Filed by PepsiCo, Inc. Pursuant to Rule 425
under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12 under
the Securities Exchange Act of 1934
Subject Company: The Quaker Oats Company
Commission File No. 001-00012
Date: December 8, 2000
This filing contains certain "forward-looking" statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are
based on management's current expectations and are naturally subject to
uncertainty and changes in circumstances. Actual results may vary materially
from the expectations contained herein. The forward-looking statements
contained herein include, but not limited to, statements about benefits of the
pending merger between PepsiCo and Quaker Oats and PepsiCo's and Quaker Oats'
plans, objectives, expectations and other statements that are not historical
facts. Factors that could cause actual results to differ materially from those
described herein include: the inability to obtain shareholder or regulatory
approvals; actions of the U.S., foreign and local governments; the inability to
successfully integrate the businesses of PepsiCo and Quaker Oats; costs related
to the merger; the inability to achieve cost-cutting synergies resulting from
the merger; changing consumer or marketplace trends; and the general economic
environment. Neither PepsiCo nor Quaker Oats is under any obligation to (and
expressly disclaims any such obligation to) update or alter its forward-looking
statements, whether as a result of new information, future events, or
otherwise.
PepsiCo and Quaker Oats will file a proxy statement/prospectus and other
relevant documents concerning the proposed merger transaction with the SEC.
INVESTORS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS WHEN IT BECOMES
AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION. You will be able to obtain the documents free of
charge at the website maintained by the SEC at www.sec.gov. In addition, you may
obtain documents filed with the SEC by PepsiCo free of charge by requesting them
in writing from PepsiCo, Inc., 700 Anderson Hill Road, Purchase, New York 10577,
Attention: Secretary, or by telephone at (914) 253-2000. You may obtain
documents filed with the SEC by Quaker Oats free of charge by requesting them in
writing from The Quaker Oats Company, 321 North Clark Street, Chicago, Illinois
60610, Attention: Corporate Secretary, or by telephone at (312) 222-7111.
PepsiCo and Quaker Oats, and their respective directors and executive officers,
may be deemed to be participants in the solicitation of proxies from the
stockholders of PepsiCo and Quaker Oats in connection with the merger.
Information about the directors and executive officers of PepsiCo and their
ownership of PepsiCo shares is set forth in the proxy statement for PepsiCo's
2000 annual meeting of shareholders. Information about the directors and
executive officers of Quaker Oats and their ownership of Quaker Oats stock is
set forth in the proxy statement for Quaker's 2000 annual meeting of
stockholders. Investors may obtain additional information regarding the
interests of such participants by reading the proxy statement/prospectus when
its becomes available.
# # # #
<PAGE>
The following communication was disseminated to employees of The Quaker Oats
Company on December 8, 2000.
Quaker Employee Information/Q&A
Basic Statement of Philosophy
-----------------------------
It is our belief that employees are one of our greatest assets. It is our
philosophy when considering any form of restructuring of the business,
especially one designed to drive growth, that retaining current employees must
be a priority. Growth creates new opportunities and new jobs and we will need
good people to do those jobs. We understand that not everyone always finds a
suitable match, but because we are a large company there are many opportunities
we can explore to minimize the number of people who become dislocated by any
change.
General Statement on Compensation and Benefits
----------------------------------------------
Our first goal is to reassure employees that their Quaker compensation and
benefits are secure. PepsiCo and Quaker have agreed that for one year from the
merger date, Quaker employees and former employees will receive a level of
total compensation, including benefits, that is in the aggregate no less
favorable than that in effect immediately prior to the merger date.
Therefore, we intend to keep most existing Quaker pay and benefit programs in
place on the merger date without making a lot of changes.
Obviously, because Quaker stock will cease to exist, there will be some impact
on stock related plans. For example, all Quaker stock and stock options under
the plans will be converted to PepsiCo stock and stock options as of the merger
date.
As to changes following the merger date, we will make a careful assessment
before any modifications are made. Both Quaker and PepsiCo have had a policy of
providing strong, highly competitive compensation and benefits plans and we
intend to continue that policy in the new merged company.
To provide you with a general sense of timing related to the transaction, first
Quaker Shareholder approval is required, and we anticipate this happening in
the first quarter of 2001. This approval will also trigger the "change in
control" provisions under most Quaker plans. The actual merger date is expected
to occur shortly after approval from shareholders and relevant government
authorities.
COMPENSATION
------------
Base Salary
-----------
On the merger date, base salaries will continue at current levels. We will
continue with Quaker's normal annual compensation cycle to include performance
(merit), as well as other salary increases in accordance with usual practice.
<PAGE>
Bonus
-----
Quaker's bonus plans (MIB, VIP, SIP) for calendar year 2000 will be paid in
accordance with Quakers' usual practice on or before March 15, 2001. However,
an early pro-rata bonus payment for the calendar year 2001 bonus (MIB, VIP,
SIP) will be made based on performance between January 1, 2001 and the merger
date. To receive an early bonus payment, individuals must be actively employed
on the merger date.
Since no new Quaker equity can be granted under the accounting rules applicable
to the merger, employees will not have the opportunity to utilize their
calendar year 2000 or 2001 bonus to participate in the IIP.
Stock Options
-------------
The Quaker Long Term Incentive Plan, as amended, provides that all unvested
options vest and become exercisable on the date Quaker shareholders approve the
merger.
On the date of the actual merger, all outstanding Quaker options will be
converted into fully vested PepsiCo stock options. An adjustment to the number
of options and exercise prices will be made so that each individual's "option
gains" are the same before and after the conversion.
All other terms of the options will be the same, including the date of
expiration; and all options that don't otherwise expire before the merger will
continue to be exercisable following the merger.
Since Quaker stock will cease to exist, and future long term incentives will be
in PepsiCo stock, there will be no 2001 Quaker stock option grant made prior to
the merger.
Quaker and PepsiCo management intends to ask the merged companies' Board to
make PepsiCo option grants in 2001 following the merger.
Restricted Stock
----------------
The Quaker plans provide that all restrictions are lifted on the date Quaker
shareholders approve the merger and participants become fully vested in their
Quaker shares.
BENEFITS
--------
Severance
---------
All Quaker severance plans will remain unchanged and in full effect for at
least 12 months (24 months in the case of plans providing for such longer
period) following the merger.
ESOP
----
For 2001, all participants will receive their normal allocation under the plan
in Quaker stock, if before the merger or in PepsiCo stock, if after the merger.
Those employees who are affected by IRS limitations will receive corresponding
cash payments in accordance with past practice.
<PAGE>
Irrespective of the merger, the June 30, 2001 allocation will be the last
allocation of stock under the ESOP. It was Quaker's intention to consider
appropriate alternatives to the ESOP and that will be the merged companies'
intent.
Meanwhile all account balances, including employee 401(k) contributions will
remain fully funded in the trust and secure following the merger.
The ESOP allocation will be made to Quaker employees and employees of PepsiCo
will not participate in the June 30, 2001 award.
Pension Plan
------------
The plan and all features will remain unchanged on the merger date.
Pension service earned with Quaker will be honored with PepsiCo.
Current retirees are entitled to the same benefit levels as earned with Quaker.
Health and Welfare Plans
------------------------
All plans and coverage levels remain unchanged on the merger date. All
elections made during open enrollment will remain in force and no one's
outstanding claims will be affected.
<PAGE>
Sales/Distribution
------------------
Q: Does PepsiCo plan to distribute Gatorade through the bottling network?
A: The intention of PepsiCo is to continue to distribute Gatorade through
Quaker's current warehouse system. If Gatorade can benefit from the
vending and/or on-premise presence of Pepsi-Cola, we will certainly
explore that opportunity.
Q: Does PepsiCo plan to fold all of Tropicana's warehouse system into the
Gatorade distribution system?
A: Over the next few months, we will explore how to best use the Gatorade
warehouse system to accelerate the penetration of Tropicana ambient juice
products across the United States. How these systems come together has not
been finally determined, but it is an opportunity we will pursue.
Q: Is PepsiCo going to put all of Quaker's snack business through the
Frito-Lay distribution system?
A: PepsiCo has not assumed that all of Quaker snacks will go through the
Frito-Lay system. Synergies are expected based on the fact that we believe
that we can accelerate the innovation agenda in the snack business and
potentially achieve enough scale to warrant putting certain products in
the smaller format up and down the street channel. [Note: To make the
economics work today in the Frito system, a brand must have a certain
scale to be profitable.]
Q: What are you assuming about the synergies on the international side?
A: All we have assumed is that they are there and that we will explore them
jointly. We would encourage everyone on both sides to think about ways we
can work together in international markets.
Q. What are PepsiCo's plans with the cereal business?
A: Our only plan is to stay the course. We fully recognize that this is a
high quality business with great people, brands and margins. We also
realize that this business is important to Quaker's broker system in that
it gives a level of scale to their portfolios that cannot be
underestimated.
Q: What are your plans for the new Availability Sales Force?
A: Changes we make, if any, will be done in an evolutionary fashion that
makes sense for the economics of both sides. Our understanding of the
Availability Sales Force is that it is primarily focused on bringing more
"points of sweat" to the Gatorade business.
First, PepsiCo is not assuming that this business goes through the
bottling system, but is open to considering it where it makes sense.
Second, if for any reason we do decide to make changes here, the PepsiCo
system is hungry for talent because of the pace of growth. As a result, we
hope, consistent with the philosophy expressed above, that we would have
alternative opportunities for anyone affected by any change.
<PAGE>
Manufacturing
-------------
Q: By rationalizing hot-fill capacity do you mean we will be consolidating
our systems?
A: This is something that PepsiCo believes will be an opportunity, but
nothing has been decided. The plan is for the Quaker people to work with
Tropicana and Pepsi people to figure out how to make this an opportunity.
Q: Where will Quaker snacks be manufactured if they "join" the Frito
distribution system?
A: There is no plan to change the manufacturing strategies for Quaker snacks,
unless Quaker tells us it makes sense.
Q: You are calling for significant procurement savings. Does that mean
purchasing will be consolidated?
A: No. Each of our divisions does it's own purchasing, but they collaborate
together where it makes sense. We believe the merged company will gain
from greater presence because of the larger scale of the new enterprise,
especially in the area of beverage packaging. This will be a joint effort.
Q: Are there any changes with respect to the manufacturing rationalization
going on in the Cereal business?
A: No. Quaker is doing a great job of achieving those productivity goals in
an orderly way.
Headquarters
------------
Q: What are your plans to reduce the corporate staff?
A: PepsiCo divisions operate very independently. Each has a full staff
complement in the areas of finance, HR, marketing, R&D and so on. Our
Corporate headquarters primarily handles the responsibilities of
consolidation, financing, audit and the external reporting requirements of
a public company. Even areas such as strategy and M&A are joint efforts
with different areas of work carved out for the corporate and division
staffs.
Therefore, we have only assumed that the obvious duplication in the areas
of "public company" work would need to be rationalized and even that would
not happen for some time, as there will be ongoing needs to complete the
cycle of separate reporting for a while after the closing. We would hope
that this period would give us the time to find appropriate opportunities
for as many of the affected people as possible.
