WK Kellogg Co(KLG) - 2025 Q4 - Annual Results

Agreement Overview This section introduces the parties involved and the fundamental structure of the merger agreement, establishing WK Kellogg Co as a wholly-owned subsidiary of Ferrero International S.A. Parties to the Agreement This Agreement and Plan of Merger, dated July 10, 2025, is among Ferrero International S.A. ('Parent'), its wholly-owned subsidiary Frosty Merger Sub, Inc. ('Merger Sub'), and WK Kellogg Co ('Company'). The agreement outlines the terms for the merger of Merger Sub with and into the Company, with the Company surviving as a wholly-owned subsidiary of the Parent. - The agreement details the merger where WK Kellogg Co will become a wholly-owned indirect subsidiary of Ferrero International S.A.[7] - The Board of Directors for all parties (Company, Parent, and Merger Sub) have approved the merger agreement[9][10] - Concurrently, key stockholders including the W.K. Kellogg Foundation Trust have entered into a Voting Agreement to vote in favor of the merger[11] Definitions & Interpretations This section defines critical terms such as "Company Material Adverse Effect," "Acquisition Proposal," and "Superior Proposal," which govern key aspects of the merger agreement. Key Definitions This section provides definitions for key terms used throughout the merger agreement. Critical definitions include 'Company Material Adverse Effect,' which outlines events that would negatively impact the company's business, with specific carve-outs for general economic conditions, industry trends, and impacts from the merger announcement itself. It also defines 'Acquisition Proposal' and 'Superior Proposal,' which are central to the 'no-solicitation' clauses and the board's ability to change its recommendation. - Acquisition Proposal: An offer from a third party for a transaction involving more than 20% of the Company's stock, assets, net revenue, or net income[17][18][19] - Superior Proposal: An Acquisition Proposal (with the threshold raised to 50%) that the Company Board determines in good faith to be more favorable to stockholders from a financial point of view than the current merger agreement[95] - Company Material Adverse Effect (MAE): Defines a material adverse effect on the business, but excludes various factors such as general economic or industry conditions, political events, impacts from the agreement's announcement, and changes in stock price, unless they disproportionately affect the Company compared to its peers[31][32] - Tax-Free Status of the Transactions: Refers to the tax status of the prior separation and distribution transaction involving Kellanova, which must not be negatively affected by this merger[97][98] The Merger This section details the mechanics of the merger, including the cash consideration for common stock, the treatment of various equity awards, and the procedures for payment and share exchange. Merger Mechanics and Structure This section outlines the fundamental mechanics of the transaction. Upon closing, Merger Sub will merge with and into the Company. The Company will continue as the surviving corporation and become a wholly-owned subsidiary of the Parent. The merger becomes effective upon the filing of a Certificate of Merger with the Secretary of State of Delaware. Following the merger, the directors of Merger Sub will become the directors of the Surviving Corporation, while the officers of the Company will remain. - Merger Sub will merge into the Company, with the Company surviving as the 'Surviving Corporation' and a wholly-owned subsidiary of Parent[118] - The merger's closing will occur no later than the fifth business day after all conditions in Article VII are satisfied or waived[120] - Post-merger, the certificate of incorporation and bylaws will be amended and restated as per Exhibits A and B[121][122] Consideration for Capital Stock This section details the consideration stockholders will receive. Each share of WK Kellogg Co common stock will be converted into the right to receive a cash payment of $23.00 per share. Shares held by the Company as treasury stock or owned by Parent or its subsidiaries will be canceled without payment. Stockholders who properly exercise their appraisal rights under Delaware law will be entitled to the fair value of their shares as determined by the court. Merger Consideration | Security | Consideration per Share | | :--- | :--- | | Company Common Stock | $23.00 in cash | - Shares held by the Company, Parent, or Merger Sub (Owned Company Shares) will be canceled without any consideration[125] - Dissenting Company Shares, held by stockholders who perfect appraisal rights under Section 262 of the DGCL, will not be converted into the Per Share Price but will be entitled to payment of fair value[129] Treatment of Equity Awards This section specifies the treatment of the Company's outstanding equity awards. Vested Restricted Stock Units (RSUs) and Deferred Share Units (DSUs) will be canceled and converted into a cash payment equal to the per-share merger price. Unvested RSUs will be converted into cash awards that maintain their original vesting schedules. Performance Stock Units (PSUs) will be converted into cash awards based on a 140% of target achievement level, payable at the end of the original performance period, subject to continued service. The Employee Stock Purchase Plan (ESPP) will be terminated, with a final purchase occurring just before the merger. - Vested RSUs & DSUs: Canceled and converted into the right to receive cash equal to the $23.00 Per Share Price multiplied by the number of shares[130][136] - Unvested RSUs: Canceled and converted into a contingent cash award equal to the Per Share Price, subject to the same vesting terms as the original RSU[132] - Company PSUs: Canceled and converted into a contingent cash award based on 140% of target achievement, payable on the original vesting date subject to continued service[134] - Company ESPP: No new offering periods will commence, the current period will have a final exercise date immediately prior to the Effective Time, and the plan will terminate[139] Payment and Exchange Procedures This section details the process for stockholders to receive their merger consideration. Parent will appoint a Payment Agent and deposit sufficient funds to pay all stockholders. Holders of stock certificates will receive a letter of transmittal to surrender their certificates in exchange for the cash payment. Holders of uncertificated shares will receive payment automatically upon an 'agent's message' to the Payment Agent. Any funds remaining with the Payment Agent one year after the merger will be returned to Parent. - Parent will appoint a nationally recognized bank or trust company as the 'Payment Agent' to handle the exchange of shares for cash[142] - At the Effective Time, Parent will deposit the aggregate merger consideration into a 'Payment Fund' with the Payment Agent[143] - Any portion of the Payment Fund that remains undistributed one year after the Effective Time will be delivered to Parent, and stockholders must thereafter claim their payment from Parent[149] Representations and Warranties of the Company This section outlines the Company's assurances regarding its capitalization, financial statements, internal controls, absence of material adverse changes, tax matters, and engagement of financial advisors. Company Capitalization This section provides a snapshot of the Company's capital structure as of July 7, 2025. It details the authorized and outstanding shares of common and preferred stock, as well as the number of shares reserved for issuance under various equity compensation plans. Capitalization as of July 7, 2025 | Security Type | Number | | :--- | :--- | | Common Stock Issued & Outstanding | 86,411,497.471 | | Preferred Stock Issued & Outstanding | 0 | | Treasury Shares | 0 | | Shares subject to outstanding RSUs | 3,231,551 | | Shares subject to outstanding PSUs (at 140% target) | 1,686,353 | | Shares subject to outstanding DSUs | 28,864 | Financial Statements and Internal Controls The Company represents that its consolidated financial statements filed with the SEC were prepared in accordance with GAAP and fairly present its financial position. It also confirms the establishment and maintenance of effective disclosure controls, procedures, and internal controls over financial reporting as required by the Sarbanes-Oxley Act, with no identified material weaknesses or significant deficiencies. - The Company's consolidated financial statements fairly present its financial position in all material respects and were prepared in accordance with GAAP[177] - The Company maintains effective 'disclosure controls and procedures' and 'internal control over financial reporting' as defined under the Exchange Act[178] - No material weaknesses or significant deficiencies in internal controls have been identified, and no fraud involving management has been discovered[179][180] Absence of Certain Changes The Company represents that since the date of its last audited balance sheet (December 28, 2024), it has conducted its business in the ordinary course in all material respects. Furthermore, it confirms that no event has occurred that would reasonably be expected to have a Company Material Adverse Effect. - Since December 28, 2024, the business has been conducted in the ordinary course in all material respects[182] - Since December 28, 2024, there has not been any change, event, or occurrence that has had or would reasonably be expected to have a Company Material Adverse Effect[183] Tax Matters The Company makes several representations regarding its tax status and compliance. Key among these is the assertion that it knows of no fact or circumstance that would cause the merger to negatively affect the 'Tax-Free Status' of its prior separation and distribution from Kellanova. It also confirms compliance with tax filing, payment, and withholding obligations, and states that representations made to tax authorities and counsel for the prior spin-off were accurate. - The Company represents that it is not aware of any fact or circumstance that would reasonably be expected to cause the merger to affect the Tax-Free Status of the prior Separation Transactions with Kellanova[210] - The Company confirms that representations made in its 'Company Signing Representation Letter' for tax purposes are true, complete, and accurate[211] - The Company and its subsidiaries have complied in all material respects with the Tax Matters Agreement from the spin-off and are not aware of any pending indemnification claims related to the tax-free status of that transaction[218][219] Brokers The Company represents that it has not retained any financial advisor, broker, or finder entitled to a fee in connection with the merger, other than Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC. - The Company's financial advisors for this transaction are Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC[246] Representations and Warranties of Parent and Merger Sub This section provides Parent's and Merger Sub's assurances concerning their financial capacity, solvency post-merger, and the transaction's impact on the Company's prior tax-free spin-off. Sufficiency of Funds Parent represents that it has, and will have at closing, sufficient immediately available funds to consummate the transaction. This includes funds to pay the merger consideration, repay Company indebtedness, and cover all related fees and expenses. Crucially, Parent and Merger Sub acknowledge that their obligation to close the deal is not conditioned on the receipt or availability of any financing. - Parent has sufficient funds to complete the transaction and pay all related costs[264] - The obligation to consummate the merger is not subject to any financing condition[264] Solvency Parent represents that, after giving effect to the merger and all related payments, the Surviving Corporation will be solvent. This means its assets will exceed its liabilities, it will not have unreasonably small capital for its business, and it will be able to pay its debts as they mature. - Parent asserts that the Surviving Corporation will be solvent immediately following the merger[267] - The transaction is not being made with the intent to hinder, delay, or defraud creditors[268] Parent Tax Matters Similar to the Company's representation, Parent and Merger Sub represent that they know of no fact, agreement, or plan that would reasonably be expected to cause the merger to negatively affect the 'Tax-Free Status' of the Company's prior separation from Kellanova. - Parent and Merger Sub are not aware of any fact or circumstance that would jeopardize the tax-free status of the Company's prior spin-off transaction[272] Interim Operations of the Company This section specifies the Company's obligations and restrictions on its business conduct between the signing of the agreement and the merger's closing, including a "no-solicitation" clause. Affirmative Obligations (Conduct of Business) During the interim period between signing and closing, the Company covenants to use commercially reasonable efforts to conduct its business in the ordinary course. This includes preserving its assets, material contracts, and significant commercial relationships, and making capital expenditures in line with its agreed-upon budget. - The Company must conduct its business in all material respects in the ordinary course[279] - The Company must use commercially reasonable efforts to preserve its material assets, contracts, and business relationships[279] Forbearance Covenants (Negative Covenants) This section lists specific actions the Company is prohibited from taking during the interim period without Parent's prior written consent. These restrictions are designed to prevent significant changes to the business before the merger closes. Key prohibitions include amending organizational documents, issuing new securities, paying unapproved dividends, incurring significant debt, making large acquisitions or capital expenditures beyond the budget, and making material changes to employee compensation or benefits. - Prohibited from issuing, selling, or delivering any new Company securities, with exceptions for existing equity award settlements[281] - Prohibited from declaring or paying dividends, except for regular quarterly cash dividends in accordance with past practice and subject to disclosed limitations[281] - Prohibited from incurring new indebtedness, with exceptions for ordinary course borrowings under existing credit facilities[281] - Prohibited from making material changes to employee compensation, benefits, or hiring senior-level employees without consent[282] - Prohibited from making, changing, or revoking any material tax elections or settling material tax liabilities[282] No Solicitation of Alternative Transactions This section contains the 'no-shop' provision, which prohibits the Company from soliciting or negotiating alternative acquisition proposals. However, it includes a 'fiduciary out' allowing the Company Board to engage with an unsolicited proposal if it determines it constitutes or could lead to a 'Superior Proposal' and that failing to do so would be inconsistent with its fiduciary duties. If the Board decides to change its recommendation or terminate the agreement for a Superior Proposal, it must provide Parent with a notice period (typically 5 business days) to match the offer. - The Company is prohibited from soliciting, initiating, or knowingly encouraging any Acquisition Proposal[285] - The Company must cease all existing discussions with other parties regarding potential acquisitions[286] - A 'fiduciary out' exists, allowing the Board to engage with an unsolicited offer if it is or could reasonably lead to a 'Superior Proposal'[287] - Before changing its recommendation for a Superior Proposal, the Company must give Parent a 5-business-day 'Acquisition Proposal Notice Period' to negotiate and potentially improve its offer, any material change to the competing offer requires a new 3-business-day notice period[291] Additional Covenants This section covers various commitments from both parties, including efforts to secure antitrust approvals, SEC filings, cooperation for financing, and provisions for director and officer indemnification and employee matters. Antitrust and Regulatory Approvals Both parties agree to use their reasonable best efforts to obtain all necessary antitrust and regulatory approvals. They must file the HSR Notification and Report Form within 25 business days and other required antitrust filings within 20 business days. Parent is responsible for all filing fees. The agreement specifies that Parent is not required to agree to any divestitures, hold separate orders, or other remedies to secure approval. Parent is obligated to oppose any legal challenges to the merger by a governmental authority, including through litigation and appeals. - Parties must file HSR Act notifications within 25 business days of the agreement date[304] - Parent and Merger Sub must use reasonable best efforts to obtain all antitrust clearances[306] - However, Parent is not required to offer or agree to the sale, divestiture, or disposition of any assets or businesses of either Parent or the Company to secure regulatory approval[306] Proxy Statement and SEC Filings The Company is responsible for preparing and filing a preliminary proxy statement with the SEC as promptly as reasonably practicable, but no later than 20 business days after the agreement date. The Company must include the Board's recommendation in the proxy statement. Both parties must cooperate in preparing the filing and ensure the information provided is accurate. - The Company will prepare and file the preliminary Proxy Statement with the SEC no later than 20 business days after the agreement date[312] - The Company must use reasonable best efforts to disseminate the final Proxy Statement to stockholders within four business days after SEC clearance[318] Financing Cooperation The Company agrees to use commercially reasonable efforts to provide customary cooperation for Parent to arrange its debt financing for the transaction. This includes making senior management available for meetings, assisting with the preparation of marketing materials, and providing required financial information. Parent will reimburse the Company for all reasonable out-of-pocket costs incurred in this cooperation and will indemnify the Company against any liabilities arising from it. - The Company must provide commercially reasonable efforts to cooperate with Parent's debt financing efforts[323] - Cooperation includes causing senior management to participate in meetings and assisting with the preparation of bank information memoranda[323][324] - The Company is required to furnish the 'Required Financing Information,' which includes audited financials for fiscal years 2023 and 2024 and subsequent unaudited quarterly financials[87][324] - Parent must reimburse the Company for reasonable out-of-pocket expenses and indemnify the Company for liabilities related to this cooperation[333][334] D&O Indemnification and Insurance Parent agrees to honor all existing indemnification obligations for the Company's current and former directors and officers. For six years post-merger, the Surviving Corporation's organizational documents must contain indemnification provisions at least as favorable as the Company's current ones. The Company is required to purchase a six-year 'tail' policy for its directors' and officers' (D&O) liability insurance, with a premium not to exceed 300% of the current annual premium. - Parent and the Surviving Corporation will honor all indemnification agreements for current and former directors and officers ('Indemnified Persons') for six years post-merger[341][342] - The Company will purchase a six-year prepaid 'tail' D&O insurance policy with coverage equivalent to the current policy[344] - The aggregate cost for the tail policy shall not exceed 300% of the last full fiscal year's annual premium[344] Employee Matters Parent commits to certain protections for Company employees who continue employment after the merger ('Continuing Employees'). For a 12-month 'Continuation Period,' Parent will provide base salary, target cash incentive opportunities, and severance benefits that are no less favorable than what employees had before the merger. Target long-term incentive opportunities will also be no less favorable, though they can be substituted with cash. The agreement also details the handling of annual bonuses for the year prior to and the year of the closing. - For a 12-month 'Continuation Period' post-closing, Continuing Employees will receive compensation and benefits that are generally comparable to their pre-merger arrangements[350] - Specifically, base salary, target short-term cash incentive opportunities, and severance benefits will be no less favorable[350] - Continuing Employees will receive credit for their service with the Company for purposes of vesting and eligibility in new benefit plans[353] - Unless directed otherwise by Parent, the Company will terminate its 401(k) plan immediately prior to the Effective Time[356] Conditions to the Merger This section enumerates the prerequisites that must be satisfied or waived for the merger to close, covering mutual conditions and those specific to Parent and Merger Sub. Mutual Conditions to Closing This section lists the conditions that must be met for both parties to be obligated to close the merger. These include obtaining the required stockholder approval, the expiration or termination of waiting periods under HSR and other specified antitrust laws, and the absence of any law or court order prohibiting the transaction. - The Company must have obtained the Requisite Stockholder Approval[373] - Antitrust waiting periods under the HSR Act and in other specified jurisdictions must have expired or been terminated[374] - There must be no law or final, non-appealable court order prohibiting the merger[375] - A key condition from the Tax Matters Agreement related to the prior spin-off must be waived pursuant to the Waiver Agreement[376] Conditions to Parent's and Merger Sub's Obligations This section outlines the conditions that must be satisfied for Parent and Merger Sub to be obligated to close. These include the accuracy of the Company's representations and warranties, the Company's performance of its covenants, the absence of a Company Material Adverse Effect since the agreement date, and the receipt of a closing tax opinion regarding the prior spin-off transaction. - The Company's representations and warranties must be true and correct as of the closing date, subject to specified materiality standards[377] - The Company must have performed its covenants in all material respects[378] - No Company Material Adverse Effect shall have occurred since the date of the agreement[379] - Parent must have received the Parent Closing US Tax Opinion, confirming the merger will not affect the tax-free status of the prior spin-off, subject to certain exceptions[381][382] Termination This section defines the circumstances under which the merger agreement can be terminated and specifies the associated termination fees payable by either the Company or Parent. Termination Rights This article specifies the circumstances under which the merger agreement can be terminated. Termination can occur by mutual consent, if the merger is not completed by the 'Termination Date' (initially January 10, 2026, with a possible extension to July 10, 2026 for antitrust reasons), if stockholder approval is not obtained, or due to a legal prohibition. Parent can terminate if the Company's board changes its recommendation or for an uncured breach by the Company. The Company can terminate for an uncured breach by Parent or to accept a Superior Proposal, provided it pays the termination fee. - The agreement can be terminated by either party if the merger hasn't closed by the Termination Date of January 10, 2026, extendable to July 10, 2026, if regulatory approvals are pending[387] - Parent can terminate if the Company Board effects a 'Company Board Recommendation Change'[388] - The Company can terminate to enter into an agreement for a 'Superior Proposal', provided it has complied with the no-solicitation clause and pays the Company Termination Fee[388] Termination Fees and Expenses This section details the termination fees payable under certain conditions. The Company would owe a termination fee if the agreement is terminated under specific circumstances, such as the board changing its recommendation or accepting a superior proposal. Parent would owe a larger termination fee if the agreement is terminated due to the failure to obtain required antitrust approvals. These fees are presented as the sole and exclusive remedy for the specified termination events, though liability for a 'Willful and Material Breach' is preserved. Termination Fees | Fee | Amount | Payable By | Conditions | | :--- | :--- | :--- | :--- | | Company Termination Fee | $73,543,400 | Company | Payable to Parent if terminated for a Board Recommendation Change, accepting a Superior Proposal, or under certain other conditions followed by the Company entering into an alternative transaction within 12 months | | Parent Termination Fee | $105,062,000 | Parent | Payable to the Company if terminated due to failure to obtain antitrust approval | - Upon payment, the applicable termination fee is the sole and exclusive remedy for the receiving party, except for enforcement of confidentiality, certain expenses, and specific performance rights[398][401] - Termination of the agreement does not relieve any party from liability for a 'Willful and Material Breach' prior to termination[391] General Provisions This section addresses standard contractual clauses, including remedies for breach, specific performance rights, the governing law, and jurisdiction for dispute resolution. Remedies and Specific Performance This section establishes that remedies are cumulative. It explicitly states that the parties are entitled to seek specific performance and injunctions to prevent breaches of the agreement, acknowledging that monetary damages would be an inadequate remedy. The parties agree not to object to the granting of such equitable relief and waive any requirement for the posting of a bond. - Parties agree that irreparable damage would occur if the agreement is not performed, and that monetary damages are not an adequate remedy[418] - Parties are entitled to seek an injunction, specific performance, and other equitable relief to prevent breaches and enforce the terms of the agreement[418] Governing Law and Jurisdiction The agreement and any related legal actions will be governed by the laws of the State of Delaware, without regard to its conflict of law principles. The parties consent to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or other state or federal courts within Delaware if necessary) for any disputes arising from the agreement. A separate provision establishes that any disputes involving debt financing sources will be governed by the law specified in the financing documents. - The agreement is governed by the laws of the State of Delaware[420] - The parties submit to the exclusive jurisdiction of the Delaware Court of Chancery for any disputes[423] - All parties irrevocably waive any right to a trial by jury for any controversy arising from the agreement[426]