1995
Notice of Annual Meeting
and Proxy Statement
[Picture of Quaker logo goes here]
Annual Meeting of Shareholders
9:30 a.m., Wednesday, November 8, 1995
Hotel Nikko Chicago
320 North Dearborn Street
Chicago, Illinois 60610
THE QUAKER OATS COMPANY
321 N. Clark Street
Chicago, Illinois 60610
October 2, 1995
Dear Shareholder:
You are cordially invited to attend the 1995 Annual Meeting
of Shareholders of The Quaker Oats Company on
Wednesday, November 8, 1995, at 9:30 a.m. (CST) at the
Hotel Nikko Chicago, 320 North Dearborn Street, Chicago,
Illinois.
The items of business to be acted on during the Meeting
include: the election of five directors to serve three-year
terms expiring in 1998; the ratification of the appointment of
Arthur Andersen LLP as independent public accountants for
the six-month fiscal transition period ending December 31,
1995; and such other business as may properly come
before the Meeting or any adjournment thereof, including a
shareholder proposal. The accompanying Proxy Statement
contains complete details on the proposals and other
matters.
If you plan to attend this year's Meeting, you may obtain an
admittance card by completing the enclosed reservation
form and returning it with your proxy card. If your shares are
held by a bank or broker, you may obtain an admittance
card by returning the reservation form they forwarded to
you. If, however, you do not receive a reservation form
directly from the Company, or the bank or broker holding
your shares, you may still obtain an admittance card by
sending a written request, accompanied by proof of
ownership (such as your brokerage statement), to
Shareholder Services, The Quaker Oats Company, P.O.
Box 049001, Suite 25-9, Chicago, Illinois 60604-9001. For
your convenience, we highly recommend that you bring
your admittance card to the Meeting so you can avoid
the lines in the registration area and proceed directly to
the Hotel Nikko Ballroom. However, if you do not have
an admittance card by the time of the Meeting, please
bring proof of share ownership to the registration area
located in the front of the Ballroom where our personnel
will assist you.
Your participation in the affairs of the Company is important,
regardless of the number of shares you hold. To ensure
your representation at the Meeting, whether or not you are
able to be present, please complete and return the enclosed
proxy card as soon as possible. If you do attend the
Meeting, you may then revoke your proxy and vote in
person if you so desire.
I look forward to seeing you on November 8. Coffee will be
served after the Meeting, when the members of the Board of
Directors hope to visit with you.
Cordially,
/s/ William D. Smithburg
William D. Smithburg
Chairman and Chief Executive Officer
TABLE OF CONTENTS
Page
Notice of Annual Meeting of Shareholders 3
Proxy Statement 4
Election of Directors 5
The Board of Directors 9
Attendance 9
Compensation and Benefits 9
Committees 10
Ownership of the Company's Securities 11
Beneficial Owners of
More Than 5 Percent 11
Directors and Management 11
Compliance with Section 16(a) 12
Executive Compensation 13
Summary Compensation Table 13
Option Grants Table 15
Option Exercises Table 16
Pension Plans 16
Termination and Change
in Control Benefits 17
Compensation Committee Report 19
Performance Graph 21
Directors' Proposal 22
Ratification of Appointment of
Independent Public Accountants 22
Shareholder Proposal 22
Compensation Disclosure 22
For 1996 Annual Meeting 23
Other Business 23
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
October 2, 1995
To the Shareholders of The Quaker Oats Company:
Notice is hereby given that the Annual Meeting of
Shareholders of The Quaker Oats Company will be held on
Wednesday, November 8, 1995 at the Hotel Nikko Chicago,
320 North Dearborn Street, Chicago, Illinois at 9:30 a.m.
(CST), for the following purposes:
To elect five directors in Class III to serve for three-
year terms expiring in 1998 or until their
successors are elected and qualified;
To ratify the Board of Directors' appointment of
Arthur Andersen LLP as independent public
accountants for the Company for the six-month
fiscal transition period ending December 31, 1995;
and
To transact such other business as may properly
come before the Meeting or any adjournment
thereof, including a shareholder proposal
concerning compensation disclosure of certain
employees.
By resolution of the Board of Directors, only shareholders of
record as of the close of business on September 20, 1995
are entitled to notice of, and to vote at, the Annual Meeting.
The Annual Report of the Company, including financial
statements for the year ended June 30, 1995, has been
mailed to all shareholders.
By order of the Board of Directors,
/s/ R. Thomas Howell, Jr.
R. Thomas Howell, Jr.
Corporate Secretary
PROXY STATEMENT
This proxy statement is being mailed to shareholders on or
about October 2, 1995 and is furnished in connection with
the solicitation of proxies by the Board of Directors of The
Quaker Oats Company (the "Board" and the "Company") for
use at the Annual Meeting of Shareholders to be held on
November 8, 1995, including any adjournment thereof (the
"Annual Meeting" or the "Meeting").
The Annual Meeting is called for the purposes stated in the
accompanying notice of the Meeting. All shareholders of the
Company's $5.00 par value common stock and Quaker
Series B ESOP Convertible Preferred Stock (ESOP
Preferred Stock) as of the close of business on September
20, 1995 are entitled to vote at the Meeting. As of that date,
there were 134,290,280 outstanding shares of common
stock and 1,182,118 outstanding shares of ESOP
Preferred Stock. Treasury shares are not included in the
totals. On each matter coming before the Meeting, a
common stock shareholder is entitled to one vote for each
share of stock held as of the record date and a preferred
stock shareholder is entitled to 2.2 votes for each share held
as of the record date.
A majority of the outstanding shares entitled to vote must be
represented in person or by proxy at the Meeting in order to
constitute a quorum for the transaction of business. A proxy
marked "abstain" on a matter will be considered to be
represented at the Meeting, but not voted for purposes of
the election of directors and other matters put to a
shareholder vote at the Meeting, and therefore will have no
effect on the vote. Shares registered in the names of
brokers or other "street name" nominees for which proxies
are voted on some, but not all matters, will be considered to
be voted only as to those matters actually voted, and will not
be considered for any purpose as to the matters with
respect to which a beneficial holder has not provided voting
instructions (commonly referred to as "broker non-votes").
If a proxy is properly signed and is not revoked by the
shareholder, the shares it represents will be voted at the
Meeting by the Proxy Committee in accordance with the
instructions of the shareholder. If no specific instructions
are designated, the shares will be voted as recommended
by the Board.
A proxy may be revoked at any time before it is voted at the
Meeting. Any shareholder who attends the Meeting and
wishes to vote in person may revoke his or her proxy at that
time. Otherwise, revocation of a proxy must be
communicated in writing to the Corporate Secretary of the
Company at its principal office, P.O. Box 049001, Suite 25-6,
Chicago, Illinois 60604-9001.
If a shareholder is a participant in the Company's Dividend
Reinvestment and Stock Purchase Plan, Investment Plan,
Stock Bonus Savings Plan, or Employee Stock Ownership
Plan, the proxy card will represent the number of shares
registered in the participant's name and the number of whole
and fractional shares credited or allocated to the
participant's account under the plans. For those shares held
in the plans, the proxy card will serve as a direction to the
trustee or voting agent under the various plans as to how
the shares in the accounts are to be voted. Fractional
shares will not be voted in the Dividend Reinvestment and
Stock Purchase Plan.
Under the Company's Bylaws, for all matters submitted to
the shareholders for a vote, all proxies, ballots and voting
tabulations that identify how shareholders voted will be kept
confidential and not be disclosed to any of the Company's
directors, officers or employees except when disclosure is
mandated by law, is expressly requested by a shareholder,
or during a contested election for the Board.
The Company will bear the cost of the solicitation of proxies,
including the charges and expenses of brokerage firms and
other custodians, nominees and fiduciaries for forwarding
proxy materials to the beneficial owners of shares of stock.
Solicitations will be made primarily by mail, but certain
directors, officers or regular employees of the Company may
solicit proxies in person or by telephone or telegram without
special compensation. In addition, the Company has
retained Kissel-Blake Inc. to assist in soliciting proxies from
brokers, dealers, voting trustees, banks and other nominees
and institutional holders for a fee not to exceed $18,000 plus
reimbursement of reasonable out-of-pocket expenses.
ELECTION OF DIRECTORS
The Restated Certificate of Incorporation of the Company provides
that the members of the Board shall be divided into three classes with
staggered three-year terms. The Certificate requires that successors
to directors whose terms expire at each Annual Meeting shall be
elected at that meeting. The terms of the directors in Class lII expire
with this Annual Meeting.
The Board has nominated five persons for election as directors in
Class III to serve for three-year terms expiring in 1998 or until
their successors are elected and qualified. All nominees are
currently serving as directors and have consented to serve for
the new term.
Biographical information (including principal occupations for the
past five years and ages as of October 2, 1995) follows for each
person nominated and each director whose term in office will
continue after the Meeting.
It is the intention of those persons named in the accompanying proxy
to vote in favor of the five nominees listed below. Should any one or
more of these nominees become unavailable for election, the proxy will
be voted for such other persons, if any, as the Board may recommend.
The election of directors requires a plurality of the votes cast at
the Meeting. If all nominees are elected, the Board will be
comprised of eleven members, eight nonemployee directors
and three directors who are officers of the Company.
NOMINEES FOR DIRECTOR
Terms Expiring in 1998
[Photos of each director are to the left of each biography]
FRANK C. CARLUCCI
Director Chairman, The Carlyle Group
1983 - 1987 (merchant banking).
and then Also a director of Ashland
since 1989 Oil, Inc.; BDM
International, Inc.; Bell
Age 64 Atlantic Corporation; C.B.
Commercial Real Estate
Group; General Dynamics
Corp.; Kaman Corporation;
Neurogen Corp.; Northern
Telecom Limited; Texas
Biotechnology Corporation;
Upjohn Co.; and Westinghouse
Electric Corporation.
Chairman of the Company's
Audit Committee and Member
of the Nominating and Public
Responsibility Committees.
SILAS S. CATHCART
Director Retired Chairman of Illinois
1964 - 1987 Tool Works Incorporated
and then (fasteners, components,
since 1989 assemblies and systems).
Also a director of Baxter
Age 69 International Inc.; General
Electric Company; Illinois
Tool Works Incorporated; and
Montgomery Ward and Co.;
Chairman, Board of Trustees,
Northern Funds Mutual Funds;
and a trustee of the Bradley
Trust, Milwaukee and the
Buffalo Bill Memorial
Association.
Chairman of the Company's
Compensation Committee and
Member of the Nominating
Committee.
NOMINEES FOR DIRECTOR
Terms Expiring in 1998
VERNON R. LOUCKS, JR.
Director Chairman and Chief Executive
since 1981 Officer, Baxter International
Inc. (health care products).
Age 60 Also a director of Anheuser-Busch
Companies, Inc.; Dun & Bradstreet
Corporation; and Emerson Electric
Co.
Chairman of the Company's
Nominating Committee and Member
of the Compensation and Executive
Committees.
WILLIAM D. SMITHBURG
Director Chairman and Chief Executive
since 1978 Officer of the Company; also
served as President (1990 -
Age 57 1993). Also a director of Abbott
Laboratories; Corning
Incorporated; Northern Trust
Corporation; and Prime Capital
Corp.
Member of the Company's Executive
Committee and ex-officio member
of the Nominating Committee.
WILLIAM L. WEISS
Director Chairman Emeritus, Ameritech
since 1985 Corporation (telecommunications)
since 1994; formerly Chairman and
Age 66 Chief Executive Officer (1984 -
1994). Also a director of Abbott
Laboratories; Merrill Lynch &
Co.; and Tenneco Inc.
Chairman of the Company's Finance
Committee and Member of the
Compensation, Executive and
Nominating Committees.
DIRECTORS CONTINUING IN OFFICE
Terms Expiring in 1997
JUDY C. LEWENT
Director Senior Vice President and Chief
since 1994 Financial Officer, Merck & Co.,
Inc. (pharmaceuticals) since
Age 46 1992; formerly Vice President for
Finance and Chief Financial
Officer (1990 -1992); and Vice
President and Treasurer (1987-
1990). Also a director of Astra
Merck, Inc.; The DuPont Merck
Pharmaceutical Company; Johnson &
Johnson Merck Consumer
Pharmaceuticals Company;
Motorola, Inc.; and Rockefeller
Financial Services, Inc.
Member of the Company's Audit,
Finance, Nominating and Public
Responsibility Committees.
PHILIP A. MARINEAU
Director President and Chief Operating
since 1990 Officer of the Company since
1993; formerly Executive Vice
Age 48 President and Chief Operating
Officer (1992-1993); Executive
Vice President - Grocery
Products, North and South America
(1991-1992); Executive Vice
President - U.S. Grocery
Products (1989-1991). Also a
director of Arthur J. Gallagher &
Co.
Member of the Company's Executive
Committee.
LUTHER C. McKINNEY
Director Senior Vice President - Law and
since 1978 Corporate Affairs of the Company
since November 1994; formerly
Age 64 Senior Vice President - Law and
Corporate Affairs and Corporate
Secretary (1982 - 1994).
Member of the Company's Executive
Committee.
DIRECTORS CONTINUING IN OFFICE
Terms Expiring in 1996
KENNETH I. CHENAULT
Director Vice Chairman, American Express
since 1992 Company (financial and travel
services) since February 1995;
Age 44 formerly President - USA American
Express Travel Related Services
Company, Inc. (1993 - February
1995); President - Travel Related
Services, USA American Express
Travel Related Services Company,
Inc. (1993); and President -
Consumer Card Group, USA American
Express Travel Related Services
Company, Inc.(1989 -1993). Also
a director of Brooklyn Union Gas
Co.
Member of the Company's Audit,
Finance, Nominating and Public
Responsibility Committees.
THOMAS C. MacAVOY
Director Paul M. Hammaker Professor of
since 1975 Business Administration, Darden
Graduate School of Business
Age 67 Administration, University of
Virginia. Also a director of The
Chubb Corporation and The
Lubrizol Corporation.
Member of the Company's Audit,
Nominating and Public
Responsibility Committees.
WALTER J. SALMON
Director Stanley Roth Sr., Professor of
since 1971 Retailing, Harvard Business
School. Also a director of
Age 64 Circuit City Stores, Inc.;
Hannaford Bros. Co.; Harrah's
Entertainment, Inc.; Luby's
Cafeterias, Inc.; and Neiman-
Marcus Group, Inc.
Member of the Company's Finance
and Nominating Committees.
THE BOARD OF DIRECTORS
Attendance
During the fiscal year ended June 30, 1995, the Board held
six regular and three special meetings, and executed three
actions by unanimous written consent. The attendance of
directors at all regular and special meetings of the Board
was 98%. In addition to membership on the Board, each
nonemployee director serves on one or more standing
committees of the Board. The attendance of directors at all
meetings of the Board and committees was 97%.
Compensation and Benefits
Directors who are full-time salaried employees of the
Company are not compensated for their service on the
Board or any committee. Directors who are not employees
of the Company receive an annual retainer of $45,000.
They are also paid a fee of $1,000 per day for each Board
meeting attended, $1,000 for each committee meeting
attended and $1,000 for each action taken by written
consent, plus travel and lodging expenses where
appropriate. A committee chairman receives an additional
annual retainer of $5,000.
Under the Deferred Compensation Plan for Directors of The
Quaker Oats Company each nonemployee director may
elect to defer receipt of all or a portion of his or her
compensation until the individual ceases to be a director.
The deferred amounts may be carried at the option of the
director as Cash Units, and credited with interest; Common
Stock Units, which are deferred amounts converted into
whole units on a quarterly basis by dividing the deferred
amount by the fair market value of the Company's common
stock, and credited with amounts equivalent to dividends as
paid on the Company's common stock, which are converted
into additional Common Stock Units; or a combination of
Cash Units and Common Stock Units. The accumulated
deferred amounts will be distributed in cash as of the next
January 1 after the director leaves the Board, or in equal
annual installments (not exceeding 15) commencing as of
the next January 1 after the director leaves the Board
pursuant to the director's election, with Common Stock Units
valued at the fair market value of the Company's common
stock immediately prior to the payment date. If the director
has not attained age 55 at the time of leaving the Board,
payments in accordance with the foregoing will be made or
commence on the January 1 next following the director's
attainment of age 55.
Under The Quaker Oats Company Stock Retirement Plan
for Outside Directors separate accounts are opened by the
Company for each nonemployee director. On July 1 of each
year, each account is credited with Common Stock Units
representing 800 shares of the Company's common stock.
In addition, the account is credited with Common Stock
Units with a value equivalent to cash dividends payable on
the shares represented by Units in the account. All accrued
common stock represented by Units in a director's account
will be distributed in kind as of the next January 1 after the
director leaves the Board, or in equal annual installments
(not exceeding 15) commencing as of the next January 1 after
the director leaves the Board, pursuant to the director's election.
Committees
The Board has appointed six standing committees from
among its members to assist it in carrying out its obligations.
Committee membership and responsibilities are reviewed by
the Board in November of each year, and committee
appointments are made by the Board in November of every
fourth year. The principal responsibilities of each committee
are described in the following paragraphs.
The Audit Committee, comprised entirely of nonemployee
directors, is primarily concerned with the effectiveness of the
Company's accounting policies and practices, financial
reporting and internal controls. Specifically, the Committee
recommends to the Board the firm to be appointed as the
Company's independent public accountants, subject to
ratification by the shareholders; reviews and approves the
scope of the annual examination of the books and records of
the Company and its subsidiaries and reviews the audit
findings and recommendations of the independent public
accountants; considers the organization, scope and
adequacy of the Company's internal auditing function;
monitors the extent to which the Company has implemented
changes recommended by the independent public
accountants, the internal audit staff, or the Committee; and
provides oversight with respect to accounting principles to
be employed in the Company's financial reporting. The
Committee met three times during fiscal 1995.
The Compensation Committee, comprised entirely of
nonemployee directors, oversees the Company's
compensation and benefit policies and programs, including
administration of the Management Incentive Bonus Plan,
Long Term Incentive Plan of 1990, and 1984 Long-Term
Incentive Plan. It also recommends to the Board annual
salaries, bonuses and stock option awards for elected
officers and certain other key executives. The Committee
met six times during fiscal 1995.
The Executive Committee, comprised of three directors
who are also officers of the Company and two nonemployee
directors, exercises all the powers and authority of the
Board in the management of the business and affairs of the
Company during the intervals between meetings of the
Board, subject to the restrictions set forth in the Bylaws.
The Committee acted by unanimous written consent two
times during fiscal 1995.
The Finance Committee, comprised entirely of
nonemployee directors, is charged with reviewing the
Company's annual financing plan, including its projected
financial condition and requirements for funds; approving
certain long-term debt borrowing arrangements; advising the
Board on all financial recommendations requiring Board
approval; and monitoring the investment performance of the
Company's pension funds and participant-directed
investment accounts. The Committee met four times during
fiscal 1995.
The Nominating Committee, comprised of all the
nonemployee directors and Mr. Smithburg as an ex-officio
member, develops and recommends to the Board guidelines
with respect to the size and composition of the Board and
criteria for the selection of candidates for director. It also
recommends the slate of director nominees to be included in
the proxy statement, and recommends candidates to fill any
vacancies that may occur and candidates for directorships
created by an increase in the total number of directors.
The Committee will entertain nominees for directorships
recommended by shareholders. A shareholder
recommendation should be sent to the Committee in care of
the Corporate Secretary of the Company, accompanied by a
statement of the nominee indicating willingness to serve if
elected. The nomination should also state the shareholder's
reasons for the recommendation and should disclose the
principal occupations the nominee has held over the past
five years and a list of all publicly held companies for which
the individual serves as a director. The Committee met one
time during fiscal 1995.
The Public Responsibility Committee, comprised entirely
of nonemployee directors, provides guidance on the
Company's policies and programs in major areas of social
responsibility and corporate citizenship, including product
quality and safety and other consumer issues,
environmental protection, equal employment opportunity
and employee health and safety. It also reviews and
approves policy guidelines and budgets for the Company's
corporate contributions program. The Committee met two
times during fiscal 1995.
OWNERSHIP OF THE COMPANY'S SECURITIES
Beneficial Owners of More Than 5 Percent
As of September 1, 1995, each person or entity who may be deemed
to have beneficial ownership of more than 5% of the Company's
outstanding common stock based upon information furnished to the
Company are set forth in the following table.
Amount and
nature of
Name and address beneficial Percent of
of beneficial owner ownership class
The Quaker Employee Stock 10,580,901 (1) 7.73% (2)
Ownership Plan
321 North Clark Street
Chicago, Illinois 60610
Southeastern Asset 7,184,900 5.35% (3)
Management
6075 Poplar Avenue
Memphis, Tennessee 38119
(1) This amount includes 2,567,776 shares of common stock based
on the conversion of 1,188,785 shares of ESOP Preferred Stock (at
the conversion rate of 2.16 shares of common stock for each share of
ESOP Preferred Stock) representing 100% of the issued and outstanding
stock of that class.
(2) In accordance with applicable rules of the Securities and
Exchange Commission (SEC), this percentage is based upon
the total of the 134,287,347 shares of common stock and the
conversion of 1,188,785 shares of ESOP Preferred Stock (at the
2.16 conversion rate) that were outstanding on September 1, 1995.
(3) In accordance with applicable rules of the SEC, this
percentage is based upon only the 134,287,347 shares of
common stock that were outstanding on September 1, 1995.
Directors and Management
As of September 1, 1995, each director, each nominee, each Named
Executive (see page 13) and all directors and executive officers of
the Company as a group beneficially owned the number of shares of
the Company's common stock set forth in the following table. Shares
subject to acquisition within 60 days through the exercise of stock
options are included in the first column and are shown separately in
the second column.
Shares
subject to
Name of individual or Amount and nature acquisition
persons in group of beneficial within 60
ownership days (a)
Frank C. Carlucci 7,062 (b)(c) 0
Silas S. Cathcart 24,504 (c)(d) 0
Kenneth I. Chenault 3,354 (c) 0
James F. Doyle 234,517 (e)(f) 211,412
Judy C. Lewent 1,626 (c) 0
Vernon R. Loucks, Jr. 11,512 (c) 0
Thomas C. MacAvoy 11,512 (c) 0
Philip A. Marineau 701,671 (e)(f)(g)(h) 587,978
Luther C. McKinney 433,805 (e)(f)(g) 360,624
Walter J. Salmon 18,094 (c) 0
William D. Smithburg 1,324,782 (e)(f)(g) 1,060,676
Robert S. Thomason 242,660 (e)(f)(g)(i) 204,764
William L. Weiss 10,392 (c)(j) 0
All directors and
executive officers as
a group 4,414,745 (e)(f)(g) 3,507,222
(a) Unless otherwise indicated, each named individual and each
person in the group has sole voting power and sole investment power
with respect to the shares shown. These shares represent less than 1%
for every person, and approximately 3% for all directors and executive
officers as a group, of the total shares outstanding, including shares
subject to acquisition within 60 days after September 1, 1995.
(b) Of these shares, 300 are held in a custodial account for
Mr. Carlucci's daughter, through which he shares voting and
investment power with his wife.
(c) The figures shown for these directors include an aggregate
of 59,952 common stock units credited to them under The Quaker
Oats Company Stock Retirement Plan for Outside Directors.
(d) Of these shares, 13,560 are held in a trust of which
Mr. Cathcart is a co-trustee and has a contingent beneficial interest
and shares voting and investment power.
(e) The figures shown for these executive officers include an
aggregate of 92,662 shares (which includes 14,381 shares
on the basis of the conversion of 6,658 shares of ESOP
Preferred Stock at the conversion rate of 2.16) allocated to
them in The Quaker Employee Stock Ownership Plan. The
Named Executives each hold the following number of
shares under this Plan: Mr. Smithburg, 12,967; Mr.
Marineau, 7,320; Mr. Doyle, 6,182; Mr. Thomason, 3,121;
and Mr. McKinney, 8,408.
(f) The figures shown for these executive officers include an
aggregate of 106,108 shares granted to them under The
Quaker Long Term Incentive Plan of 1990 for which the
restricted period has not lapsed. The Named Executives
each hold the following number of shares under this Plan:
Mr. Smithburg, 8,172; Mr. Marineau, 65,142; Mr. Doyle,
2,625; Mr. Thomason, 1,798; and Mr. McKinney, 1,042.
(g) The figures shown for these executive officers include an
aggregate of 47,893 shares representing their proportionate
interests in the Quaker Stock Fund of The Quaker
Investment Plan. The Named Executives each hold the
following number of shares under this Plan: Mr. Smithburg,
965; Mr. Marineau, 0; Mr. Doyle, 0; Mr. Thomason, 653; and
Mr. McKinney, 41,227.
(h) Of these shares, 200 are owned jointly by Mr. Marineau
and his mother, and 3,612 are held in trust of which his
children have beneficial interest.
(i) Of these shares, 15,000 are held directly by his wife and
1,600 are owned jointly by Mr. Thomason and his children.
(j) Of these shares, 800 are held in a trust of which Mr.
Weiss' wife is income beneficiary.
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors, executive officers and
persons who beneficially own more than 10% of a registered
class of the Company's equity securities to file reports of
ownership and changes in ownership with the SEC and the
New York Stock Exchange (the "NYSE"). The Company
inadvertently caused one report for Robert S. Thomason to
be filed late with respect to a sale of common stock on
December 10, 1993. To the best of the Company's
knowledge, all other such reports required to be filed under
Section 16(a) by the Company's directors and executive
officers were timely filed.
EXECUTIVE COMPENSATION
<TABLE>
The following table details annual and long term
compensation paid during the Company's three most recent
fiscal years to the Company's Chairman and Chief Executive
Officer and four most highly compensated executive officers
for fiscal 1995 (Named Executives).
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
Other Restricted Securities All
Annual Stock Underlying Other
Fiscal Salary Bonus Compensation Awards Options Compensation
Name Year ($) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5)
<S> <C> <C> <C> <C> <C> <C> <C>
William D. Smithburg 1995 $855,014 $ -0- $ 3,419 $ 76,010 340,000 $174,622
Chairman and Chief 1994 $825,006 $570,000 $ 2,607 $ 83,316 340,000 $165,520
Executive Officer 1993 $795,000 $748,800 $ 2,208 $ 81,940 200,000 $175,074
Philip A. Marineau 1995 $620,840 $ -0- $ 3,248 $ 55,353 120,000 $124,750
President and Chief 1994 $595,834 $415,000 $ 3,261 $ 56,673 120,000 $116,530
Operating Officer 1993 $533,500 $500,700 $ -0- $1,974,811 120,000 $110,481
James F. Doyle 1995 $332,760 $217,600 $ -0- $ 42,449 48,000 $ 70,759
Executive Vice 1994 $299,208 $254,800 $ -0- $ 25,247 48,000 $ 55,753
President-Worldwide 1993 $270,790 $221,100 $ -0- $ 19,416 60,000 $ 54,938
Beverages
Robert S. Thomason 1995 $358,520 $ 42,700 $ 3,216 $ 21,786 42,000 $ 62,830
Senior Vice 1994 $349,168 $163,200 $121,795 $ 31,958 48,000 $ 67,210
President-Finance 1993 $325,017 $249,400 $ 31,444 $ 9,667 42,000 $ 48,941
and Chief Financial
Officer
Luther C. McKinney 1995 $368,682 $ -0- $ -0- $ -0- 44,000 $ 68,594
Senior Vice 1994 $354,678 $199,300 $ -0- $ -0- 44,000 $ 64,984
President-Law 1993 $340,500 $255,700 $ -0- $ 21,766 60,000 $ 67,730
and Corporate Affairs
<FN>
(1)Amounts for fiscal 1995, 1994 and 1993 include the
cash awards that have been paid under the Management
Incentive Bonus Plan (MIB) based on the Company's
financial performance and the Named Executive's personal
performance for fiscal 1995, 1994 and 1993, respectively.
Amounts for fiscal 1993 also include the portions of the
MIB awards for fiscal 1992 which were withheld from the
fiscal 1992 MIB award pool and put at risk, subject to
achievement of certain Company financial objectives during
the first half of fiscal 1993. The financial objectives were
achieved in fiscal 1993, and the withheld 1992 MIB awards
were paid in fiscal 1993 along with the 1993 MIB awards as
follows: Mr. Smithburg, $123,800 and $625,000; Mr.
Marineau, $75,700 and $425,000; Mr. Doyle, $31,900 and
$189,200; Mr. Thomason, $9,700 and $239,700; and Mr.
McKinney, $41,100 and $214,600.
(2)Of the amounts shown for Mr. Thomason, $99,549
and $9,198 represent additional payments relating to his
overseas assignment for 1994 and 1993, respectively.
(3)Restricted stock award values reflect the fair market
value of the Company's common stock on the date of each
grant. With the exception of Mr. Marineau's restricted stock
award in fiscal 1993, and Company matching awards of
restricted stock under a broad-based long term incentive
program, the Incentive Investment Program, no awards of
restricted stock have been made to any Named Executive in
fiscal 1995, 1994 and 1993.
</TABLE>
In December 1993, vesting was accelerated by one
month from January 1994 for the pro-rata portion of
restricted stock awards granted in fiscal 1991 for Messrs.
Smithburg and Marineau: respectively, 80,000 shares of the
Company's common stock and 20,400 shares of Mattel Inc.
common stock; and 13,336 shares of the Company's
common stock and 3,401 shares of Mattel Inc. common
stock. The primary purpose for this acceleration was for the
Company to save approximately $60,000 in taxes.
Dividends on restricted shares were and continue to
be paid on an on-going basis at the same rate as
paid to all shareholders. The aggregate number and value
of restricted shares for each of the Named Executives,
valued as of the last day of fiscal 1995 (6/30/95) are as
follows:
Number of
Name Shares Description Value
Mr. Smithburg 8,172 Quaker common stock $ 267,633
Mr. Marineau 65,142 Quaker common stock $ 2,133,401
Mr. Doyle 2,625 Quaker common stock $ 85,969
Mr. Thomason 1,798 Quaker common stock $ 58,885
Mr. McKinney 1,042 Quaker common stock $ 34,126
Upon a change in control (see "Pension Plans"),
restricted shares outstanding on the date of the change in
control will be cancelled and an immediate lump sum cash
payment will be paid which is equal to the product of: (1)
the higher of (i) the closing price of common stock as
reported on the NYSE Composite Index on or nearest to
the date of payment (or, if not listed on such exchange, on
a nationally recognized exchange or quotation system on
which trading volume in the common stock is highest) or
(ii) the highest per share price for common stock actually
paid in connection with the change in control; and (2) the
number of shares of such restricted stock.
(4)All stock option awards in fiscal 1995 and 1994
were granted with an exercise price that is equal to the
fair market value of the Company's common stock on the
date of the grant. Fifty percent of the stock option awards
in fiscal 1993 were granted with an exercise price that is
equal to the fair market value of the Company's common
stock on the date of the grant. The remaining 50% were
granted with an exercise price that is 125% of the fair
market value of the Company's common stock on the
date of grant.
(5) Amounts shown are the total of the value of the
stock allocations to the Named Executives under The
Quaker Employee Stock Ownership Plan (ESOP), and
cash awards to the Named Executives based on earnings
in excess of the Internal Revenue Code limits on the
amount of earnings deemed eligible for purposes of the
annual stock allocations made directly under the ESOP.
The following table contains information covering the
grant of stock options to the Named Executives during
fiscal 1995 under the Company's Long Term Incentive
Plan. The exercise price for options granted is equal to
the fair market value of the Company's common stock on
the date of the grant.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants (1) Option Term (2)
Number of % of Total
Securities Options
Underlying Granted to
Name Options Employees Exercise
Granted in Fiscal Price Expiration
(#) Year ($/sh) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
William D. Smithburg 340,000 11.4% $40.35 09/13/04 $8,626,736 $21,861,843
Philip A. Marineau 120,000 4.0% $40.35 09/13/04 $3,044,730 $ 7,715,945
James F. Doyle 48,000 1.6% $40.35 09/13/04 $1,217,892 $ 3,086,378
Robert S. Thomason 42,000 1.4% $40.35 09/13/04 $1,065,656 $ 2,700,581
Luther C. McKinney 44,000 1.5% $40.35 09/13/04 $1,116,401 $ 2,829,180
<FN>
(1) All options were granted on September 14, 1994.
One-third of the options granted will vest on each of the
three anniversaries following the date of grant. The
options will be cancelled and a lump sum cash payment
will be paid for realizable value upon the occurrence of a
change in control. (See "Pension Plans".)
(2) Based on fair market value on the date of grant
and an annual appreciation at the rate stated
(compounded annually) of such fair market value through
the expiration date of such options. The dollar amounts
under these columns are the result of calculations at the
5% and 10% stock price appreciation rates set by the
SEC and therefore do not forecast possible future appreciation,
if any, of the Company's stock price. However, the total of the
"Potential Realizable Value" for the Named Executives
would represent less than 0.5% of the incremental
increase of approximately $3 billion and $8 billion
respectively, in the Potential Realizable Value that
shareholders would realize under both the prescribed 5%
and 10% stock price appreciation rates.
</TABLE>
The following table contains information covering the
exercise of options by the Named Executives during fiscal
1995 and unexercised options held as of the end of fiscal 1995.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<CAPTION>
Number of Value of
Securities Underlying Unexercised, In-the-
Unexercised Options at Money Options at
Fiscal Year End (#) Fiscal Year End ($) (2)
Shares Value
Acquired on Realized
Name Exercise (#) ($) (1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
William D. Smithburg 7,566 $158,702.90 821,076 635,800 $4,315,782 $ 32,980
Philip A. Marineau -0- -0- 467,978 241,200 $2,790,807 $ 19,788
James F. Doyle -0- -0- 159,332 100,560 $ 671,397 $ 9,894
Robert S. Thomason 10,860 $244,859.33 160,784 88,440 $1,277,747 $ 6,926
Luther C. McKinney -0- -0- 296,224 64,400 $1,777,465 $ 9,894
<FN>
(1) Represents the difference between the option
exercise price and the fair market value of the Company's
common stock on the date of exercise.
(2) Represents the difference between the option
exercise price and the fair market value of the Company's
common stock on the last day of fiscal 1995 (6/30/95).
</TABLE>
Pension Plans
The Company and its subsidiaries maintain several
pension plans. The Quaker Retirement Plan (the
"Retirement Plan"), which is the principal plan, is a
noncontributory, defined benefit plan covering eligible
salaried and hourly employees of the Company who have
completed one year of service as defined by the
Retirement Plan.
Under the Retirement Plan, the participant accrues a
benefit based upon the greater of a Years-of-Service
Formula and an Earnings/Service Formula. Under the
Years-of-Service Formula, participants accrue annual
benefits equivalent to credited years of service times
$216. Under the Earnings/Service Formula, a
participant's benefit is the sum of two parts:
1. Past Service Accrual -- Benefits accrued through
December 31, 1994 are set at the greater of (a) those
earned or (b) 1% of Five-Year Average earnings to
$22,700 plus 1.65% of earnings above $22,700, times
credited years of service; and
2. Future Service Accrual -- For each year beginning
January 1, 1994 and after, participants accrue benefits of
1.75% of annual earnings to 80% of the Social Security
wage base plus 2.5% of annual earnings above 80% of
the Social Security wage base.
Eligible earnings used to calculate retirement benefits
include wages, salaries, bonuses, contributions to The
Quaker Investment Plan (a 401(k) Plan) and allocations
under The Quaker Employee Stock Ownership Plan.
Normal retirement age under the Retirement Plan is age
65. The Retirement Plan provides for early retirement
benefits.
Benefit amounts payable under the Retirement Plan are
limited to the extent required by the Employee Retirement
Income Security Act of 1974 (ERISA), as amended, and
the Internal Revenue Code of 1986, as amended. If the
benefit formula produces an amount in excess of those
limitations, the excess will be paid out of general
corporate funds in accordance with the terms of The
Quaker 415 Excess Benefit Plan, and The Quaker Eligible
Earnings Adjustment Plan. The Quaker Eligible Earnings
Adjustment Plan also provides for payment out of general
corporate funds, based upon benefit amounts which
would otherwise have been payable under the
Retirement Plan and The Quaker 415 Excess Benefit
Plan, if the executive had not previously elected to defer
compensation under the Executive Deferred
Compensation Plan.
The Quaker Supplemental Executive Retirement Program
(the "SERP"), may also provide retirement benefits for
officers of the Company designated as participants by the
Compensation Committee. Benefit amounts payable
under the SERP are intended to provide a minimum base
retirement benefit and are therefore offset by amounts
payable under the Retirement Plan, The Quaker 415
Excess Benefit Plan and The Quaker Eligible Earnings
Adjustment Plan. The SERP benefit is based upon a
participant's average annual earnings for the five
consecutive calendar years during which earnings were
highest within the last ten years of service multiplied by a
percentage based upon the participant's age at his
termination date. For the Chief Executive Officer this
percentage ranges from 40% (for a termination from ages
50 to 55) to 60% (for a termination at age 65 or later), and
for other participants from 35% to 50% (based upon such
ages at termination).
The estimated annual retirement benefits that the Named
Executives would receive under the Retirement Plan, The
Quaker 415 Excess Benefit Plan, The Quaker Eligible
Earnings Adjustment Plan, and the SERP, if each retired
at age 65, are as follows: William D. Smithburg,
$856,175; Philip A. Marineau, $434,785; James F. Doyle,
$240,591; Robert S. Thomason, $280,200; and Luther C.
McKinney, $283,980. The amounts assume that the
Named Executives will continue to work for the Company
until their normal retirement dates and that their earnings
will remain the same as in calendar year 1994 and that
each will elect a straight-lifetime benefit without survivor
benefits. (Payment options such as a 50% joint and
survivor annuity or other annuities are available.)
The Retirement Plan assures active and retired
employees that, to the extent of sufficient plan assets, it
will continue in effect for a reasonable period following a
change in control of the Company without a reduction of
anticipated benefits, and under certain circumstances may
provide increased benefits.
Generally, under the Retirement Plan, a change in control
shall be deemed to have occurred in any of the following
circumstances:
(i) An acquisition of 30% or more of Quaker stock unless
such acquisition is pursuant to an agreement with the
Company approved by the Board before the acquirer
becomes the beneficial owner of 5% of the Company's
outstanding voting power;
(ii) A majority of the Board of Directors is comprised of
persons who were not nominated by the Board of
Directors for election as directors;
(iii) A plan of complete liquidation of the Company; or
(iv) A merger, consolidation or sale of all or substantially
all of the Company's assets unless thereafter: (a)
directors of Quaker immediately prior thereto continue to
constitute at least 50% of the directors of the surviving
entity or purchaser; or (b) Quaker's securities continue to
represent, or are converted to securities which represent,
more than 70% of the combined voting power of the
surviving entity or purchaser.
For a five-year period following a change in control of the
Company, the accrual of benefits for service during such
period cannot be decreased while there are excess assets
(as defined in the Retirement Plan). For a two-year period
following such a change in control, the accrued benefits of
members who meet specified age and service
requirements and who are terminated will be increased.
For so long as there are excess assets during that five-
year period, if the Retirement Plan is merged with any
other plan, the accrued benefit of each member and the
amount payable to retired or deceased members shall be
increased until there are no excess assets. If during that
five-year period the Retirement Plan is terminated, to the
extent that assets remain after satisfaction of liabilities,
the accrued benefits shall be increased such that no
assets of the Retirement Plan will directly or indirectly
revert to the Company.
Termination and Change in Control Benefits
The Company has entered into Executive Separation
Agreements (the "Separation Agreements") with the
Named Executives and other executive officers. The
Separation Agreements provide for separation pay should
a change in control of the Company occur (as described
for the Retirement Plan). The Separation Agreements
were unanimously approved by the nonemployee
directors.
Under the Separation Agreements, the executive's
employment must be terminated involuntarily, without
cause, whether actual or "constructive" (demotion,
relocation, loss of benefits, or other changes in the
executive's terms of employment short of actual
termination) following a change in control, for separation
pay to be available. Under the Separation Agreements for
Messrs. Smithburg and Marineau, separation pay is also
available upon voluntary termination occurring during the
thirteenth month following a change in control.
Under the Separation Agreements, separation pay equals
two years' annualized base salary and bonuses awarded
pursuant to the Management Incentive Bonus Plan and
the value of life and health insurance coverage and
pension credited service extended for each executive for
a period of two years. The Separation Agreements
provide that the amount of tax penalties under the Internal
Revenue Code to be paid by any person shall be
reimbursed to the executive officer by the Company. The
Separation Agreements terminate three years from their
date of execution and are subject to renewal by the
Board.
The officers of the Company also participate in The
Quaker Salaried Employees Compensation and Benefits
Protection Plan (the "Protection Plan"). Under the
Protection Plan, severance pay and benefits are provided
should a change in control occur (as described for the
Retirement Plan) and an employee's employment is
terminated within two years thereafter for any reason
other than death, physical or mental incapacity, voluntary
resignation, retirement or gross misconduct. Severance
payments may be paid in a lump sum or monthly
installments (as determined by the Protection Plan's
Administrative Committee). Severance payments shall be
based on the amount of nine months pay, plus two weeks
pay for each year of service over 20 years.
Pay is to be based on an employee's current salary plus
bonus, if any. Severance benefits are to be continued for
a minimum of nine months, plus two weeks for each year
of service over 20 years, and include all health and
medical benefits, and life insurance coverage at the time
of termination.
The Board believes that the Separation Agreements and
the Protection Plan assure fair treatment of the covered
employees following a change in control. Furthermore, by
assuring the executive of some financial security, the
Separation Agreements and the Protection Plan protect
the shareholders by neutralizing any bias of these
employees in considering proposals to acquire the
Company. The Board believes that these advantages
outweigh the disadvantage of the cost of the benefits.
The officers of the Company also participate in the
Quaker Officers Severance Program (the "Program").
Under the Program, severance benefits are payable if an
officer's employment is terminated for any reason other
than death, physical or mental incapacity, voluntary
resignation, retirement or gross misconduct. Severance
benefits will continue for a period based on years of
service (nine months continuation for less than ten years
of service and 12 months continuation for ten or more
years of service). Severance benefits to be continued are
the executive's base salary at the time of termination, the
average bonus for the past two years under the MIB plan,
and medical and life insurance coverage as in effect at the
time of severance. Only the greater of the severance
payment and benefits to be provided under the Program
or the Protection Plan will be provided to an officer eligible
under both, following a change in control.
Under The Quaker Long Term Incentive Plan of 1990 (the
"Incentive Plan"), upon the occurrence of a change in
control (as described for the Retirement Plan), options
and restricted stock outstanding on the date on which the
change in control occurs shall be cancelled, and an
immediate lump sum cash payment shall be paid to the
participant equal to the product of: (1) the higher of (i) the
closing price of the Company's common stock as reported
on the NYSE Composite Index on or nearest the date of
payment (or, if not listed on such exchange, on a
nationally recognized exchange or quotation system on
which trading volume in the Company's common stock is
highest), or (ii) the highest per share price for the
Company's common stock actually paid in connection with
the change in control (and with respect to options,
reduced by the per share option price of each such option
held, whether or not then fully exercisable); and (2) the
number of shares covered by each such option, or shares
of restricted stock.
Upon the occurrence of a change in control, performance
shares, performance units and other stock based awards
provided for under the Incentive Plan, and still
outstanding, shall also be cancelled, and any profit and/or
performance objective with respect to performance shares
and performance units shall be deemed to have been
attained to the full and maximum extent. An immediate
lump sum cash payment relating thereto shall be paid to
the participant in an amount determined in accordance
with the terms and conditions set forth in the applicable
agreement.
If making of payments pursuant to a change in control
would subject the participant to an excise tax under
Section 4999 of the Internal Revenue Code or would
result in the Company's loss of a federal income tax
deduction for those payments (either of these
consequences is referred to individually as a "Tax
Penalty"), then the Company shall reduce the number of
benefits to be cancelled to the extent necessary to avoid
the imposition of such Tax Penalty. In addition, the
Company shall establish procedures necessary to
maintain for the participants a form of benefit which may
be provided under the Incentive Plan so that such
participant will be in the same financial position with
respect to those benefits not cancelled as he would have
been in the ordinary course, absent a change in control
and assuming his continued employment, except that the
foregoing with respect to the cancellation of benefits, shall
not apply if such participant (i) is entitled to a tax
reimbursement for such Tax Penalty under any other
agreement, plan or program of the Company, or (ii)
disclaims any portion of or all payments to be made
pursuant to or under any other agreement, plan or
program of the Company in order to avoid such Tax
Penalty. Disagreements as to whether such payments
would result in the imposition of a Tax Penalty shall be
resolved by an opinion of counsel chosen by the
participant and reasonably satisfactory to the Company.
The Company entered into a trust agreement, known as
The Quaker Oats Company Benefits Protection Trust (the
"Trust" or "Trust Agreement"). The Trust is to be used to
set aside funds necessary to satisfy the Company's
obligations to present and former executives and directors
under deferred compensation programs and agreements,
and with respect to certain retirement and termination
benefits, in the event of a change in control (as described
for the Retirement Plan). Following a change in control,
the Trust Agreement becomes irrevocable, and the Trust
shall be funded to provide for the payment of such
obligations accrued at the time of a change in control. The
Trust may also be funded for the purpose of paying legal
expenses incurred by executives in pursuing benefit
claims under such programs and agreements following a
change in control. The Trust is currently funded only to a
nominal extent.
The Trust assets relating to Company contributions are
always subject to the claims of the general creditors of the
Company. No executive with any right or interest to any
benefit or future payment under the Trust Agreement shall
have any right or security interest in any specific asset of
the Trust, nor shall he have any right to alienate,
anticipate, commute, pledge, encumber, or assign any of
the benefits or rights which he may expect to receive from
the Trust or otherwise.
COMPENSATION COMMITTEE REPORT
The Company's executive compensation program is
administered by the Compensation Committee of the
Board (the "Committee"). All members of the Committee
are nonemployee directors. The Committee determines
the compensation of all executive officers of the
Company, including that of the Named Executives. In
reviewing the compensation of individual executive
officers the Committee considers the recommendations of
management and the input of leading compensation
consultants. The Committee's determinations on the
compensation of the Chief Executive Officer and other
executive officers are reviewed with all nonemployee
directors, who constitute a majority of the full Board.
Overall Policy
The Company's compensation programs have long been
tied closely to Company performance leading to creation
of shareholder value. The Company's compensation
programs are therefore aimed at enabling it to attract and
retain the best possible executive talent, and rewarding
those executives commensurately with their ability to
achieve increases in shareholder value.
At least once each year, the Committee conducts a
comprehensive review of the Company's executive
compensation programs. The purpose of the review is to
insure that the programs are meeting their objective of
creation of shareholder value, and that the Company's
executive compensation programs remain consistent with
competitive practice. In its review, the Committee
considers data provided by management and by leading
compensation consultants, with whom the Committee
meets privately. The Committee met six times during the
year.
With respect to the proposed Internal Revenue Service
regulations covering tax deductibility of compensation in
excess of $1 million to the Named Executives (Section
162(m) of the Internal Revenue Code), the Internal
Revenue Service continues to issue regulation drafts
intended to provide guidance as to what types of changes
would put companies in compliance with the provisions of
Section 162(m). These proposed regulations may change
significantly before final regulations are adopted. It is
our intent to make all reasonable efforts to comply with
the final regulations. The Committee believes that the
effect of these tax limits on the Company's compensation
tax deduction would not be material.
Compensation Programs
The Company's compensation programs consist of base
salary, a short-term cash incentive program (the
"Management Incentive Bonus Plan" or "MIB Plan"), and a
long-term incentive program consisting primarily of a
broad-based stock option program and selective use of
restricted stock. At the executive officer level, the mix of
compensation is weighted more heavily toward the
performance-based elements of compensation (short-term
and long-term incentive programs) rather than the more
fixed elements of compensation. For example, only 30%
of Mr. Smithburg's 1995 total compensation came from
salary and benefit programs. The remainder of his
compensation came from incentive programs.
Base Salary
Base salaries for executive officers are determined in the
same manner as that of all other salaried employees.
Salary guidelines are established by comparing the
responsibilities of the individual's position to similar
positions in other companies of comparable size and lines
of business. Individual salary increases are determined
considering the person's actual performance compared to
personal performance objectives for the year, as well as
the Company's performance versus its financial
objectives.
In September 1994, individual merit increases granted to
executive officers ranged from 2% to 7%. The average
salary increase of 4% for executive officers was the same
as the average of salary increases granted to all
employees.
For the merit increases which were awarded in September
1995, individual increases in base pay for all salaried
employees averaged 3%. People at the vice president level
and above (including all executive officers and Named
Executives) did not receive any merit increases in
September 1995.
Annual Incentive
The Company's 675 key managers, including the
executive officers, are eligible to receive an annual cash
incentive award under the MIB Plan. Under the MIB Plan,
individual target bonuses are established based on
position level. Participants may receive more, or less,
than the target bonus depending upon their performance
compared to objectives established at the start of the
year. In fiscal 1994, 30% of the total award was based on
performance versus personal objectives and 70% of the
total award was based on how well the business unit and
Company performed compared to financial objectives.
For fiscal 1995, the award is based on business unit and
Company performance compared to financial objectives.
This change is intended to produce greater performance-
based variability for the MIB. Performance in
accomplishing personal objectives is also considered in
judging total compensation.
The Company's financial performance is measured
primarily by progress made toward Controllable Earnings
(CE) targets. CE is calculated as operating income
adjusted for certain financing costs, less a capital usage
charge. Since CE incorporates a capital usage charge
into the internal profit measure, its use holds all our key
managers accountable for the cost of the Company's
investment in their businesses. CE thus requires our
managers to make an economic valuation of every
business decision, helping us build long-term value for our
shareholders. In addition to CE, the Committee also
considers performance against other key financial
measures such as sales growth, earnings per share,
return on assets, return on equity and operating income.
In order for the financial portion of the MIB to be paid at
target levels, the Company must meet its internal financial
targets and the Committee also considers whether that
performance produces superior financial performance
versus a comparison group of food and consumer
products companies approved by the Committee.
Long-Term Incentive
The Company has long believed in the importance of
stock ownership by all of its employees including
management. Consequently, its long-term incentive plans
are focused on stock-based vehicles. During fiscal 1995,
the Company adopted share ownership guidelines for all
vice presidents and above who will be expected to hold an
amount of Company stock commensurate with their level
in the organization.
The primary long-term incentive vehicle is a broad-based
stock option program in which approximately 675 key
managers participate, including the executive officers.
Participants are considered for annual awards of stock
options, based upon an assessment of each person's job
level, performance, potential, past award history and
competitive practice. Stock options currently become
exercisable over a three-year period (1/3 per year) and
have a ten-year term. All stock options are priced at or
above the fair market value of the stock on the date of
grant.
A second broad-based long-term incentive program
applying to the same group of 675 key managers is the
Incentive Investment Program (the "IIP") introduced in
1992. Prior to fiscal 1995 under the IIP, participants had
the opportunity to invest up to 20% of their MIB awards in
Company stock, with each three shares purchased by the
participant matched by the Company with two shares of
restricted stock. The vesting of the restricted stock, which
occurs 50% at the end of three years and 100% at the
end of five years, is contingent both upon the participant's
continued employment and upon retaining the purchased
shares. The Committee believes the IIP provides an
incentive for key managers to purchase and hold
Company stock, thus further aligning their interests with
those of shareholders.
In fiscal 1995, a change was made whereby participants
in the IIP could increase their investment up to 50% of
their MIB awards in Company stock. Amounts invested
up to 25% of the MIB are matched at the former rate of
two shares of restricted stock for each three shares of
stock purchased by the participant. Amounts invested
above 25% of the MIB will be matched at a lower rate of
one share of restricted stock for each three shares of
stock purchased by the participant. Allowing participants
to invest a greater percentage of their MIB award further
encourages the purchase and retention of Company
stock.
The Company also makes periodic use of restricted stock
to motivate and retain selected key employees. In
determining the appropriate restricted stock award, the
Committee considers the person's job level, performance,
potential for future contribution and competitive practice.
The Committee also considers the timing and size of
previous awards of options and restricted stock. No
awards of restricted stock have been made to any
executive officers since fiscal 1993, except matched
shares under the IIP.
CEO Compensation
In determining Mr. Smithburg's compensation, the
Committee considers the Company's financial and
nonfinancial performance, as well as an analysis of Mr.
Smithburg's total compensation in relation to that of CEOs
in a comparison group of companies approved by the
Committee. The primary financial objective considered in
determining Mr. Smithburg's compensation is the
Company's performance in CE. Other financial measures,
such as sales and earnings per share, are also
considered by the Committee. As stated earlier, the
Committee retains a leading compensation consultant for
the purpose of reviewing Mr. Smithburg's compensation.
The Committee notes that the Company had a difficult
year in financial performance, due to such factors as the
Snapple beverage integration taking longer than expected
and weak trends in certain lines of business such as hot
cereals. The Committee also notes that during the year
the Company undertook a major restructuring in order to
obtain higher growth in the future and successfully
disposed of several major non-core assets. Considering
all the above factors, financial and nonfinancial, the
Committee decided that Mr. Smithburg should receive no
bonus for fiscal 1995. Mr. Smithburg received a 3.6%
merit increase in September 1994 for fiscal 1994
performance. This compares to a 4.0% average merit
increase for all employees for the same period. Like other
senior managers of the Company (see discussion above),
Mr. Smithburg did not receive a merit increase in
September 1995.
The Committee approved an award of stock options under
the Long Term Incentive Plan of 340,000 options in
September 1994. The same number of options was
awarded in the prior fiscal year. The Committee
considers that the award of stock options further aligns
Mr. Smithburg's interests with those of shareholders.
Consistent with recent practice, the stock options vest
one-third per year for three years.
The Committee considers Mr. Smithburg's total
compensation to be appropriate in light of the Company's
1995 performance. The Committee feels that Mr.
Smithburg's compensation, like that of other members of
the Company's management team, must be reflective of
what has been a most difficult and challenging fiscal 1995.
MEMBERS OF THE COMMITTEE
Silas S. Cathcart, Chairman
Vernon R. Loucks, Jr.
Gertrude G. Michelson
William L. Weiss
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative
total shareholder return on the Company's common stock
against the cumulative total return of the Standard &
Poor's 500 Stock Index and the Standard & Poor's Food
Index for the period of five years commencing June 30,
1990 and ending June 30, 1995.
Comparison of Cumulative Five-Year Total Return*
Quaker Oats, S&P 500 and S&P Foods
Fiscal Year Ending
6/90 6/91 6/92 6/93 6/94 6/95
Quaker Oats 100 134 135 186 177 172
S&P 500 100 107 122 138 140 177
S&P Foods 100 122 137 136 137 176
* Assumes $100 invested on June 30, 1990 with reinvestment of dividends.
DIRECTORS' PROPOSAL
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board
has appointed Arthur Andersen LLP as independent public
accountants for the six-month fiscal transition period ending
December 31, 1995, and is requesting ratification by the
shareholders. (The six-month fiscal transition period relates to
the change in the Company's fiscal year ending June 30 to the
calendar year, beginning January 1, 1996.) Arthur Andersen
LLP (formerly known as Arthur Andersen & Co.) has examined
the financial statements of the Company each fiscal year since
1970.
In the event the resolution is defeated, the adverse vote will be
considered as a direction to the Board to select other
independent public accountants for the next fiscal year.
However, because of the difficulty and expense of making any
substitution of independent public accountants after the
beginning of a fiscal period, it is contemplated that the
appointment for the six-month fiscal transition period ending
December 31, 1995, will be permitted to stand unless the
Board finds other reasons for making a change.
During fiscal 1995, Arthur Andersen LLP performed recurring
audit services including the examination of annual financial
statements, pension plans and limited reviews of quarterly
financial information. Fees for these services aggregated
approximately $1.9 million.
Arthur Andersen LLP also performed services for the
Company in other business areas, including tax and
accounting related services, for which fiscal 1995 fees
aggregated approximately $4.2 million. Andersen Consulting
LLP, the consulting arm of Arthur Andersen & Co., S.C., also
performed various consulting services for the Company during
fiscal 1995. Fees for these services aggregated
approximately $.5 million.
Representatives of Arthur Andersen LLP will attend the Annual
Meeting and will have an opportunity to make a statement, if
they desire to do so, and to respond to appropriate questions.
Ratification of the appointment of Arthur Andersen LLP as
independent public accountants requires the affirmative vote
of a majority of votes cast thereon.
The Board unanimously recommends a vote FOR this proposal.
SHAREHOLDER PROPOSAL
COMPENSATION DISCLOSURE
Mrs. Evelyn Y. Davis, Watergate Office Building, 2600
Virginia Avenue, N.W. Suite 215, Washington, D.C.
20037, record holder of 200 shares of common stock of
the Company, has given notice that she will introduce the
following resolution and supporting statement at the
Meeting:
RESOLVED: "That the shareholders recommend that the
Board take the necessary step that Quaker Oats
specifically identify by name and corporate title in all
future proxy statements those executive officers, not
otherwise so identified, who are contractually entitled to
receive in excess of $100,000 annually as a base salary,
together with whatever other additional compensation
bonuses and other cash payments were due them."
REASONS: "In support of such proposed Resolution it is
clear that the shareholders have a right to
comprehensively evaluate the management in the manner
in which the Corporation is being operated and its
resources utilized." "At present only a few of the most
senior executive officers are so identified, and not the
many other senior executive officers who should
contribute to the ultimate success of the Corporation."
"Through such additional identification the shareholders
will then be provided an opportunity to better evaluate the
soundness and efficacy of the overall management."
"If you AGREE, please mark your proxy FOR this
proposal."
Approval of the foregoing shareholder proposal requires
the affirmative vote of a majority of the votes cast thereon.
The Board unanimously recommends a vote
AGAINST this proposal for the following
reasons:
The proposal is not currently relevant to the
Company since it calls for disclosure only of
contractual employment obligations and the
Company does not maintain employment
contracts for any of its executive officers.
Moreover, the Company already provides
extensive disclosure on compensation of
executive officers in accordance with the rules
and regulations of the Securities and Exchange
Commission (the "SEC") that apply to all public
companies. The proposal attempts to impose
disclosure obligations beyond what is required by
the SEC and beyond what is reported by other
public companies.
The SEC's compensation disclosure rules were
significantly revised in 1992 after comprehensive
review and comment from numerous reporting
companies, investors and other interested
persons. In accordance with these rules, this
proxy statement discloses the compensation of
the Company's five highest paid executive
officers, as well as a Compensation Committee
Report disclosing the Company's polices with
respect to compensation for executive officers.
The Board of Directors believes that the existing
disclosure provides stockholders with a clear
overview of the compensation structure for
executive officers and provides an adequate
basis for stockholders to evaluate the Company's
use of resources for compensation.
If the Company were to provide additional and
specific disclosure related to a broader group of
employees, the Board of Directors believes that
the Company would be at a competitive
disadvantage because it would have to provide
more extensive compensation information than
other companies. This could impair the
Company's recruiting and compensation
programs. Except when disclosure is required
under SEC rules applicable to all public
companies, the Company treats each
employee's salary as a private matter.
Compensation levels within the Company vary
based on factors such as performance,
experience, job classification and differences in
geographic location. Disclosure of compensation
information for a broad group of employees
would invade employee privacy, compromise
employee security and harm employee morale.
SHAREHOLDER PROPOSALS FOR 1996
ANNUAL MEETING
Shareholders may submit proposals appropriate for
shareholder action at the Company's annual meetings
consistent with regulations adopted by the Securities and
Exchange Commission. Because of the Company's
change in fiscal year, the 1996 Annual Meeting to be held
May 8, 1996 will relate to the six-month fiscal transition
period ending December 31, 1995. As a result, to be
considered for inclusion in the Company's Proxy
Statement and proxy for the 1996 Annual Meeting a
proposal must be received by the Company no later than
December 3, 1995. Proposals should be directed to R.
Thomas Howell, Jr., Corporate Secretary, The Quaker
Oats Company, P.O. Box 049001, Suite 25-6, Chicago,
Illinois 60604-9001.
OTHER BUSINESS
The Board is not aware of any matters requiring
shareholder action to be presented at the Meeting other
than those stated in the Notice of Annual Meeting. Should
other proper matters be introduced at the Meeting, those
persons named in the enclosed proxy have discretionary
authority to act on such matters and will vote the proxy in
accordance with their best judgment.
By order of the Board of Directors,
/s/ R. Thomas Howell, Jr.
R. Thomas Howell, Jr.
Corporate Secretary
October 2, 1995
This Notice of Annual Meeting
and Proxy Statement is
printed on recycled paper.
THE QUAKER OATS COMPANY
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY [ ]
[Quaker logo and "1995 Proxy" appears down the left margin]
A vote FOR items 1 and 2 is recommended
by the Board of Directors.
1.Election of Directors - For [ ] Withheld [ ] For All Except______
Nominees: F.C. Carlucci, S. S. Cathcart,
V.R. Loucks, Jr., W.D. Smithburg and
W.L. Weiss
2. Ratification of Appointment of For [ ] Against [ ] Abstain [ ]
Independent Public Accountants
1995
P
R
O
X
Y
PLEASE DATE, SIGN AND MAIL IN ENCLOSED RETURN ENVELOPE.
A vote AGAINST item 3 is recommended
by the Board of Directors.
3. Shareholder Proposal - For [ ] Against [ ] Abstain [ ]
Compensation
Disclosure
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
SPECIFICATIONS MADE. IF NO CHOICES ARE INDICATED,
THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2 AND
AGAINST ITEM 3.
Dated __________, 1995
x_________________________________________
Signature
x_________________________________________
Signature
NOTE: Please sign exactly as name appears hereon. For joint
accounts, both owners should sign. When signing as executor,
administrator, attorney, trustee or guardian, etc., please sign
your full title.
THE QUAKER OATS COMPANY
Proxy for Annual Meeting of November 8, 1995
This proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Thomas C. MacAvoy, Philip A.
Marineau, Luther C. McKinney and Walter J. Salmon proxies each
with power to appoint his substitute to represent and to vote all
shares of stock of The Quaker Oats Company which the undersigned
is entitled to vote at the Annual Meeting of Shareholders of the
Company to be held at the Hotel Nikko Chicago, 320 North Dearborn
Street, Chicago Illinois, on Wednesday, November 8, 1995 at 9:30
a.m. (CST), and any adjournment thereof, as indicated on the
proposals described in the proxy statement and all other matters
properly coming before the Meeting.
Total Shares
IMPORTANT-This proxy must be signed and dated on the reverse side.
