs for such
employee; (ii) a management fee equal to 5% of the aggregate amount
calculated pursuant to (i); and (iii) third-party expenses, including
travel and entertainment and printing costs, incurred on behalf of Kraft by
PMMC.
6.2
Information Technology Treasury Support Group. The Fee will include: (i)
the Employee Costs attributed to one international employee and two
domestic employees who support treasury functions for Kraft; (ii) a
management fee equal to 5% of the aggregate amount calculated pursuant to
(i); (iii) building services costs at Kraft locations
determined as the ratio of square footage occupied by such employees
divided by the total square footage of the location multiplied by the total
building costs at that location; and (iv) third-party expenses, including
travel and entertainment and printing costs, incurred on behalf of Kraft by
PMMC.
Information Technology Contracts. The Fee will include: (i) Kraft's charges
under each information technology contract (primarily AT&T, IBM, Oracle,
Microsoft and SAP contracts), (collectively, the "IT Contracts"), allocated
by usage under the IT Contracts as provided by the service provider; (ii)
the Employee Costs attributed to employees who maintain the IT Contracts
based upon the ratio of Kraft's annual spending under the IT Contracts
divided by total annual spending under the IT Contracts; (iii) a management
fee of 5% of the aggregate amount calculated pursuant to (ii); and (iv)
third-party expenses, including travel and entertainment and printing
costs, incurred on behalf of Kraft by PMMC.
Information Technology Administration. The Fee will include: (i) the
Employee Costs attributed to each employee in this group based upon the
ratio of PMMC's estimate of time spent supporting Kraft divided by total
time spent by such employee multiplied by the Employee Costs for such
employee; (ii) a management fee of 5% of the aggregate amount calculated
pursuant to (i); and (iii) third-party expenses, including travel and
entertainment and printing costs, incurred on behalf of Kraft by PMMC.
III ADDITIONAL TERMS
Period of coverage will be ongoing subject to yearly reviews during the
annual budgeting process.
6.3
EXHIBIT 7
---------
LEGAL AND CORPORATE SECRETARY SERVICES
--------------------------------------
I DESCRIPTION OF SERVICES
A. SCOPE
Philip Morris Management Corp. ("PMMC") will provide legal and
corporate secretary services, including Securities and Exchange
Commission ("SEC") reporting services, to Kraft Foods Inc.
("Kraft"), either through PMMC's own resources, the resources of
its subsidiaries or Affiliates, as defined in the Services
Agreement (the "Services Agreement"), dated as of January 1, 2001,
by and between PMMC and Kraft, or by contracting with other
independent contractors, all in accordance with Section 2.2 of the
-----------
Services Agreement. The services will include legal support to all
business units of Kraft.
B. SPECIFIC SERVICES
The specific services that PMMC will provide are as follows:
- Providing general legal advice.
- Providing Corporate Secretary services for Kraft and
the Kraft Subsidiaries, including preparations for
the annual meeting of shareholders, assistance with
respect to shareholder resolutions and services
relating to corporate governance matters.
- Preparing and reviewing all filings with the SEC,
including Forms 10-K and 10-Q and proxy statements
for shareholders' meetings.
- Providing legal advice related to executive
compensation plans.
- Providing intellectual property law support for Kraft
and the Kraft Subsidiaries.
- Overseeing and articulating legal policy regarding
litigation and regulatory compliance.
Additional services may be included upon agreement of both
parties.
7.1
II SERVICE FEES
The Fee payable for the legal and corporate secretary services shall be
$2,903,039. The Fee is based on the following:
The Fee will include: (i) the cost of legal services, which pertain
primarily to trademarks in the case of Kraft, based upon the number of
Kraft trademarks supported by the group divided by total trademarks
supported by the group multiplied by the salaries, fringe benefits,
executive compensation benefits (if applicable) and
depreciation/amortization of office equipment and software (collectively,
the "Employee Costs"), attributed to employees engaged in trademark
matters; (ii) the cost of corporate secretary services based upon PMMC's
estimate of the annual time spent by such employees in preparing and
reviewing SEC filings, the preparation of proxy statement and annual
meeting materials, supervision of corporate governance and reporting to the
Kraft Board of Directors divided by total annual time of such employees
multiplied by the Employee Costs of such employees; (iii) a management fee
equal to 5% of the aggregate amount calculated pursuant to (ii); and (iv)
third-party expenses, including SEC filing fees, travel and entertainment
and printing costs, incurred on behalf of Kraft by PMMC.
III ADDITIONAL TERMS
Period of coverage will be ongoing subject to yearly reviews during the
annual budgeting process.
It is understood that the PMMC attorneys providing legal services pursuant
to this Agreement have been retained by Kraft for the express purpose of
providing legal advice to Kraft and that their communication with Kraft
will be subject to the attorney-client privilege to the extent permitted by
law and by applicable ethical requirements. The parties agree that no
conflict of interest between PMMC and Kraft currently exists with respect
to the services being provided. To the extent a conflict of interest arises
PMMC and Kraft will discuss and resolve such conflict consistent with the
principles and obligations of professional responsibility.
7.2
EXHIBIT 8
---------
AVIATION SERVICES, BUILDINGS SERVICES AND CONFERENCE SERVICES
-------------------------------------------------------------
I DESCRIPTION OF SERVICES
A. SCOPE
Philip Morris Management Corp. ("PMMC") will provide aviation
services, in addition to other services as listed below, to
Kraft Foods Inc. ("Kraft"), either through PMMC's own
resources, the resources of its subsidiaries or Affiliates, as
defined in the Services Agreement (the "Services Agreement"),
dated as of January 1, 2001, by and between PMMC and Kraft, or
by contracting with other independent contractors, all in
accordance with Section 2.2 of the Services Agreement.
-----------
B. SPECIFIC SERVICES
1. Provide air travel for Kraft employees.
2. Provide office space for Kraft Foods International
headquarters.
3. Provide office space for PMMC employees providing
services to Kraft.
4. Make available the PM Conference Center for Kraft's use
as requested.
5. Additional services may be included upon agreement of
both parties.
II SERVICE FEES
The Fee payable for the aviation services, building services and
conference services shall be $22,353,563, which amount excludes the
Rye Brook facility Building and Security Services charges that are
calculated and billed as per the separate Building Services
Agreement that is attached hereto. The Fee is based on the
following:
Aviation and Conference Services. The Fee will include: (i)
salaries, fringe benefits, executive compensation benefits (if
applicable), depreciation/amortization and other fixed and operating
costs (the "Employee Costs") attributed to Philip Morris Aviation
Services employees based upon the total annual flight hours flown
for Kraft by Philip Morris aircraft divided by the total annual
flight hours flown by all Philip Morris aircraft and multiplied by
the total Employee Costs of the Aviation and Travel Services
Department employees; (ii) a management fee equal to 5% of the
aggregate amount calculated pursuant to (i); and (iii) the cost of
the PM Conference Center at each usage, calculated at a rate agreed
upon at the time Kraft reserves the conference center.
Rye Brook Building. The Fee will include Kraft's allocable share of
the Rye Brook facility at 800 Westchester Avenue, Rye Brook, NY
based upon the total square footage
8.1
of space utilized by Kraft Foods North America and Kraft Foods
International divided by the total square footage of the location
multiplied by the total costs of the Rye Brook facility.
Manhattan Building. The Fee will include 30% of the total building
services costs of the portion of the facility at 120 Park Avenue,
New York, NY occupied by Philip Morris Management Corp.
III ADDITIONAL TERMS
Period of coverage will be ongoing subject to yearly reviews during
the annual budgeting process.
8.2
EXHIBIT 9
---------
TAX SERVICES
------------
I DESCRIPTION OF TAX SERVICES
A. SCOPE
Philip Morris Management Corp. ("PMMC") will provide comprehensive
income and franchise tax services ("Tax Services") to Kraft Foods
Inc. ("Kraft"), as described herein, either through PMMC's own
resources, the resources of its subsidiaries or Affiliates, as
defined in the Services Agreement (the "Services Agreement"),
dated as of January 1, 2001, by and between PMMC and Kraft, or by
contracting with other independent contractors, all in accordance
with Section 2.2 of the Services Agreement.
B. TAX SERVICES
The Tax Services that PMMC will provide to Kraft are as follows:
1. TAX RETURNS
- Prepare in accordance with all applicable laws and
file on a timely basis all Kraft Returns ("Returns"
is defined for the purpose of this Exhibit 9 to mean
---------
all federal and state income and franchise returns,
reports and forms required to be filed by Kraft with
any governmental authority).
2. TAX AUDITS
- Respond to any audit or other similar proceeding
with respect to a Return of Kraft or any audit or
other similar proceeding in which Kraft is included
as a party.
3. TAX ACCOUNTING
- Provide all tax information necessary (i) to comply
with the Tax Sharing Agreement dated as of
---------------- between Philip Morris Companies
Inc. and Kraft Holdings Inc. and (ii) to complete
all of Kraft's financial statements including
calculating the tax provision, reconciling tax
accruals to Returns as filed, and identifying tax
exposures for positions taken on Returns.
4. TAX PLANNING
9.1
- Identify federal, state and international tax
planning opportunities and implement tax strategies,
as appropriate, including integrating
Nabisco into Kraft for all tax purposes and
reviewing the tax implications of business
operations and proposals.
- Advise on various tax planning opportunities
including dividend repatriation, financial
transactions, business operations and proposals.
- PMMC will interpret the meaning of "Tax Services" so as to insure
that Kraft complies fully with all applicable tax laws. PMMC will
perform each Tax Service for the purpose of minimizing, to the
extent possible, Kraft's tax liabilities. Additional services may
be included upon agreement of both parties.
II SERVICE FEES
The Fee payable for the tax services shall be $11,858,498. The Fee is
based on the following:
The Fee will include: (i) the total cost, including salaries, fringe
benefits, executive compensation benefits (if any) and depreciation and
amortization of office equipment and software (the "Employee Costs")
attributed to Philip Morris Tax Department employees (including employees
of Philip Morris Corporate Services) at Philip Morris locations
(including, but not limited to, Northfield, IL, Parsippany, NJ, Rye Brook,
NY, New York, NY, Middlesex, England and Hong Kong) incurred on behalf of
Kraft by PMMC in an amount equal to: (A) the time spent by each such
employee in the performance of Tax Services to Kraft, divided by (B) the
total time spent by such employee in all activities, multiplied by (C) the
Employee Costs attributable to such employee; and (ii) a management fee
equal to 5% of the aggregate amount calculated pursuant to (i); and (iii)
third-party expenses, including the cost of consultants and their travel,
incurred on behalf of Kraft by PMMC and the Philip Morris Tax Department
in the performance of Tax Services.
III ADDITIONAL TERMS
PMMC and Kraft will review the terms of this Tax Services agreement each
year during the annual budgeting process.
9.2
EXHIBIT 10
----------
CORPORATE PLANNING AND ANALYSIS SERVICES
----------------------------------------
I DESCRIPTION OF SERVICES
A. SCOPE
Philip Morris Management Corp. ("PMMC") will provide corporate
planning and analysis services to Kraft Foods Inc. ("Kraft"),
either through PMMC's own resources, the resources of its
subsidiaries or Affiliates, as defined in the Services Agreement
(the "Services Agreement"), dated as of January 1, 2001, by and
between PMMC and Kraft, or by contracting with other independent
contractors, all in accordance with Section 2.2 of the Services
-----------
Agreement.
B. SPECIFIC SERVICES
The specific services that PMMC will provide are as follows:
- Budgeting for all Kraft business units.
- Financial forecasting and projections for all
Kraft business units.
- Review of capital expenditure proposals.
Additional services may be included upon agreement of both parties.
II SERVICE FEES
The Fee payable for corporate planning and analysis services shall be
$725,224. The Fee is based on the following:
The Fee will include: (i) salaries, fringe benefits, executive
compensation benefits (if applicable) and depreciation/amortization of
office equipment and software (the "Employee Costs") attributed to each
employee in the group based upon the ratio of PMMC's estimate of the
time spent by such employee on behalf of Kraft for the review of
Kraft's capital appropriation projects, the preparation of reports to
Kraft's Board of Directors, assistance provided to Kraft in preparing
its annual budget, strategic plan and financial forecasts,
participation in the preparation of Kraft's Form S-1 and the
acquisition and subsequent integration of Nabisco divided by the total
time spent by such employee multiplied by the Employee Costs for each
such employee; (ii) a management fee equal to 5% of the aggregate
amount calculated pursuant to (i); and (iii) third-party expenses,
including travel and entertainment, consulting fees and printing costs,
incurred on behalf of Kraft by PMMC.
III ADDITIONAL TERMS
10.1
Period of coverage will be ongoing subject to yearly reviews during the
annual budgeting process.
10.2
EXHIBIT 11
----------
CORPORATE BUSINESS DEVELOPMENT SERVICES
---------------------------------------
I DESCRIPTION OF SERVICES
A. SCOPE
Philip Morris Management Corp. ("PMMC") will provide corporate
business development services to Kraft Foods Inc. ("Kraft"), either
through PMMC's own resources, the resources of its subsidiaries or
Affiliates, as defined in the Services Agreement (the "Services
Agreement"), dated as of January 1, 2001, by and between PMMC and
Kraft, or by contracting with other independent contractors, all in
accordance with Section 2.2 of the Services Agreement.
-----------
B. SPECIFIC SERVICES
The specific services that PMMC will provide are as follows:
- Strategic planning and special projects for all Kraft
business units.
- Planning and implementation of acquisitions,
dispositions and strategic alliances for all Kraft
business units, including selection of financial
advisors and counsel.
Additional services may be included upon agreement of both parties.
II SERVICE FEES
The Fee payable for corporate business development services shall be
$459,273. The Fee is based on the following:
The Fee will include: (i) the salaries, fringe benefits, executive
compensation benefits (if applicable) and depreciation/amortization of
office equipment and software (the "Employee Costs") attributed to each
employee in the group based upon the ratio of PMMC's estimate of the time
spent by such employee for the review of Kraft's acquisitions and
divestitures, preparation of presentations to Kraft's Board of Directors,
preparation of Kraft's Form S-1 and accompanying road-show presentations,
administration of the Kraft IPO and the integration of Nabisco divided by
the total time spent by the employee multiplied by the Employee Costs of
such employee; (ii) a management fee equal to 5% of the aggregate amount
calculated pursuant to (i); and (iii) third-party expenses, including
travel and entertainment, consulting fees, investment banking fees and
printing costs, incurred on behalf of Kraft by PMMC.
III ADDITIONAL TERMS
Period of coverage will be ongoing subject to yearly reviews during the
annual budgeting process.
11.1
EXHIBIT 12
----------
FINANCIAL COMMUNICATIONS
AND INVESTOR RELATIONS SERVICES
-------------------------------
I DESCRIPTION OF SERVICES
A. SCOPE
Philip Morris Management Corp. ("PMMC") will provide investor
relations and financial communications services to Kraft Foods
Inc. ("Kraft"), either through PMMC's own resources, the resources
of its subsidiaries or Affiliates, as defined in the Services
Agreement (the "Services Agreement"), dated as of January 1, 2001,
by and between PMMC and Kraft, or by contracting with other
independent contractors, all in accordance with Section 2.2 of the
-----------
Services Agreement.
B. SPECIFIC SERVICES
The specific services that PMMC will provide are as follows:
- Preparation and dissemination of press releases,
earnings releases, quarterly conference calls and
analysts' communications.
- Coordination of all responses to written and oral
investor inquiries.
- Oversight of financial media relations.
- Participation in and coordination of Food
conferences.
- Responsible for market intelligence on food stocks
and peer companies, targeting investors,
distribution of analyst reports to food executives
and maintaining the Investor Relations web site.
- Preparation, printing and distribution of Kraft's
annual report to shareholders.
- Coordination and planning for Kraft's annual
meeting.
Additional services may be included upon agreement of both parties.
II SERVICE FEES
The Fee payable for corporate communications and investor relations
services shall be $754,496. The Fee is based on the following:
The Fee will include: (i) salaries, fringe benefits, executive
compensation benefits (if applicable) and depreciation/amortization of
office equipment and software (the "Employee Costs") attributed to one
full-time Kraft investor relations employee and an assistant; (ii) the
Employee Costs attributed to other employees based upon the ratio of
12.1
PMMC's estimate of time spent by each employee on projects applicable
to Kraft (press releases, road shows, analyst presentations, annual
meeting preparation, commissioning stock surveys, teleconferences and
web-site maintenance and video creation) divided by the total time
spent by such employee multiplied by the total Employee Costs of such
employee; (iii) a management fee equal to the aggregate amount
calculated pursuant to (i) and (ii); and (iv) third-party expenses
incurred for annual meetings, annual report design and printing,
shareholder fulfillment programs, investor booths and investor
conferences, investor relations and public image consulting, web-site
creation, earnings release conference calls and web-site telecasts,
video creation, road-show presentations and travel and entertainment
incurred on behalf of Kraft by PMMC.
III ADDITIONAL TERMS
Period of coverage will be ongoing subject to yearly reviews during the
annual budgeting process.
12.2
EXHIBIT 13
----------
GENERAL EXPENSES PAYMENT
------------------------
I DESCRIPTION OF SERVICES
A. SCOPE
Philip Morris Management Corp. ("PMMC") will calculate and arrange
for payment of the amounts listed in subparagraph B below, on
behalf of Kraft Foods Inc. ("Kraft"), either through PMMC's own
resources, the resources of its subsidiaries or Affiliates, as
defined in the Services Agreement (the "Services Agreement"),
dated as of January 1, 2001, by and between PMMC and Kraft, or by
contracting with other independent contractors, all in accordance
with Section 2.2 of the Services Agreement.
-----------
B. SPECIFIC SERVICES
- Stock Dividend Equivalents for Kraft Employees
- Kraft Foods Special Incentive Bonus
- IPO Road Show
- Secular/Executive Trust Administration
- Grocery Manufacturers Association Dues
- Maintenance of investments in TRANSORA and RMX
- PMMC Incentive Compensation
- PMMC Long-Term Incentive Compensation
- Pilot Severance Plan
- Benefit Equalization Expense
- PMMC Special Incentive Bonus
- Insurance Expenses
- Audit Fees
II SERVICE FEES
The reimbursement for the General Expenses shall be $37,253,000. The
reimbursement is based upon the following:
Kraft will reimburse PMMC for all amounts spent with respect to: (i)
Kraft Employee Stock Dividend Equivalents, Special Bonus and
Secular/Executive Trust Administration fees, IPO Road Show, Grocery
Manufacturers Association Dues, Insurance Expense and Audit Fees; (ii)
PMMC Executive Compensation based upon the ratio of annual salary and
fringe benefits as determined in Exhibits 1 through 13 of this
---------- --
Agreement; and (iii) a management fee equal to 5% of the aggregate
amount calculated pursuant to (ii).
13.1
III ADDITIONAL TERMS
Period of coverage will be ongoing subject to yearly reviews during the
annual budgeting process.
13.2
Services Agreement - Philip Morris Management Corp. and Kraft Foods Inc.
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