[Quaker Logo]
The Quaker Oats
Company
Notice of
Annual Meeting
and
Proxy Statement
Fiscal Year Ended December 31, 1996
April 2, 1997
Dear Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of Shareholders of
The Quaker Oats Company on Wednesday, May 14, 1997, at 9:30 a.m. (CDT) at the
Rosemont Theatre, 5400 North River Road, Rosemont, Illinois.
The items of business to be acted on during the Meeting include: the election
of two directors to serve three-year terms expiring in 2000; the ratification
of the appointment of Arthur Andersen LLP as independent public accountants for
the fiscal year ending December 31, 1997; and such other business as may
properly come before the Meeting or any adjournment thereof, including three
shareholder proposals. The accompanying proxy statement contains complete
details on the proposals and other matters.
If you plan to attend this year's Meeting, you may obtain an admittance card by
completing the enclosed reservation form and returning it with your proxy card.
If your shares are held by a bank or broker, you may obtain an admittance card
by returning the reservation form they forwarded to you. If, however, you do
not receive a reservation form directly from the Company, or the bank or broker
holding your shares, you may still obtain an admittance card by sending a
written request, accompanied by proof of ownership (such as your brokerage
statement), to Shareholder Services, The Quaker Oats Company, P.O. Box 049001,
Suite 25-9, Chicago, Illinois 60604-9001. For your convenience, we highly
recommend that you bring your admittance card to the Meeting so you can avoid
the lines in the registration area and proceed directly to the Theatre.
However, if you do not have an admittance card by the time of the Meeting,
please bring proof of share ownership to the registration area located in the
front of the Theatre where our personnel will assist you.
Your participation in the affairs of the Company is important, regardless of
the number of shares you hold. To ensure your representation at the Meeting,
whether or not you are able to be present, please complete and return the
enclosed proxy card as soon as possible. If you do attend the Meeting, you may
then revoke your proxy and vote in person if you so desire.
I look forward to seeing you on May 14. Coffee will be served after the
Meeting, when the members of the Board of Directors hope to visit with you.
Cordially,
/s/William D. Smithburg
William D. Smithburg
Chairman, President and CEO
1
THE QUAKER OATS COMPANY
321 North Clark Street
Chicago, Illinois 60610
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
AND
PROXY STATEMENT
FISCAL YEAR ENDED DECEMBER 31, 1996
T A B L E O F C O N T E N T S
PAGE
Notice of Annual Meeting of Shareholders 3
Proxy Statement 4
General Information 4
Election of Directors 5
Ownership of Company's Securities 10
Executive Compensation 12
Compensation Committee Report 17
Performance Graph 19
Directors' Proposal 20
Shareholders' Proposals 20
Shareholder Proposals for 1998 Annual Meeting 23
Other Business 23
2
THE QUAKER OATS COMPANY
321 North Clark Street
Chicago, Illinois 60610
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1997
April 2, 1997
To the Shareholders of The Quaker Oats Company:
Notice is hereby given that the Annual Meeting of Shareholders of The Quaker
Oats Company will be held on Wednesday, May 14, 1997 at the Rosemont Theatre,
5400 North River Road, Rosemont, Illinois at 9:30 a.m. (CDT), for the following
purposes:
To elect two directors in Class II to serve for three-year terms expiring
in May, 2000 or until their successors are elected and qualified;
To ratify the Board of Directors' appointment of Arthur Andersen LLP as
independent public accountants for the Company for 1997; and
To transact such other business as may properly come before the Meeting or
any adjournment thereof, including shareholder proposals concerning: 1)
compensation disclosure of certain employees; 2) the separation of the
Company's foods and beverages businesses; and 3) reconsideration of the
Company's Shareholder Rights Plan.
By Board of Directors' resolution, only shareholders of record as of the close
of business on March 19, 1997 are entitled to notice of and to vote at the
Meeting. To ensure your representation at the Meeting, whether or not you are
able to attend, please complete and return the enclosed proxy card as soon as
possible. If you do attend the Meeting, you may then revoke your proxy and
vote in person if you so desire.
To obtain an admittance card for the Meeting, please complete the enclosed
reservation form and return it with your proxy card. If your shares are held
by a bank or broker, you may obtain an admittance card by returning the
reservation form they forwarded to you. If you do not receive a reservation
form, you may obtain an admittance card by sending a written request,
accompanied by proof of share ownership (such as your brokerage statement) to
Shareholder Services, The Quaker Oats Company, P.O. Box 049001, Suite 25-9,
Chicago, Illinois 60604-9001. For your convenience, we highly recommend that
you bring your admittance card to the Meeting so you can avoid the registration
lines and proceed directly to the Theatre. However, if you do not have an
admittance card by the time of the Meeting, please bring proof of share
ownership to the registration area located in the front of the Theatre, where
our staff will assist you.
By order of the Board of Directors,
/s/Luther C. McKinney
Luther C. McKinney
Corporate Secretary
3
THE QUAKER OATS COMPANY
321 North Clark Street
Chicago, Illinois 60610
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1997
April 2, 1997
GENERAL INFORMATION
This proxy statement is being mailed to shareholders on or about April 2, 1997
and is furnished in connection with the solicitation of proxies by the Board of
Directors of The Quaker Oats Company (Board and Company) for use at the Annual
Meeting of Shareholders to be held on May 14, 1997, including any adjournment
thereof (Annual Meeting or Meeting).
The Meeting is called for the purposes stated in the accompanying Notice of
Annual Meeting. All holders of the Company's $5.00 par value common stock and
Series B ESOP Convertible Preferred Stock (ESOP Preferred Stock) as of the
close of business on March 19, 1997 are entitled to vote at the Meeting. As of
that date, there were 136,392,353 outstanding shares of common stock and
1,080,459 outstanding shares of ESOP Preferred Stock. Treasury shares are not
included in the totals. On each matter coming before the Meeting, a common
stock shareholder is entitled to one vote for each share of stock held as of
the record date and an ESOP Preferred Stock shareholder is entitled to 2.2 votes
for each share held as of the record date.
Shares representing a majority of the eligible votes must be represented in
person or by proxy at the Meeting in order to constitute a quorum for the
transaction of business. A proxy marked "abstain" on a matter will be
considered to be represented at the Meeting, but not voted for purposes of the
election of directors and other matters put to a shareholder vote at the
Meeting, and therefore will have no effect on the vote. Shares registered in
the names of brokers or other "street name" nominees will be considered to be
voted only as to those matters actually voted, and will not be considered for
any purpose as to the matters with respect to which a beneficial holder has not
provided voting instructions (commonly referred to as "broker non-votes").
If a proxy is properly signed and is not revoked by the shareholder, the shares
it represents will be voted at the Meeting by the Proxy Committee in accordance
with the instructions of the shareholder. If no specific instructions are
designated, the shares will be voted as recommended by the Board.
A proxy may be revoked at any time before it is voted at the Meeting. Any
shareholder who attends the Meeting and wishes to vote in person may revoke his
or her proxy at that time. Otherwise, revocation of a proxy must be
communicated in writing to the Company's Corporate Secretary, P.O. Box 049001,
Suite 27-10, Chicago, Illinois 60604-9001.
If a shareholder is a participant in the Company's Dividend Reinvestment and
Stock Purchase Plan, Investment Plan, Stock Bonus Savings Plan, or Employee
Stock Ownership Plan, the proxy card will represent the number of shares
registered in the participant's name and the number of whole and fractional
shares credited or allocated to the participant's account under the plans. For
those shares held in the plans, the proxy card will serve as a direction to the
trustee or voting agent under the various plans as to how the shares in the
accounts are to be voted. Fractional shares will not be voted in the Dividend
Reinvestment and Stock Purchase Plan.
4
Under the Company's Bylaws, for all matters submitted to the shareholders for a
vote, all proxies, ballots and voting tabulations that identify how
shareholders voted will be kept confidential and not be disclosed to any of the
Company's directors, officers or employees except when disclosure is mandated
by law, is expressly requested by a shareholder or is contested in an election
for the Board.
The Company will bear the cost of the solicitation of proxies, including the
charges and expenses of brokerage firms and other custodians, nominees and
fiduciaries for forwarding proxy materials to the beneficial owners of shares
of stock. Solicitations will be made primarily by mail, but certain directors,
officers or regular employees of the Company may solicit proxies in person or
by telephone or telegram without special compensation. In addition, the Company
has retained Kissel-Blake Inc. to assist in soliciting proxies from brokers,
dealers, voting trustees, banks and other nominees and institutional holders
for a fee not to exceed $18,000 plus reimbursement of reasonable out-of-pocket
expenses.
ELECTION OF DIRECTORS
The Restated Certificate of Incorporation of the Company provides that the
members of the Board shall be divided into three classes with staggered three-
year terms. The terms of the directors in Class II expire this year.
The Board has nominated two persons for election as directors in Class II to
serve for three-year terms expiring in May, 2000 or until their successors are
elected and qualified. All nominees have consented to serve for the new term.
Biographical information (including principal occupations for the past five
years and ages as of April 2, 1997) follows for each person nominated and each
director whose term in office will continue after the Meeting.
It is the intention of those persons named in the accompanying proxy to vote in
favor of the nominees. Should any one or more of these nominees become
unavailable for election, the proxy will be voted for such other persons, if
any, as the Board may recommend.
The election of directors requires a plurality of the votes cast at the
Meeting. If all nominees are elected, the Board will be comprised of 11
members, including nine nonemployee directors and two directors who are
officers of the Company.
[Photos of Each Director are to the right of each biography]
Nominees for Director - Terms Expiring in 2000
John H. Costello
Nominee for Director
Age 49
Senior Executive Vice President -
General Marketing, Sears, Roebuck
and Co. (retailing) since 1993;
formerly President and Chief
Operating Officer, Nielsen
Marketing Research U.S.A (1988 -
1993).
Judy C. Lewent
Director since 1994
Age 48
Senior Vice President and Chief
Financial Officer, Merck & Co.,
Inc. (pharmaceuticals). Also a
director of Astra Merck, Inc.;
The DuPont Merck Pharmaceutical
Company; Johnson & Johnson Merck
Consumer Pharmaceuticals Company;
and Motorola, Inc.
Member of the Company's Audit,
Finance, Nominating and Public
Responsibility Committees.
5
Directors Continuing in Office - Terms Expiring in 1999
Kenneth I. Chenault
Director since 1992
Age 45
President and Chief Operating
Officer, American Express Company
(financial and travel services)
since February, 1997; formerly
Vice Chairman (1995 - February,
1997); President - USA American
Express Travel Related Services
Company, Inc. (1993 - 1995);
President - Travel Related
Services, USA American Express
Travel Related Services Company,
Inc. (1993); and President -
Consumer Card Group, USA American
Express Travel Related Services
Company, Inc. (1989 - 1993).
Also a director of Brooklyn Union
Gas Co.
Member of the Company's Audit,
Compensation, Finance, and
Nominating Committees.
Thomas C. MacAvoy
Director since 1975
Age 68
Paul M. Hammaker Professor of
Business Administration, Darden
Graduate School of Business
Administration, University of
Virginia. Also a director of The
Chubb Corporation and The
Lubrizol Corporation.
Chairman of the Company's Public
Responsibility Committee and
Member of the Audit and
Nominating Committees.
Walter J. Salmon
Director since 1971
Age 66
Stanley Roth Sr., Professor of
Retailing, Harvard Business
School. Also a director of
Circuit City Stores, Inc.;
Hannaford Bros. Co.; Harrah's
Entertainment, Inc.; Luby's
Cafeterias, Inc.; and Neiman-
Marcus Group, Inc.
Member of the Company's Finance,
Nominating and Public
Responsibility Committees.
6
Directors Continuing in Office - Terms Expiring in 1998
Frank C. Carlucci
Director 1983 - 1987 and then
since 1989
Age 66
Chairman, The Carlyle Group
(merchant banking). Also a
director of Ashland Oil, Inc.;
BDM International, Inc.; General
Dynamics Corp.; Kaman
Corporation; Neurogen Corp.;
Northern Telecom Limited;
Pharmacia & Upjohn, Inc.; Sun
Resorts Ltd. N.V.; Texas
Biotechnology Corporation; and
Westinghouse Electric
Corporation.
Chairman of the Company's Audit
Committee and Member of the
Nominating and Public
Responsibility Committees.
Silas S. Cathcart
Director 1964 - 1987 and then
since 1989
Age 70
Retired Chairman of Illinois Tool
Works Incorporated (fasteners,
components, assemblies and
systems). Also a director of
Allegiance Corporation; General
Electric Company; and Montgomery
Ward and Co.; Chairman, Board of
Trustees, Northern Funds Mutual
Funds; and a trustee of the
Bradley Trust, Milwaukee and the
Buffalo Bill Memorial
Association.
Chairman of the Company's
Compensation Committee and Member
of the Executive and Nominating
Committees.
Vernon R. Loucks, Jr.
Director since 1981
Age 62
Chairman and Chief Executive
Officer, Baxter International
Inc. (health care products).
Also a director of Affymetrix,
Inc.; Anheuser-Busch Companies,
Inc.; Coastcast Corporation; Dun
& Bradstreet Corporation; and
Emerson Electric Co.
Chairman of the Company's
Nominating Committee and Member
of the Compensation and Executive
Committees.
7
William D. Smithburg
Director since 1978
Age 58
Chairman, President and Chief
Executive Officer of the Company
since 1995; formerly Chairman and
Chief Executive Officer (1993 -
1995); and Chairman, President
and Chief Executive Officer (1990
- - 1993). Also a director of
Abbott Laboratories; Corning
Incorporated; Northern Trust
Corporation; and Prime Capital
Corp.
Member of the Company's Executive
Committee and ex-officio member
of the Nominating Committee.
William L. Weiss
Director since 1985
Age 67
Chairman Emeritus, Ameritech
Corporation (telecommunications)
since 1994; formerly Chairman and
Chief Executive Officer (1984 -
1994). Also a director of Abbott
Laboratories; Merrill Lynch &
Co., Inc.; and Tenneco Inc.
Chairman of the Company's Finance
Committee and Member of the
Compensation, Executive and
Nominating Committees.
Director Continuing in Office -
Term Expiring in 1997
Luther C. McKinney
Director since 1978
Age 65
Senior Vice President - Law and
Corporate Affairs and Corporate
Secretary of the Company since
October 1996; formerly Senior
Vice President - Law and
Corporate Affairs (1994 - 1996);
and Senior Vice President - Law
and Corporate Affairs and
Corporate Secretary (1982 -
1994).
Member of the Company's Executive
Committee.
8
Attendance
During 1996, the Board held six regular meetings and one special meeting, and
executed one action by unanimous written consent. The rate of attendance of
directors at all Board meetings was 100%. In addition to Board membership,
each nonemployee director serves on one or more standing Board committees. The
rate of attendance of directors at all Board and committee meetings was 97%.
Compensation and Benefits
Directors who are full-time salaried employees of the Company are not
compensated for their service on the Board or any committee. Nonemployee
directors receive an annual retainer of $45,000. They are also paid a fee of
$1,000 per day for each Board meeting attended, $1,000 for each committee
meeting attended and $1,000 for each action taken by written consent, plus
travel and lodging expenses where appropriate. A committee chairman receives
an additional annual retainer of $5,000.
Under the Deferred Compensation Plan for Directors of The Quaker Oats Company
each nonemployee director may elect to defer receipt of all or a portion of his
or her compensation until the individual ceases to be a director. The deferred
amounts may be carried at the option of the director as Cash Units, and
credited with interest; Common Stock Units, which are deferred amounts
converted into whole units on a quarterly basis by dividing the deferred amount
by the fair market value of the Company's common stock, and credited with
amounts equivalent to dividends as paid on the Company's common stock, which
are converted into additional Common Stock Units; or a combination of Cash
Units and Common Stock Units. The accumulated deferred amounts will be
distributed in cash as of the next January 1 after the director leaves the
Board, or in equal annual installments (not exceeding 15) commencing as of the
next January 1 after the director leaves the Board pursuant to the director's
election, with Common Stock Units valued at the fair market value of the
Company's common stock immediately prior to the payment date. If the director
has not attained age 55 at the time of leaving the Board, payments in
accordance with the foregoing will be made or commence on the January 1 next
following the director's attainment of age 55.
Under The Quaker Oats Company Stock Compensation Plan for Outside Directors
separate accounts are maintained by the Company for each nonemployee director.
On January 1 of each year, each account is credited with Common Stock Units
representing 800 shares of the Company's common stock. In addition, the
account is credited with Common Stock Units with a value equivalent to cash
dividends payable on the shares represented by Units in the account. All
accrued common stock represented by Units in a director's account will be
distributed in kind as of the next January 1 after the director leaves the
Board, or in equal annual installments (not exceeding 15) commencing as of the
next January 1 after the director leaves the Board pursuant to the director's
election.
Committees
The Board has appointed six standing committees from among its members to
assist it in carrying out its obligations. Committee membership and
responsibilities are reviewed by the Board in May of each year and committee
appointments are made by the Board in May of every fourth year. The principal
responsibilities of each committee are described in the following paragraphs.
The Audit Committee, comprised entirely of nonemployee directors, is primarily
concerned with the effectiveness of the Company's accounting policies and
practices, financial reporting and internal controls. Specifically, the
Committee recommends to the Board the firm to be appointed as the Company's
independent public accountants, subject to ratification by the shareholders;
reviews and approves the scope of the annual examination of the books and
records of the Company and its subsidiaries; reviews the audit findings and
recommendations of the independent public accountants; considers the
organization, scope and adequacy of the Company's internal auditing function;
monitors the extent to which the Company has implemented changes recommended by
the independent public accountants, the internal audit staff or the Committee;
reviews and monitors the Company's Compliance Program, including its Code of
Ethics; and provides oversight with respect to accounting principles to be
employed in the Company's financial reporting. The Committee met six times
during 1996.
9
The Compensation Committee, comprised entirely of nonemployee directors,
oversees the Company's compensation and benefit policies and programs,
including administration of the Management Incentive Bonus Plan, Long Term
Incentive Plan of 1990 and 1984 Long-Term Incentive Plan. It also recommends
to the Board annual salaries, bonuses and stock option awards for elected
officers and certain other key executives. The Committee met five times during
1996.
The Executive Committee, comprised of two directors who are also officers of
the Company and three nonemployee directors, exercises all the powers and
authority of the Board in the management of the business and affairs of the
Company during the intervals between meetings of the Board, subject to the
restrictions set forth in the Bylaws. The Committee acted by written consent
two times during 1996.
The Finance Committee, comprised entirely of nonemployee directors, is charged
with reviewing the Company's annual financing plan, including its projected
financial condition and requirements for funds; approving certain long-term
debt borrowing arrangements; advising the Board on all financial
recommendations requiring Board approval, including dividend payments; and
monitoring the investment performance of the Company's pension funds and
participant-directed investment accounts. The Committee met six times during
1996.
The Nominating Committee, comprised of all the nonemployee directors and Mr.
Smithburg as an ex-officio member, develops and recommends to the Board
guidelines with respect to the size and composition of the Board and criteria
for the selection of candidates for director. It also recommends the slate of
director nominees to be included in the proxy statement and recommends
candidates to fill any vacancies that may occur, including any vacancy created
by an increase in the total number of directors.
The Committee will entertain nominees for directorships recommended by
shareholders. A shareholder recommendation should be sent to the Committee in
care of the Corporate Secretary of the Company, accompanied by a statement of
the nominee indicating willingness to serve if elected. The nomination should
also state the shareholder's reasons for the recommendation and should disclose
the principal occupations the nominee has held over the past five years and a
list of all publicly held companies for which the individual serves as a
director. The Committee met two times during 1996.
The Public Responsibility Committee, comprised entirely of nonemployee
directors, provides guidance on the Company's policies and programs in major
areas of social responsibility and corporate citizenship, including product
quality and safety and other consumer issues, environmental protection, equal
employment opportunity and employee health and safety. It also reviews and
approves policy guidelines and budgets for the Company's corporate
contributions program. The Committee met two times during 1996.
OWNERSHIP OF COMPANY'S SECURITIES
Beneficial Owners of More Than 5 Percent
As of March 1, 1997, each person or entity known to have beneficial ownership
of more than 5% of the Company's outstanding common stock based upon
information furnished to the Company is set forth in the following table.
Name and address of Amount and nature Percent of
beneficial owner of beneficial ownership class
Northern Trust Corporation(1) 14,792,814(2) 10.89%
50 South LaSalle Street
Chicago, Illinois 60675
Southeastern Asset Management, Inc. 9,939,106 7.30%
6075 Poplar Avenue, Suite 900
Memphis, Tennessee 38119
10
(1)In accordance with applicable rules of the Securities and Exchange
Commission ("SEC"), all shares beneficially owned by the Northern Trust
Corporation, including those beneficially owned as Trustee of The Quaker
Employee Stock Ownership Plan ("ESOP"), are required to be disclosed.
(2)This amount includes the 7,045,630 shares of common stock and the
1,083,307 shares of ESOP Preferred Stock (at the convertible rate of 2.16
shares of common stock for each share of ESOP Preferred Stock and
representing 100% of the issued and outstanding stock of that class) held in
the ESOP.
Directors and Management
As of March 1, 1997, each director, each nominee, each Named Executive (see
page 12) and all directors and executive officers of the Company as a group
beneficially owned the number of shares of the Company's common stock set forth
in the following table. Shares subject to acquisition within 60 days through
the exercise of stock options are included in the first column and are shown
separately in the second column.
Name of individual Amount and nature Shares subject to acquisition
or persons in group of beneficial ownership (a) within 60 days (a)
Frank C. Carlucci 8,595 (b)(c) 0
Silas S. Cathcart 26,272 (c)(d) 0
Kenneth I. Chenault 4,736 (c) 0
John H. Costello 0 0
James F. Doyle 298,548 (e)(f) 258,068
Judy C. Lewent 2,920 (c) 0
Vernon R. Loucks, Jr. 13,264 (c) 0
Thomas C. MacAvoy 13,264 (c) 0
Luther C. McKinney 468,747 (e)(f)(g) 370,740
Douglas W. Mills 314,812 (e)(f) 198,492
Walter J. Salmon 19,846 (c) 0
William D. Smithburg 1,718,860 (e)(f)(g) 1,411,760
Robert S. Thomason 286,135 (e)(f)(g)(h) 212,432
William L. Weiss 12,087 (c)(i) 0
All directors and executive
officers as a group 3,780,153 (e)(f)(g) 2,947,656
(a)Unless otherwise indicated, each named individual and each person in the
group has sole voting and investment power with respect to the shares
shown. Of the total shares outstanding (including shares subject to
acquisition within 60 days after March 1, 1997), Mr. Smithburg beneficially
owns approximately 1.2% of the total shares, each other person beneficially
owns less than 1% of the total shares and the group in total beneficially
owns approximately 3% of the total shares.
(b)Of these shares, 300 are held in a custodial account for Mr. Carlucci's
daughter, through which he shares voting and investment power with his
wife.
(c)The figures shown for all directors include an aggregate of 72,211 common
stock units credited to them under The Quaker Oats Company Stock
Compensation Plan for Outside Directors.
(d)Of these shares, 13,560 are held in a trust of which Mr. Cathcart is a co-
trustee and has a contingent beneficial interest and shares voting and
investment power.
(e)The figures shown for all executive officers include an aggregate of
71,948 shares (which includes 10,916 shares on the basis of the conversion
of 5,054 shares of ESOP Preferred Stock at the conversion rate of 2.16)
allocated to them under the ESOP. The Named Executives hold the following
numbers of shares under this Plan: Mr. Smithburg, 14,175; Mr. Doyle,
7,039; Mr. McKinney, 9,380; Mr. Thomason, 3,800; and Mr. Mills 8,451.
(f)The figures shown for all executive officers include an aggregate of
17,776 shares granted to them under The Quaker Long Term Incentive Plan of
1990 for which the restricted period has not lapsed. The Named Executives
hold the following numbers of shares under this Plan: Mr. Smithburg,
5,661; Mr. Doyle, 2,527; Mr. McKinney, 710; Mr. Thomason, 1,396; and Mr.
Mills, 2,367.
11
(g)The figures shown for all executive officers include an aggregate of
50,052 shares representing their proportionate interests in the Quaker
Stock Fund of The Quaker Investment Plan. The Named Executives hold the
following numbers of shares under this Plan: Mr. Smithburg, 1,013; Mr.
McKinney, 43,594; and Mr. Thomason, 685.
(h)Of these shares, 28,032 are held directly by Mr. Thomason's wife and Mr.
Thomason and each of his children own 800 jointly.
(i)Of these shares, 800 are held in a trust of which Mr. Weiss' wife is income
beneficiary.
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who beneficially own more than 10% of
a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the SEC and the New York Stock Exchange
("NYSE"). To the best of the Company's knowledge, all such required
reports were timely filed.
EXECUTIVE COMPENSATION
The following table details annual and long-term compensation paid during the
Company's three most recent fiscal years and the six-month transition period
ended December 31, 1995 (transition period shown as "1995.5") to: the
Company's Chairman, President and Chief Executive Officer; and the four most
highly compensated executive officers for 1996 who were serving as executive
officers as of the end of 1996 (Named Executives).
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
Other Restricted Securities All
Fiscal Annual Stock Underlying Other
Year Salary Bonus Compensation Awards Options Compensation
Name (1) ($) ($)(2) ($)(3) ($)(4) (#)(5) ($)(6)
<S> <C> <C> <C> <C> <C> <C> <C>
William D. Smithburg- 1996 $872,506 $ -0- $ 7,636 $ -0- -0- $ 98,242
Chairman, President and 1995.5 $430,008 $ -0- $ 13,421 $ -0- 500,000 $ -0-
Chief Executive Officer 1995 $855,014 $ -0- $ 3,419 $76,010 340,000 $171,627
1994 $825,006 $570,000 $ 2,607 $83,316 340,000 $165,520
James F. Doyle- 1996 $351,778 $382,800 $ 942 $ -0- -0- $ 64,240
Executive Vice President 1995.5 $173,004 $ -0- $ 592 $19,610 90,000 $ -0-
Worldwide Beverages 1995 $332,760 $217,600 $ -0- $42,449 48,000 $ 70,764
1994 $299,208 $254,800 $ -0- $25,247 48,000 $ 55,753
Luther C. McKinney- 1996 $377,206 $208,500 $ 82 $ -0- -0- $ 42,419
Senior Vice President 1995.5 $185,508 $ -0- $ 2,262 $ -0- 65,000 $ -0-
Law and Corporate 1995 $368,682 $ -0- $ -0- $ -0- 44,000 $ 68,406
Affairs and Corporate 1994 $354,678 $199,300 $ -0- $ -0- 44,000 $ 64,984
Secretary
Robert S. Thomason- 1996 $366,034 $207,800 $(20,499) $ -0- -0- $ 45,977
Senior Vice President 1995.5 $180,012 $ -0- $ 1,588 $ 7,872 70,000 $ -0-
Finance and Chief 1995 $358,520 $ 42,700 $ 3,216 $21,786 42,000 $ 62,835
Financial Officer 1994 $349,168 $163,200 $121,795 $31,958 48,000 $ 67,210
Douglas W. Mills- 1996 $363,978 $191,800 $ -0- $23,811 -0- $ 59,830
Executive Vice President 1995.5 $173,004 $143,000 $ -0- $ -0- 90,000 $ -0-
U.S. and Canadian 1995 $323,550 $ 29,700 $ -0- $28,517 36,000 $ 59,321
Quaker Food Products 1994 $278,332 $169,000 $ -0- $25,579 40,000 $ 53,666
12
<FN>
(1)The transition period is identified as Fiscal Year 1995.5 for purposes of
this Table.
(2)Amounts include the cash awards that have been paid under the Management
Incentive Bonus Plan ("MIB" Plan) based on the Company's financial
performance and the Named Executive's personal performance for the
transition period and each Fiscal Year.
(3)Of the amount shown for Mr. Thomason for Fiscal Year 1994, $99,549
represents payments relating to his overseas assignment. For Fiscal Year
1996, included are amounts recovered by the Company pursuant to its tax
equalization program relating to his overseas assignment.
(4)Restricted stock award values reflect the fair market value of the
Company's common stock on the date of each grant. With the exception of
Company matching awards of restricted stock under a broad-based long-term
incentive program, the Incentive Investment Program, no awards of
restricted stock have been made to any Named Executive in the transition
period and Fiscal Years 1996, 1995 and 1994.
Dividends on restricted shares were and continue to be paid on an on-going
basis at the same rate as paid to all shareholders of common stock. The
numbers and values of restricted shares for the Named Executives as of the
last day of 1996 are as follows: William D. Smithburg, 5,661 and $217,241;
James F. Doyle, 2,527 and $96,974; Luther C. McKinney, 710 and $24,246;
Robert S. Thomason, 1,396 and $53,572; and Douglas W. Mills, 2,367 and
$90,834.
Upon a change in control (see "Pension Plans"), restricted shares
outstanding on the date of the change in control will be cancelled and an
immediate lump sum cash payment will be paid which is equal to the product
of: (1) the higher of (i) the closing price of common stock as reported on
the NYSE Composite Index on or nearest to the date of payment (or, if not
listed on such exchange, on a nationally recognized exchange or quotation
system on which trading volume in the common stock is highest) or (ii) the
highest per share price for common stock actually paid in connection with
the change in control; and (2) the number of shares of such restricted
stock.
(5)In the transition period, the Company made a larger-than-normal award of
stock options in order to provide a transition to the new calendar fiscal
year. As a result, no stock option awards were made to the Named
Executives in 1996. All stock option awards in the transition period and
Fiscal Years 1995 and 1994 were granted with an exercise price that is
equal to the fair market value of the Company's common stock on the date of
the grant.
(6)For Fiscal Years 1996, 1995 and 1994, amounts shown are the total of the
value of the stock allocations to the Named Executives under the ESOP, and
cash awards to the Named Executives based on earnings in excess of the
Internal Revenue Code limits on the amount of earnings deemed eligible for
purposes of the annual stock allocations made directly under the ESOP.
</FN>
</TABLE>
13
The following table contains information covering the exercise of options by
the Named Executives during 1996 and unexercised options held as of the end of
1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of
Securities Underlying Value of Unexercised,
Unexercised Options In-the-Money Options
at Fiscal Year End (#) at Fiscal Year End ($) (2)
Shares
Acquired On Value
Name Exercise (#) Realized ($) (1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
William D. Smithburg 79,312 $1,723,117 1,372,564 505,000 $7,318,199 $1,966,243
James F. Doyle 15,204 $ 267,939 258,068 76,620 $1,373,930 $ 316,274
Luther C. McKinney 39,680 $ 864,560 385,944 -0- $2,421,106 -0-
Robert S. Thomason 45,612 $ 990,957 212,432 61,180 $1,117,617 $ 245,991
Douglas W. Mills -0- $ -0- 198,492 72,540 $ 741,158 $ 316,274
<FN>
(1) Represents the difference between the option exercise price and the fair
market value of the Company's common stock on the date of exercise.
(2) Represents the difference between the option exercise price and the fair
market value of the Company's common stock on the last day of 1996.
</TABLE>
Pension Plans
The Company and its subsidiaries maintain several pension plans. The Quaker
Retirement Plan (Retirement Plan), which is the principal plan, is a
noncontributory, defined benefit plan covering eligible salaried and hourly
employees of the Company who have completed one year of service as defined by
the Retirement Plan.
Under the Retirement Plan, the participant accrues a benefit based upon the
greater of a Years-of-Service Formula and an Earnings/Service Formula. Under
the Years-of-Service Formula, participants accrue annual benefits equivalent to
credited years of service times $216. Under the Earnings/Service Formula, a
participant's benefit is the sum of two parts:
1. Past Service Accrual -- Benefits accrued through December 31, 1993 are set
at the greater of (a) those earned or (b) 1% of Five-Year Average earnings
to $22,700 plus 1.65% of earnings above $22,700, times credited years of
service; and
2. Future Service Accrual -- For each year beginning January 1, 1994 and
after, participants accrue benefits of 1.75% of annual earnings to 80% of
the Social Security wage base plus 2.5% of annual earnings above 80% of
the Social Security wage base.
Eligible earnings used to calculate retirement benefits include wages,
salaries, bonuses, contributions to The Quaker Investment Plan (a 401(k) Plan)
and allocations under The Quaker Employee Stock Ownership Plan. Normal
retirement age under the Retirement Plan is age 65. The Retirement Plan
provides for early retirement benefits.
Benefit amounts payable under the Retirement Plan are limited to the extent
required by the Employee Retirement Income Security Act of 1974 ("ERISA"), as
amended, and the Internal Revenue Code of 1986, as amended. If the benefit
formula produces an amount in excess of those limitations, the excess will be
paid out of general corporate funds in accordance with the terms of The Quaker
415 Excess Benefit Plan and The Quaker Eligible Earnings Adjustment Plan. The
14
Quaker Eligible Earnings Adjustment Plan also provides for payment out of
general corporate funds, based upon benefit amounts which would otherwise have
been payable under the Retirement Plan and The Quaker 415 Excess Benefit Plan,
if the executive had not previously elected to defer compensation under the
Executive Deferred Compensation Plan.
The Quaker Supplemental Executive Retirement Program (the "SERP"), may also
provide retirement benefits for officers of the Company designated as
participants by the Compensation Committee. Benefit amounts payable under the
SERP are intended to provide a minimum base retirement benefit and are
therefore offset by amounts payable under the Retirement Plan, The Quaker 415
Excess Benefit Plan and The Quaker Eligible Earnings Adjustment Plan. The SERP
benefit is based upon a participant's average annual earnings for the five
consecutive calendar years during which earnings were highest within the last
ten years of service multiplied by a percentage based upon the participant's
age at his termination date. For the Chief Executive Officer, this percentage
ranges from 40% (for a termination from ages 50 to 55) to 60% (for a
termination at age 65 or later), and for other participants from 35% to 50%
(based upon such ages at termination).
The total estimated annual retirement benefits that the Named Executives would
receive under the Retirement Plan, The Quaker 415 Excess Benefit Plan, The
Quaker Eligible Earnings Adjustment Plan, and the SERP are as follows: William
D. Smithburg, $871,033; James F. Doyle, $304,418; Luther C. McKinney, $283,980;
Robert S. Thomason, $311,469; and Douglas W. Mills, $325,505. The amounts
assume that the Named Executives will continue to work for the Company until
their normal retirement dates, that their earnings will remain the same as in
calendar 1996 and that each will elect a straight-lifetime benefit without
survivor benefits. Payment options such as a lump sum or other annuities are
available.
The Retirement Plan assures active and retired employees that, to the extent of
sufficient plan assets, it will continue in effect for a reasonable period
following a change in control of the Company without a reduction of anticipated
benefits, and under certain circumstances may provide increased benefits.
Generally, under the Retirement Plan, a change in control shall be deemed to
have occurred in any of the following circumstances:
(a) An acquisition of 30% or more of Quaker stock, unless such acquisition
is pursuant to an agreement with the Company approved by the Board before
the acquiror becomes the beneficial owner of 5% of the Company's outstanding
voting power;
(b) A majority of the Board is comprised of persons who were not nominated
by the Board for election as directors;
(c) A plan of complete liquidation of the Company; or
(d) A merger, consolidation or sale of all or substantially all of the
Company's assets unless thereafter: (i) directors of Quaker immediately
prior thereto continue to constitute at least 50% of the directors of the
surviving entity or purchaser; or (ii) Quaker's securities continue to
represent, or are converted to securities which represent, more than 70% of
the combined voting power of the surviving entity or purchaser.
For a five-year period following a change in control of the Company, the
accrual of benefits for service during such period cannot be decreased while
there are excess assets (as defined in the Retirement Plan). For a two-year
period following such a change in control, the accrued benefits of members, who
meet specified age and service requirements and who are terminated, will be
increased and no employees of the purchaser may become members. For so long as
there are excess assets during that five-year period, if the Retirement Plan is
merged with any other plan, the accrued benefit of each member and the amount
payable to retired or deceased members shall be increased until there are no
excess assets. If during that five-year period the Retirement Plan is
terminated, to the extent that assets remain after satisfaction of liabilities,
the accrued benefits shall be increased such that no assets of the Retirement
Plan will directly or indirectly revert to the Company.
Termination and Change in Control Benefits
The Company has entered into Executive Separation Agreements (Separation
Agreements) with the Named Executives and other executive officers. The
Separation Agreements provide for separation pay should a change in control of
15
the Company occur (as described for the Retirement Plan). The Separation
Agreements were unanimously approved by the nonemployee directors.
Under the Separation Agreements, the executive's employment must be terminated
involuntarily, without cause, whether actual or "constructive" (demotion,
relocation, loss of benefits, or other changes in the executive's terms of
employment short of actual termination) following a change in control, for
separation pay to be available. Under the Separation Agreement for Mr.
Smithburg, separation pay is also available upon voluntary termination
occurring during the thirteenth month following a change in control.
Under the Separation Agreements, separation pay equals two years' annualized
base salary, bonuses under the MIB Plan and the value of life and health
insurance coverage and pension credited service extended for each executive for
a period of two years. The Separation Agreements provide that the amount of
tax penalties paid under the Internal Revenue Code shall be reimbursed to the
executive officer by the Company, including the income tax on such
reimbursements. The Separation Agreements terminate three years from their
date of execution and are subject to renewal by the Board.
The officers of the Company also participate in The Quaker Salaried Employees
Compensation and Benefits Protection Plan (Protection Plan). Under the
Protection Plan, severance pay and benefits are provided should a change in
control occur (as described for the Retirement Plan) and an employee's
employment is terminated within two years thereafter for any reason other than
death, physical or mental incapacity, voluntary resignation, retirement or
gross misconduct. Severance payments may be paid in a lump sum or monthly
installments (as determined by the Protection Plan's Administrative Committee).
Severance payments shall be based on the amount of nine months pay, plus two
weeks pay for each year of service over 20 years.
Pay is to be based on an employee's current salary plus bonus, if any.
Severance benefits are to be continued for a minimum of nine months, plus two
weeks for each year of service over 20 years, and include all health and
medical benefits, and life insurance coverage at the time of termination.
The Board believes that the Separation Agreements and the Protection Plan
assure fair treatment of the covered employees following a change in control.
Furthermore, by assuring the executive of some financial security, the
Separation Agreements and the Protection Plan protect the shareholders by
neutralizing any bias of these employees in considering proposals to acquire
the Company. The Board believes that these advantages outweigh the
disadvantage of the cost of the benefits.
The officers of the Company also participate in the Quaker Officers Severance
Program (Program). Under the Program, severance benefits are payable if an
officer's employment is terminated for any reason other than death, physical or
mental incapacity, voluntary resignation, retirement or gross misconduct.
Severance benefits will continue for one year. Severance benefits to be
continued are the executive's base salary at the time of termination, the
average bonus for the past two years under the MIB Plan, and medical and life
insurance coverage as in effect at the time of severance. Only the greater of
the severance payment and benefits to be provided under the Program or the
Protection Plan will be provided to an officer eligible under both, following a
change in control.
Under The Quaker Long Term Incentive Plan of 1990 (Incentive Plan), upon the
occurrence of a change in control (as described for the Retirement Plan),
options and restricted stock outstanding on the date on which the change in
control occurs shall be cancelled, and an immediate lump sum cash payment shall
be paid to the participant equal to the product of: (1) the higher of (a) the
closing price of the Company's common stock as reported on the NYSE Composite
Index on or nearest the date of payment (or, if not listed on such exchange, on
a nationally recognized exchange or quotation system on which trading volume in
the Company's common stock is highest), or (b) the highest per share price for
the Company's common stock actually paid in connection with the change in
control (and with respect to options, reduced by the per share option price of
each such option held, whether or not then fully exercisable); and (2) the
number of shares covered by each such option, or shares of restricted stock.
Upon the occurrence of a change in control, performance shares, performance
units and other stock-based awards provided for under the Incentive Plan, and
still outstanding, shall also be cancelled, and any profit and/or performance
objective with respect to performance shares and performance units shall be
deemed to have been attained to the full and maximum extent. An immediate lump
16
sum cash payment relating thereto shall be paid to the participant in an amount
determined in accordance with the terms and conditions set forth in the
applicable agreement.
If making of payments pursuant to a change in control would subject the
participant to an excise tax under Section 4999 of the Internal Revenue Code or
would result in the Company's loss of a Federal income tax deduction for those
payments (either of these consequences is referred to individually as a Tax
Penalty), then the Company shall reduce the number of benefits to be cancelled
to the extent necessary to avoid the imposition of such Tax Penalty. In
addition, the Company shall establish procedures necessary to maintain for the
participants a form of benefit which may be provided under the Incentive Plan
so that such participant will be in the same financial position with respect to
those benefits not cancelled as he would have been in the ordinary course,
absent a change in control and assuming his continued employment, except that
the foregoing with respect to the cancellation of benefits, shall not apply if
such participant (a) is entitled to a tax reimbursement for such Tax Penalty
under any other agreement, plan or program of the Company, or (b) disclaims any
portion of, or all, payments to be made pursuant to, or under, any other
agreement, plan or program of the Company in order to avoid such Tax Penalty.
Disagreements as to whether such payments would result in the imposition of a
Tax Penalty shall be resolved by an opinion of counsel chosen by the
participant and reasonably satisfactory to the Company.
The Company entered into a trust agreement, known as The Quaker Oats Company
Benefits Protection Trust (Trust or Trust Agreement). The Trust is to be used
to set aside funds necessary to satisfy the Company's obligations to present
and former executives and directors under deferred compensation programs and
agreements, and with respect to certain retirement and termination benefits, in
the event of a change in control (as described for the Retirement Plan).
Following a change in control, the Trust Agreement becomes irrevocable, and the
Trust shall be funded to provide for the payment of such obligations accrued at
the time of a change in control. The Trust may also be funded for the purpose
of paying legal expenses incurred by executives in pursuing benefit claims
under such programs and agreements following a change in control. The Trust is
currently funded only to a nominal extent.
The Trust assets relating to Company contributions are always subject to the
claims of the general creditors of the Company. No executive with any right or
interest to any benefit or future payment under the Trust Agreement shall have
any right or security interest in any specific asset of the Trust, nor shall he
have any right to alienate, anticipate, commute, pledge, encumber, or assign
any of the benefits or rights which he may expect to receive from the Trust or
otherwise.
COMPENSATION COMMITTEE REPORT
The Company's executive compensation program is administered by the
Compensation Committee of the Board (Committee). The Committee reviews and
considers the recommendations of management and compensation consultants, and
then determines the compensation of all executive officers, including the Named
Executives. The Committee's determinations are reviewed with all nonemployee
directors, who constitute a majority of the Board.
Overall Policy
The Company's compensation programs have long been tied to Company and/or
business unit performance leading to creation of shareholder value. The
Company's compensation programs are therefore aimed at enabling it to attract
and retain strong executive talent. By linking executive compensation to
Company stock, management's interests are directly linked to that of
shareholders.
At least once each year, the Committee conducts a comprehensive review of the
Company's executive compensation programs. The purpose of the review is to
insure that the programs are meeting their objective and that the Company's
executive compensation programs remain consistent with competitive practice.
In its review, the Committee considers data provided by management, and also by
leading compensation consultants, with whom the Committee meets privately.
The Company's policy with respect to qualifying compensation in excess of $1
million to its Named Executives for tax deductibility under Section 162(m) of
the Internal Revenue Code, is to allow each Named Executive to defer payment of
any portion of compensation which exceeds $1 million until after retirement
from the Company, at which time the deferred compensation would not be subject
to the limitation on tax deductibility.
17
The Company's compensation programs consist of base salary, a short-term cash
incentive program (the "MIB" Plan), and a long-term incentive program
consisting primarily of a broad-based stock option program and selective use of
restricted stock. For executive officers, the mix of compensation is weighted
more toward the performance-based elements of compensation (short-term and
long-term incentive programs) rather than the more fixed elements of
compensation (salary and benefits).
Base Salary
Salary guidelines for executive officers are established by comparing the
responsibilities of the individual's position to similar positions in other
comparable companies. Salary increases are determined by comparing the
person's actual performance to personal performance objectives, as well as the
Company's and/or business unit's performance versus its objectives. Merit
increases awarded to salaried employees in 1996 averaged 2%. The merit
increases awarded to executive officers, including the Named Executives, also
averaged 2% during 1996.
Annual Incentive
The Company's key managers, including the Named Executives, are eligible to
receive an annual award under the MIB Plan. Under the MIB Plan, individual
targets are established based on position level. Participants may receive
more, or less, than the targets depending upon their performance.
The annual incentive award is based on a combination of business unit and
Company performance compared to financial and nonfinancial objectives, with
business unit performance weighted more than Company performance. Personal
objectives are also considered in judging total compensation.
Company and business unit performance is measured by a tool called
"Controllable Earnings" ("CE"). CE directs managers to grow sales profitably,
decrease operating costs and increase operating margins. At the same time, CE
measures their ability to manage assets more effectively. CE is calculated as
operating income (adjusted for certain financing costs) less a capital usage
charge which is based on each business unit's invested capital. With
incentives tied to increasing CE, managers focus on generating greater
profitable growth, investing in projects where returns exceed our cost of
capital and efficiently utilizing assets. These are the drivers of long-term
cash flow--ultimately the keys to building shareholder value. The Committee
also considers performance against other key financial measures such as sales,
earnings per share, return on assets, return on equity and operating income.
In order for the full financial portion of the target bonuses to be paid, the
Company must meet its internal financial targets both in the business units and
the entire Company and the Committee also considers how that performance
relates to other comparable companies.
Long-Term Incentive
The Company has long believed in the importance of stock ownership by all
employees. Consequently, its long-term incentive plans are focused on stock-
based vehicles. The Company has adopted share ownership guidelines for all
vice presidents and above. Each is expected to hold Company stock commensurate
with their level in the organization.
The primary long-term incentive vehicle is a broad-based stock option program
for key managers, including the executive officers. Participants are
considered for annual awards of stock options, based upon an assessment of each
person's job level, performance, potential, past award history and competitive
practice. Stock options currently become exercisable one-third per year over
three years, have a ten-year term, and are priced at or above the stock's fair
market value on the grant date. In 1995, the Company made a larger-than-normal
award of stock options in order to provide a transition to the new calendar
fiscal year. As a result, no stock option awards were made in 1996 to those
who received an award in 1995.
A second broad-based long-term incentive program applying to the same group of
key managers is the Incentive Investment Program ("IIP"). Under the IIP,
participants may elect to invest a percentage of their MIB awards in Company
stock. Amounts invested are matched with either one or two shares of
restricted stock for each three shares of stock purchased by the participant,
depending on the percent of the MIB award invested. The vesting of the
restricted stock occurs over a five-year period, contingent upon the
participant's continued employment and retaining the purchased shares.
Restricted stock is also periodically used to motivate and retain selected key
employees. No restricted stock awards have been made to an executive officer
since fiscal 1993, except for matched shares under the IIP.
18
CEO Compensation
In determining Mr. Smithburg's compensation, the Committee considers the
Company's financial and nonfinancial performance, as well as an analysis of Mr.
Smithburg's total compensation in relation to that of CEOs in comparable
companies. As CE represents the key drivers of long-term shareholder value--
profitable sales growth, operating margin expansion and effective capital
investment and utilization--improvements in this measure are also considered in
determining compensation. Other financial measures such as sales, earnings per
share, return on assets, return on equity, and operating income are also
considered.
Based on an evaluation of these factors, Mr. Smithburg received a 2% salary
increase for 1996 (consistent with the 2% average increase for all salaried
employees and executive officers). Like all other key managers he did not
receive an option grant in 1996, because of the larger-than-normal award of
stock options in July, 1995 in order to provide a transition to the new
calendar fiscal year.
Further, based on an evaluation of these factors, Mr. Smithburg and the
Committee determined that he would not receive a bonus for 1996 or an option
grant at this time.
MEMBERS OF THE COMMITTEE
Silas S. Cathcart, Chairman
Kenneth I. Chenault
Vernon R. Loucks, Jr.
William L. Weiss
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's common stock against the cumulative total return of the
Standard & Poor's 500 Stock Index and the Standard & Poor's Food Index for the
period of five and one-half years commencing June 30, 1991 and ending December
31, 1996.
Comparison of Cumulative Total Return*
Quaker, S&P 500, S&P Foods
Transition
Period Year
Fiscal Year Ending Ending Ending
6/91 6/92 6/93 6/94 6/95 12/95 12/96
Quaker 100 101 139 132 128 137 157
S&P 500 100 113 129 131 164 188 231
S&P Foods 100 112 112 112 144 163 193
* Assumes $100 invested on June 30, 1991 with reinvestment of dividends.
19
DIRECTORS' PROPOSAL
Ratification of Appointment of Independent Public Accountants
Upon the recommendation of the Audit Committee, the Board has appointed Arthur
Andersen LLP as independent public accountants for 1997, and is requesting
ratification by the shareholders. Arthur Andersen LLP has examined the
financial statements of the Company each fiscal year since 1970.
In the event the resolution is defeated, the adverse vote will be considered as
a direction to the Board to select other independent public accountants for the
next fiscal year. However, because of the difficulty and expense of making any
substitution of independent public accountants after the beginning of a fiscal
period, it is contemplated that the appointment for 1997 will be permitted to
stand unless the Board finds other reasons for making a change.
During 1996, Arthur Andersen LLP performed recurring audit services including
the examination of annual financial statements and pension plans and limited
reviews of quarterly financial information. Fees for these services aggregated
approximately $1.8 million. Arthur Andersen LLP also performed services for
the Company in other business areas during 1996, including tax and accounting
related services, for which fees aggregated approximately $4.5 million.
Andersen Consulting LLP, the consulting arm of Arthur Andersen & Co., S.C.,
also performed various consulting services for the Company during 1996. Fees
for these services aggregated approximately $.9 million.
Representatives of Arthur Andersen LLP will attend the Annual Meeting and will
have an opportunity to make a statement, if they desire to do so, and to
respond to appropriate questions.
Ratification of the appointment of Arthur Andersen LLP as independent public
accountants requires the affirmative vote of a majority of votes cast thereon.
The Board unanimously recommends a vote FOR this proposal.
SHAREHOLDERS' PROPOSALS
Compensation Disclosure
Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Avenue, N.W.
Suite 215, Washington, D.C. 20037, record holder of 200 shares of common stock
of the Company, has given notice that she will introduce the following
resolution and supporting statement at the Meeting:
RESOLVED: "That the shareholders recommend that the Board take the necessary
step that Quaker Oats specifically identify by name and corporate title in all
future proxy statements those executive officers, not otherwise so identified,
who are contractually entitled to receive in excess of $250,000 annually as a
base salary, together with whatever other additional compensation bonuses and
other cash payments were due them."
REASONS: "In support of such proposed Resolution it is clear that the
shareholders have a right to comprehensively evaluate the management in the
manner in which the Corporation is being operated and its resources utilized."
"At present only a few of the most senior executive officers are so identified,
and not the many other senior executive officers who should contribute to the
ultimate success of the Corporation." "Through such additional identification
the shareholders will then be provided an opportunity to better evaluate the
soundness and efficacy of the overall management."
"Last year the owners of 11,869,853 shares, representing approximately 11% of
shares voting, voted FOR my similar proposal."
"If you AGREE, please mark your proxy FOR this proposal."
Approval of the foregoing shareholder proposal requires the affirmative vote of
a majority of the votes cast thereon.
The Board unanimously recommends a vote AGAINST this Proponent's proposal for
the following reasons:
The proposal is not currently relevant to the Company since it calls for
disclosure only of contractual employment obligations and the Company does not
maintain employment contracts for any of its executive officers.
20
Moreover, the Company already provides extensive disclosure on compensation of
executive officers in accordance with the rules and regulations of the SEC that
apply to all public companies. The proposal attempts to impose disclosure
obligations beyond what is required by the SEC and beyond what is reported by
other public companies.
The SEC's compensation disclosure rules were significantly revised in 1992
after comprehensive review and comment from numerous reporting companies,
investors and other interested persons. In accordance with these rules, this
proxy statement discloses the compensation of the Company's five highest paid
executive officers, as well as a Compensation Committee Report disclosing the
Company's polices with respect to compensation for executive officers. The
Board believes that the existing disclosure provides stockholders with a clear
overview of the compensation structure for executive officers and provides an
adequate basis for stockholders to evaluate the Company's use of resources for
compensation.
If the Company were to provide additional and specific disclosure related to a
broader group of employees, the Board believes that the Company would be at a
competitive disadvantage because it would have to provide more extensive
compensation information than other companies. Except when disclosure is
required under SEC rules applicable to all public companies, the Company treats
each employee's salary as a private matter. Compensation levels within the
Company vary based on factors such as performance, experience, job
classification and differences in geographic location. Disclosure of
compensation information for a broad group of employees would invade employee
privacy, compromise employee security and harm employee morale.
Separation of the Foods and Beverages Businesses
Mr. Leland R. Chalmers, 2390 Castillian Circle, Northbrook, IL 60062, record
holder of 50,732 shares of common stock of the Company, has given notice that
he will introduce the following resolution and supporting statement at the
Meeting:
Resolved: That the shareholders of The Quaker Oats Company recommend that
Quaker's Senior Management and the Board of Directors take the necessary steps
to accomplish a separation of the corporation's Foods and Beverages Business
into two separate and independent publicly owned corporations no later than
December 31, 1997.
Reasons: The Snapple acquisition has been criticized by many analysts and
business reporters as being overpriced and its subsequent business integration
and operation as being poorly executed. For example, see "If Quaker is
Achilles on the beverage stage, Snapple is a natural in heel's role," August
25, 1996, Chicago Tribune Section 5, Page 1, "Price tag on Quaker bust-up,"
August 19, 1996, Crain's Chicago Business, Page 3, and "Snapple struggle leaves
Quaker spent," July 26, 1996, Chicago Tribune, Section 3, Page 1.
The Company's major competitors in both the foods and beverages sectors are all
currently selling at substantially higher price earnings multiples than the
Company's blended multiple and have consistently outperformed Quaker
shareholder performance. A separation of these two businesses would be in line
with similar actions taken by many major companies in the United States (AT&T,
Baxter, Corning, Eli Lilly, General Mills, General Motors, Pet, Inc., Ralston
Purina, Sears Roebuck, Tenneco, 3M, W.R. Grace and Westinghouse to name but a
few). Several analysts have expressed their opinion that Quaker should do the
same, as have other companies in the foods industry. It is believed this
action would produce share value appreciation and allow Quaker to hire broadly
experienced beverage industry management as was done when the decision was made
to spin off Fisher-Price Toys in 1992.
Approval of the foregoing shareholder proposal requires the affirmative vote of
a majority of the votes cast thereon.
The Board unanimously recommends a vote AGAINST this Proponent's proposal for
the following reasons:
Last year Mr. Chalmers submitted a similar proposal requesting that the Company
retain an investment banking firm to analyze this issue. This proposal
received only 11% of the shares voting. In the supporting statement for his
proposal last year, the Proponent noted that an analysis "may conclude there
are better shareholder alternatives than the spin off."
As a matter of course, the Board regularly reviews all the businesses of the
Company. Management evaluates the contribution of each business unit to the
Company's performance and reports about them frequently to the Board. As a
result, the Company has made significant changes to its portfolio of business
units through divestitures, acquisitions or spin-offs when it has found them
appropriate in relation to the Company's strategic plans, such as the spin-off
of Fisher-Price, Inc. mentioned by the Proponent in his supporting statement.
21
The Board believes that it can function most effectively when its strategic
planning is conducted confidentially. In this way, ideas can be developed and
debated without the fear that they will lead to rumors or public debate that
could harmfully restrict the Board's choices or disrupt the public market for
the Company's stock.
Therefore, the Board believes that adoption of the Proposal could actually
diminish shareholder value.
Reconsideration of Shareholder Rights Plan
The Amalgamated Bank of New York Long View Collective Investment Fund, 11-15
Union Square, New York, NY 10003, record holder of 33,900 shares of common
stock of the Company, has given notice that it will introduce the following
resolution and supporting statement at the Meeting:
Resolved: That the shareholders of The Quaker Oats Company ("Quaker Oats" or
the "Company") request the Board of Directors to redeem the shareholder rights
previously issued unless such issuance is approved by the affirmative vote of
shareholders, to be held as soon as may be practicable.
Supporting Statement:
The Quaker Oats Board of Directors has issued, with shareholder approval,
certain shareholder rights (the "rights") pursuant to a shareholder rights
plan. We strongly believe that such rights are a type of anti-takeover device,
commonly known as a poison pill, which injures shareholders by reducing
management accountability and adversely affecting shareholder value.
The shareholders of the Company believe the terms of the rights are designed to
discourage or thwart an unwanted takeover of the Company. While management and
the Board of Directors should have appropriate tools to ensure that all
shareholders benefit from any proposal to acquire the Company, the shareholders
do not believe that the future possibility of a takeover justifies the
unilateral imposition of such a poison pill.
Rather, we believe that the shareholders should have the right to vote on the
necessity of such a powerful tool, which could be used to entrench existing
management. Rights plans like the Company's have become increasingly unpopular
in recent years.
The negative effects of poison pill rights plans on the trading value of
companies' stock have been the subject of extensive research. A 1986 study
(covering 245 companies adopting poison pills between 1983 and July 1986) was
prepared by the Office of the Chief Economist of the U.S. Securities and
Exchange Commission on the effect of poison pills on the wealth of target
shareholders. It states that "empirical tests, taken together, show that
poison pills are harmful to target shareholders, on net." A 1992 study by
Professor John Pound of Harvard's Corporate Research Project and Lilli A.
Gordon of the Gordon Group found a correlation between high corporate
performance and the absence of poison pills.
We believe that such an important corporate governance practice, one that can
have a significant adverse impact on shareholder value, should be eliminated
or, at the very least, be voted on by shareholders. We therefore submit this
shareholder proposal based on our belief that the unilateral and undeniably
undemocratic adoption of the right plan by the Company is unjustified, that the
continued existence of such a rights plan by the Company is unjustified and not
in the best interests of the shareholders.
WE URGE YOU TO VOTE FOR THIS RESOLUTION!
Approval of the foregoing shareholder proposal requires the affirmative vote of
a majority of the votes cast thereon.
The Board unanimously recommends a vote AGAINST this Proponent's proposal for
the following reasons:
In May 1996, the Board unanimously adopted a new Shareholder Rights Plan
(Rights Plan) and declared a dividend distribution of one Right on each
outstanding share of the Company's Common Stock. The Rights Plan was
established to replace the Shareholder Rights Plan originally adopted in 1986,
which expired on July 30, 1996. The Rights Plan is designed to provide the
Board with the ability to take what the Board believes are the most effective
steps to protect and maximize the value of shareholders' investment in the
Company. It is designed to encourage potential acquirors to negotiate directly
with the Board, which the Company believes is in the best position to negotiate
22
on behalf of all shareholders, evaluate the adequacy of any potential offer,
and protect shareholders against potential abuses during the takeover process
such as partial and two-tiered tender offers and creeping stock accumulation
programs, which do not treat all shareholders fairly and equally. The Rights
do not affect any takeover proposal which the Board believes is in the best
interests of the Company's shareholders. The overriding objective of the Board
in adopting the Rights Plan was, and continues to be, the preservation and
maximization of the Company's value for all shareholders.
The Rights Plan is not intended to prevent a takeover on terms that are fair
and equitable to all shareholders, nor is it intended as a deterrent to a
shareholder's initiation of a proxy contest. Under the terms of the Rights
Plan, the Board has the power to redeem the Rights to permit an acquisition
that it determines, in the exercise of its fiduciary duties, adequately
reflects the value of the Company and is in the best interests of all
shareholders.
The adoption of the Rights Plan by action of the Board is in accord with the
Board's responsibility under New Jersey law to manage and direct the management
of the Company's business and affairs and, as a legal matter, does not require
shareholder approval.
Shareholder rights plans have become very common for public companies. The
Rights do not in any way weaken the financial strength of the Company or
interfere with its business plans, have no dilutive effect, do not affect
reported earnings per share, are not taxable to the Company or to shareholders
and do not change the way in which shares of the Company presently can be
traded.
The Board believes there is strong empirical evidence that such plans better
position the Board to negotiate the most attractive and fair price for all
shareholders. Many companies with rights plans have received unsolicited
offers and have redeemed their rights after their directors were satisfied that
the offer, as negotiated by the target company's board of directors, adequately
reflected the underlying value of the company and was fair and equitable to all
shareholders. Thus, experience indicates that rights plans neither prevent
unsolicited offers from occurring, nor prevent companies from being acquired at
prices that are fair and adequate to shareholders.
The Board believes that the only proper time to consider redemption of the
Rights is when a specific offer is made to acquire the Company's stock.
Redemption of the Rights prior to that time would be premature and would remove
any incentive for a potential acquiror to negotiate with the Board so that
shareholders are treated fairly.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Shareholders may submit proposals appropriate for shareholder action at the
Company's annual meetings consistent with regulations adopted by the SEC. To
be considered for inclusion in the Company's proxy statement and proxy for the
1998 Annual Meeting a proposal must be received by the Company no later than
December 3, 1997. Proposals should be directed to Luther C. McKinney,
Corporate Secretary, The Quaker Oats Company, P.O. Box 049001, Suite 27-10,
Chicago, Illinois 60604-9001.
OTHER BUSINESS
The Board is not aware of any matters requiring shareholder action to be
presented at the Meeting other than those stated in the Notice of Annual
Meeting. Should other proper matters be introduced at the Meeting, those
persons named in the enclosed proxy have discretionary authority to act on such
matters and will vote the proxy in accordance with their best judgment.
By order of the Board of Directors,
/s/ Luther C. McKinney
Luther C. McKinney
Corporate Secretary
23
This Notice of Annual Meeting and
Proxy Statement is printed on
recycled paper.
[Front Part]
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATIONS MADE, OR IF NO
CHOICES ARE INDICATED, FOR ITEMS 1 AND 2 AND AGAINST ITEMS 3, 4 AND 5.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
[Quaker logo and "1997 PROXY" appears down the left margin]
A vote FOR items 1 and 2 is recommended
by the Board of Directors.
1. Election of Directors - For All [ ] Withheld All [ ] For All Except As
Named Below [ ]
Nominees: John H. Costello and Judy C. Lewent
__________________
2. Ratification of Appointment of Independent For [ ] Against [ ] Abstain [ ]
Public Accountants
A vote AGAINST items 3, 4 and 5 is recommended
by the Board of Directors.
3. Shareholder Proposal - For [ ] Against [ ] Abstain [ ]
Compensation
Disclosure
4. Shareholder Proposal - For [ ] Against [ ] Abstain [ ]
Separation of Foods
and Beverages
5. Shareholder Proposal - For [ ] Against [ ] Abstain [ ]
Reconsideration of
Rights Plan
Dated_______________, 1997
x________________________________
Signature
x________________________________
Signature
NOTE: Please sign exactly as name appears hereon. For joint accounts, both
owners should sign. When signing as executor, administrator, attorney, trustee
or guardian, etc., please sign your full title.
[Back Part]
THE QUAKER OATS COMPANY
Proxy for Annual Meeting of May 14, 1997
This proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Frank C. Carlucci, Silas S. Cathcart, Thomas C.
MacAvoy and Luther C. McKinney proxies each with power to appoint his substitute
to represent and to vote all shares of stock of The Quaker Oats Company which
the undersigned is entitled to vote at the Annual Meeting of Shareholders of the
Company to be held at the Rosemont Theatre, 5400 North River Road, Rosemont,
Illinois, on Wednesday, May 14, 1997 at 9:30 a.m. (CDT), and any adjournment
thereof, as indicated on the proposals described in the proxy statement and all
other matters properly coming before the Meeting.
IMPORTANT - This proxy must be signed and dated on the reverse side.
