UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996
Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from ____ to ____
Commission file number 1-12
THE QUAKER OATS COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 36-1655315
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Quaker Tower P.O. Box 049001 Chicago, Illinois 60604-9001
(Address of principal executive office) (Zip Code)
(312) 222-7111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file for such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES XX NO
The number of shares of Common Stock, $5.00 par value, outstanding as
of the close of business on October 31, 1996 was 135,863,421
THE QUAKER OATS COMPANY AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Income
and Reinvested Earnings for the Nine and Three Months
Ended September 30, 1996 and 1995 3-4
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 5
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended
September 30, 1996 and 1995 6
Net Sales and Operating Income by Segment for the Nine and
Three Months Ended September 30, 1996 and 1995 7-8
Notes to Condensed Consolidated Financial Statements 9-11
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12-21
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 22
Item 6 - Exhibits and Reports on Form 8-K 22
SIGNATURES 23
EXHIBIT INDEX 24
EXHIBIT 11 25
Page 2
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS (UNAUDITED)
Nine Months Ended
Dollars in Millions (Except Per Share Data) September 30,
1996 1995
Net sales $4,140.8 $4,774.5
Cost of goods sold 2,208.9 2,590.1
Gross profit 1,931.9 2,184.4
Selling, general and administrative expenses 1,575.8 1,873.2
Gains on divestitures and restructuring charges - net (113.4) (1,094.3)
Interest expense 83.3 102.4
Interest income (5.2) (3.9)
Foreign exchange loss - net 6.5 5.1
Income before income taxes 384.9 1,301.9
Provision for income taxes 155.1 530.1
Net income 229.8 771.8
Preferred dividends - net of tax 2.9 3.0
Net Income Available for Common $ 226.9 $ 768.8
Per Common Share:
Net income $ 1.68 $ 5.75
Dividends declared $ 0.855 $ 0.855
Average Number of Common Shares
Outstanding (in thousands) 135,315 134,041
Reinvested Earnings:
Balance beginning of year $1,433.6 $ 867.6
Net income 229.8 771.8
Dividends (117.6) (116.4)
Common stock issued for stock purchase
and incentive plans (2.9) (2.0)
Balance end of period $1,542.9 $1,521.0
See accompanying notes to the condensed consolidated financial statements.
Page 3
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS (UNAUDITED)
Three Months Ended
Dollars in Millions (Except Per Share Data) September 30,
1996 1995
Net sales $1,436.2 $1,553.6
Cost of goods sold 754.3 825.0
Gross profit 681.9 728.6
Selling, general and administrative expenses 545.2 592.5
Gain on divestiture and restructuring charges - net (110.6) --
Interest expense 25.6 28.7
Interest income (2.2) (1.4)
Foreign exchange loss - net 2.9 1.8
Income before income taxes 221.0 107.0
Provision for income taxes 88.0 45.5
Net income 133.0 61.5
Preferred dividends - net of tax 0.9 1.0
Net Income Available for Common $ 132.1 $ 60.5
Per Common Share:
Net income $ 0.98 $ 0.45
Dividends declared $ 0.285 $ 0.285
Average Number of Common Shares
Outstanding (in thousands) 135,528 134,238
Reinvested Earnings:
Balance beginning of quarter $1,449.0 $1,499.3
Net income 133.0 61.5
Dividends (39.2) (39.3)
Common stock issued for stock purchase
and incentive plans 0.1 (0.5)
Balance end of quarter $1,542.9 $1,521.0
See accompanying notes to the condensed consolidated financial statements.
Page 4
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
Dollars in Millions 1996 1995
Assets
Current Assets:
Cash and cash equivalents $ 140.8 $ 93.2
Trade accounts receivable - net of allowances 392.5 398.3
Inventories:
Finished goods 193.0 203.6
Grains and raw materials 66.2 69.7
Packaging materials and supplies 30.6 33.4
Total inventories 289.8 306.7
Other current assets 257.3 281.9
Total Current Assets 1,080.4 1,080.1
Property, plant and equipment 1,885.4 1,946.0
Less accumulated depreciation 723.0 778.2
Property - net 1,162.4 1,167.8
Intangible assets - net of amortization 2,255.2 2,309.2
Other assets 73.0 63.3
Total Assets $4,571.0 $4,620.4
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $ 387.6 $ 643.4
Current portion of long-term debt 53.3 68.6
Trade accounts payable 228.4 298.4
Other current liabilities 835.6 691.3
Total Current Liabilities 1,504.9 1,701.7
Long-term debt 995.1 1,051.8
Other liabilities 571.9 536.3
Deferred income taxes 241.3 233.6
Preferred Stock, no par value, authorized
1,750,000 shares; issued 1,282,051 of
$5.46 cumulative convertible shares
(liquidating preference of $78 per share) 100.0 100.0
Deferred compensation (64.9) (71.7)
Treasury Preferred Stock, at cost, 167,882 shares
and 122,562 shares, respectively (14.2) (10.6)
Common Shareholders' Equity:
Common stock, $5 par value, authorized 400,000,000
shares; issued 167,978,792 shares 840.0 840.0
Reinvested earnings 1,542.9 1,433.6
Cumulative translation adjustment (72.4) (77.8)
Deferred compensation (102.0) (118.1)
Treasury common stock, at cost, 32,277,223
shares and 33,172,737 shares, respectively (971.6) (998.4)
Total Common Shareholders' Equity 1,236.9 1,079.3
Total Liabilities and Shareholders' Equity $4,571.0 $4,620.4
See accompanying notes to the condensed consolidated financial statements.
Page 5
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
Dollars in Millions September 30,
1996 1995
Cash Flows from Operating Activities:
Net income $ 229.8 $ 771.8
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 151.1 150.5
Deferred income taxes 17.6 23.5
Gains on divestitures - net of tax of $54.6 in
1996 and $476.2 in 1995 (81.8) (694.6)
Restructuring charges 23.0 76.5
Loss on disposition of property and equipment 18.2 22.5
Increase in trade accounts receivable (34.6) (39.2)
Decrease (increase) in inventories 3.3 (17.3)
Decrease (increase) in other current assets 17.4 (79.0)
(Decrease) increase in trade accounts payable (33.5) 179.6
Increase in other current liabilities 97.2 34.2
Change in deferred compensation 22.9 20.6
Other items 32.9 35.1
Net Cash Provided by Operating Activities 463.5 484.2
Cash Flows from Investing Activities:
Additions to property, plant and equipment (164.8) (211.7)
Business acquisitions -- (49.3)
Business divestitures - net of tax of $54.6 in
1996 and $476.2 in 1995 174.4 1,253.4
Change in other assets (0.6) 4.7
Net Cash Provided by Investing Activities 9.0 997.1
Cash Flows from Financing Activities:
Cash dividends (117.6) (116.4)
Change in short-term debt (254.8) (1,347.6)
Proceeds from short-term debt to be refinanced -- (112.0)
Proceeds from long-term debt 3.4 212.6
Reduction of long-term debt (74.8) (56.5)
Issuance of common treasury stock 20.2 10.4
Repurchases of preferred stock (3.7) (4.4)
Net Cash Used in Financing Activities (427.3) (1,413.9)
Effect of Exchange Rate Changes on Cash and Cash
Equivalents 2.4 3.5
Net Increase in Cash and Cash Equivalents 47.6 70.9
Cash and Cash Equivalents - Beginning of Year 93.2 103.0
Cash and Cash Equivalents - End of Period $ 140.8 $ 173.9
See accompanying notes to the condensed consolidated financial statements.
Page 6
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NET SALES AND OPERATING INCOME BY SEGMENT
(UNAUDITED)
<TABLE>
<CAPTION>
Net Sales Operating Income(Loss)
Nine Months Nine Months
Ended Ended
Dollars in Millions September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Foods (a)
U.S. and Canadian $1,922.3 $1,952.5 $251.8 $ 175.3
International 456.6 425.3 7.9 (23.1)
Total Foods 2,378.9 2,377.8 259.7 152.2
Beverages (a)
U.S. and Canadian 1,422.8 1,414.9 119.8 119.6
International 253.5 275.2 (23.9) (22.5)
Total Beverages 1,676.3 1,690.1 95.9 97.1
Divested Businesses (b) 85.6 706.6 144.8 1,208.8
Total Sales/Operating Income $4,140.8 $4,774.5 500.4 1,458.1
Less: General corporate expenses (c) 30.9 52.6
Interest expense - net 78.1 98.5
Foreign exchange loss - net 6.5 5.1
Income before income taxes $384.9 $1,301.9
<FN>
Note: Operating income includes certain allocations of overhead expenses.
(a) The U.S. and Canadian Food and Beverage businesses reflect pretax
restructuring charges of $6.4 million and $16.6 million, respectively, in 1996.
The Food and Beverage businesses reflect pretax restructuring charges of $76.5
million in 1995. U.S. and Canadian Foods and Beverages include $39.1 million
and $8.0 million, respectively, of this charge. International Foods and
Beverages include $29.0 million and $0.4 million, respectively, of this charge.
(b) Total sales for the International divested businesses were $4.0 million and
$373.3 million for the nine months ended September 30, 1996 and 1995,
respectively. Total sales for the U.S. and Canadian divested businesses were
$81.6 million and $333.3 million for the nine months ended September 30, 1996
and 1995, respectively. Total operating income for the International divested
businesses was $3.3 million for the nine months ended September 30, 1996, which
included a gain of $2.8 million on the sale of the Italian products business.
Total operating income for the International divested businesses was $580.1
million for the nine months ended September 30, 1995, which included a gain of
$4.9 million on the sale of the Dutch honey business, a gain of $487.2 million
on the sale of the European pet food business and a gain of $74.5 million on
the sale of the Mexican chocolate business. Total operating income for the
U.S. and Canadian divested businesses was $141.5 million for the nine months
ended September 30, 1996, which included a gain of $133.6 million on the sale
of the Aunt Jemima and Celeste frozen foods businesses. Total operating income
for the U.S. and Canadian divested businesses was $628.7 million for the nine
months ended September 30, 1995, which included a gain of $513.0 million on the
sale of the U.S. and Canadian pet food business and a gain of $91.2 million on
the sale of the U.S. bean and chili business.
(c) 1995 general corporate expenses include a pretax provision of $10.6 million
for estimated litigation costs.
Page 7
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NET SALES AND OPERATING INCOME BY SEGMENT
(UNAUDITED)
<CAPTION>
Net Sales Operating Income(Loss)
Three Months Three Months
Ended Ended
Dollars in Millions September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Foods
U.S. and Canadian (a) $ 687.3 $ 676.6 $ 86.2 $ 86.7
International 152.9 140.7 2.8 3.7
Total Foods 840.2 817.3 89.0 90.4
Beverages
U.S. and Canadian (a) 512.6 563.8 40.9 67.9
International 80.8 100.2 (6.9) (8.5)
Total Beverages 593.4 664.0 34.0 59.4
Divested Businesses (b) 2.6 72.3 133.2 (1.0)
Total Sales/Operating Income $1,436.2 $1,553.6 256.2 148.8
Less: General corporate expenses 8.9 12.7
Interest expense - net 23.4 27.3
Foreign exchange loss - net 2.9 1.8
Income before income taxes $221.0 $107.0
<FN>
Note: Operating income includes certain allocations of overhead expenses.
(a) The U.S. and Canadian Food and Beverage businesses reflect pretax
restructuring charges of $6.4 million and $16.6 million, respectively, in 1996.
(b) Total sales for the U.S. and Canadian divested businesses were $2.6 million
and $39.5 million for the three months ended September 30, 1996 and 1995,
respectively. Total sales for the International divested businesses were $32.8
million for the three months ended September 30, 1995. Total operating income
for the U.S. and Canadian divested businesses was $133.2 million for the three
months ended September 30, 1996, which included a gain of $133.6 million on the
sale of the Aunt Jemima and Celeste frozen foods businesses. Total operating
income for the U.S. and Canadian divested businesses was $2.3 million for the
three months ended September 30, 1995. Total operating loss for the
International divested businesses was $3.3 million for the three months ended
September 30, 1995.
Page 8
</FN>
</TABLE>
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
Note 1 - Basis of Presentation
The condensed consolidated financial statements include The Quaker Oats Company
and its subsidiaries (the "Company"). The condensed consolidated statements of
income and reinvested earnings for the nine and three months ended September
30, 1996 and 1995, the condensed consolidated balance sheet as of September 30,
1996, and the condensed consolidated statements of cash flows for the nine
months ended September 30, 1996 and 1995, have been prepared by the Company
without audit. In the opinion of management, these financial statements
include all adjustments necessary to present fairly the financial position,
results of operations and cash flows as of September 30, 1996 and for all
periods presented. All adjustments made have been of a normal recurring
nature. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The Company believes that the
disclosures included are adequate and provide a fair presentation of interim
period results. Interim financial statements are not necessarily indicative of
the financial position or operating results for an entire year. It is
suggested that these interim financial statements be read in conjunction with
the audited financial statements and the notes thereto included in the
Company's report to shareholders for the six month transition period ended
December 31, 1995.
Certain previously reported amounts have been reclassified to conform to the
current presentation.
Note 2 - Litigation
On November 1, 1995, the Company filed suit against Borden, Inc. in Federal
District Court in New York alleging that Borden made material
misrepresentations and committed fraud in connection with the Company's
November 1994 acquisition of a Brazilian pasta business for $100 million. The
Company seeks to rescind the transaction and collect damages.
The Company is also a party to a number of lawsuits and claims, which it is
vigorously defending. Such matters arise out of the normal course of business
and relate to the Company's recent acquisition activity and other issues.
Certain of these actions seek damages in large amounts. While the results of
litigation cannot be predicted with certainty, management believes that the
final outcome of such litigation will not have a material adverse effect on the
Company's consolidated financial position or results of operations. Changes in
assumptions, as well as actual experience, could cause the estimates made by
management to change.
Page 9
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
Note 3 - Pending Accounting Change
In October 1995, the FASB issued Statement #123, "Accounting for Stock-Based
Compensation." The Company is required to adopt this standard no later than
December 31, 1996. This Statement encourages companies to recognize expense
for employee stock options at an estimated fair value based on an option
pricing model. If expense is not recognized for employee stock options, pro
forma footnote disclosure is required of what net income and earnings per share
would have been under the Statement's approach to valuing and expensing stock
options. Certain other new disclosures will be required. The Company will
implement the disclosure provisions of this Statement in 1996, but has decided
that it will not recognize the expense related to stock options in the
financial statements.
Note 4 - Revolving Credit Facilities
The Company renegotiated and reduced the level of its revolving credit
facilities by a total of $300.0 million during the second quarter. The
Company's revolving credit facilities now consist of a $900.0 million annually
extendible five-year revolving credit facility and a $300.0 million 364-day
annually extendible revolving credit facility which may, at the Company's
option, be converted into a two-year term loan.
Note 5 - Divestitures
On January 15, 1996, the Company completed the sale of its Italian products
business and realized a pretax gain of $2.8 million. On July 9, 1996, the
Company completed the sale of its U.S. and Canadian frozen foods business and
realized a pretax gain of $133.6 million.
Note 6 - Restructuring Charges
During the quarter ended September 30, 1996, the Company recorded restructuring
charges of $23.0 million. U.S. and Canadian Beverages recorded $16.6 million
related to a change in how the Company sells U.S. Snapple beverages in one of
its owned markets and U.S. and Canadian Foods recorded $6.4 million for plant
consolidations. Estimated savings from the restructuring actions are estimated
to be about $6 million annually beginning in 1997, of which approximately 90
percent will be in cash.
Note 7 - Estimates and Assumptions
The preparation of financial statements in conformity with Generally Accepted
Accounting Principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Page 10
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
Note 7 - Estimates and Assumptions Con't.
The Snapple beverage acquisition added $1.8 billion in intangible assets to the
Company's balance sheet as of December 31, 1995. The Company has evaluated the
recoverability of Snapple beverages' long-lived assets, including intangible
assets, as of September 30, 1996 pursuant to Financial Accounting Standards
Board (FASB) Statement #121.
In performing its review for recoverability, the Company compares the expected
undiscounted cash flows to the carrying value of an entity's long-lived assets
and identifiable intangibles. If the expected future cash flows are less than
the carrying value of such assets, the Company must recognize an impairment
loss for the difference between the carrying amount and the estimated fair
market value of the business. Fair value is generally estimated using various
valuation techniques, including expected discounted cash flows and fundamental
analysis.
Management currently estimates that the undiscounted cash flows from Snapple
beverages will be sufficient to recover the investment in Snapple beverages.
However, given the disappointing performance of the business since its
acquisition by the Company, management will be updating its assessment later
this year in light of additional information which is becoming available with
the conclusion of the 1996 beverage season. Accordingly, the Company's estimate
of the expected undiscounted cash flows to be generated by Snapple beverages
could change in the near term. A change that reduces the expected undiscounted
cash flows to an amount that results in recognition of an impairment loss
would require the Company to reduce the carrying value of Snapple beverages
to fair market value, which is significantly below the current carrying value
of the long-lived assets and identifiable intangibles.
Page 11
THE QUAKER OATS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Presentation
This report discusses the nine-month and three-month periods ended September
30, 1996 of the Company's new fiscal year reporting cycle which began January
1, 1996. The comparisons of the nine-month and three-month periods ended
September 30, 1996 ("current year") with the prior year nine-month and three-
month periods ended September 30, 1995 ("prior year") are affected by the
significant changes the Company has made in its portfolio of businesses since
March 1995. Specifically, the Company divested the following businesses: U.S.
and Canadian pet food and Dutch honey (March 1995), European pet food (April
1995), Mexican chocolate (May 1995), U.S. bean and chili (June 1995), Italian
products (January 1996), and U.S. and Canadian frozen foods (July 1996). As a
result of these major transactions, comparative results are more difficult to
analyze. To aid in the analysis of operating results, the discussion will
compare the financial results as reported, then break out the impact of
divested businesses and restructuring charges, and compare the "ongoing"
results by business segment.
Nine Months Ended September 30, 1996 Compared with Nine Months Ended September
30, 1995
Update on Key Developments
Snapple Beverage Update
While Snapple beverages represents only about 10 percent of Quaker Oats'
sales, it remains the Company's single biggest challenge. At approximately
$500 million in annualized sales, U.S. Snapple beverages holds the leading
position in the single-serve, alternative beverage segment. However, sales
results for U.S. Snapple beverages for the first nine months and the third
quarter of 1996 are 8 percent and 20 percent below last year, respectively.
In part, the declines were due to less favorable weather conditions in the
third quarter compared to the prior year and a mid-summer change in
advertising and promotion tactics. Changing tactics and starting a new
campaign mid-season resulted in over $20 million in additional marketing
expenses. The sales shortfall combined with higher marketing expenses
increased Snapple beverages' operating loss.
The Snapple beverage acquisition added $1.8 billion in intangible assets to
the Company's balance sheet as of December 31, 1995. The Company has
evaluated the recoverability of Snapple beverages' long-lived assets,
including intangible assets, as of September 30, 1996 pursuant to Financial
Accounting Standards Board (FASB) Statement #121.
In performing its review for recoverability, the Company compares the
expected undiscounted cash flows to the carrying value of an entity's long-
lived assets and identifiable intangibles. If the expected future cash flows
are less than the carrying value of such assets, the Company must recognize
an impairment loss for the difference between the carrying amount and the
estimated fair market value of the business. Fair value is generally
estimated using various valuation techniques, including expected discounted
cash flows and fundamental analysis.
Page 12
THE QUAKER OATS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management currently estimates that the undiscounted cash flows from Snapple
beverages will be sufficient to recover the investment in Snapple beverages.
However, given the disappointing performance of the business since its
acquisition by the Company, management will be updating its assessment later
this year in light of additional information which is becoming available
with the conclusion of the 1996 beverage season. Accordingly, the Company's
estimate of the expected undiscounted cash flows to be generated by Snapple
beverages could change in the near term. A change that reduces the
expected undiscounted cash flows to an amount that results in recognition
of an impairment loss would require the Company to reduce the carrying value
of Snapple beverages to fair market value, which is significantly below the
current carrying value of the long-lived assets and identifiable intangibles.
Ready-to-Eat Cereal Price Reductions
Beginning in April 1996, price reductions were taken by major competitors in
the ready-to-eat cereal category which significantly affected the sales
trends and margins of this category. In June, the Company took price
reductions averaging 15 percent on brands that represent approximately 87
percent of the Company's U.S. Foods ready-to-eat cereal business. These
pricing actions, which were effective throughout the third quarter, lowered
net sales by $28 million for the current nine months and are expected to
lower total operating income by about $45 million for the year ended December
31, 1996. For 1997, the pricing actions will result in lower gross margins
which will require the Company to achieve greater levels of efficiency in
both advertising and merchandising (A&M) and overhead expenses to return the
business to higher profit levels.
Consolidated Results
The following tables summarize the net sales and operating results for the nine
months ended September 30, 1996 as compared to the prior year:
<TABLE>
<CAPTION>
NET SALES
for the
Nine Months Ended September 30,
Dollars in Millions 1996 1995
Industry Segments U.S. & Canadian International Total U.S. & Canadian International Total
<S> <C> <C> <C> <C> <C> <C>
Foods $ 1,922.3 $ 456.6 $ 2,378.9 $ 1,952.5 $ 425.3 $ 2,377.8
Beverages 1,422.8 253.5 1,676.3 1,414.9 275.2 1,690.1
Ongoing Business 3,345.1 710.1 4,055.2 3,367.4 700.5 4,067.9
Divested Business 81.6 4.0 85.6 333.3 373.3 706.6
Total Company $ 3,426.7 $ 714.1 $ 4,140.8 $ 3,700.7 $ 1,073.8 $ 4,774.5
Page 13
THE QUAKER OATS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<CAPTION>
OPERATING INCOME (LOSS)
for the
Nine Months Ended September 30,
Dollars in Millions 1996 1995
Industry Segments U.S. & Canadian International Total U.S. & Canadian International Total
<S> <C> <C> <C> <C> <C> <C>
Foods $ 251.8 $ 7.9 $ 259.7 $ 175.3 $ (23.1) $ 152.2
Beverages 119.8 (23.9) 95.9 119.6 (22.5) 97.1
Ongoing Business 371.6 (16.0) 355.6 294.9 (45.6) 249.3
Gains on divestitures 133.6 2.8 136.4 604.2 566.6 1,170.8
Divested Business 7.9 0.5 8.4 24.5 13.5 38.0
141.5 3.3 144.8 628.7 580.1 1,208.8
Total Company $ 513.1 $(12.7) $ 500.4 $ 923.6 $ 534.5 $1,458.1
<FN>
Note: Operating results include certain allocations of overhead
expenses.
"Foods": includes all food lines as well as the food service
business.
"Beverages": includes Gatorade thirst quencher sports beverages
and Snapple premium teas and fruit drinks.
"Ongoing Business": includes the net sales and operating income
of all Company businesses not reported as Divested Business (see
below).
"Divested Business": 1996 includes current year (through the
divestiture date) net sales and operating income for the frozen
foods business (U.S. and Canadian) and Italian products business
(International). 1995 includes prior year net sales and
operating income for the following businesses through their
respective divestiture dates: U.S. and Canadian pet food, U.S.
bean and chili, U.S. and Canadian frozen foods (U.S. &
Canadian), and European pet food, Mexican chocolate, Dutch honey
and Italian products (International).
</FN>
</TABLE>
Consolidated net sales decreased 13 percent due to the absence of divested
businesses in the current year. Excluding divested businesses, ongoing
business sales were even with the prior year, while volume declined 2 percent.
Consolidated gross profit margin was 46.7 percent in the current year compared
to 45.8 percent in the prior year. The increase in gross profit margin was
primarily due to product mix changes resulting from the portfolio changes. For
ongoing businesses, the gross profit margin increased primarily due to
sales growth and lower manufacturing and packaging costs for Gatorade thirst
quencher in the United States, and due to improved sales mix in International
Foods. These increases were offset partly by decreases in International
Beverages and U.S. and Canadian Foods.
Selling, general and administrative (SG&A) expenses declined $297.4 million, or
16 percent, due mainly to a 17 percent decrease in A&M expenses. The Company
spent $181.1 million in A&M in the prior year to support divested businesses.
A&M expenses were 23.8 percent of sales during the current year, down from 24.8
percent in the prior year. For ongoing businesses, A&M expenses were down 4
percent versus the prior year, which reflects increased efficiency in A&M
spending in U.S. and Canadian Foods and reductions in European Beverages. A&M
spending was increased to support U.S. Snapple beverages and European cereals.
The Company will continue to implement changes in A&M programs in an effort to
increase the effectiveness of merchandising and remove unprofitable promotions.
Consolidated operating income was $500.4 million for the current year,
including a $133.6 million gain on the divestiture of U.S. and Canadian frozen
foods and a $2.8 million gain on the divestiture of Italian products. Prior
year operating income was $1.46 billion, which included gains on divestitures
for the following businesses: $513.0 million (U.S. and Canadian pet food);
$91.2 million (U.S. bean and chili); $487.2 million (European pet food); $74.5
million (Mexican chocolate); and $4.9 million
Page 14
THE QUAKER OATS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dutch honey). Current and prior year operating income also included
restructuring charges of $23.0 million and $76.5 million, respectively.
Estimated savings from the 1996 restructuring actions are estimated to be about
$6 million annually beginning in 1997, of which approximately 90 percent will
be in cash.
Excluding the gains on divestitures, restructuring charges and operating income
from divested businesses in both years, operating income increased to $378.6
million or 16 percent from $325.8 million in the prior year.
Net financing costs (net interest expense and foreign exchange losses)
decreased $19.0 million in the current year to $84.6 million. Debt levels
declined due to proceeds from the 1996 and 1995 divestitures.
The effective tax rate in the first nine months of 1996 was 40.3 percent versus
40.7 percent in the prior year. Excluding the impact of the gains on
divestitures and restructuring charges in both years, as well as foreign tax
benefits of $7.2 million in the current year, the effective tax rate was 41.0
percent versus 40.7 percent.
Industry Segment Operating Results
Foods
Net sales in the Foods business were even with the prior year. U.S. and
Canadian net sales and volume declined 2 percent and 1 percent, respectively,
while International net sales increased 7 percent. Lower volume was
anticipated in the U.S. and Canadian business as the Company implemented
changes in its 1996 A&M programs with the intention of removing unprofitable
trade and consumer promotions from its merchandising mix.
International sales increased primarily due to increases in Brazil and in new
Asian markets, offset partially by a decline in the European export cereal
business. In Brazil, the increase in net sales was driven primarily by price
and volume increases, offset partially by unfavorable foreign currency
translations.
Total Foods' operating income for the nine months ended September 30, 1996
was $259.7 million, an increase of $107.5 million from the prior year.
Excluding restructuring charges of $6.4 million in the U.S. and Canadian
business in the current year for plant consolidations and $68.1 million in
the prior year ($39.1 million and $29.0 million for the U.S. and Canadian and
International businesses, respectively), operating income increased by $45.8
million or 21 percent from the prior year. The increase reflects an
improvement in the U.S. and Canadian business where operating income
increased 20 percent from $214.4 million to $258.2 million. This increase
primarily reflects improvements: in hot cereals; in Golden Grain, reflecting
improved efficiency in A&M spending; and in food service, offset partly by
decreases in light snacks and ready-to-eat cereals.
Page 15
THE QUAKER OATS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Excluding the impact of restructuring charges in the prior year, operating
income in the International Foods business increased $2.0 million to $7.9
million. This increase was primarily due to lower overhead expenses in
European cereals which more than offset declines in the Brazilian pasta
business due to lower volume and higher wheat costs.
Beverages
Net sales in the Beverages business decreased 1 percent on a volume decline
of 3 percent. U.S. and Canadian sales increased 1 percent driven by a 5
percent increase in Gatorade thirst quencher sales, reflecting successful new
packaging and flavors along with merchandising and shelving gains in retail
outlets. Snapple beverage sales were 8 percent below last year on a volume
decrease of 12 percent. The fact that the Company owned more of Snapple
beverage's distribution system compared to a year ago, combined with price
increases totaling 1 percent, resulted in a higher level of change in Snapple
beverage and overall beverage volume as compared to the change in net sales.
International sales decreased 8 percent primarily due to decreases in
European Gatorade thirst quencher, reflecting restructuring actions which
began in the fourth quarter of 1995 to remove unprofitable volume, and in the
Asia/Pacific licensed business. These declines more than offset increases in
Latin America, where the increase in net sales was driven primarily by volume
increases and price increases which were partially offset by the effect of
unfavorable foreign currency translations.
Total Beverages' operating income for the nine months ended September 30,
1996 was $95.9 million, a decrease of $1.2 million from the prior year's
$97.1 million. 1996 operating results include a restructuring charge of
$16.6 million related to a change in how the Company sells U.S. Snapple
beverages in one of its owned markets. Excluding restructuring charges of
$16.6 million in the current year in the U.S. and Canadian business and $8.4
million in the prior year ($8.0 million and $0.4 million for the U.S. and
Canadian and International businesses, respectively), operating income
increased by $7.0 million or 7 percent from the prior year. The increase
reflects an improvement in the U.S. Gatorade thirst quencher business which
more than offset increased operating losses in the Snapple beverage business.
The increased Snapple beverage operating loss is due primarily to lower
volumes combined with increased overhead and A&M expenses.
In the International Beverages business, the Company continued its
underwriting in new markets for Gatorade thirst quencher, while pulling back
Snapple beverage operations in certain countries where pre-acquisition
agreements existed. International operating losses increased from $22.1
million to $23.9 million in the current year, exclusive of restructuring
charges in the prior year. This is primarily due to lower Gatorade thirst
quencher sales in licensed markets in Australia and Korea, and lower
operating results in Latin American Snapple beverages, offset partly by
improvements in European Gatorade thirst quencher mainly due to lower A&M
spending, reflecting the withdrawal from certain markets as part of the
recent restructuring activities.
Page 16
THE QUAKER OATS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 Compared with Three Months Ended
September 30, 1995
Consolidated Results
The following tables summarize the net sales and operating results for the
three months ended September 30, 1996 as compared to the prior year:
<TABLE>
<CAPTION>
NET SALES
for the
Three Months Ended September 30,
Dollars in Millions 1996 1995
Industry Segments U.S. & Canadian International Total U.S. & Canadian International Total
<S> <C> <C> <C> <C> <C> <C>
Foods $ 687.3 $ 152.9 $ 840.2 $ 676.6 $ 140.7 $ 817.3
Beverages 512.6 80.8 593.4 563.8 100.2 664.0
Ongoing Business 1,199.9 233.7 1,433.6 1,240.4 240.9 1,481.3
Divested Business 2.6 -- 2.6 39.5 32.8 72.3
Total Company $ 1,202.5 $ 233.7 $ 1,436.2 $ 1,279.9 $ 273.7 $ 1,553.6
OPERATING INCOME (LOSS)
for the
Three Months Ended September 30,
Dollars in Millions 1996 1995
Industry Segments U.S. & Canadian International Total U.S. & Canadian International Total
<S> <C> <C> <C> <C> <C> <C>
Foods $ 86.2 $ 2.8 $ 89.0 $ 86.7 $ 3.7 $ 90.4
Beverages 40.9 (6.9) 34.0 67.9 (8.5) 59.4
Ongoing Business 127.1 (4.1) 123.0 154.6 (4.8) 149.8
Gains on divestitures 133.6 -- 133.6 -- -- --
Divested Business (0.4) -- (0.4) 2.3 (3.3) (1.0)
133.2 -- 133.2 2.3 (3.3) (1.0)
Total Company $ 260.3 $ (4.1) $ 256.2 $ 156.9 $ (8.1) $148.8
<FN>
Note: Operating results include certain allocations of overhead expenses.
"Foods": includes all food lines as well as the food service
business.
"Beverages": includes Gatorade thirst quencher sports beverages
and Snapple premium teas and fruit drinks.
"Ongoing Business": includes the net sales and operating income
of all Company businesses not reported as Divested Business (see
below).
"Divested Business": 1996 includes current year (through the
divestiture date) and net sales and operating income for the
frozen foods business (U.S. and Canadian) and Italian products
business (International). 1995 includes net sales and operating
income for the following businesses through their respective
divestiture dates: U.S. and Canadian pet food, U.S. bean and
chili and U.S. and Canadian frozen foods (U.S. & Canadian), and
European pet food, Mexican chocolate, Dutch honey and Italian
products (International).
</FN>
</TABLE>
Consolidated net sales decreased 8 percent due largely to the absence of
divested businesses in the current year. Excluding divested businesses,
ongoing business sales declined 3 percent on a volume decline of 8 percent.
Consolidated gross profit margin was 47.5 percent in the current year compared
to 46.9 percent in the prior year. The increase in gross profit margin was due
to the favorable impact of product mix changes resulting from the portfolio
changes. For ongoing businesses, gross profit margin increased primarily
Page 17
THE QUAKER OATS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
due to lower production and packaging costs in the U.S. and Canadian
businesses, which were partly offset by a decline in International Beverages.
SG&A expenses declined $47.3 million, or 8 percent, due mainly to a 6 percent
decrease in A&M expenses. A&M expenses were 24.9 percent of sales during the
current year, up from 24.6 percent of sales in the prior year. During the
current year, the spending behind the Snapple beverage promotional, sampling
and advertising campaign combined with increased support to launch the new hot
cereals season more than offset declines in Golden Grain, and European and U.S.
Gatorade thirst quencher. The Company will continue to implement changes in
A&M programs which are intended to eliminate ineffective merchandising and
promotional spending in order to increase profitability.
Consolidated operating income was $256.2 million for the current year, which
included a $133.6 million gain on the divestiture of the frozen foods business
and restructuring charges totaling $23.0 million. Excluding the gain on
divestiture and restructuring charges in the current year and operating income
from divested businesses in both years, operating income decreased by $3.8
million or 3 percent from $149.8 million to $146.0 million.
Net financing costs (net interest expense and foreign exchange losses)
decreased by $2.8 million in the current year to $26.3 million. The decrease
was primarily due to lower interest expense related to lower debt levels offset
partly by slightly higher foreign exchange losses, primarily in the Latin
American countries.
The effective tax rate in the current year was 39.8 percent versus 42.5 percent
in the prior year. Excluding the impact of the gain on the divestiture of the
frozen foods business, restructuring charges and foreign tax benefits of $7.2
million in the current year, the effective tax rate was 41.0 percent.
Industry Segment Operating Results
Foods
Net sales in the Foods business increased by 3 percent overall as compared to
the prior year, while volume remained flat. This increase in sales was due
to an increase in the International business of 9 percent and an increase in
the U.S. and Canadian business of 2 percent. The increase in International
Foods relates primarily to increases in the Brazilian chocolate beverages and
fish businesses, the Caribbean export business and European cereals. In
Brazil, the overall increase in net sales was driven primarily by volume
increases, offset partially by unfavorable foreign currency impacts. The
increase in U.S. and Canadian Foods sales was driven by increases in hot
cereals, Canada foods, and granola bars, which more than offset sales
declines in light snacks, food service and ready-to-eat cereals. However,
cereals had a double-digit volume increase.
Total Foods' operating income in the current year was $89.0 million, a
decrease of $1.4 million from the prior year operating income of $90.4
million. Excluding the current $6.4 million restructuring charge related to
U.S. plant consolidations, operating income increased $5.0 million. U.S. and
Canadian operating income increased from $86.7 million to $92.6 million.
This increase
Page 18
THE QUAKER OATS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
reflects improvements in Golden Grain, food service, Canadian foods, hot
cereals and granola bars, offset partly by decreases in light snacks and
ready-to-eat cereals. The increase in operating income is driven by lower
overhead and A&M expenses. In ready-to-eat cereals, the decline in operating
income is due to the impact of the price reductions announced in June 1996.
International Foods' operating income decreased from $3.7 million to $2.8
million. This decrease primarily reflects declines in the Brazilian pasta
business due to lower volumes and European cereals due to increased A&M
spending, partially offset by improvements in Brazilian chocolate beverages
and fish and across the other Latin American countries.
Beverages
Net sales in the Beverages business declined 11 percent on a volume decline
of 12 percent. This decrease was driven by the U.S. and Canadian business,
where sales dropped 9 percent reflecting a 20 percent decrease in Snapple
beverages and a 3 percent decrease in Gatorade thirst quencher. Both Snapple
beverages and Gatorade thirst quencher volumes were negatively affected by
less favorable weather conditions versus the prior year.
International sales decreased 19 percent on a volume decline of 18 percent,
driven primarily by declines in European Gatorade thirst quencher, where the
Company is realigning its business mainly to Italy and the Mediterranean
area, and withdrawing Snapple beverages in certain countries.
Beverages' operating income of $34.0 million decreased $25.4 million from the
$59.4 million reported a year ago. 1996 operating results include a
restructuring charge of $16.6 million related to a change in how the Company
sells U.S. Snapple beverages in one of its owned markets. Excluding the
restructuring charge of $16.6 million in the current year, operating income
decreased $8.8 million or 15 percent from $59.4 million to $50.6 million
driven by the increased operating loss in Snapple beverages due to lower
sales and higher A&M and overhead expenses, which more than offset
improvements in U.S. Gatorade thirst quencher.
In the International Beverages business, the operating loss was reduced from
$8.5 million in the prior year to $6.9 million in the current year primarily
due to lower A&M spending in European Gatorade thirst quencher, reflecting
restructuring actions taken in the fourth quarter of 1995 to remove
unprofitable volume, which more than offset declines in South Asia due to
increased underwriting to expand that business.
Liquidity and Capital Resources
Short-term and long-term debt (total debt) as of September 30, 1996 was $1.44
billion, a decrease of $327.8 million from December 31, 1995. The total debt-
to-total capitalization ratio was 53.3 percent and 61.7 percent as of September
30, 1996 and December 31, 1995, respectively.
Page 19
THE QUAKER OATS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company renegotiated and reduced the level of its revolving credit
facilities by a total of $300.0 million during the second quarter. The
Company's revolving credit facilities now consist of a $900.0 million annually
extendible five-year revolving credit facility and a $300.0 million 364-day
annually extendible revolving credit facility which may, at the Company's
option, be converted into a two-year term loan.
Following the announcement by the Company in June 1996 that the Snapple
beverage business would operate at a level significantly below break-even for
the year and that price reductions in the ready-to-eat cereal category would
negatively impact 1996 results, the credit rating agencies announced that they
are reviewing the status of their debt ratings for potential downgrades, as
follows: Standard & Poor's ("CreditWatch with negative implications"); Fitch
("FitchAlert"); and Moody's ("under review"). The Company's current debt and
commercial paper ratings are as follows: Standard & Poor's (A- and A2);
Fitch (A- and F2); and Moody's (A3 and P2).
Net cash provided by operating activities was $463.5 million and $484.2 million
for the nine months ended September 30, 1996 and 1995, respectively. Capital
expenditures for the current and prior year were $164.8 million and $211.7
million, respectively. During the current and prior year, the Company had
proceeds related to business divestitures of $174.4 million and $1.25 billion,
respectively, and outlays related to business acquisitions of $49.3 million
during the prior year. Capital expenditures are expected to continue at the
current rate in the fourth quarter of this year as the Company has plans to
invest in the worldwide expansion of production capacity for beverages in the
United States and for grain-based products in the United States and China. The
Company expects that capital expenditures and cash dividends for the remainder
of the year will be financed through a combination of cash flow from operating
activities and debt financing.
The majority of the Company's international business is in Latin American
countries, principally Brazil, where hedging markets are rapidly evolving but
are not yet as developed or efficient as the traditional foreign exchange
markets. Historically, the Company has not hedged Latin American currencies
because the opportunities were more limited and costly. During the third
quarter of 1996, the Company executed certain hedging instruments to reduce
exposure to Brazilian currency movement. The Company will continue to use
Latin American hedge instruments, where economical, to reduce exposure to
potentially significant currency movement. The Company will also continue to
use foreign currency hedge instruments to reduce the risk that the U.S. dollar
value of the net investment and cash flows of its other foreign operations,
principally in Europe and Canada, will be reduced as exchange rates fluctuate.
Current and Pending Accounting Changes
In October 1995, the FASB issued Statement #123, "Accounting for Stock-Based
Compensation." The Company is required to adopt this standard no later than
December 31, 1996. This Statement encourages companies to recognize expense
for employee stock options at an estimated fair value based on an option
pricing model. If expense is not recognized for employee stock options, pro
forma footnote disclosure is required of what net income and earnings per share
would have been under the Statement's approach to valuing and expensing stock
options. Certain other new disclosures will be
Page 20
THE QUAKER OATS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
required. The Company will implement the disclosure provisions of this
Statement in 1996, but has decided that it will not recognize the expense
related to stock options in the financial statements.
Cautionary Statement on Forward-Looking Statements
Forward-looking statements, within the meaning of Section 21E of the Securities
and Exchange Act of 1934, are made throughout this Management's Discussion and
Analysis. Company results may differ materially from those in the forward-
looking statements. Forward-looking statements are based on management's
current views and assumptions, and involve risks and uncertainties that could
significantly affect expected results. For example, operating results may be
affected by external factors such as: actions of competitors; changes in laws
and regulations, including changes in accounting standards; distributor
relations; customer demand; effectiveness of spending or programs; consumer
perception of health-related issues; fluctuations in the cost and availability
of supply-chain resources; and foreign economic conditions, including currency
rate fluctuations.
Results for 1997 and beyond will depend on the Company's ability to resolve its
problems with the Snapple beverage business. For the ready-to-eat cereal
business, the ability to return the business to higher profit levels will
depend to a large degree on the competitive environment as well as the ability
of the Company to achieve greater levels of A&M and overhead efficiency.
Page 21
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Note 2 in Part I is incorporated by reference herein.
Item 6 Exhibits and Reports on Form 8-K
Item 6(a) See Exhibit Index.
All other items in Part II are either inapplicable to the Company
during the quarter ended September 30, 1996, the answer is
negative or a response has been previously reported and an
additional report of the information need not be made, pursuant
to the Instructions to Part II.
Page 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Quaker Oats Company
(Registrant)
Date November 11, 1996 /s/Robert S. Thomason
Robert S. Thomason
Senior Vice President - Finance and
Chief Financial Officer
Date November 11, 1996 /s/Thomas L. Gettings
Thomas L. Gettings
Vice President and
Corporate Controller
Page 23
EXHIBIT INDEX
Exhibit Paper (P) or
Number Description Electronic (E)
(10)(a)(3) 1984 Long-Term Incentive Plan E
as amended and restated effective
as of September 1, 1996.
(10)(b)(3) Deferred Compensation Plan E
for Directors of The Quaker Oats
Company as amended and restated
effective as of September 1, 1996.
(10)(c)(2) Deferred Compensation Plan for E
Executives of The Quaker Oats
Company as amended and restated
effective as of September 1, 1996.
(10)(f)(6) Agreement upon separation of E
employment with Michael B. Schott
effective as of August 12, 1996.
(10)(g)(11) The Quaker Supplemental Executive E
Retirement Program as amended and
restated effective as of September 1, 1996.
(10)(j)(2) The Quaker Officers Severance Program E
as amended and restated effective as of
September 1, 1996.
(10)(k)(7) The Quaker Long Term Incentive Plan E
of 1990 as amended and restated effective
as of September 1, 1996.
(10)(m)(2) Quaker Salaried Employees Compensation E
and Benefits Protection Plan as amended and
restated effective as of September 1, 1996.
(11) Statement Re Computation E
of Per Share Earnings.
(27) Financial Data Schedule E
(submitted to the Securities
and Exchange Commission
in electronic format).
Page 24
EXHIBIT (11)
THE QUAKER OATS COMPANY AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
For the Nine Months Ended
September 30, September 30,
1996 1995
Calculation of Fully Diluted Earnings Per Share
Dollars in Millions (Except Per Share Data)
Income From Continuing Operations $ 229.8 $ 771.8
Less: Adjustments attributable to conversion
of ESOP Convertible Preferred Stock (0.6) (0.8)
Net Income Used for Fully Diluted Calculation $ 229.2 $ 771.0
Shares in Thousands
Average Number of Common Shares Outstanding 135,315 134,041
Plus Dilutive Securities:
Stock Options 1,117 1,292
ESOP Convertible Preferred Stock 2,460 2,604
Average Shares Outstanding Used for Fully
Diluted Calculation 138,892 137,937
Fully Diluted Earnings Per Share $ 1.65 $ 5.58
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 141
<SECURITIES> 0
<RECEIVABLES> 427
<ALLOWANCES> 34
<INVENTORY> 290
<CURRENT-ASSETS> 1080
<PP&E> 1885
<DEPRECIATION> 723
<TOTAL-ASSETS> 4571
<CURRENT-LIABILITIES> 1505
<BONDS> 995
0
100
<COMMON> 840
<OTHER-SE> 318
<TOTAL-LIABILITY-AND-EQUITY> 4571
<SALES> 4141
<TOTAL-REVENUES> 4141
<CGS> 2209
<TOTAL-COSTS> 2209
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 83
<INCOME-PRETAX> 385
<INCOME-TAX> 155
<INCOME-CONTINUING> 230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.65
</TABLE>
Exhibit 10(a)(3)
1984 LONG-TERM INCENTIVE PLAN
OF
THE QUAKER OATS COMPANY
(As Amended and Restated Effective as of September 1, 1996)
1. PURPOSE. This Plan is designed to promote the interests of the
Company and its shareholders by providing officers and other managerial
employees of the Company and its subsidiaries with additional incentive and the
opportunity, through stock ownership, to increase their proprietary interest in
the Company and their personal interest in its continued success and progress.
2. ADMINISTRATION. The Plan shall be administered by a
committee (the "Committee") of directors of the Company who shall be appointed
by the Company's Board of Directors (the "Board") and who shall not be eligible
to participate in the Plan. Subject to the provisions of the Plan, the
Committee is authorized (a) to direct the grant of incentive stock options
within the meaning of the Internal Revenue Code or other stock options, or both
incentive stock options and other stock options, (b) to determine the employees
to be granted options and the type or types of options to be granted to an
employee, (c) to determine the option price and the number of shares subject to
each option, (d) to determine the time or times at which options will be
granted, (e) to determine the duration of the exercise period, (f) to determine
other conditions and limitations, if any, applicable to the exercise of each
option, (g) to determine the nature and duration of the restrictions, if any,
to be imposed upon the sale or other disposition of shares acquired by any
optionee upon exercise of an option, and the nature of the events, if any, and
the duration of the period in which any optionee's rights in respect of shares
acquired upon exercise of an option my be forfeited, and (h) to interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to it, and
to make all other determinations deemed necessary or advisable for its
administration.
3. SURRENDER OF OPTIONS. The Committee may authorize, upon such
conditions and limitations as it deems advisable, the surrender of the right to
exercise all or a portion of an option heretofore or hereafter granted under
the Plan and the payment in exchange therefor of an amount up to the excess of
the fair market value at the time of surrender of the shares covered by the
option, or portion thereof, surrendered over the aggregate option price of such
shares. Such payment may be made in shares of common stock valued at fair
market value or in cash or partly in cash and partly in shares of common stock
as the Committee deems advisable. The shares of common stock covered by any
option, or portion thereof, as to which the right to exercise shall have been
so surrendered shall not again be available for purposes of the Plan. Any
shares of common stock delivered upon any such surrender may be unissued shares
or treasury shares, or a combination thereof, and shall not be charged against
the number of shares of common stock available for purposes of the Plan.
4. LIMITATIONS ON INCENTIVE OPTIONS. The aggregate fair market value
(determined as of the time the option is granted) of the stock for which any
employee may be granted incentive stock options in any calendar year (under all
plans of the Company and its parent and subsidiary corporations) shall not
exceed $100,000 plus any unused limit carryover to such year. The unused limit
carryover is one-half of the amount by which $100,000 exceeds the aggregate
fair market value (determined as of the time the option is granted) of the
stock for which an employee was granted incentive stock options in any calendar
year after 1980 (determined under all plans of the Company and its parent and
subsidiary corporations). The amount of the unused limit carryover which may
be taken into account in any calendar year shall be the amount of such
carryover for the preceding three calendar years reduced by the amount of such
carryover which was used in prior calendar years.
5. SHARES COVERED BY THE PLAN. The stock to be offered under the Plan
shall be shares of authorized common stock of the Company and may be unissued
shares or treasury shares, or a combination thereof, as the Committee may from
time to time determine. Subject to Section 14, the maximum number of shares to
be delivered upon exercise of all options granted under the Plan shall not
exceed 1,300,000 shares. Except as otherwise provided in paragraph 3, shares
covered by an option that remain unpurchased upon expiration or termination of
the option may be used for further options.
6. ELIGIBILITY. Officers and other managerial employees of the Company
and its subsidiaries shall be eligible to receive options.
7. OPTION PRICE. The purchase price per share of stock under each
option shall be not less than the Fair Market Value at the time the option is
granted.
8. OPTION PERIOD. No option period shall exceed ten years.
9. EARLY TERMINATION OF OPTION.
(a) TERMINATION OF EMPLOYMENT. All rights to exercise an option
heretofore or hereafter granted terminate when the optionee's
employment terminates for any reason other than his death or
retirement. Transfer from the Company to a subsidiary, or vice
versa, or from one subsidiary to another, shall not be deemed
termination of employment. The Committee shall have the authority to
determine in each case whether an authorized leave of absence or
absence on military or government service shall be deemed a
termination of employment for purposes of this section.
(b) DEATH OR RETIREMENT OF OPTIONEE. If an optionee dies while an
employee or retires, his option shall terminate within a period not
exceeding three years following his death or retirement, as specified
by the Committee, but not later than the date the option expires
pursuant to its terms. The terms of options outstanding on July 11,
1990, except for those options intended to qualify as incentive stock
options, may also be amended at anytime by the Committee or the Board
to extend the option's duration period following an optionee's death
or retirement, subject to the limitations stated in the preceding
sentence. In the meantime, subject to the limitations in the option
grant, it may be exercised by the optionee, the executors or
Page 2
administrators of his estate or by his legatee or heirs.
"Retirement" shall mean termination of employment at age 55 or older
for reasons other than death.
10. PAYMENT FOR STOCK. Full payment for shares purchased shall be made
at the time of exercising the option in whole or in part. No shares shall be
issued until full payment for them has been made, and a participant shall have
none of the rights of a shareholder until shares are issued to him. Payment
may be made in cash or by transfer to the Company of shares of common stock of
the Company valued at fair market value at the time the option is exercised, or
partly in cash and partly in shares of common stock, as the Committee may
authorize. The amount of such payment shall not exceed the aggregate option
price of the shares purchased.
11. NONTRANSFERABILITY. No option shall be transferable, except by the
optionee's will or the laws of descent and distribution. During the optionee's
lifetime, his option shall be exercisable only by him.
12. CANCELLATION AND PAYMENT.
(a) Upon the occurrence of a Change in Control, options outstanding on
the date on which the Change in Control occurs shall be canceled,
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 common stock as reported on the New York Stock
Exchange 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 common stock is
highest), or (II) the highest per Share price for the common stock
actually paid in connection with the Change in Control, over 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.
(b) If the making of payments pursuant to the foregoing (a) would
subject the optionee to an excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended, 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 herein as
a "Tax Penalty"), then the Company shall reduce the number of
options to be canceled pursuant to the foregoing resolutions to the
extent necessary to avoid the imposition of such Tax Penalty, and
it shall establish procedures necessary to maintain for the optionee
stock options, or to the form of benefit so that such employee will
be in the same financial position with respect to those options not
canceled as he would have been in the ordinary course, absent a
Change in Control and the continued employment of the employee;
except that the foregoing shall not apply if such employee (I) is
entitled to a tax reimbursement for such Tax Penalty under any other
agreement, plan or program of the Company, or (II) may disclaim any
portion of or all payments to be made pursuant to any other
agreement, plan or program of the Company in order to avoid such Tax
Penalty; with disagreement as to whether payments pursuant to the
foregoing would result in the imposition of a Tax Penalty to be
resolved by an opinion of counsel chosen by the employee and
reasonably satisfactory to the Company.
Page 3
13. CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred if:
(a) any "Person," which shall mean a "person" as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than the Company, any trustee
or other fiduciary holding securities under an employee benefit plan
of the Company, or any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the
Company's then outstanding voting securities; provided, however,
that this paragraph (a) shall not apply to any Person who becomes
such a beneficial owner of such Company securities pursuant to an
agreement with the Company approved by the Board, entered into
before such Person has become such a beneficial owner of Company
securities representing 5% or more of the combined voting power of
the Company's then outstanding voting securities;
(b) during any period of 24 consecutive months (not including any period
prior to the execution of this Plan), individuals who at the
beginning of such period constitute the Board, and any new director
(other than a director designated by a Person who has entered into
an agreement with he Company to effect a transaction described in
paragraph (a), (c) (2) or (d) of this Section) whose election by the
Board, or whose nomination for election by the Company's
stockholders, was approved by a vote of at least two-thirds (2/3) of
the directors before the beginning of the period cease for any
reason to constitute at least a majority thereof;
(c) the stockholders of the Company approve (1) a plan of complete
liquidation of the Company or (2) the sale or disposition by the
Company of all or substantially all of the Company's assets unless
the acquirer of the assets or its directors shall meet the
conditions for a merger or consolidation in subparagraphs (d) (1) or
(d) (2); or
(d) the stockholders of the Company approve a merger or consolidation of
the Company with any other company other than:
(1) such a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving
entity) more than 70% of the combined voting power of the
Company's or such surviving entity's outstanding voting
securities immediately after such merger or consolidation; or
(2) such a merger or consolidation which would result in the
directors of the Company who were directors immediately prior
Page 4
thereto continuing to constitute at least 50% of the directors
of the surviving entity immediately after such merger or
consolidation.
In this paragraph (d), "surviving entity" shall mean only an entity in
which all of the Company's stockholders immediately before such merger or
consolidation become stockholders by the terms of such merger or
consolidation, and the phrase "director of the Company who were directors
immediately prior thereto" shall include only individuals who were
directors of the Company at the beginning of the 24 consecutive month
period preceding the date of such merger on consolidation, or who were new
directors (other than any director designated by a Person who has entered
into an agreement with the Company to effect a transaction described in
paragraph (a), (c) (2), (d) (1) or (d) (2) of this Section) whose election
by the Board, or whose nomination for election by the Company's
stockholders, was approved by a vote of at least two-thirds (2/3) of the
directors before the beginning of such period.
14. CHANGES IN STOCK. In the event of any change in the common stock of
the Company through stock dividends, split-ups, recapitalizations,
reclassifications, or otherwise, or in the event that other stock shall be
substituted for the present common stock of the Company as the result of any
merger, consolidation, or reorganization, then the Committee may make
appropriate adjustment or substitution in the number, kind, and price of shares
under the Plan and under any option.
15. USE OF PROCEEDS. The proceeds received by the Company from the
sale of stock pursuant to the Plan will be used for general corporate purposes.
Any shares of common stock received will become treasury shares.
16. AMENDMENT AND DISCONTINUANCE. The Board may alter, suspend, or
discontinue the Plan, but may not increase the maximum number of shares to be
optioned in the aggregate, change the manner of determining the option price or
change the class of employees eligible for options under the Plan, or, without
the consent of the holder of the option, alter or impair any option previously
granted under the Plan.
17. DURATION. No options shall be granted after December 31, 1990.
IN WITNESS WHEREOF, this Plan is executed by a duly authorized officer of the
Company.
THE QUAKER OATS COMPANY
October 14, 1996 By: /s/ Douglas J. Ralston
Its Senior Vice President
Page 5
Exhibit 10(b)(3)
DEFERRED COMPENSATION PLAN
FOR DIRECTORS OF THE QUAKER OATS COMPANY
(As Amended and Restated Effective as of September 1, 1996)
1. PURPOSE
The purpose of this Plan is to offer non-employee members of the Board of
Directors ("Directors") the opportunity to defer receipt of their
directors' compensation, under terms advantageous to both the Director and
The Quaker Oats Company ("Company"), until termination of the Director's
service with the Company.
2. DEFINITIONS
a. "Beneficiary" shall mean the person or persons designated from time
to time in writing by a Participant to receive payments under the
Plan after the death of such Participant, or, in the absence of any
such designation or in the event that such designated person or
persons shall predecease such Participant, the Participant's estate.
b. "Cash Unit" shall mean a Deferred Amount and any interest carried
over the deferral period and which shall be credited with interest as
set forth in Section 4, during the period of deferral.
c. "Common Stock Unit" shall mean a Deferred Amount which is converted
into a unit for purposes of this Plan by dividing a dollar amount by
the Fair Market Value of a share of the Company's common stock.
d. "Compensation" shall mean payments which the Director receives from
the Company for services as a member of its Board of Directors. Such
payments may include directors' fees, retainers, meeting fees, fees
for chairing committees or undertaking special projects directed by
the Board of Directors, but shall exclude direct reimbursement of
expenses.
e. "Deferred Amount" shall mean an amount of Compensation deferred under
this Plan and carried during the deferral period as either Common
Stock Units or Cash Units.
f. "Dividend Equivalent" shall mean an amount equal to the cash dividend
paid on a share of the Company's common stock credited to a Common
Stock Unit as if such a Unit were an actual share of common stock
issued and outstanding.
g. "Fair Market Value" shall mean the average of the closing prices of a
share of the Company's common stock as reported by the New York Stock
Exchange - Composite Transactions Reporting System for the ten
business days commencing on the third and ending on the twelfth
business day following the release of quarterly and annual summary
statements of the Company's sales and earnings.
h. "Termination of Service" shall mean the termination (by death,
retirement or otherwise) of a Participant's service as a Director of
the Company.
3. DEFERRAL OF COMPENSATION
Each Director may elect to have all or a portion of his Compensation for
any calendar year, commencing with the calendar year beginning January 1,
1997, deferred under this Plan. Such election shall be executed in
writing by the Director, prior to the start of the calendar year during
which such Compensation is earned, on a form prescribed by the Secretary
of the Company. An election, once made, shall be irrevocable for the next
calendar year, and it shall continue in effect for subsequent calendar
years until changed prospectively by the Participant. The election may
specify that the Participant desires to have all or a specified percentage
of his Compensation for the year deferred under the Plan. Any election
for deferral shall specify that the Participant desires to have such
Deferred Amounts carried as Common Stock Units, or Cash Units, or a
combination, during the period of deferral.
4. TREATMENT OF DEFERRED AMOUNTS
The Company shall establish on its books the necessary account to
accurately reflect the Company's liability to each Director who has
deferred Compensation under this Plan. To this account shall be credited
Deferred Amounts, Dividend Equivalents on Common Stock, and interest on
Cash Units. Payments to the Participant following Termination of Service
shall be debited to the account. Rights and interests under this Plan may
not be assigned.
a. Cash Units. A Participant who has elected to defer Compensation in
Cash Units shall have the amount of such Compensation credited to his
account on the same date that it would otherwise be payable to him.
Deferred Amounts carried as Cash Units shall earn interest from the
date of credit to the date of payment. At the end of each month,
interest at the new issue 10-year "A" rated industrial bond rate
quoted by Salomon Brothers in its Bond Market Roundup, or by such
other recognized source as the Secretary of the Company may
designate, for the week in which the preceding month ends shall be
credited to the cash units accrued in each account.
b. Common Stock Units. A Participant who has elected to defer
Compensation in Common Stock Units shall have the amount of such
Compensation credited to his account on the same date that it would
otherwise be payable to him. Such Deferred Amount shall be converted
into a whole number of Common Stock Units once a fiscal quarter
(during the last month thereof) by dividing the Deferred Amount by
Page 2
the Fair Market Value of the Company's common stock, as defined in
Section 2g. No fractional Common Stock Units shall be credited, but
such amounts shall be carried forward to the next quarter without
interest. If Common Stock Units exist in a Participant's account on
a dividend declaration date for the Company's common stock, Dividend
Equivalents shall be credited to the Participant's account on the
following dividend payment date. Such amounts shall be carried
forward without interest until the next quarterly date when they may
be converted into Common Stock Units.
In the event of any change in the outstanding shares of the Company's
common stock by reason of any stock split or dividend,
recapitalization, merger, consolidation, combination or exchange of
stock or similar corporate change, the Secretary of the Company shall
make such equitable adjustments, if any, by reason of any such
change, deemed appropriate in the number of Common Stock Units
credited to each Participant's account.
c. Transfers Between Accounts. Participants may transfer Deferred
Amounts within their account from one investment medium (e.g., Cash
Units) into the other (e.g., Common Stock Units) upon application to
the Secretary of the Company and approval by the Company's legal
advisors. Such transfers normally shall be made during the ten
business days commencing on the third and ending on the twelfth
business day following the release of quarterly and annual summary
statements of the Company's sales and earnings.
5. PAYMENT OF DEFERRED AMOUNTS
At the time a Director first elects to defer Compensation under this Plan,
the Participant shall irrevocably specify, on a form prescribed by the
Secretary of the Company, the number of annual installments (not exceeding
15) that the Participant desires to receive payment of the Deferred
Amount. Payments shall be made in the manner elected by the Participant,
commencing as of the January 1 immediately following the Participant's
Termination of Service, except as provided in Section 6 below. A
Beneficiary shall also be designated on such form; and such Beneficiary
may be changed by the Participant at anytime. If no effective election
has been made at the time of Termination of Service, payment of the entire
Deferred Amount shall be made to a Participant (or a Beneficiary, if the
Participant shall have died) on the January 1 immediately following the
Participant's Termination of Service. Regardless of when Termination of
Service occurs, however, no payment of a Deferred Amount may commence
until the Participant has attained age 55.
All payments of Deferred Amounts under this Plan shall be made in cash out
of the general assets of the Company. The payment value of each Common
Stock Unit shall be the Fair Market Value just prior to the payment date.
The amount of each annual installment payment to a Participant shall be
determined by dividing the Cash Units and/or Common Stock Units in the
Participant's account by the number of installments remaining to be paid,
Page 3
and, in the case of Common Stock Units, multiplying the result by the
payment value.
As of the date on which the last payment with respect to Common Stock
Units is to be made to any director or his beneficiary under this Section
5, the Company shall pay the director or beneficiary (a) the net amount of
any Dividend Equivalents carried over to the year in accordance with
Section 4b; and (b) the amount which would be determined in accordance
with Section 4b, for any dividend payment date following the actual last
transfer date, if such transfer follows the record date relating to such
dividend payment date.
6. ACCELERATION OF PAYMENTS
The Secretary of the Company is empowered to accelerate the payment of
Deferred Amounts to a Participant or to all Participants or to a
Beneficiary, whether before or after the Participant's Termination of
Service, for reasons of individual hardship, death, changes in the tax
laws or accounting principles, or other reasons which negate or diminish
the continued value of Deferred Amounts to Participants or to the Company.
7. AMENDMENT OR TERMINATION
The Board of Directors or the Executive Committee may amend or terminate
this Plan at any time. No amendment or termination shall adversely affect
any then existing Deferred Amounts or rights under this Plan.
IN WITNESS WHEREOF, this Plan, as stated, is effective as of September 1, 1996,
and is executed by a duly authorized officer of the Company.
THE QUAKER OATS COMPANY
October 14 , 1996 By: /s/Douglas J. Ralston
Its Senior Vice President
Page 4
Exhibit 10(c)(2)
DEFERRED COMPENSATION PLAN
FOR EXECUTIVES OF THE QUAKER OATS COMPANY
(As Amended and Restated Effective as of September 1, 1996)
1. PURPOSE
The purpose of this Deferred Compensation Plan (the "Plan") is to offer
certain senior-level employees (the "Executives") of The Quaker Oats
Company (the "Company") the opportunity to defer receipt of their salary
and bonus payments until termination of their service with the Company.
2. DEFINITIONS
a. "Beneficiary" shall mean the entity or person designated from time to
time in writing by a Participant to receive payments under the Plan
after the death of such Participant, or in the absence of an
effective designation or the event that such designated person shall
predecease such Participant, the Participant's estate.
b. "Bonus" shall mean the amount of money which the Executive shall be
awarded periodically under the Management Incentive Bonus program of
the Company.
c. "Cash Unit" shall mean a Deferred Amount and any interest carried
over for the deferral period, which shall be credited with interest,
as set forth in Section 5, during the period of deferral.
d. "Compensation" shall mean (i) the Salary and Bonus payments which the
Executive is eligible to receive from the Company for services and
(ii) any amount credited under Section 4 of this Plan.
e. "Deferred Amount" shall mean an amount of Compensation deferred under
this Plan and carried during the deferral period as Cash Units.
f. "ESOP" shall mean The Quaker Employee Stock Ownership Plan.
g. "Participant" shall mean an Executive who has elected to participate
in this Plan.
h. "Salary" shall mean the annual base salary earned from the Company by
the Executive.
i. "Termination of Service" shall mean the termination (by death,
retirement or otherwise) of a Participant's service with the Company
as an employee.
3. DEFERRAL OF COMPENSATION
Each Executive may elect to have any portion of Salary earned for any year
and any portion of Bonus awarded in any year deferred under this Plan;
provided, however, that only Compensation in excess of the maximum amount
of earnings taxable under the Old-Age, Survivors, and Disability Insurance
program of the Federal Social Security Act, as it exits in each calendar
year, may be deferred under this Plan. Such election shall (subject to
the foregoing limitation) specify the percentage or amount of the
Participant's Salary and/or Bonus to be deferred under the Plan and shall
be executed by the Executive on a form prescribed by the Secretary of the
Company as follows: a) for Salary, prior to the beginning of the month in
which such salary is earned; and b) for Bonus, prior to September 1st of
the year for which Bonus is being awarded. An election, once made, shall
continue in effect until changed prospectively by the Participant;
provided, however, that an election with respect to Salary may be changed
no more than one time each month, effective as of the beginning of the
next month and an election with respect to a Bonus is irrevocable after
the September 1st referred to in the prior sentence.
4. ADDITIONAL CREDIT AMOUNTS
The Company may elect, at its option, to credit to each Participant's
account certain amounts, or the cash equivalent amounts of any in-kind
contributions, that would have been contributed to the Participant's
account under ESOP, but for a Participant's participation in this Plan.
Such amounts, if credited, shall be credited as of the dates such amounts
would have otherwise been contributed to the Participant's account under
the ESOP. Amounts credited under this Plan pursuant to this section shall
not be made available in cash to the Participant, except pursuant to this
Plan. These amounts shall be in addition to the amounts described in
Section 3 above and shall be considered "Compensation" for purpose of this
Plan.
5. TREATMENT OF DEFERRED AMOUNTS
The Company shall establish on its books the necessary account to
accurately reflect the Company's liability to each Executive who has
deferred Compensation under this Plan. To this account shall be credited
Deferred Amounts and interest on Cash Units. Payments to the Participant
following Termination of Service shall be debited to the account. Rights
and interests under this Plan may not be assigned.
A Participant who has elected to defer Compensation shall have the amount
of such Compensation credited to the Participant's account as of the same
date that it would otherwise be payable to him. Cash Units (including
Deferred Amounts) shall earn interest from the date of credit to the date
of payment. Interest on Cash Units shall be credited to each
Participant's account as of the last calendar day of each month; the
intent of this being that interest on Cash Units shall be compounded
monthly. The interest rate credited on Cash Units shall be the rate for
the new issue 10-year "A"-rated industrial bonds listed in the Salomon
Brothers Bond Market Roundup, or by such other recognized source as the
Page 2
Treasurer of the Company may designate, for the week in which the
preceding month ends.
6. PAYMENT OF DEFERRED AMOUNTS
At the time an Executive first elects to defer Compensation under this
Plan, the Participant shall irrevocably specify, on a form prescribed by
the Secretary of the Company, the number of annual installments (not
exceeding 15) that the Participant desires to receive payment of the
Deferred Amount, and how soon after Termination of Service the Participant
wishes to have payment begin. Payments shall be made in the manner
elected by the Participant, except as provided in Section 7 below. A
Beneficiary shall also be designated on such form; and such Beneficiary
may be changed by the Participant at any time prior to Termination of
Service. If no effective election has been made at the time of
Termination of Service, payment of the entire deferred amount shall be
made to a Participant (or a Beneficiary, if the Participant shall have
died) six months after Termination of Service.
All payments of Deferred Amounts under this Plan shall be made in cash out
of the general assets of the Company, and shall constitute an unfunded and
unsecured promise to pay by the Company. The amount of each annual
installment payment to a Participant shall be determined by dividing the
Cash Units in the Participant's account by the number of installments
remaining to be paid.
7. ACCELERATION OF PAYMENTS
The Secretary of the Company is empowered to accelerate the payment of
Deferred Amounts to a Participant or to all Participants or to a
Beneficiary, whether before or after the Participant's Termination of
Service, for reasons of individual hardship, death, changes in the tax
laws or accounting principles, or other reasons which negate or diminish
the continued value of Deferred Amounts to Participants or to the Company;
provided, however that following a Change in Control, such acceleration
may be carried out for any reason deemed appropriate by the Secretary of
the Company.
8. WITHHOLDING
The Company may withhold taxes, and any other required amounts, including
the Hospital Insurance portion of the Federal Social Security Act, from
the payment of Deferred Amounts or other amounts paid to the Executive.
9. AMENDMENT OR TERMINATION
The Company reserves the right, at any time or from time to time, by
action of its Board of Directors or Executive Committee thereof, to amend
or modify, in whole or in part, or terminate the Plan. No amendment or
termination shall adversely affect any then existing Deferred Amounts or
rights under this Plan.
Page 3
IN WITNESS WHEREOF, this Plan, as stated, is effective as of September 1, 1996,
and is executed by a duly authorized officer of the Company.
THE QUAKER OATS COMPANY
October 14 , 1996 By: /s/Douglas J. Ralston
Its Senior Vice President
Page 4
Exhibit 10(f)(6)
SEPARATION AGREEMENT
This Agreement Upon Separation Of Employment ("Agreement") is made and
entered into by and between Michael B. Schott, his successors, heirs,
administrators, executors, personal representatives and assigns ("Schott") and
The Quaker Oats Company, its officers, directors, shareholders, employees,
agents, assigns, subsidiaries, divisions, parents, affiliates and successors
("Quaker"), collectively "the parties," and is effective as of the date hereof.
Schott understands that he shall at all times be employed at-will, which
means that he or Quaker has the right to terminate their employment
relationship at any time, for any reason. This Agreement merely sets forth the
parties respective rights and obligations in the event of termination, without
creating any right to continued or future employment.
1. Eligibility Criteria:
Provided that he complies with the requirements of paragraph 3 (by signing
a release Quaker tenders to him), Schott will qualify for supplemental
separation benefits if the conditions in any of the following sections (A, B, C
or D) are satisfied.
A. Involuntary Discharge: During the first forty two (42) months of his
Quaker employment: (i) his employment is involuntarily terminated by Quaker
for reasons other than a sale or spin-off of the Snapple business; and (ii) the
Committee which administers the Quaker Officers' Severance Program ("Program")
determines that he is eligible for severance pay under the Program (or, if the
Program no longer exists, he meets this requirement if he satisfies the
eligibility criteria currently contained in the Program).
B. Spin-Off Of Snapple Business: During the first forty two (42) months
of his employment: (i) Quaker spins-off Snapple such that it becomes an
independent corporation (e.g., what was done with Fisher-Price); and (ii) he is
not offered a reasonably comparable or superior position in the new company
that embodies/includes Snapple (without limitation, any position that involves
a reduction in his base salary or target bonus will be considered inferior).
C. Sale Of Snapple Business: During the first forty two (42) months of
his employment, Quaker sells Snapple to an acquiror and any of the following
applies: (i) he is not offered a position by the acquiror; (ii) he is
involuntarily terminated by the acquiror during the first six (6) months after
Quaker's sale of Snapple; or (iii) during the first six (6) months following
the sale he terminates his employment with the acquiror, or declines to accept
a position with the acquiror, based on his good faith belief that the position
available to him is unacceptable -- but if the facts clearly and convincingly
establish that he resigned or declined a job he found acceptable merely to take
a better opportunity offered to him by another company, he does not qualify.
D. Constructive Discharge: During the first forty two (42) months of
his employment: (i) Quaker reduces his base salary below $350,000 and/or
reduces his target bonus below $215,000; and (ii) he elects to treat the
reduction as a constructive discharge and, accordingly, resigns promptly.
2. Supplemental Separation Benefits
A. If Schott satisfies the eligibility criteria set forth in paragraph
1(A), 1(B) and/or 1(D), then after his Program benefits have expired, or
immediately if he is not entitled to Program benefits, Quaker shall make
supplemental separation payments to him of $47,083.33 per month. These payments
will continue until the earlier of the following dates: (i) two years after the
date of his termination from active Quaker employment; or (ii) forty two (42)
months after his first day of active employment with Quaker (i.e., his hire
date). Notwithstanding the preceding sentence, supplemental separation
payments will not be cut off until Schott has received Program payments (if
any) and/or supplemental payments (if any) for at least nine (9) months (e.g.,
if terminated at the end of the 36th month, he would receive payments of one
kind and/or the other through the 45th month). Provided, if Schott qualifies
under section 1(C), then regardless of whether he also qualifies under other
sections, he shall receive payments solely as provided in section 2(B), not
under this section (i.e., he cannot double-collect under both provisions).
B. If Schott satisfies the eligibility criteria set forth in paragraph
1(C), then after his Program benefits have expired, or immediately if he is not
entitled to Program benefits, he will receive supplemental separation payments
of $47,083.33 per month. These payments will continue until the earlier of the
following dates: (i) two years from the effective date of Quaker's sale of
Snapple; or (ii) forty two (42) months after his first day of active employment
with Quaker. Notwithstanding the preceding sentence, supplemental separation
payments will not be cut off until Schott has received Program payments (if
any) and/or supplemental payments (if any) for at least nine (9) months. [Note
that under this formula, if Schott works for the acquiror for any period of
time, that will have the effect of reducing the number of monthly separation
payments he receives from Quaker.] Further, once payments have begun under the
Program or this provision, if Schott subsequently accepts employment or enters
into any kind of working relationship with the acquiror, then supplemental
separation payments from Quaker will immediately cease.
C. If Schott is terminated during his first forty two (42) months of
employment and the Program Committee determines that he qualifies for Program
benefits, but the amount of his monthly Program benefit is less than
$47,083.33, then Quaker will make additional monthly payments such that while
Page 2
he is receiving Program payments, the sum of his Program payment plus this
supplemental payment equals $47,083.33 (which works out to $565,000 on an
annualized basis).
D. Other Fringe Benefits: While Schott is receiving supplemental
separation payments, he also will receive the same benefits, such as insurance
coverage, that are provided under the Program, subject to his payment of any
required contribution on the same terms as other participants in these
benefits.
3. Mutual Waiver And Release
A. For Schott to qualify for any supplemental pay or benefits under this
Agreement, within forty five (45) days after Schott's termination from active
Quaker employment, a valid release of all potential claims he has or might have
against Quaker must be signed and in effect; provided, this condition will not
apply unless and until Quaker tenders a release to Schott for him to sign;
further provided, Schott will not be required to waive rights to the post-
termination benefits provided herein or under any of Quaker's pension or
benefit plans. This release will be consistent with releases Quaker has
obtained from other executives who were involuntarily terminated. This
provision does not bind Schott to sign a release upon termination; rather, he
can voluntarily elect to sign a release and obtain the supplemental separation
benefits described herein, or he can elect not to sign a release and thereby
forego those benefits.
B. Once the release executed by Schott is valid and in effect, Quaker
will immediately sign a waiver releasing him from all claims, except as
follows: (i) with respect to claims of gross misconduct, this waiver will only
apply to claims as to which Quaker's senior officers were aware, on or before
the effective date of the release, of the material facts necessary to establish
Schott's liability; (ii) Quaker will not waive any claims that arise out of
conduct or omissions which occur after the date the waiver becomes effective;
and (iii) Quaker will not waive its right to enforce agreements regarding post-
termination matters, such as disclosure of confidential information. As a
clarification, and solely for purposes of this specific provision of the
Agreement, examples of "gross misconduct" include embezzlement, fraud, sexual
harassment or submitting expense reports for trips never taken, while things
such as staying at an expensive hotel on a business trip, or having Schott's
secretary type some personal letters for him, would not qualify as "gross
misconduct."
C. Notwithstanding anything to the contrary in sections 3(A) or 3(B),
Quaker, in its sole discretion, may elect to have neither party sign a release.
If Quaker so elects, then Schott's execution of a valid release will not be a
condition precedent to qualifying for supplemental separation benefits.
Quaker's election must be that both parties or neither party sign releases;
Quaker cannot elect that Schott alone shall sign a release. The intent of this
entire paragraph is that both parties will sign a release or neither will.
Page 3
4. Mitigation
With respect to the supplemental separation payments provided under this
Agreement, Schott shall not have any duty to mitigate his income loss by
finding alternative employment, nor shall amounts he earns from other
employment be offset against his payments. This provision has no effect on
Schott's duty to mitigate, if any, in connection with claims that may arise
under anything other than this Agreement.
5. Miscellaneous
A. If Schott resigns at the request of his immediate superior during his
first forty two (42) months of employment, Quaker will treat his resignation as
an involuntary termination (which triggers benefits under section 1(A)).
B. During any period when Schott is receiving Program benefits or
supplemental separation benefits, he will be bound by the confidentiality
provision in Quaker's Code Of Ethics, which applies to all employees. In the
event of a breach, Quaker is entitled to any appropriate equitable or legal
relief.
C. While receiving Program benefits or supplemental separation pay,
Schott will provide accurate information or testimony or both in connection
with any legal matter, if so requested by Quaker. He will make himself
available, upon request, to provide such information and testimony, in a formal
and/or an informal setting in accordance with Quaker's request, subject to
reasonable accommodation of his schedule and reimbursement of reasonable
expenses, including reasonable and necessary attorney fees (if independent
legal counsel is reasonably necessary).
D. During any period when Schott is receiving Program benefits and/or
supplemental separation pay, at Quaker's request he will cooperate with media
requests for interviews regarding his termination and/or Quaker. He will not
disparage The Quaker Oats Company, its products, officers, directors or
employees in these interviews, in any other public setting, or in conversation
with persons in the same industry as Quaker and/or the media; provided: (i) he
obviously must testify honestly if compelled to do so under oath; and (ii) if
Quaker publicly criticizes Schott or his ability (in a media release and/or in
conversations with others in the industry outside of Quaker), he may respond
accordingly.
E. If Quaker asserts claims against Schott, it cannot treat those claims
as creating a setoff against payments due under this Agreement unless the
claims are for a liquidated amount. If Quaker treats liquidated amounts
allegedly owed by Schott as creating a setoff, it must place the setoff funds
in an interest bearing escrow account, pending resolution of the litigation;
further, even when a setoff applies, the amount of any setoff shall be limited
Page 4
such that Schott still receives at least $10,000.00 each month during the
period when payments are due under this Agreement.
6. Quaker's Rights In Certain Circumstances
A. If Schott voluntarily resigns his Quaker employment prior to
completing six (6) full months of employment with Quaker, and the circumstances
surrounding his resignation do not trigger supplemental separation pay under
this Agreement (i.e., there is no constructive discharge, sale of Snapple, or
spin off of Snapple in which Schott is not offered a comparable position), then
Schott must pay Quaker the sum of $425,000.00 within thirty (30) days after his
resignation becomes effective. Provided, this provision will not apply if
Schott resigns solely due to extraordinary personal hardship that substantially
impairs or eliminates his ability to work for any company in any executive
capacity.
B. Notwithstanding anything to the contrary elsewhere in this Agreement,
including without limitation paragraphs 1(A) and 1(D), if Nantucket (i)
prevails in court on a claim that Schott used or disclosed confidential or
trade secret information and (ii) as a result, obtains a preliminary or
permanent injunction against Schott and/or Quaker that prevents or
significantly limits Schott from performing his duties as President - Snapple
Beverages, then:
1.Quaker may terminate Schott, and Schott stipulates that his
termination in such circumstances would be for "gross misconduct,"
thereby disqualifying him from severance or supplemental separation
benefits; provided, if the injunction that resulted in Schott's
termination is reversed on appeal, then this provision shall not
apply, and Schott's termination date for purposes of this Agreement
will be deemed to be the date of the appellate court's final
decision.
2.If any portion of the unlawful use or disclosure occurs during
Schott's first six (6) months of employment with Quaker, then within
30 days after all appeals from the judgment/injunction in Nantucket's
favor are exhausted or time-barred, Schott must pay Quaker
$425,000.00; provided, no payment shall be required if the injunction
is reversed on appeal.
7. Choice Of Law And Forum
A. This Agreement shall be governed by and construed in accordance with
the laws of the State Of Illinois, without giving effect to choice of law
principles.
Page 5
B. In the event of any litigation over this Agreement or an alleged
breach thereof, Schott and Quaker each consent to submit to the personal
jurisdiction of any court, state or federal, in the State of Illinois. The
parties agree that the Illinois courts, state or federal, shall be the
exclusive jurisdiction for any litigation over this Agreement or an alleged
breach thereof.
8. Full Agreement
This written document contains the entire understanding and agreement of
the parties on the limited subject matter set forth herein (i.e., rights and
obligations upon termination of Schott's employment during his first 42
months), and supersedes any prior agreement, oral or written, relating to these
matters. No party is relying on any statement or representation regarding this
subject matter other than those expressly set forth herein.
This Agreement cannot be modified or altered except by a subsequent
written agreement signed by the parties, and only Quaker's highest ranking
Human Resources officer or his direct superior shall have authority to sign
such an amendment on behalf of Quaker.
9. Severability
Each term of this Agreement is deemed severable, in whole or in part, and
if any provision of this Agreement or its application in any circumstance is
found to be illegal, unlawful or unenforceable, the remaining terms and
provisions shall not be affected thereby and shall remain in full force and
effect.
The Quaker Oats Company
August 12, 1996 /s/Douglas J. Ralston
By its Senior Vice President
August 12, 1996 /s/Michael B. Schott
Michael B. Schott
Page 6
Exhibit 10(g)(11)
THE QUAKER
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM
(As Amended and Restated Effective as of September 1, 1996)
The Quaker Supplemental Executive Retirement Program (the
"Program") is amended and restated effective as of September 1,
1996, by The Quaker Oats Company. The Program is intended to be
an unfunded plan maintained primarily to provide deferred
compensation for a select group of highly compensated employees
within the meaning of Sections 201(2), 301(3) and 401(a)(1) of
the Employee Retirement Income Security Act of 1974 and to comply
with Department of Labor Reg. Section 2520.104-23 thereunder.
The Program is intended to provide benefits to certain senior
executives of The Quaker Oats Company to ensure that the overall
effectiveness of its executive compensation program will attract,
retain and motivate qualified senior executives.
SECTION I
DEFINITIONS
When used herein, the following words shall have the meanings
below unless the context clearly indicates otherwise:
1.1 "Administrator" means the Senior Vice President - Human
Resources of the Company.
1.2 "Affiliated Company" means any trade or business
entity, or a predecessor company of such entity, if any, which is
a member of a controlled group of corporations of which the
Company is also a member.
1.3 "Average Annual Earnings" means the amount equal to the
sum of the Participant's Earnings for the five consecutive
calendar years during which Earnings were highest occurring
within the Participant's last ten Years of Service, divided by
five.
1.4 "Retirement Plan" means The Quaker Retirement Plan as
amended from time to time or any successor thereto. In the event
that a Participant does not have any accrued retirement benefit
under The Quaker Retirement Plan as of his Termination Date, the
Administrator may designate another qualified defined benefit
pension plan maintained by the Company or an Affiliated Company
as the Retirement Plan for such Participant for purposes of the
Program.
1.5 "Basic Retirement Benefit" means the annual benefit to
which a Participant is entitled in total from the Retirement
Plan, The Quaker 415 Excess Benefit Plan, The Quaker Eligible
Earnings Adjustment Plan, any qualified defined benefit pension
plan maintained by the Company or an Affiliated Company,
including but not limited to the Fisher-Price Pension Plan, and
any nonqualified defined benefit pension plan maintained by the
Company or an Affiliated Company, which purpose is to provide
benefits not permitted under a qualified defined benefit pension
plan pursuant to limits on benefits or earnings imposed by the
Internal Revenue Code of 1986, as amended, including but not
limited to, Section 404(1) thereof. In addition to the
foregoing, the Administrator may specify that the pension benefit
equivalent (based upon lump sum-annuity factors consistent with
those under the Retirement Plan) of any defined contribution plan
account balance to which a Participant is entitled shall be
included as part of the Participant's Basic Retirement Benefit.
The preceding sentence may not be applied following a Change in
Control. The Basic Retirement Benefit shall be based upon
payments to a Participant in the form of a single life annuity
commencing on his Retirement Date under the Program, with
applicable reductions for early commencement based upon such
adjustment factors as are applied under the Retirement Plan.
1.6 "Beneficiary" means the beneficiary of a Participant
(other than a Surviving Spouse) entitled to receive the
Participant's death benefit pursuant to a form of benefit elected
by the Participant under the Retirement Plan, if any.
1.7 "Board" shall mean the Board of Directors of the
Company.
1.8 "Change in Control" shall mean any of the following
events occurring when:
(a) any "Person," which shall mean a "person" as such term
is used in Sections 13(d) and 14 (d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")
(other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of
the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership
of stock of the Company), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the
Company representing 30% or more of the combined voting
power of the Company's then outstanding voting
securities; provided, however that this paragraph (a)
shall not apply to any Person who becomes such a
beneficial owner of such Company securities pursuant to
an agreement with the Company approved by the Company's
Board of Directors (the "Board"), entered into before
such Person has become such a beneficial owner of
Company securities representing 5% or more of the
combined voting power of the Company's then outstanding
voting securities;
(b) during any period of 24 consecutive months (not
including any period prior to the execution of this
Program), individuals who at the beginning of such
period constitute the Board and any new director (other
than a director designated by a Person who has entered
into an agreement with the Company to effect a
transaction described in paragraph (a), (c)(2) or (d)
of this Section) whose election by the Board, or whose
nomination for election by the Company's stockholders,
was approved by a vote of at least two-thirds (2/3) of
the directors before the beginning of the period cease
for any reason to constitute at least a majority
thereof;
Page 2
(c) the stockholders of the Company approve (1) a plan of
complete liquidation of the Company or (2) the sale or
disposition by the Company of all or substantially all
of the Company's assets unless the acquirer of the
assets or its directors shall meet the conditions for a
merger or consolidation in subparagraphs (d)(1) or
(d)(2); or
(d) the stockholders of the Company approve a merger or
consolidation of the Company with any other company
other than:
(1) such a merger or consolidation which would result
in the voting securities of the Company outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted
into voting securities of the surviving entity) more
than 70% of the combined voting power of the Company's
or such surviving entity's outstanding voting
securities immediately after such merger or
consolidation; or
(2) such a merger or consolidation which would result
in the directors of the Company who were directors
immediately prior thereto continuing to constitute at
least 50% of the directors of the surviving entity
immediately after such merger or consolidation.
In this paragraph (d), "surviving entity" shall mean
only an entity in which all of the Company's
stockholders immediately before such merger or
consolidation become stockholders by the terms of such
merger or consolidation, and the phrase "directors of
the Company who were directors immediately prior
thereto" shall include only individuals who were
directors of the Company at the beginning of the 24
consecutive month period preceding the date of such
merger or consolidation, or who were new directors
(other than any director designated by a Person who has
entered into an agreement with the Company to effect a
transaction described in paragraph (a), (c)(2), (d)(1),
or (d)(2) of this Section) whose election by the Board,
or whose nomination for election by the Company's
stockholders, was approved by a vote of at least two-
thirds (2/3) of the directors before the beginning of
such period.
1.9 "Company" means The Quaker Oats Company and any
successor thereto.
1.10 "Compensation Committee" shall mean the Compensation
Committee of the Board.
1.11 "Earnings" means the Participant's earnings as that
term is defined for purposes of determining the Participant's
Basic Retirement Benefit.
1.12 "Effective Date" means the Participant's effective date
of participation in the Program as specified by the Compensation
Committee as described in Section II.
1.13 "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
Page 3
1.14 "Exchange Act" means the Securities Exchange Act of
1934, as amended.
1.15 "Management Committee" shall mean the Management
Committee of the Company as provided for and described in its
Bylaws.
1.16 "Participant" means any employee of the Company or an
Affiliated Company who meets the eligibility requirements of
Section II, and is designated and approved by the Compensation
Committee for participation in the Program as described in
Section II.
1.17 "Program" means The Quaker Supplemental Executive
Retirement Program.
1.18 "Retirement Date" means a Participant's Retirement Date
as described in Section III.
1.19 "Supplemental Program Benefit" means the annual benefit
payable in accordance with the Program.
1.20 "Surviving Spouse" means the spouse of a Participant
who is entitled to receive the Participant's death benefit under
the Retirement Plan, if any.
1.21 "Termination Date" means the date the Participant
terminates employment with the Company and its Affiliated
Companies.
1.22 "Years of Service" means the Participant's years of
Service as credited to him in the Retirement Plan (for purposes
of vesting). For purposes of determining a Participant's or
Surviving Spouse's eligibility for benefits as described in
Sections 3.1, 3.3, and 3.4, the Compensation Committee may
designate in writing at any time additional Years of Service to
be credited to the Participant as of his Termination Date (to be
made a part hereof in Schedule A).
SECTION II
ELIGIBILITY TO PARTICIPATE
The Compensation Committee shall designate in writing any
employee who is to be a Participant and such employee's Effective
Date as a Participant (to be made a part hereof in Schedule A).
Only employees of the Company or an Affiliated Company who are
members of the Management Committee, or are officers of the
Company or an Affiliated Company, are eligible to become
Participants and may be designated by the Compensation Committee
as a Participant. Once an employee becomes a Participant, he
shall remain a Participant until his Termination Date and
thereafter until all benefits to which he, his Surviving Spouse
and Beneficiary are entitled under the Program have been paid.
Page 4
SECTION III
ELIGIBILITY FOR AND AMOUNT OF BENEFITS
3.1 Eligibility. A Participant shall be eligible for and
receive his Supplemental Program Benefit beginning on his
Retirement Date if either: (a) as of his Termination Date he has
attained age 50 or more and has completed 15 or more Years of
Service; or (b) his Termination Date coincides with or follows a
Change in Control, regardless of his age or Years of Service as
of his Termination Date. With respect to such a Participant
whose Termination Date is on or before age 55, the Participant's
Retirement Date shall be the first day of the month following the
date on which the Participant reaches age 55. With respect to
such a Participant whose Termination Date is after age 55, the
Participant's Retirement Date shall be the first day of the month
following the Participant's Termination Date.
3.2 Retirement Benefit. The Supplemental Program Benefit of
a Participant payable at his Retirement Date shall be an annual
amount, based upon a single life annuity over the life of the
Participant, equal to (a) less (b) as follows:
(a) The amount equal to the Participant's Average Annual
Earnings multiplied by the percentage determined in
accordance with the following table; and if the
Participant has been credited with any additional Years
of Service by the Compensation Committee in accordance
with Section 1.22 and as designated in Schedule A,
further multiplied by the Participant's actual Years of
Service (without taking into account such Additional
Years of Service) divided by 15:
(i) For a Participant who at anytime during the five-
year period ending on his Termination Date has
been the Chief Executive Officer of the Company:
Age at
Termination Date Percentage
55 or less 40%
56 42%
57 44%
58 46%
59 48%
60 50%
61 52%
62 54%
63 56%
64 58%
65 or greater 60%
Page 5
(ii) For all other Participants:
Age at
Termination Date Percentage
55 or less 35%
56 37%
57 39%
58 41%
59 43%
60 45%
61 46%
62 47%
63 48%
64 49%
65 or greater 50%
(b) The amount equal to the Participant's Basic Retirement
Benefit.
3.3 Death Prior to Termination of Employment. If a
Participant who has reached age 50 and has completed 15 Years of
Service dies while actively employed by the Company or any
Affiliated Company, his Surviving Spouse, if any, shall be
entitled to a Supplemental Program Benefit commencing on the
first day of the month next following the Participant's death.
Such Supplemental Program Benefit shall be determined in
accordance with Section 3.2 by using the Participant's date of
death as his Termination Date; by multiplying the amount
determined under paragraph (a) thereof by 50%; and by using the
Surviving Spouse's benefit relating to the Participant's Basic
Retirement Benefit at his date of death for purposes of paragraph
(b) thereof.
3.4 Death Prior to Benefit Commencement. If a Participant
who has reached age 50 and has completed 15 Years of Service dies
after his Termination Date, but prior to his Retirement Date, his
Surviving Spouse, if any, shall be entitled to a Supplemental
Program Benefit commencing on what would have been the
Participant's Retirement Date. Such Supplemental Program Benefit
shall be determined as described in Section 3.3 for the Surviving
Spouse, subject to any additional adjustment factors as are
applicable under the Retirement Plan with respect to such a
Surviving Spouse's benefit.
SECTION IV
FORM AND PAYMENT OF BENEFITS
4.1 Form of Benefits. Supplemental Program Benefits
payable to a Participant or Surviving Spouse pursuant to Section
III will be payable in the same form as is applicable to the
Basic Retirement Benefit or Surviving Spouse's benefit payable to
the Participant or Surviving Spouse under the Retirement Plan.
If the Participant's Basic Retirement Benefit is payable in a
form other than a single life annuity over the life of the
Participant in accordance with the terms of, or the Participant's
election under, the Retirement Plan, then his Supplemental
Page 6
Program Benefit shall be subject to adjustment by the same
adjustment factors as are applied under the Retirement Plan with
respect to the Basic Retirement Benefit of the Participant.
Notwithstanding the foregoing provisions of this Section, an
election made by a Participant under the Retirement Plan with
respect to the form of payment of his Basic Retirement Benefit
shall not be effective with respect to the form of payment of his
Supplemental Program Benefit unless such election is expressly
approved in writing by the Administrator with respect to his
Supplemental Program Benefit. If the Administrator shall not
approve such election in writing, then the form of payment of the
Participant's Supplemental Program Benefit shall be selected by
the Administrator in his sole discretion.
4.2 Payment of Benefits. A Supplemental Program Benefit
payable to a Participant pursuant to Section 3.2 will commence on
his Retirement Date. A Supplemental Program Benefit payable to a
Surviving Spouse pursuant to Section 3.3 will commence on the
first day of the month next following the Participant's death. A
Supplemental Program Benefit payable to a Surviving Spouse
pursuant to Section 3.4 will commence on what would have been the
Participant's Retirement Date. Payment of a Supplemental Program
Benefit will continue to be paid to the Participant, his
Surviving Spouse or Beneficiary in the same form and manner as if
such benefits were being paid under the Retirement Plan.
4.3 Acceleration of Payments. The Secretary of the Company
is empowered to accelerate the payment of a Participant's
Supplemental Program Benefit to any or all Participants,
Surviving Spouses, and Beneficiaries, whether before or after the
Participant's Termination Date, Retirement Date, or death. Any
such acceleration (including a lump sum payment) shall result in
a Supplemental Program Benefit of equivalent value as of the date
such accelerated benefit is to commence or be paid, based upon
lump sum-annuity factors consistent with those under the
Retirement Plan. Any such acceleration must be for reasons of
individual hardship, death, changes in the tax laws or accounting
principles, or other reasons which negate or diminish the
continued value of the Supplemental Program Benefit to the
Participants, Surviving Spouses, Beneficiaries or the Company;
provided, however, that following a Change in Control, such
acceleration may be carried out for any reason deemed appropriate
by the Secretary of the Company.
SECTION V
AMENDMENT AND TERMINATION
5.1 Amendment and Termination. The Company intends the
Program to be permanent but reserves the right to amend or
terminate the Program when, in the sole opinion of the Company,
such amendment or termination is advisable. Any such amendment
or termination shall be made pursuant to a resolution of the
Board, or the Compensation Committee, and shall be effective as
of the date stated in such resolution. No amendment or
termination of the Program shall directly or indirectly deprive
any Participant, Surviving Spouse, or Beneficiary of all or any
portion of any Supplemental Program Benefit payment of which has
commenced prior to the effective date of the resolution amending
or terminating the Program.
5.2 Termination Benefit. In the case of a Program
termination, each actively employed Participant on the Program's
termination date shall become vested in his accrued Supplemental
Page 7
Program Benefit as of such termination date. Such accrued
Supplemental Program Benefit shall be calculated as set forth in
Section 3.2 above as if the Participant's Termination Date was
the Program's termination date, regardless of the Participant's
age and Years of Service. Payment of a Participant's accrued
Supplemental Program Benefit shall not be dependent upon his
continuation of employment with the Company following the Program
termination date, and such Benefit shall become payable at the
date for commencement of payment of a Supplemental Program
Benefit pursuant to the terms of Section 4.2.
5.3 Corporate Successors. The Program shall not be
automatically terminated by a transfer or sale of assets of the
Company or by the merger or consolidation of the Company into or
with any other corporation or other entity, but the Program shall
be continued after such sale, merger or consolidation only if and
to the extent that the transferee, purchaser or successor entity
agrees to continue the Program. In the event the Program is not
continued by the transferee, purchaser or successor entity, then
the Program shall terminate subject to the provisions of Sections
5.1 and 5.2.
SECTION VI
MISCELLANEOUS
6.1 Forfeitures of Benefits. Notwithstanding any other
provision of the Program, future payment of a Supplemental
Program Benefit hereunder to a Participant or any other person
will, at the discretion of the Compensation Committee, be
discontinued and forfeited, and the Company will have no further
obligation hereunder to such Participant or to any other person,
if any of the following circumstances occur:
a. The Participant is discharged from employment for
cause;
b. The Participant engages in competition with the Company
prior to attaining age 65; or
c. The Participant performs acts of willful malfeasance or
gross negligence in a matter of material importance to
the Company.
The Compensation Committee shall have sole and uncontrolled
discretion with respect to the application of the provisions of
this Section and such exercise of discretion shall be conclusive
and binding upon the Participant and all other persons.
6.2 No Effect on Employment Rights. Nothing contained
herein will confer upon any Participant the right to be retained
in the service of the Company nor limit the right of the Company
to discharge or otherwise deal with Participants without regard
to the existence of the Program.
6.3 Funding. The Program at all times shall be entirely
unfunded in accordance with, and for purposes of ERISA, and no
provision shall at any time be made with respect to segregating
any assets of the Company for payment of any benefits hereunder.
No Participant or any other person shall have any interest in any
particular assets of the Company by reason of the right to
Page 8
receive a benefit under the Program and any such Participant or
other person shall have only the rights of a general unsecured
creditor of the Company with respect to any rights under the
Program. Nothing contained in the Program shall constitute a
guaranty by the Company or any other entity or person that the
assets of the Company will be sufficient to pay any benefit
hereunder.
6.4 Spendthrift Provision. No benefit payable under the
Program shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or
charge prior to actual receipt thereof by the payee; and any
attempt so to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge prior to such receipt shall be void;
and the Company shall not be liable in any manner for or subject
to the debts, contracts, liabilities, engagements or torts of any
person entitled to any benefit under the Program.
6.5 Administration. The Administrator shall be responsible
for the general operation and administration of the Program and
for carrying out the provisions thereof. All provisions set
forth in the Basic Retirement Plan with respect to the
administrative powers and duties of the Administrator, expenses
of administration and procedures or filing claims shall also be
applicable to the Administrator with respect to the Program. The
Administrator shall be entitled to rely conclusively upon all
tables, valuations, certificates, opinions and reports furnished
by any actuary, accountant, controller, counsel or other person
employed or engaged by the Company with respect to the Program.
6.6 Limitations on Liability. Notwithstanding any of the
preceding provisions of the Program, neither the Company nor any
individual acting as an employee or agent of the Company or the
Administrator shall be liable to any Participant, former
Participant, Surviving Spouse, Beneficiary or any other person
for any claim, loss, liability or expense incurred in connection
with the Program.
6.7 Gender and Neuter. Where the context admits, words
denoting the masculine gender shall include the feminine and
neuter genders, the singular shall include the plural, and the
plural shall include the singular.
6.8 Applicable Law. The Program is established under ERISA
and will be construed according to the federal laws that govern
"Top Hat" Plans.
IN WITNESS WHEREOF, this Program is executed by a duly
authorized officer of the Company.
THE QUAKER OATS COMPANY
October 14, 1996 By: /s/Douglas J. Ralston
Its Senior Vice President
Page 9
THE QUAKER
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM
Schedule A
Additional
Participant Effective Date Years of Service
William D. Smithburg 8/1/89 -0-
Frank J. Morgan 8/1/89 -0-
Luther C. McKinney 8/1/89 -0-
Paul E. Price 8/1/89 -0-
Michael J. Callahan 8/1/89 -6-
Lawrence M. Baytos 8/1/89 -0-
Philip A. Marineau 1/8/92 -0-
Douglas J. Ralston 1/8/92 -0-
Terry G. Westbrook 1/8/92 -2-
Walter G. Van Benthuysen 7/14/93 -1-
Page A-1
Exhibit 10(j)(2)
QUAKER OFFICERS SEVERANCE PROGRAM
(As Amended and Restated Effective as of September 1, 1996)
1. EFFECTIVE DATE AND PURPOSE. The Quaker Officers Severance Program
(the "Program") is established and maintained by The Quaker Oats Company
("Quaker"), effective as of September 1, 1996, and is an amendment and
restatement of the Program as adopted by Quaker's Board of Directors (the
"Board") on March 8, 1989. The purpose of the Program is to promote the
interests of Quaker, its divisions and subsidiaries (the "Company"), and its
shareholders, by attracting and retaining officers of the Company through
assurances of continued compensation and benefits when their employment with
the Company is terminated due to certain circumstances beyond their control.
2. ADMINISTRATION.
(a) The Program shall be administered by the Severance Program
Committee (the "Committee"), which shall initially consist of Quaker's Senior
Vice President-Human Resources, Vice President-Human Resources Worldwide
Beverages and Vice President - Human Resources Quaker Foods. The Chief
Executive Officer of Quaker shall have the authority to expand or reduce the
number of Committee members, and to designate, remove or replace the Committee
members.
(b) The Committee shall have the sole responsibility for the
administration of the Program, and may adopt such rules and procedures as it
deems necessary, desirable, or appropriate.
(c) The Committee shall have such powers as may be necessary to
discharge its responsibility to administer the Program, including but not
limited to the following:
(1) To construe and interpret the Program, decide all questions
of eligibility, and determine the amount, manner and time of any
severance benefit hereunder.
(2) To prescribe procedures for employees to apply for Program
benefits, including written applications and forms, if any, and
other requests for information. If no procedures are
prescribed, then the Company or the Committee may initiate
consideration of a claim for severance benefits, or any employee
may initiate a claim by providing notice, in writing, to
designated Committee members. The Committee may reasonably rely
upon all information furnished to it in such applications, forms
or notices.
(3) To receive from the Company such information as shall be
necessary for the proper administration of the Program. The
Committee may reasonably rely upon all such information so
furnished.
(4) To appoint individuals to assist in the administration of
the Program as the Committee deems necessary, including but not
limited to, Company employees, agents, attorneys, and
accountants. The Committee may reasonably rely upon all
information and advice furnished by such individuals.
(5) To receive, review, and maintain, as it deems appropriate,
benefit payment and administrative expense reports.
(6) To issue directions to the Company concerning all benefits
which are to be paid from the Company's general assets pursuant
to the Program provisions.
(7) To prepare and distribute to Company employees, information
describing the Program in such manner as the Committee
determines to be required or appropriate.
(d) The Committee shall make all determinations as to the right of
any person to a benefit under the Program. Any denial by the Committee of the
claim for benefits under the Program by an employee shall be stated in writing
by the Committee and delivered or mailed to the employee; and such notice shall
set forth the specific reasons for the denial. In addition, the Committee
shall afford a reasonable opportunity to any employee whose claim for benefits
has been denied for a review of the decision denying the claim.
(e) The Committee shall be indemnified by Quaker to the full extent
allowed by law. This indemnity shall extend to all individuals appointed to
assist in the administration of the Program, as described in subparagraph (c)
(4) above.
3. ELIGIBILITY.
(a) An officer (as defined below) is eligible for severance benefits
under the Program (determined in accordance with paragraph 4) if his employment
with the Company is terminated under any of the following conditions:
(1) At any time, termination of employment with the Company,
other than death, physical or mental incapacity, voluntary
resignation, retirement, gross misconduct, or due to the sale,
spin-off or other disposition of a plant, profit center,
division or subsidiary of Quaker as an ongoing entity if the
affected employee is hired by, or is offered continued
employment by, the successor or purchasing entity.
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(2) Notwithstanding anything in subparagraph (1) above to the
contrary, within two years following a Change in Control of
Quaker (as defined below), any termination of employment with
the Company, in lieu of officer accepting continued employment
with the Company which involves a significant change in the
officer's terms and conditions of employment (as defined below).
A "significant change in the officer's terms and conditions of
employment" shall be deemed to have occurred when during such
two year period:
(I) the total of the officer's salary and incentive
bonus is to be reduced, based upon the amounts equal
to the officer's salary immediately prior to the
Change in Control of Quaker, and the most recent
incentive bonus paid or fully accrued and payable to
the employee immediately prior to the Change in
Control of Quaker;
(II) the location of continued employment if beyond a
30-mile radius of the officer's location of employment
immediately prior to the Change in Control of Quaker;
(III) the officer is to be paid on an hourly basis;
(IV) there is a significant change in the nature or
scope of any of the authorities and powers, which the
officer may exercise or is exercising, and duties and
functions which the officer may perform or is
performing immediately prior to the Change in Control
of Quaker; or
(V) a reasonable determination by the officer that,
as a result of the Change in Control of Quaker, his
position is significantly affected so that he is
unable to exercise any authorities and powers, or
perform any duties and functions described in
subparagraph (IV) above.
(3) "Change in Control of Quaker" shall be deemed to have
occurred if:
(I) any "Person," which shall mean a "person" as such
term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than Quaker, any trustee or
other fiduciary holding securities under an employee
benefit plan of Quaker, or any company owned, directly
or indirectly, by the stockholders of Quaker in
substantially the same proportions as their ownership
of stock of Quaker), is or becomes the "beneficial
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owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of Quaker
representing 30% or more of the combined voting power
of Quaker's then outstanding voting securities;
provided, however, that this paragraph (a) shall not
apply to any Person who becomes such a beneficial
owner of such Company securities pursuant to an
agreement with the Company approved by the Board,
entered into before such Person has become such a
beneficial owner of Company securities representing 5%
or more of the combined voting power of the Company's
then outstanding voting securities;
(II) during any period of 24 consecutive months (not
including any period prior to September 11, 1996),
individuals, who at the beginning of such period
constitute the Board, and any new director (other than
a director designated by a Person who has entered into
an agreement with Quaker to effect a transaction
described in subparagraph (I), (III) (B) or (IV))
whose election by the Board, or whose nomination for
election by Quaker's stockholders, was approved by a
vote of at least two-thirds (2/3) of the directors
before the beginning of the period cease for any
reason to constitute at least a majority thereof;
(III) the stockholders of Quaker approve (A) a
plan of complete liquidation of Quaker or (B) the sale
or disposition by Quaker of all or substantially all
of Quaker's assets unless the acquirer of the assets
or its directors shall meet the conditions for a
merger or consolidation in subparagraphs (IV) (A) or
(IV) (B); or
(IV) the stockholders of Quaker approve a merger or
consolidation of Quaker with any other company other
than:
(A) such a merger or consolidation which would
result in the voting securities of Quaker
outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or
by being converted into voting securities of the
surviving entity) more than 70% of the combined
voting power of Quaker's or such surviving
entity's outstanding voting securities
immediately after such merger or consolidation;
or
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(B) such a merger or consolidation which would
result in the directors of Quaker who were
directors immediately prior thereto continuing to
constitute at least 50% of the directors of the
surviving entity immediately after such merger or
consolidation.
In this subparagraph (IV), "surviving entity" shall
mean only an entity in which all of Quaker's
stockholders immediately before such merger or
consolidation become stockholders by the terms of
such merger or consolidation, and the phrase
"directors of Quaker who were directors immediately
prior thereto" shall include only individuals who
were directors of Quaker at the beginning of the 24
consecutive month period preceding the date of such
merger or consolidation, or who were new directors
(other than any director designated by a Person who
has entered into an agreement with Quaker to effect a
transaction described in subparagraph (I), (III) (B),
(IV) (A) or (IV) (B)) whose election by the Board, or
whose nomination for election by Quaker's
stockholders, was approved by a vote of at least two-
thirds (2/3) of the directors before the beginning of
such period.
(b) An "officer" shall mean any employee of the Company who is a
Chief Executive Officer, President or Vice President (including Senior and
Executive Vice Presidents) of Quaker, and any other Company employees
designated by the Committee as an officer for purposes of the Program. Prior
to a Change in Control of Quaker an officer shall be considered eligible under
the Program for so long as he holds such office while the Program is in
effect. After a Change in Control of Quaker, an officer shall always be
considered eligible under the Program.
4. SEVERANCE BENEFITS.
(a) An eligible officer pursuant to paragraph 3(b) will be provided
the following severance benefits:
(1) Compensation - Payment to an officer shall be
made in the form of a single lump sum, or equal
monthly installments over the Severance Period (as
defined below), at the Committee's sole discretion.
The total amount payable in either form shall equal:
(I) the officer's current annualized salary at the
time of termination (or, if greater, the officer's
annualized salary in effect immediately prior to a
Change in Control of Quaker), plus (II) the average of
the officer's two most recent years' fully paid
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management incentive bonuses (or if greater, such
bonuses paid prior to a Change in Control of Quaker);
and the officer's severance period shall be the one
year period commencing with the date following
termination of employment (the "Severance Period").
The single sum payment shall be made, or the monthly
installments shall commence, at the officer's usual
payroll date next following his date of termination.
(2) Welfare Benefits - During the officer's Severance
Period the officer shall be entitled to continued
eligibility for health, medical, dental, life
insurance, and accidental death and dismemberment
benefits equivalent to those to which he was entitled
prior to his termination of employment (regardless of
the form of compensation benefit to be provided under
subparagraph (1)). The officer shall not be required
to contribute more than the normal cost (including
those attributable to changes in levels of benefits)
for such benefits as existed immediately prior to his
termination of employment. The Severance Period for
purposes of this subparagraph (2) shall not be applied
to reduce the benefit extension period required by the
Consolidated Omnibus Budget Reconciliation Act of 1985
or any amendment thereto.
(b) All benefits to be paid or provided pursuant to
subparagraph 4(a) shall be in addition to, and shall not be reduced by, any
other benefits payable or provided by separate agreement with the officer, or
plan or arrangement of the Company, except as follows. If an officer is also
eligible for severance benefits to be paid and provided pursuant to the Quaker
Salaried Employees Compensation and Benefits Protection Plan (the "Plan"), the
greater amount or longer severance period with respect to compensation and
welfare benefits, respectively, shall be provided in accordance with and
pursuant to the terms of the Plan or Program as the case may be. In no event
will an officer be entitled to duplicative benefits under the Plan and the
Program.
(c) Any severance benefits payable under the Program to an
officer who dies prior to full payment of such benefits shall be paid to the
officer's estate.
(d) Notwithstanding any other provision of the Program,
severance benefits furnished hereunder shall be subject to the following terms
and conditions:
(1) If the making of severance benefit payments
pursuant to subparagraph 4(a) would subject the
officer to an excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended, 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 herein as a
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"Tax Penalty"), then such severance benefit payments
shall be reduced to the extent necessary to avoid the
imposition of such Tax Penalty. The preceding
sentence shall not apply if such officer: (I) is
entitled to a tax reimbursement for such Tax Penalty
under any other agreement, plan or program of the
Company, (II) may disclaim any portion of or all
benefits payable under this or any other agreement,
plan or program of the Company in order to avoid such
Tax Penalty.
(2) If the officer and the Company shall disagree as
to whether the furnishing of a benefit under the
Program would result in the imposition of a Tax
Penalty, the matter shall be resolved by an opinion of
counsel chosen by the employee and reasonably
satisfactory to the Company. The Company shall pay
the fees and expenses of such counsel, and shall make
available to counsel such information as may be
reasonably necessary to prepare the opinion.
5. NONASSIGNMENT. No benefits payable under the Program shall be
subject in any manner to assignment, anticipation, alienation, sale, transfer,
pledge, encumbrance, or charge, and any such attempted action shall be void and
no such benefit shall be in any manner liable for or subject to debts,
contract, liabilities, engagements, or torts of any officer. If any officer
shall become bankrupt or shall attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber, or charge any amount or benefit payable under the
plan, then the Committee in its discretion may hold or apply such benefit or
any part thereof to or for the benefit of such officer or his beneficiary, his
spouse, children, blood relatives, or other dependents, in such manner and in
such proportions as the administrator may consider proper.
6. AMENDMENT AND TERMINATION. Quaker, by action of its Board, or the
Compensation Committee thereof, shall have the right to amend or terminate this
Program; provided, however, that no such amendment shall alter, modify, or
rescind coverage or benefits under the Program; and in no event shall the
Program be amended or terminated during the five-year period following a Change
in Control of Quaker in a manner which would reduce payments or benefit
extension periods.
7. CONTINUED EMPLOYMENT. Neither the Program nor any of its provisions
shall be construed as giving any officer of the Company a right to continue in
the employ of the Company, or as a limitation of the Company's right to
discharge any of its employees, with or without cause.
8. SUCCESSORS. The Program shall be binding upon any successor of the
Company whether by merger, consolidation, or sale of all or substantially all
of the Company's assets.
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9. GOVERNING LAW. The Program shall be construed and enforced according
to the Employee Retirement Income Security Act of 1974 ("ERISA"), and the laws
of the State of Illinois, other than its laws respecting choice of law, to the
extent not preempted by ERISA.
IN WITNESS WHEREOF, this Program is executed by a duly authorized
officer of Quaker.
THE QUAKER OATS COMPANY
October 14, 1996 By: /s/Douglas J. Ralston
Its Senior Vice President
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Exhibit 10(k)(7)
THE QUAKER LONG TERM INCENTIVE PLAN OF 1990
(As Amended and Restated Effective as of September 1, 1996)
ARTICLE I
NAME AND PURPOSE
1.1 Name. The Quaker Long Term Incentive Plan of 1990 (the "Plan")
is established by The Quaker Oats Company (the "Company").
1.2 Purpose. The Company has established the Plan to promote the
interests of the Company and its shareholders by providing officers and other
key employees of the Company and its related affiliates with additional
incentive and the opportunity, through stock ownership, to increase their
proprietary interest in the Company and their personal interest in its
continued success and progress.
ARTICLE II
DEFINITIONS
2.1 General Definitions. The following words and phrases, when used
herein, unless otherwise specifically defined or unless the context clearly
indicates otherwise, shall have the following meanings:
(a) Affiliate. Any trade or business entity, or a predecessor
of such entity, if any, which is a member of a controlled group of
business entities of which the Company is also a member.
(b) Agreement. The document which evidences the grant of any
Benefit under the Plan and which sets forth the Benefit and the
terms, conditions and provisions of, and restrictions relating to,
such Benefit.
(c) Benefit. Any benefit granted to a Participant under the
Plan.
(d) Board. The Board of Directors of the Company.
(e) Change in Control. Occurrence upon events describe in
Section 9.2.
(f) Code. The Internal Revenue Code of 1986, as amended, and
including the regulations promulgated pursuant thereto.
(g) Committee. The Committee described in Section 5.1.
(h) Common Stock. The Company's $5.00 par value common stock.
(i) Company. The Quaker Oats Company.
(j) Effective Date. The date that the Plan is approved by the
shareholders of the Company, which must occur within one year before
or after original adoption by the Board. Any grants of Benefits
prior to the approval by the shareholders of the Company shall be
void if such approval is not obtained.
(k) Employee. Any person employed by the Employer as an
officer or key employee.
(l) Employer. The Company and all Affiliates.
(m) Exchange Act. The Securities Exchange Act of 1934, as
amended.
(n) Fair Market Value. The mean between the high and low sales
price of shares on the New York Stock Exchange (composite
transactions) on a given date, or, in the absence of sales on a given
date, the closing price (as so reported) on the New York Stock
Exchange on the last previous day on which a sale occurred prior to
such date.
(o) ISO. An Option that meets the requirements of Section 422A
of the Code.
(p) NSO. An Option that does not qualify as an ISO.
(q) Option. An option to purchase Shares granted under ARTICLE
XIII of the Plan.
(r) Other Stock Based Award. An award under ARTICLE XVIII that
is valued in whole or in part by reference to, or is otherwise based
on, Common Stock.
(s) Participant. An individual who is granted a Benefit under
the Plan. Benefits may be granted only to Employees.
(t) Performance Share. A Share awarded to a Participant under
ARTICLE XVI of the Plan.
(u) Performance Units. A Benefit awarded to a Participant
under ARTICLE XVII of the Plan.
(v) Plan. The Quaker Long Term Incentive Plan of 1990 and all
amendments and supplements thereto.
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(w) Restricted Stock. Shares issued under ARTICLE XV of the
Plan.
(x) Rule 16b-3. Rule 16b-3 promulgated by the SEC, as amended,
or any successor rule in effect from time to time.
(y) SEC. The Securities and Exchange Commission.
(z) Share. A share of Common Stock.
(aa) Stock Appreciation Right. A Benefit awarded to a
Participant under ARTICLE XIV of the Plan.
2.2 Other Definitions. In addition to the above definitions,
certain words and phrases used in the Plan and any Agreement may be defined
elsewhere in the Plan or in such Agreement.
ARTICLE III
COMMON STOCK
3.1 Number of Shares. The number of Shares which may be issued or
sold or for which Options, Stock Appreciation Rights, or Performance Shares may
be granted under the Plan shall be 26,000,000 Shares (after adjustment for the
1994 2-for-1 stock split), subject to the provisions of Sections 3.2 and 3.3 of
the Plan. Such Shares may be authorized but unissued Shares, Shares held in
the treasury, or both.
3.2 Reusage. If an Option or Stock Appreciation Right expires or is
terminated, surrendered, or canceled without having been fully exercised, if
Restricted Stock or Performance Shares are forfeited, or if any other grant
results in any Shares not being issued, the Shares covered by such Option or
Stock Appreciation Right, grant of Restricted Stock, Performance Shares or
other grant, as the case may be, shall again be available for use under the
Plan.
3.3 Adjustments. If there is any change in the Common Stock of the
Company by reason of any stock dividend, spin-off, split-up, spin-out,
recapitalization, merger, consolidation, reorganization, combination or
exchange of shares, the number of Stock Appreciation Rights and number and
class of shares available for Options and grants of Restricted Stock,
Performance Shares and Other Stock Based Awards and the number of Shares
subject to outstanding Options, Stock Appreciation Rights, grants of Restricted
Stock and Performance Shares, and Other Stock Based Awards, and the price
thereof, as applicable, shall be appropriately adjusted by the Committee.
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ARTICLE IV
ELIGIBILITY
The Participants and the Benefits they receive under the Plan shall
be determined solely by the Committee. In making its determinations, the
Committee shall consider past, present and expected future contributions of
Employees and Participants to the Employer.
ARTICLE V
ADMINISTRATION
5.1 Committee. The Plan shall be administered by the Committee
(also known as the Compensation Committee of the Board). The Committee shall
consist of members of the Board, who shall not be eligible to participate in
the Plan. The members of the Committee shall be appointed by and shall serve
at the pleasure of the Board, which may from time to time appoint members in
substitution for members previously appointed and fill vacancies, however
caused, in the Committee.
5.2 Authority. Subject to the terms of the Plan, the Committee
shall have complete authority to:
(a) determine the individuals to whom Benefits are granted, the
type and amounts of Benefits to be granted and the time of all such
grants;
(b) determine the terms, conditions and provisions of, and
restrictions relating to, each Benefit granted;
(c) interpret and construe the Plan and all Agreements;
(d) prescribe, amend and rescind rules and regulations relating
to the Plan;
(e) determine the content and form of all Agreements;
(f) determine all questions relating to Benefits under the
Plan;
(g) maintain accounts, records and ledgers relating to Benefits;
(h) maintain records concerning its decisions and proceedings;
(i) employ agents, attorneys, accountants or other persons for
such purposes as the Committee considers necessary or desirable;
(j) take, at anytime, any action permitted by Section 9.1
irrespective of whether any Change in Control has occurred or is
imminent; and
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(k) do and perform all acts which it may deem necessary or
appropriate for the administration of the Plan and carry out the
purposes of the Plan.
5.3 Determinations. All determinations of the Committee shall be
final.
5.4 Delegation. Except as required by Rule 16b-3 with respect to
Benefits to individuals who are subject to Section 16 of the Exchange Act or as
otherwise required for compliance with Rule 16b-3 or other applicable law, the
Committee may delegate all or any part of its authority under the Plan to any
Employee, Employees or committee.
ARTICLE VI
AMENDMENT
6.1 Power of Board. Except as hereinafter provided, the Board shall
have the sole right and power to amend the Plan at any time and from time to
time.
6.2 Limitation. The Board may not amend the Plan, without approval
of the shareholders of the Company:
(a) in a manner which would increase the number of Shares which
may be issued or sold or for which Options, Stock
Appreciation Rights, or Performance Shares may be granted
under the plan; or
(b) in a manner which would violate applicable law.
ARTICLE VII
TERM AND TERMINATION
7.1 Term. The Plan shall commence as of the Effective Date and,
subject to the terms of the Plan, including those requiring approval by the
shareholders of the Company and those limiting the period over ISOs or any
other Benefits may be granted, shall continue in full force and effect until
December 31, 1998.
7.2 Termination. The Plan may be terminated at any time by the
Board.
ARTICLE VIII
MODIFICATION OR TERMINATION OF BENEFITS
8.1 General. Subject to the provisions of Section 8.2, the
amendment or termination of the Plan shall not adversely affect a Participant's
right to any Benefit granted prior to such amendment or termination.
8.2 Committee's Right. Any Benefit granted may be converted,
modified, forfeited or canceled, in whole or in part, by the Committee if and
to the extent permitted in the Plan or applicable Agreement or with the consent
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of the Participant to whom such Benefit was granted.
ARTICLE IX
CHANGE IN CONTROL
9.1 Benefit Cancellation and Payment.
(a) Options. Upon the occurrence of a Change in Control,
Options outstanding on the date on which the Change in Control occurs
shall be canceled, 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 Common Stock as reported on the New York Stock Exchange
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 Common Stock is highest), or (ii) the highest
per Share price for the Common Stock actually paid in connection with the
Change in Control, over 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.
(b) Stock Appreciation Rights. Upon the occurrence of a Change
in Control, Stock Appreciation Rights outstanding on the date on which the
Change in Control occurs shall be canceled, 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 Common Stock as reported on the New
York Stock Exchange 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 Common Stock is highest),
or (ii) the highest per Share price for the Common Stock actually paid in
connection with the Change in Control, over the Fair Market Value of one
Share on the date on which the Stock Appreciation Right was granted, and
(2) the number of such Stock Appreciation Rights held.
(c) Restricted Stock. Upon the occurrence of a Change in
Control, Restricted Stock outstanding on the date on which the Change in
Control occurs shall be canceled and an immediate lump sum cash payment
shall be paid to the Participant equal to the product of (1) the higher
(i) the closing price of Common Stock as reported on the New York Stock
Exchange 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 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; plus the value of any related Cash Award relating to such
Restricted Stock.
(d) Performance Shares. Upon the occurrence of a Change in
Control, any Performance Shares previously granted, but still considered
outstanding (as a right to received Shares or cash equal to the Fair
Market Value of such Shares at a future date), shall be canceled and any
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profit and/or performance objectives with respect to such Performance
Shares shall be deemed to have been attained to the full and maximum
extent; and an immediate lump sum cash payment shall be paid to the
Participant in an amount determined in accordance with the terms and
conditions set forth in the applicable Agreement.
(e) Performance Units. Upon the occurrence of a Change in
Control, any Performance Units previously granted, but still considered
outstanding (as a right to receive cash at a future date), shall be
canceled and any profit and/or performance objectives with respect to such
Performance Units shall be deemed to have been attained to the full and
maximum extent; and an immediate lump sum cash payment shall be paid to
the Participant in an amount determined in accordance with the terms and
conditions set forth in the applicable Agreement.
(f) Other Stock Based Awards and Other Benefits. Upon the
occurrence of a Change in Control, Other Stock Based Awards or other
Benefits previously granted under the Plan, but still considered
outstanding, shall be canceled and an immediate lump sum cash payment
shall be paid to the Participant in an amount determined in accordance
with the terms and conditions set forth in the applicable Agreement.
(g) Tax Penalties. If the making of payments pursuant to the
foregoing paragraphs of this Section 9.1 would subject the Participant to
an excise tax under Section 4999 of the 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 herein as a "Tax
Penalty"), then the Company shall reduce the amount of Benefits to be
canceled to the extent necessary to avoid the imposition of such Tax
Penalty, and shall establish procedures necessary to maintain for the
Participants any form of benefit which may be provided under the Plan so
that such Participant will be in the same financial position with respect
to those Benefits not canceled as he would have been in the ordinary
course, absent a Change in Control and assuming his continued employment;
except that the foregoing provisions of this paragraph (g), 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) may disclaim 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 payments pursuant to the foregoing
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.
9.2 Change in Control. A Change in Control shall be deemed to have
occurred if:
(a) any "Person," which shall mean a "person" as such term is
used in Sections 13(d) and 14(d) of the Exchange Act (other than the
Company, any trustee or other fiduciary holding securities under an
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employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 30% or
more of the combined voting power of the Company's then outstanding voting
securities; provided, however, that this paragraph (a) shall not apply to
any Person who becomes such a beneficial owner of such Company securities
pursuant to an agreement with the Company approved by the Board, entered
into before such Person has become such a beneficial owner of Company
securities representing 5% or more of the combined voting power of the
Company's then outstanding voting securities;
(b) during any period of 24 consecutive months (not including
any period prior to September 11, 1996), individuals, who at the beginning
of such period constitute the Board, and any new director (other than a
director designated by a Person who has entered into an agreement with the
Company to effect a transaction described in paragraph (a), (c) (2) or (d)
of this Section) whose election by the Board, or whose nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds (2/3) of the directors before the beginning of the period cease
for any reason to constitute at least a majority thereof;
(c) the stockholders of the Company approve (1) a plan of
complete liquidation of the Company or (2) the sale or disposition by the
Company of all or substantially all of the Company's assets unless the
acquirer of the assets or its directors shall meet the conditions for a
merger or consolidation in subparagraphs (d) (1) or (d) (2); or
(d) the stockholders of the Company approve a merger or
consolidation of the Company with any other company other than:
(1) such a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than 70% of
the combined voting power of the Company's or such surviving entity's
outstanding voting securities immediately after such merger or
consolidation; or
(2) such a merger or consolidation which would result in
the directors of the Company who were directors immediately prior thereto
continuing to constitute at least 50% of the directors of the surviving
entity immediately after such merger or consolidation.
In this paragraph (d), "surviving entity" shall mean only an entity in which
all of the Company's stockholders immediately before such merger or
consolidation become stockholders by the terms of such merger or consolidation,
and the phrase "directors of the Company who were directors immediately prior
Page 8
thereto" shall include only individuals who were directors of the Company at
the beginning of the 24 consecutive month period preceding the date of such
merger or consolidation, or who were new directors (other than any director
designated by a Person who has entered into an agreement with the Company to
effect a transaction described in paragraph (a), (c)(2), (d)(1) or (d)(2) of
this Section) whose election by the Board, or whose nomination for election by
the Company's stockholders, was approved by a vote of at least two-thirds (2/3)
of the directors before the beginning of such period.
ARTICLE X
AGREEMENTS AND CERTAIN BENEFITS
10.1 Grant Evidenced by Agreement. The grant of any Benefit under
the Plan may be evidenced by an Agreement which shall describe the specific
Benefit granted and the terms and conditions of the Benefit. The granting of
any Benefit may be subject to, and conditioned upon, the recipient's execution
of any Agreement required by the Committee. Except as otherwise provided in an
Agreement, all capitalized terms used in the Agreement shall have the same
meaning as in the Plan, and the Agreement shall be subject to all of the terms
of the Plan.
10.2 Provisions of Agreement. Each Agreement shall contain such
provisions that the Committee shall determine to be necessary, desirable and
appropriate for the Benefit granted. Each Agreement may include, but shall not
be limited to, the following with respect to any Benefit: description of the
type of Benefit; the Benefit's duration; its transferability; if an Option, the
exercise price, the exercise period and the person or persons who may exercise
the Option; the effect upon such Benefit of the Participant's death or
termination of employment; the Benefit's conditions; when, if and how any
Benefit may be forfeited, converted into another Benefit, modified, exchanged
for another Benefit, or replaced; and the restrictions on any Shares purchased
or granted under the Plan.
10.3 Certain Benefits. Any Benefit granted to an individual who is
subject to Section 16 of the Exchange Act shall not be transferable other than
by will or the laws of descent and distribution and shall be exercisable during
his lifetime only by him, his guardian or his legal representative.
ARTICLE XI
REPLACEMENT AND TANDEM AWARDS
11.1 Replacement. The Committee may permit a Participant to elect
to surrender a Benefit in exchange for a new Benefit.
11.2 Tandem Awards. Benefits may be granted by the Committee in
tandem. However, no Benefit may be granted in tandem with an ISO except a
Stock Appreciation Right.
Page 9
ARTICLE XII
PAYMENT, DIVIDENDS, DEFERRAL AND WITHHOLDING
12.1 Payment. Upon the exercise of an Option or in the case of any
other Benefit that requires a payment to the Company, the amount due the
Company is to be paid:
(a) in cash;
(b) by the tender to the Company of Shares owned by the
Participant and registered his name having a Fair Market Value equal to
the amount due to the Company;
(c) in other property, rights and credits, including the
Participant's promissory note; or
(d) by any combination of the payment methods specified in (a),
(b) and (c) above.
Notwithstanding the foregoing, any method of payment other than (a) may be used
only with the consent of the Committee, or if and to the extent so provided in
the applicable Agreement.
12.2 Dividend Equivalents. Grants of Benefits in Shares or Share
equivalents may include dividend equivalent payments or dividend credit rights.
12.3 Deferral. The right to receive any Benefit under the Plan may,
at the request of the Participant, be deferred for such period and upon such
terms as the Committee shall determine, which may include crediting of interest
on deferrals of cash and crediting of dividends on deferrals denominated in
Shares.
12.4 Withholding. The Company, at the time any distribution is made
under the Plan, whether in cash or in Shares, may withhold from such
distribution any amount necessary to satisfy federal, state and local tax
withholding requirements with respect to such distribution. Such withholding
may be in cash or in Shares.
ARTICLE XIII
OPTIONS
13.1 Types of Options. It is intended that both ISOs and NSOs may
be granted by the Committee under the Plan.
13.2 Shares for ISOs. The number of Shares for which ISOs may be
granted on or after the Effective Date shall not exceed 26,000,000 Shares,
subject to the overall Plan limitations, permitted reusage and adjustments
provided for in ARTICLE III.
13.3 Grant of Options and Option Price. Each Option must be granted
to an Employee and must be granted no later than December 31, 1998. No single
employee may be granted more than 1,000,000 Options (after adjustment for the
Page 10
1994 2-for-1 stock split) during any Fiscal Year of the Company. The purchase
price for Shares under any Option shall be no less than the Fair Market Value
of the Shares at the time the Option is granted.
13.4 Early Termination of Option.
(a) Termination of Employment. All rights to exercise an
Option terminate when the Participant's employment terminates for any
reason other than his death or retirement. Transfer from the Company
to an Affiliate, or vice versa, or from one Affiliate to another, shall
not be deemed termination of employment. The Committee shall have the
authority to determine in each case whether an authorized leave of
absence or absence on military or government service shall be deemed a
termination of employment for purpose of this paragraph (a).
(b) Death or Retirement. Effective for Options granted
after November 9, 1994, if a Participant dies while an Employee or his
employment is terminated because of retirement, his Option shall
terminate within a period not exceeding five years following his death
or retirement, but not later than the date the Option expires pursuant
to its terms. The terms of Options outstanding, except for those
Options intended to qualify as an ISO, may also be amended at anytime
by the Committee or the Board to extend the Option's duration period
following a Participant's death or retirement, subject to the
limitations stated in the preceding sentence. In the meantime, subject
to the limitations in the applicable Agreement, it may be exercised by
the Participant, the executors or administrators of his estate, or by
his legatee or heirs. "Retirement" shall mean termination of
employment at age 55 for older for reasons other than death.
13.5 Other Requirements. The terms of each Option which is intended
to qualify as an ISO shall meet all requirements of Section 422 of the Code.
The terms of each NSO shall provide that such Option will not be treated as an
ISO.
13.6 Determination by Committee. Except as otherwise provided in
Section 13.2 through Section 13.5, the terms of all Options shall be determined
by the Committee.
ARTICLE XIV
STOCK APPRECIATION RIGHTS
14.1 Description. The Committee may from time to time grant Stock
Appreciation Rights. Upon electing to receive payment of a Stock Appreciation
Right, a Participant shall receive an amount in cash, in Common Stock or in any
combination thereof, as the Committee shall determine, equal to the amount, if
any, by which the Fair Market Value of one Share on the date on which such
election is made exceeds the Fair Market Value of one Share on the date on
which the Stock Appreciation Right was granted.
Page 11
14.2 Grant of Tandem Award. The Committee may grant a Stock
Appreciation Right in tandem with another Benefit, in which case: the exercise
of the other Benefit shall cause a correlative reduction in Stock Appreciation
Rights standing to a Participant's credit which were granted in tandem with the
other Benefit, and the payment of a Stock Appreciation Right shall cause a
correlative reduction of the Shares under such other Benefit.
14.3 ISO Tandem Award. When a Stock Appreciation Right is granted in
tandem with ISO, it shall have such terms and conditions as shall be required
for the ISO with which it is granted in tandem to qualify as an ISO.
14.4 Payment of Award. A Stock Appreciation Right shall be paid, to
the extent payment is elected by the Participant (and is otherwise due and
payable), as soon as practicable after the date on which such election is
made.
ARTICLE XV
RESTRICTED STOCK
15.1 Description. The Committee may grant Benefits in Shares
available under ARTICLE III of the Plan as Restricted Stock. Shares of
Restricted Stock shall be issued at the time of the grant but shall be subject
to forfeiture until provided otherwise in the applicable Agreement or the Plan.
15.2 Terms and Conditions of Restricted Stock Awards. All Shares of
Restricted Stock shall be subject to the following terms and conditions, and to
such other terms and conditions as may be provided under the Agreements
described in paragraph (f) next below:
(a) Payment of Par Value. The Committee, in its discretion,
may condition any grant of Shares of Restricted Stock on payment by the
Participant to the Company of an amount not in excess of the par value of
such Shares. If any such shares are subsequently forfeited by the
Participant, the Company shall pay an equivalent amount to the Participant
as soon as practicable after the forfeiture.
(b) Restricted Period. Shares of Restricted Stock granted to a
Participant may not be sold, assigned, transferred, pledged or otherwise
encumbered during a "Restricted Period" commencing on the date of the
grant and ending on such date as the Committee may designate, subject to
the following:
(1) The Committee may, at any time and in its sole
discretion, reduce or terminate the Restricted Period with
respect to any outstanding Shares of Restricted Stock, any
accrued dividends in accordance with paragraph (g) below, and
any corresponding Cash Award pursuant to Section 15.3.
(2) The Restricted Period applicable to any Participant's
Shares of Restricted Stock shall end as of the date on which the
Page 12
Participant's employment with the Company and its Affiliates is
terminated by reason of the Participant's death, physical or
mental disability (as determined by the Committee), or for such
other reasons as the Committee may provide.
(3) The Committee may, at any time, and in its sole
discretion, allow a Participant to use his Restricted Stock
during the Restricted Period as payment of the Option price (in
accordance with Section 12.1) for Options which he has been
granted. In such an event, a number of the Shares issued upon
the exercise of the Option, equal to the number of Shares of
Restricted Stock used as payment therefore, shall be subject to
the same restrictions as the Restricted Stock so used, plus any
additional restrictions that may be imposed by the Committee.
Such terms and conditions relating to such use of Restricted
Stock shall be provided under the Agreements described in
paragraph (f) of this Section.
(c) Transfer of Restricted Stock. At the end of the
Restricted Period applicable to any Restricted Stock, such Shares, any
accrued dividends and any corresponding Cash Award, will be transferred
free of all restrictions to the Participant (or, to the Participant's
legal representative, beneficiary or heir).
(d) Forfeitures. Subject to paragraph 15.2(b), a Participant
whose employment with the Company and its Affiliates is terminated prior
to the last day of the applicable Restricted Period shall forfeit all
shares of Restricted Stock, and any accrued dividends, and any
corresponding Cash Award.
(e) Certificate Deposited With Company. Each certificate
issued in respect of Shares of Restricted Stock granted to a Participant
under the Plan shall be registered in the name of the Participant and
deposited, together with a stock power endorsed in blank, with the
Company. At the discretion of the Committee, any such certificates may be
deposited in a bank designated by the Committee. Each such certificate
shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeitures) contained in The Quaker
Long Term Incentive Plan of 1990 and an Agreement entered
into between the registered owner and The Quaker Oats
Company. A copy of the Plan and Agreement is on file in
the office of the Secretary of The Quaker Oats Company, 321
North Clark Street, Chicago, Illinois 60610."
(f) Restricted Stock Agreement. The Participant shall enter
into an Agreement with the Company in a form specified by the Committee
and containing such additional terms and conditions, if any, as the
Committee in its sole discretion shall determine, which are not
inconsistent with the provisions of the Plan.
Page 13
(g) Dividends. Regular cash dividends payable with respect to
shares of Restricted Stock shall, in accordance with the terms of the
applicable Agreement, be paid to the Participant currently or accrued. If
dividends are accrued, interest may be payable on such dividends at such
rate, if any, as is established from time to time by the Committee.
(h) Substitution of Rights. Prior to the end of the Restricted
Period with respect to any Shares of Restricted Stock awarded to a
Participant, the Committee may, with the consent of the Participant,
substitute an unsecured obligation of the Company to pay cash or stock
(on such reasonable terms and conditions as the Committee may, in its sole
discretion, determine) in lieu of its obligations under this ARTICLE XV to
deliver unrestricted Shares plus accrued dividends.
(i) Stockholder Rights. Subject to the foregoing restrictions,
each Participant shall have all the rights of a stockholder with respect
to Shares of Restricted Stock including, but not limited to, the right to
vote such Shares.
15.3 Cash Awards and Restricted Stock. The Committee, at the time it
grants Restricted Stock to a Participant or at any time thereafter may grant a
corresponding Cash Award which will entitle the Participant to receive cash as
of the date as of which the Restricted Stock is transferred to him pursuant to
paragraph 15.2(c), in an amount which is not in excess of 200 percent of the
Fair Market Value of the Restricted Stock as of that date. Any such Cash Award
shall be in addition to the Participant's rights to the Shares of Restricted
Stock and shall be subject to such additional terms and conditions, if any, as
the Committee determines which are not inconsistent with the terms and
conditions of the Plan. The Committee may, at any time, grant unrestricted
Shares (in lieu of such a Cash Award and subject to the limitations thereof) to
any participant under the Plan subject to such terms and conditions as the
Committee may determine.
ARTICLE XVI
PERFORMANCE SHARES
16.1 Description. Performance Shares are the right of an individual
to whom a grant of such Shares is made to receive Shares or cash equal to the
Fair Market Value of such Shares at a future date in accordance with the terms
of such grant. Generally, such right shall be based upon the attainment of
profit and/or performance objectives.
16.2 Grant. The Committee may grant an award of Performance Shares.
The number of Performance Shares and the terms and conditions of the grant
shall be set forth in the applicable Agreement.
Page 14
ARTICLE XVII
PERFORMANCE UNITS
17.1 Description. Performance Units are the right of an individual
to whom a grant of such Units is made to receive cash at a future date in
accordance with the terms of such grant. Generally, such right shall be based
upon the attainment of profit and/or performance objectives.
17.2 Grant. The Committee may grant an award of Performance Units.
The number of Performance Units and the terms and conditions of the grant shall
be set forth in the applicable Agreement.
ARTICLE XVIII
OTHER STOCK BASED AWARDS AND OTHER BENEFITS
18.1 Other Stock Based Awards. The Committee shall have the right to
grant Other Stock Based Awards which may include, without limitation, the grant
of Shares based on certain conditions, the payment of cash based on the
performance of the Common Stock, and the grant of securities convertible into
Shares.
18.2 Other Benefits. The Committee shall have the right to provide
types of Benefits under the Plan in addition to those specifically listed, if
the Committee believes that such Benefits would further the purposes for which
the Plan was established.
ARTICLE XIX
MISCELLANEOUS PROVISIONS
19.1 Underscored References. The underscored references contained in
the Plan are included only for convenience, and they shall not be construed as
a part of the Plan or in any respect affecting or modifying its provisions.
19.2 Number and Gender. The masculine and neuter, wherever used in
the Plan, shall refer to either the masculine, neuter or feminine; and, unless
the context otherwise requires, the singular shall include the plural and the
plural the singular.
19.3 Governing Law. This Plan shall be construed and administered in
accordance with the laws of the State of Illinois.
19.4 Purchase for Investment. The Committee may require each person
purchasing Shares pursuant to an Option or other award under the Plan to
represent to and agree with the Company in writing that such person is
acquiring the Shares for investment and without a view to distribution or
resale. The certificates for such Shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer. All
certificates for Shares delivered under the Plan shall be subject to such stock-
transfer orders and other restrictions as the Committee may deem advisable
under all applicable laws, rules and regulations, and the Committee may cause a
Page 15
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
19.5 No Employment Contract. The adoption of the Plan or the
granting of a Benefit shall not confer upon any Employee any right to continued
employment nor shall it interfere in any way with the right of the Employer to
terminate the employment of any of its Employees at any time.
19.6 No Effect on Other Benefits. The receipt of Benefits under the
Plan shall have no effect on any benefits to which a Participant may be
entitled from the Employer, under another plan or otherwise, or preclude a
Participant from receiving any such benefits.
IN WITNESS WHEREOF, this Program is executed by a duly
authorized officer of the Company.
THE QUAKER OATS COMPANY
October 14, 1996 By: /s/Douglas J. Ralston
Its Senior Vice President
Page 16
Exhibit 10(m)(2)
QUAKER SALARIED EMPLOYEES
COMPENSATION AND BENEFITS PROTECTION PLAN
(As Amended and Restated Effective as of September 1, 1996)
1. EFFECTIVE DATE AND PURPOSE. The Quaker Salaried Employees
Compensation and Benefits Protection Plan (the "Plan") is established and
maintained by The Quaker Oats Company ("Quaker"), and is amended and restated
effective as of September 1, 1996. The primary purpose of the Plan is to
promote the interests of Quaker, its domestic divisions and domestic
subsidiaries (the "Company"), and its shareholders, by attracting and retaining
salaried employees of the Company through assurances of continued compensation
and benefits when their employment with the Company is terminated due to
certain circumstances beyond their control within two years following a Change
in Control of Quaker.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Salaried Employees
Compensation and Benefits Protection Plan Committee (the "Committee"), which
shall consist of Quaker's Senior Vice President - Human Resources, Vice
President - Human Resources Worldwide Beverages and Vice President - Human
Resources Quaker Foods. The Chief Executive Officer of Quaker shall have the
authority to expand or reduce the number of Committee members, and to
designate, remove or replace the Committee members.
(b) The Committee shall have the sole responsibility for the
administration of the Plan, and may adopt such rules and procedures as it deems
necessary, desirable, or appropriate.
(c) The Committee shall have such powers as may be necessary to
discharge its responsibility to administer the Plan, including but not limited
to the following:
(1) To construe and interpret the Plan, decide all questions of
eligibility, and determine the amount, manner and time of
any severance benefit hereunder.
(2) To prescribe procedures for employees applying for Plan
benefits, including written applications and forms, and
other requests for information. The Committee may
reasonably rely upon all such applications, forms and
information so furnished.
(3) To receive from the Company such information as shall be
necessary for the proper administration of the Plan.
The Committee may reasonably rely upon all such information
so furnished.
(4) To appoint individuals to assist in the administration of
the Plan as the Committee deems necessary, including but
not limited to, Company employees, agents, attorneys, and
accountants. The Committee may reasonably rely upon all
information and advice furnished by such individuals.
(5) To receive, review, and maintain, as it deems appropriate,
benefit payment and administrative expense reports.
(6) To issue directions to the Company concerning all benefits
which are to be paid from the Company's general assets
pursuant to the Plan provisions.
(7) To prepare and distribute to Company employees information
describing the Plan, in such manner as the Committee
determines to be required or appropriate.
(d) The Committee shall make all determinations as to the right of
any person to a benefit under the Plan. Any denial by the Committee of the
claim for benefits under the Plan by an employee shall be stated in writing by
the Committee and delivered or mailed to the employee; and such notice shall
set forth the specific reasons for the denial. In addition, the Committee
shall afford a reasonable opportunity to any employee whose claim for benefits
has been denied for a review of the decision denying the claim.
(e) The Committee shall be indemnified by Quaker to the full extent
allowed by law. This indemnity shall extend to all individuals appointed to
assist in the administration of the Plan, as described in subparagraph (c)(4)
above.
3. ELIGIBILITY. A domestic salaried employee of the Company at the time
of a Change in Control of Quaker (as defined below) is eligible for severance
benefits under the Plan (determined in accordance with paragraph 4) if his
employment is terminated under any of the following conditions within two years
following the Change in Control of Quaker:
(a) Any termination of employment with the Company, other than
death, physical or mental incapacity, voluntary resignation,
retirement, gross misconduct, or due to the sale, spin-off or
other disposition of a plant, profit center, division or
subsidiary of Quaker as an ongoing entity if the affected
employee is hired by, or is offered continued employment by, the
successor or purchasing entity.
(b) Notwithstanding anything in subparagraph (a) above to the
contrary, any termination of employment with the Company, in
lieu of the employee accepting continued employment with the
Company which involves a significant change in the employee's
terms and conditions of employment (as defined below). A
"significant change in the employee's terms and
Page 2
conditions of employment" shall be deemed to have occurred when
during such two year period:
(1) the total of the employee's salary and incentive bonus is
to be reduced, based upon the amounts equal to the
employee's salary immediately prior to the Change in
Control of Quaker, and the most recent incentive bonus paid
fully accrued and payable to the employee immediately prior
to the Change in Control of Quaker;
(2) the location of continued employment is beyond a 30-mile
radius of the employee's location of employment immediately
prior to the Change in Control of Quaker; or
(3) the employee is to be paid on an hourly basis.
(c) For purposes of Section 4(a)(3), nondomestic employees will be
included in the eligible group.
(d) "Change in Control of Quaker" shall be deemed to have occurred
if:
(1) any "Person," which shall mean a "person" as such term
is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")(other
than Quaker, any trustee or other fiduciary holding
securities under an employee benefit plan of Quaker, or any
company owned, directly or indirectly, by the stockholders
of Quaker in substantially the same proportions as their
ownership of stock of Quaker), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of
Quaker representing 30% or more of the combined voting
power of Quaker's then outstanding voting securities;
provided, however, that this paragraph (a) shall not apply
to any Person who becomes such a beneficial owner of such
Company securities pursuant to an agreement with the
Company approved by the Company's Board of Directors (the
"Board"), entered into before such Person has become such a
beneficial owner of Company securities representing 5% or
more of the combined voting power of the Company's then
outstanding voting securities;
(2) during any period of 24 consecutive months (not including
any period prior to September 11, 1996), individuals, who
at the beginning of such period constitute the Board, and
any new director (other than a director designated by a
Person who has entered into an agreement with Quaker to
effect a transaction described in subparagraph (1), (3)(ii)
or (4)) whose election by the Board or whose nomination for
Page 3
election by Quaker's stockholders, was approved by a vote
of at least two-thirds (2/3) of the directors before the
beginning of the period cease for any reason to constitute
at least a majority thereof;
(3) the stockholders of Quaker approve (i) a plan of complete
liquidation of Quaker or (ii) the sale or disposition by
Quaker of all or substantially all of Quaker's assets
unless the acquirer of the assets or its directors shall
meet the conditions for a merger or consolidation in
subparagraphs (4)(i) or (4)(ii); or
(4) the stockholders of Quaker approve a merger or
consolidation of Quaker with any other company other than:
(i) such a merger or consolidation which would result in
the voting securities of Quaker outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted
into voting securities of the surviving entity) more
that 70% of the combined voting power of Quaker's or
such surviving entity's outstanding voting securities
immediately after such merger or consolidation; or
(ii) such a merger or consolidation which would result in
the directors of Quaker who were directors immediately
prior thereto continuing to constitute at least 50% of
the directors of the surviving entity immediately
after such merger or consolidation.
In this subparagraph (4), "surviving entity" shall mean
only an entity in which all of Quaker's stockholders
immediately before such merger or consolidation become
stockholders by the terms of such merger or consolidation,
and the phrase "directors of Quaker who were directors
immediately prior thereto" shall include only individuals
who were directors of Quaker at the beginning of the 24
consecutive month period preceding the date of such merger
or consolidation, or who were new directors (other than any
director designated by a person who has entered into an
agreement with Quaker to effect a transaction described in
subparagraph (1), (3)(ii), (4)(i) or (4)(ii)) whose
election by the Board, or whose nomination for election by
Quaker's stockholders, was approved by a vote of at least
two-thirds (2/3) of the directors before the beginning of
such period.
4. SEVERANCE BENEFITS.
Page 4
(a) An eligible employee pursuant to paragraph 3 will be provided
the following severance benefits:
(1) Compensation - Payment to an employee shall be made in the
form of a single lump sum, or equal monthly installments
over the Severance Period (as defined below), at the
Committee's sole discretion. For this purpose the total
amount payable in either form shall equal: (i) 75% of the
employee's (A) current annualized salary at the time of
termination (or, if greater, the employee's annualized
salary in effect immediately prior to the Change in Control
of Quaker), and (B) determined on an annualized basis, the
most recently paid (or fully accrued and unpaid) incentive
bonus at the time of termination (or, if greater, such
bonus paid or accrued prior to the Change in Control of
Quaker); plus (ii) such annualized salary amount and
incentive bonus amount multiplied by a fraction, the
numerator of which is the employee's number of years of
service with the Company (as defined below) exceeding 20,
and the denominator of which is 26. However, in no event
will such total severance benefit payable exceed two times
such annualized salary amount and incentive bonus amount.
If the severance benefit is to be paid in monthly
installments, the severance period shall be a nine month
period commencing with the date following termination of
employment, plus any additional period corresponding to the
additional benefit payable to an employee with more than 20
years of service with the Company (the "Severance Period").
The single sum payment shall be made, or the monthly
installments shall commence, at the employee's usual
payroll date next following his date of termination.
"Years of service with the Company" shall mean the
employee's number of completed years of service with the
Company; including service as a full time hourly employee,
and service rendered to an entity or organization that was
acquired by the Company.
(2) Welfare Benefits - During the Severance Period an employee
shall be entitled to Employee Welfare Benefits to which he
would have been entitled under currently elected coverage
under the Company's medical, dental and life insurance
programs prior to his termination of employment, regardless
of the form of compensation benefit to be provided under
subparagraph (1). The employee shall not be required to
contribute more than the normal cost (including those
attributable to changes in levels of benefits) for such
benefits as existed immediately prior to the Change in
Control of Quaker. The Severance Period for purposes of
this subparagraph (2) shall not be applied to reduce the
benefit extension period required by the Consolidated
Page 5
Omnibus Budget Reconciliation Act of 1985 or any amendment
thereto.
(3) Incentive Bonus (prior to Severance Period) - In addition
to amounts payable under subparagraphs (1) and (2) above
payment shall be made to the employee within a reasonable
time thereafter of the employee's incentive bonus as
provided herein below. For purposes hereof, "incentive
bonus" shall mean any form of incentive bonus payment for
which the employee would have been eligible immediately
prior to the Change in Control, but which is not paid to
the employee as of employment termination. For an entire
fiscal year ending prior to termination of employment such
incentive bonus shall be deemed to be an amount equal to
110% of the employee's similar incentive bonus paid with
respect to the next prior fiscal year, and such incentive
bonus for the fiscal year including termination of
employment (on a pro-rata basis in reference to the
complete number of months of employment during such fiscal
year), shall be an amount equal to 110% of the employee's
similar incentive bonus paid, or to be paid in accordance
herewith for the next prior fiscal year.
(b) All benefits to be paid or provided pursuant to subparagraph
4(a) shall be in addition to, and shall not be reduced by, any other benefits
payable or provided by separate agreement with the employee, or plan or
arrangement of the Company, except as follows:
(1) If an employee is also eligible for severance benefits to
be paid and provided pursuant to the Quaker Officers
Severance Program or the Quaker Severance Pay Plan (the
"Programs"), the greater amount or longer severance period
with respect to compensation and welfare benefits,
respectively, shall be provided in accordance with and
pursuant to the terms of the Programs or Plan as the case
may be. In no event will an employee be entitled to
duplicative benefits under the Programs and subparagraphs
4(a)(1) and (2) of the Plan.
(2) If an employee would otherwise be eligible for retiree
welfare benefits, the employee may choose to be eligible
for such benefits or to be covered by the Plan during the
Severance Period, after which the employee shall become
eligible for such retiree welfare benefits.
(3) An employee who is being provided disability benefits and
payments at the time of the Change in Control of Quaker
shall continue to receive only such disability payments and
benefit plan coverage to which he is entitled at such time
for so long as he remains eligible for such disability
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benefits. Following the expiration of such payments during
the two year period following the Change in Control of
Quaker, the employee shall then be eligible for severance
benefits under the Plan determined in accordance with
paragraph 3.
(c) Any severance benefits payable under the Plan to an employee who
dies prior to full payment of such benefits shall be paid to the employee's
estate.
(d) Notwithstanding any other provision of the Plan, severance
benefits furnished hereunder shall be subject to the following terms and
conditions:
(1) If the making of severance benefit payments pursuant to
subparagraphs 4(a)(1) and (2) would subject the employee to
the excise tax under Section 4999 of the Internal Revenue
Code of 1986, as amended, 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
herein as a "Tax Penalty"), then such severance benefit
payments shall be reduced to the extent necessary to avoid
the imposition of such Tax Penalty. The preceding sentence
shall not apply if such employee (i) is entitled to a tax
reimbursement for such Tax Penalty under any other
agreement plan or program of the company, or (ii) may
disclaim any portion of or all compensation payable under
this or any other agreement, plan or program of the Company
in order to avoid such Tax Penalty.
(2) If the employee and the Company shall disagree as to
whether the furnishing of a benefit under the Plan would
result in the imposition of a Tax Penalty, the matter shall
be resolved by an opinion of counsel chosen by the employee
and reasonably satisfactory to the Company. The Company
shall pay the fees and expense of such counsel, and shall
make available to counsel such information as may be
reasonably necessary to prepare the opinion.
5. RETIREE HEALTH PLANS. All domestic full time salaried employees
covered under The Quaker Retiree Health Incentive Plan, and other retiree
health plans maintained for the benefit of its salaried employees (the "Health
Plans"), who have attained age 50 upon termination of employment within two
years after a Change in Control, shall be credited with an additional five
years of service under the Health Plans for all purposes of eligibility and
benefits under the Health Plans, and during such two-year period the minimum
age requirement for purposes of eligibility of such terminated employees under
the Health Plans shall be age 50, except that in no event shall benefits be
provided under the Health Plans until the employee has reached age 55.
6. NONASSIGNMENT. No benefits payable under the Plan shall be subject
in any manner to assignment, anticipation, alienation, sale, transfer, pledge,
encumbrance, or charge, and any such attempted action shall be void and no such
Page 7
benefit shall be in any manner liable for or subject to debts, contracts,
liabilities, engagements, or torts of any employee. If any employee shall
become bankrupt or shall attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber, or charge any amount or benefit payable under the
Plan, then the Committee in its discretion may hold or apply such benefit or
any part thereof to or for the benefit of such employee or his beneficiary, his
spouse, children, blood relatives, or other dependents, in such manner and in
such proportions as the administrator may consider proper.
7. AMENDMENT AND TERMINATION. Quaker, by action of its Board, or the
Compensation Committee thereof, shall have the right to amend this Plan in any
respect, or to terminate this Plan; provided, however, that in no event shall
the Plan be amended or terminated during the five-year period following a
Change in Control of Quaker in a manner which would reduce payments or benefit
extension periods for any employee.
8. CONTINUED EMPLOYMENT. Neither the Plan nor any of its provisions
shall be construed as giving any employee of the Company a right to continue in
the employ of the Company, or as a limitation of the Company's right to
discharge any of its employees, with or without cause.
9. SUCCESSORS. The Plan shall be binding upon any successor of the
Company whether by merger, consolidation, or sale of all or substantially all
of the Company's assets.
10. GOVERNING LAW. The Plan shall be construed and enforced according to
the Employee Retirement Income Security Act of 1974 ("ERISA"), and the laws of
the State of Illinois, other than its laws respecting choice of law, to the
extent not pre-empted by ERISA.
IN WITNESS WHEREOF, this Plan is executed by a duly authorized
officer of the Company.
THE QUAKER OATS COMPANY
October 14, 1996 By: /s/Douglas J. Ralston
Its Senior Vice President
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