UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12
THE QUAKER OATS COMPANY
(Exact name of registrant as specified in its charter.)
NEW JERSEY 36-1655315
(State of 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 offices) (Zip Code)
Registrant's telephone number, including area code (312) 222-7111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common Stock ($5.00 Par Value) New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
The Stock Exchange, London
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
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 such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates of the
Registrant as of the close of business on February 28, 1997 was $4,892,229,265.
The liquidation value of Series B ESOP Convertible Preferred Stock, all of
which is held in The Quaker Employee Stock Ownership Plan, at the close of
business on February 28, 1997 totaled $84,497,946, plus related dividends. The
number of shares of Common Stock, $5.00 par value, outstanding as of the close
of business on February 28, 1997 was 136,368,760.
DOCUMENTS INCORPORATED BY REFERENCE.
1. Portions of The Quaker Oats Company Annual Report to Shareholders for the
fiscal year ended December 31, 1996 (Annual Report) (Parts I, II and III
of Form 10-K)
2. Portions of The Quaker Oats Company Notice of Annual Meeting and Proxy
Statement (Proxy Statement) dated April 2, 1997 (Part III of Form 10-K)
CROSS-REFERENCE TABLE OF CONTENTS
The Annual Report and the Proxy Statement include all information required in
Parts I, II and III of Form 10-K, except as otherwise indicated in the
following Cross-Reference Table of Contents. The Cross-Reference Table of
Contents identifies the source of information for each of the Form 10-K items
included in Parts I, II and III. Only those sections of the Annual Report and
the Proxy Statement cited in the Cross-Reference Table of Contents are
incorporated in the Form 10-K and filed with the Securities and Exchange
Commission.
10-K Item No. Source of Information
PART I.
Item 1. Business
(a) General Development of Business Annual Report, pages 46-47
(b) Financial Information About Industry Annual Report, pages 25, 42-44
Segments
(c) Description of Business Annual Report, pages 25-29,
30-35, 55, 57, 59
(d) Financial Information About Foreign Annual Report, pages 42-44
and Domestic Operations and Export
Sales
(e) Executive Officers of Registrant Annual Report, pages 60-61
Item 2. Properties. Annual Report, page 59
Item 3. Legal Proceedings. Annual Report, page 57
Item 4. Submission of Matters to a Vote of (Not Applicable)
Security Holders.
PART II.
Item 5. Market for the Registrant's Common Annual Report, pages 31, 34-35,
Equity and Related Stockholder 57, 64-65
Matters.
Item 6. Selected Financial Data. Annual Report, pages 30-35
Item 7. Management's Discussion and Annual Report, pages 25-29
Analysis of Financial Condition
and Results of Operations.
Item 8. Financial Statements and Annual Report, pages 36-58
Supplementary Data.
Item 9. Changes in and Disagreements with (Not Applicable)
Accountants on Accounting and
Financial Disclosure.
PART III.
Item 10. Directors and Executive Officers of Notice of Annual Meeting and Proxy
the registrant. Statement, pages 5-8; Annual
Report, pages 60-61
Item 11. Executive Compensation. Notice of Annual Meeting and Proxy
Statement, pages 12-19
Item 12. Security Ownership of Certain Notice of Annual Meeting and Proxy
Beneficial Owners and Management. Statement, pages 10-11
Item 13. Certain Relationships and Related (Not Applicable)
Transactions.
PART IV.
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements.
Consolidated financial statements of The Quaker Oats Company and its
subsidiaries are incorporated under Item 8 of this Form 10-K.
(a)(2)& (d) Financial Statement Schedules.
All required financial statement schedules are included in the
consolidated financial statements or notes thereto as incorporated
under Item 8 of this Form 10-K.
(a)(3)& (c) Exhibits.
See Exhibit Index attached hereto, which is incorporated herein by
reference.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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
By /s/WILLIAM D. SMITHBURG
William D. Smithburg, Chairman, President and Chief Executive Officer
Date: March 12, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 12th day of March 1997, by the following
persons on behalf of the Registrant and in the capacities indicated.
Signature
Title
/s/ WILLIAM D. SMITHBURG
William D. Smithburg
Chairman, President and Chief Executive Officer
/s/ ROBERT S. THOMASON
Robert S. Thomason
Senior Vice President Finance and Chief Financial Officer
/s/ THOMAS L. GETTINGS
Thomas L. Gettings
Vice President and Corporate Controller
/s/ FRANK C. CARLUCCI
Frank C. Carlucci
Director
/s/ SILAS S. CATHCART
Silas S. Cathcart
Director
/s/ KENNETH I. CHENAULT
Kenneth I. Chenault
Director
/s/ JUDY C. LEWENT
Judy C. Lewent
Director
/s/ VERNON R. LOUCKS, JR.
Vernon R. Loucks, Jr.
Director
/s/ THOMAS C. MacAVOY
Thomas C. MacAvoy
Director
/s/ LUTHER C. McKINNEY
Luther C. McKinney
Director
/s/ WALTER J. SALMON
Walter J. Salmon
Director
/s/ WILLIAM L. WEISS
William L. Weiss
Director
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAPER (P), ELECTRONIC (E)
OR INCORPORATED BY
REFERENCE (IBRF)
3(a) Restated Certificate of Incorporation (as of September 11, 1996) E
3(b) Bylaws of The Quaker Oats Company (as of November 13, 1996) E
4 Registrant undertakes to furnish to the Commission, upon request,
a copy of any instrument defining the rights of holders of long-
term debt of the registrant and all of its subsidiaries for which
consolidated or unconsolidated financial statements are required
to be filed IBRF
10(a) 1984 Long-Term Incentive Plan, as restated effective September 1,
1996 (incorporated by reference to the Company's Form 10-Q for
the fiscal quarter ended September 30, 1996, file number 1-12) IBRF
10(b) Deferred Compensation Plan for Directors of The Quaker Oats
Company, as restated effective November 1, 1996 E
10(c) Deferred Compensation Plan for Executives of The Quaker Oats
Company, as restated effective November 1, 1996 E
10(d) Management Incentive Bonus Plan of The Quaker Oats Company as
amended September 8, 1993 (incorporated by reference to the
Company's Form 10-K for the fiscal year ended June 30, 1994,
file number 1-12) IBRF
10(e) Directors' Stock Compensation Plan, as restated effective
November 1, 1996 E
10(f)(1) Termination Benefits Agreement with William D. Smithburg, first
effective for the fiscal quarter ended December 31, 1996 E
10(f)(2) Termination Benefits Agreements with certain Executive Officers,
first effective for the fiscal quarter ended December 31, 1996 E
10(f)(3) Agreement upon separation of employment with Michael B. Schott
effective August 12, 1996 (incorporated by reference to the
Company's Form 10-Q for the fiscal quarter ended September
30, 1996, file number 1-12) IBRF
10(g) The Quaker Supplemental Executive Retirement Program, as
restated effective November 1, 1996 E
10(h)(1) The Quaker Oats Company Benefits Protection Trust
(incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1989, file number 1-12) IBRF
10(h)(2) First Amendment to The Quaker Oats Company Benefits Protection
Trust (incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1992, file number 1-12) IBRF
10(h)(3) Second Amendment to The Quaker Oats Company Benefits Protection
Trust (incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1992, file number 1-12) IBRF
10(i) The Quaker Eligible Earnings Adjustment Plan, as restated
effective November 1, 1996 E
10(j) Quaker Officers Severance Program, as restated effective
November 1, 1996 E
10(k) The Quaker Long Term Incentive Plan of 1990 (incorporated by
reference to the Company's Form 10-Q for the fiscal quarter
ended September 30, 1996, file number 1-12) IBRF
10(l) The Quaker 415 Excess Benefit Plan, as restated effective
November 1, 1996 E
10(m) Quaker Salaried Employees Compensation and Benefits Protection
Plan, as restated effective November 1, 1996 E
11 Statement re Computation of Per Share Earnings E
12 Statement re Computation of Ratios E
13 Annual Report to Shareholders of The Quaker Oats Company
for fiscal year ended December 31, 1996 E
21 List of Subsidiaries of the Registrant E
23 Consent of Auditors E
Exhibit 3(a)
AMENDED
AND
RESTATED
CERTIFICATE OF INCORPORATION
OF
THE QUAKER OATS COMPANY
SEPTEMBER 11, 1996
THE QUAKER OATS COMPANY
Certificate of Incorporation
Organized Under the Laws of the State of New Jersey
Authorized Capital Stock
Preference, without par value, 1,000,000 shares
Preferred, without par value, 10,000,000 shares
Common, $5 par value 400,000,000 shares
Original Certificate Filed September 21, 1901
Amendment Filed March 31, 1906
Increasing preferred capital stock from $8,000,000 to
$9,000,000
and common capital stock from $4,000,000 to $4,500,000.
Amendment Filed April 25, 1910
Increasing common capital stock from $4,500,000 to $5,500,000.
Amendment Filed November 25, 1912
Increasing common capital stock from $5,500,000 to $10,000,000.
Amendment Filed April 7, 1917
Increasing preferred capital stock from $9,000,000 to
$15,000,000
and common capital stock from $10,000,000 to $15,000,000.
Amendment Filed July 14, 1919
Increasing preferred capital stock from $15,000,000 to
$25,000,000
and common capital stock from $15,000,000 to $25,000,000.
Amendment Filed March 14, 1925
No change in preferred capital stock. Changing common capital
stock to 600,000 shares without par value.
Amendment Filed March 20, 1930
No change in preferred capital stock. Increasing common capital
stock to 800,000 shares without par value.
Amendment Filed January 19, 1951
No change in preferred capital stock. Changing Common
Stock to 4,000,000 shares, $5 par value.
Amendment Filed November 14, 1958
No change in preferred capital stock. Changing Common Stock to
6,000,000 shares, $5 par value.
Amendment Filed November 3, 1967
No change in preferred capital stock. Changing Common
Stock to 12,000,000 shares, $5 par value.
Amendment Filed November 1, 1968
Eliminating 6% Preferred Capital Stock, $100 par value.
Authorizing
169,022 shares of $3 Cumulative Convertible Preferred Stock,
$50 par value.
Authorizing 1,500,000 shares Preference Stock
without par value.
Changing Common Stock to 15,000,000 shares, $5 par value.
Amendment Filed November 7, 1969
No change in Preferred or Preference Stock. Changing Common
Stock to 22,500,000 shares, $5 par value.
Amendment Filed December 10, 1971
No change in Preferred or Preference Stock. Elimination of
preemptive rights on Common Stock.
Amendment Filed November 16, 1972
No change in Preferred or Preference Stock. Changing Common
Stock to 35,000,000 shares, $5 par value.
Amendment Filed May 21, 1975
No change in Common or Preferred Stock. Providing for issue
of a series of Preference Stock without par value, designated
"$9.56 preference stock," consisting of 500,000 shares.
Amended and Restated November 28, 1978
No change in Common or Preference Stock.
Elimination of $3 Preferred Stock.
Amendment Filed November 22, 1983
No change in Common or Preference Stock. Amended
Article Sixth of, and added Article Seventh to, the Certificate.
Amendments Filed November 15, 1984
No change in Preference Stock.
Changing Common Stock to 100,000,000 shares, $5 par value,
and authorizing 10,000,000 shares of Preferred Stock
without par value.
Added Article Eighth to the Certificate.
Principal Office in New Jersey:
The Corporation Trust Company
28 West State Street
Trenton, New Jersey 08608
General Offices:
321 N. Clark Street, Chicago, Illinois 60610
Amendment Filed May 5, 1986
No Change in Common or Preferred Stock.
Elimination of $9.56 Preference Stock.
Amendment Filed September 18, 1986
No change in Common or Preference Stock.
Provided for series of Preferred Stock without par value
designated "Series A Junior Participating Preferred Stock."
Amendment Filed November 12, 1986
No change in Preference or Preferred Stock.
Changing Common Stock to 200,000,000 shares, $5 par value.
Amendment Filed November 11, 1987
No change in Common, Preference or Preferred Stock.
Amended Certificate to add a new Article Ninth.
Amendment Filed November 9, 1988
No change in Common, Preference or Preferred Stock. Amended
Certificate to add a new Article Fourth, Paragraph C.
Amendment Filed June 19, 1989
No change in Common, Preference or Preferred Stock. Amended
Certificate to add a New Series B ESOP
Convertible Preferred Stock.
Amendment Filed January 13, 1993
No change in Common, Preference or Preferred Stock.
Amended Certificate to amend Article Eighth.
Amendment Filed November 9, 1994
No change in Preference or Preferred Stock.
Changing Common Stock to 400,000,000 shares, $5 par value.
Registered Office in New Jersey:
The Corporation Trust Company
820 Bear Tavern Road
West Trenton, NJ 08628
Amendment Filed September 11, 1996
No change in Common or Preference Stock.
Retired Series of Preferred without par value designated
"Series A Junior Participating Preferred Stock" and
provided for Series of Preferred Stock without par value
designated "Series C Junior Participating Preference Stock".
AMENDED
AND
RESTATED
CERTIFICATE OF INCORPORATION
OF
THE QUAKER OATS COMPANY
SEPTEMBER 11, 1996
Pursuant to the provisions of Section 14A:9-5 of the New Jersey Business
Corporation Act, The Quaker Oats Company, a corporation organized and existing
under the laws of the State of New Jersey, restates and integrates its
Certificate of Incorporation, as heretofore amended, to read in full as herein
set forth:
First. The name of the Corporation is: The Quaker Oats Company.
Second. The address of the Corporation's current registered office
is 820 Bear Tavern Road, West Trenton, New Jersey 08628. The name of the
Corporation's current registered agent at such address, upon whom process
against the Corporation may be served, is The Corporation Trust Company.
Third. The purposes for which the Corporation is organized are to
engage in any or all activities within the purposes for which corporations now
or at any time hereafter may be organized under the New Jersey Business
Corporation Act and under all amendments and supplements thereto, or any
revision thereof or any statute enacted to take the place thereof.
Fourth. The aggregate number of shares which the Corporation shall
have authority to issue is 411,000,000 shares divided into 400,000,000 shares
of common stock of the par value of $5.00 per share, 1,000,000 shares of
preference stock without par value and 10,000,000 shares of preferred stock
without par value.
The designations, rights, preferences, privileges and limitations of the
shares of common stock, shares of preference stock and shares of preferred
stock, and the manner of determining the designations, and number of series of
preference stock and preferred stock and the relative voting, dividend,
liquidation and other rights, preferences and limitations of each such series
are as follows:
A. Preference Stock
(1) The Board of Directors is hereby empowered to cause the preference
stock to be issued from time to time for such consideration as it may from time
to time fix, and to cause such preference stock to be issued in series with
variations as to:
(a) the rates of dividends payable thereon,
(b) the terms on which the same may be redeemed,
(c) the amount which may be paid to the holders thereof,
(d) the terms or amount of any sinking fund provided for the purchase or
redemption thereof, and
(e) the terms upon which the holders thereof may convert the same into
stock of any other class or classes or of any one or more series of the
same class or of another class or classes.
All shares of preference stock shall be identical in all respects except
as above provided; and shares of preference stock of any one series shall be
identical in all respects. If the stated dividends or the amounts payable in
any other distribution of assets on all shares of preference stock are not paid
in full, the holders of shares of all series of preference stock shall share
ratably in the payment of dividends, including arrearages, if any, and in any
amounts payable in any other distribution of assets in accordance with the sums
that would be payable on such shares if all dividends and distributions were
paid in full. The holders of each series of preference stock shall be entitled
to receive, when and as declared by the Board of Directors, dividends, payable
quarterly, at the rate designated by the Board of Directors in the resolution
providing for the issue of such series, and no more. Such dividends on each
series of preference stock shall be cumulative whether or not earned. No
dividends (other than dividends payable in common stock) shall be declared or
paid or set apart for payment on the common or preferred stock unless and until
dividends payable for all past quarterly dividend periods on the outstanding
shares of each series of preference stock shall have been paid, or declared and
set apart for payment, in full. The holders of each series of preference stock
shall be entitled to receive, in case of dissolution or any distribution of
assets in liquidation, the amount specified for payment in such case, as fixed
by the Board of Directors in the resolution providing for the issue of such
series, and no more. No payment or distribution shall be made in respect of
the common or preferred stock, in case of dissolution or any distribution of
assets in liquidation, unless and until the amount specified for payment in
such case to the holder of each series of preference stock shall have been paid
in full.
(2) The shares of each series of preference stock may be made subject to
redemption in whole or in part, at the option of the Corporation, at such time
or times and at such price or prices and upon such terms as may be prescribed
by the Board of Directors in the resolution providing for the issue of such
series. If less than all of the outstanding shares of any series of preference
stock are to be redeemed at a particular time, the shares of such series to be
so redeemed shall be chosen by lot or pro rata in such manner as the Board of
Directors may determine. The Corporation may create a sinking fund for the
purchase, redemption or retirement of any series of preference stock of such
amount or proportion of net profit and upon such terms as may be prescribed by
the Board of Directors in the resolution providing for the issue of such
series. Preference shares redeemed by the Corporation shall be retired by
resolution of the Board of Directors and shall not be reissued, and the
authorized stock and capital represented by such preference shares shall be
deemed to be reduced accordingly.
(3) The Board of Directors, with respect to each series of preference
stock, shall decide whether the stock of such series shall be convertible, and
if so shall designate in the resolution providing for the issue of such series
the terms upon which such stock may be converted into stock of any other series
of preference stock or into stock of any other class or classes. Upon the
conversion of shares of preference stock, the preference shares so converted
shall be deemed to be retired and shall not be reissued, and the authorized
stock and capital represented by such preference shares shall be deemed to be
reduced accordingly.
(4) Subject to the provisions of law and of this Certificate of
Incorporation as in effect from time to time, every holder of preference stock
of any series shall be entitled to one vote in person or by proxy for each
share of such stock held by him. If at any time the Corporation shall have
failed to pay, or declare and set apart for payment, dividends on all
outstanding shares of preference stock in an amount equal to six quarterly
dividends upon such shares, the number of directors of the Corporation shall be
increased by two at the first annual meeting of the shareholders of the
Corporation held thereafter; and at such meeting and at each subsequent annual
meeting until dividends payable for all past quarterly dividend periods on all
outstanding shares of preference stock shall have been paid, or declared and
set apart for payment, in full, the holders of the shares of preference stock
shall have the right, voting as a class, to elect such two additional members
of the Board of Directors to hold office for a term of one year and until their
successors are elected and qualified; provided, that the right to vote as a
class upon the election of such two additional directors shall not limit the
right of holders of preference stock to vote upon other matters when permitted
by other provisions of this Certificate. Upon such payment, or such
declaration and setting apart for payment, in full, the terms of the two
additional directors so elected shall forthwith terminate, and the number of
directors of the Corporation shall be reduced by two and such additional voting
right of the holders of shares of preference stock shall cease, subject to
increase in the number of directors as aforesaid and to revesting of such
voting right in the event of each and every additional failure in the payment
of dividends in an amount equal to six quarterly dividends as aforesaid. So
long as any shares of the preference stock shall be outstanding, the
Corporation shall not, without the affirmative vote of the holders of at least
two-thirds of the aggregate number of shares of preference stock then
outstanding, amend this Certificate to: (a) increase the authorized preference
stock of the Corporation; (b) authorize any new class of stock ranking equal to
or prior to the preference stock, either as to payment of dividends or
distribution of assets; (c) adversely change the rights, preferences or powers
of the preference stock with respect to dividends, voting, conversion,
liquidation or redemption.
(5) Shares of preference stock of any series shall not entitle any holder
thereof to any preemptive right to purchase or subscribe for any shares of that
or any other class.
B. Preferred Stock
(1) The Board of Directors is hereby empowered to cause the preferred
stock to be issued from time to time for such consideration as it may from time
to time fix, and to cause such preferred stock to be issued in series with
variations as to rights, preferences, privileges and limitations as designated
by the Board of Directors in the resolution providing for the issue of such
series, except that no series of preferred stock shall rank equal to or prior
to any of the preference stock, either as to payment of dividends or
distribution of assets. Shares of preferred stock of any one series shall be
identical in all respects.
(2) Subject to the priority of holders of the preference stock, the
holders of each series of preferred stock shall be entitled to receive
cumulative, noncumulative or partially cumulative dividends at the rate and on
the terms designated by the Board of Directors in the resolution providing for
the issue of such series, and no more. No dividends (other than dividends
payable in common stock) shall be declared or paid or set apart for payment on
the common stock unless and until all dividends payable on the outstanding
shares of each series of preferred stock shall have been paid, or declared and
set apart for payment, in full. Subject to the priority of holders of the
preference stock, the holders of each series of preferred stock shall be
entitled to receive, in case of dissolution or any distribution of assets in
liquidation, the amount specified for payment in such case, as fixed by the
Board of Directors in the resolution providing for the issue of such series,
and no more. No payment or distribution shall be made in respect of the common
stock, in case of dissolution or any distribution of assets in liquidation,
unless and until the amount specified for payment in such case to the holder of
each series of preferred stock shall have been paid in full.
(3) The shares of each series of preferred stock may be made subject to
redemption in whole or in part, at the option of the Corporation, at such time
or times and at such price or prices and upon such terms as may be prescribed
by the Board of Directors in the resolution providing for the issue of such
series. The Corporation may create a sinking fund for the purchase, redemption
or retirement of any series of preferred stock of such amount or proportion of
net profits and upon such terms as may be prescribed by the Board of Directors
in the resolution providing for the issue of such series. Preferred shares
redeemed by the Corporation shall be restored to the status of authorized but
unissued shares of preferred stock not constituting part of any series thereof,
unless the Board of Directors elects to retain such redeemed shares as Treasury
shares.
(4) The Board of Directors, with respect to each series of preferred
stock, shall decide whether the stock of such series shall be convertible, and
if so shall designate in the resolution providing for the issue of such series
the terms upon which such stock may be converted into stock of any other series
of preferred stock or into stock of any other class or classes. Upon the
conversion of shares of preferred stock, the preferred share so converted shall
be restored to the status of authorized but unissued shares.
(5) Subject to the provisions of law and of this Certificate of
Incorporation as in effect from time to time, the holders of preferred stock of
any series shall be entitled to such voting rights, limited voting rights, or
special or multiple voting rights as may be prescribed by the Board of
Directors in the resolution providing for the issue of such series.
(6) Shares of preferred stock of any series shall not entitle any holder
thereof to any preemptive right to purchase or subscribe for any shares of that
or any other class.
(7) The Board of Directors shall have all other powers and rights with
respect to the preferred stock which are not inconsistent with the New Jersey
Business Corporation Act or this Certificate of Incorporation as in effect from
time to time.
(8) The relative voting, dividend, liquidation and other rights,
preferences and limitations of the shares of the series of preferred stock
designated "Series C Junior Participating Preferred Stock" are as set forth in
the resolution of the Board of Directors contained in the document filed in the
office of the Secretary of State of New Jersey pursuant to which such series
was created, which resolution, marked "Exhibit A," is attached to this
Certificate of Incorporation and made a part hereof as if set forth in full.
(9) The relative voting, dividend liquidation and other rights,
preferences and limitations of the shares of the series of preferred stock
designated "Series B ESOP Convertible Preferred Stock" are as set forth in this
Paragraph Fourth B and in Exhibit B to this Restated Certificate of
Incorporation, which document has been filed with the Secretary of State of New
Jersey together with the resolution pursuant to which the series was created,
and which are both made a part hereof as if set forth in full.
C. Common Stock
The common stock shall be subject to the prior rights of the holders of
the preference stock and preferred stock as above declared. Subject to such
prior rights, the Board of Directors may declare and pay dividends out of funds
legally available therefor. In the event of the dissolution of the Corporation
or of a distribution of the assets or any portion thereof by way of return of
capital, the holders of the common stock shall, after the holders of the
preference stock and preferred stock have received the preferential amounts to
which they are entitled, be entitled to receive the balance of the assets of
the Corporation so distributed. Shares of common stock shall not entitle the
holder thereof to any preemptive right to purchase or subscribe of the shares
of that or any other class.
Fifth. The number of Directors constituting the Corporation's current
Board of Directors is 10. The names and business addresses of the persons
currently serving as said Directors are:
The Honorable Frank C. Carlucci
Chairman
The Carlyle Group
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2505
Mr. Silas S. Cathcart
Retired Chairman
Illinois Tool Works, Inc.
222 Wisconsin Ave.
Suite 103
Chicago, IL 60645
Mr. Kenneth I. Chenault
Vice Chairman
American Express Company
American Express Tower
40th Floor
World Financial Center
200 Vesey Street
New York, NY 10285-4000
Ms. Judy C. Lewent
Senior Vice President
& Chief Financial Officer
Merck & Co., Inc.
One Merck Drive
P.O. Box 100
Whitehouse Station, NJ 08889-0100
Mr. Vernon R. Loucks, Jr.
Chairman and Chief Executive Officer
Baxter International Inc.
One Baxter Parkway
Deerfield, IL 60015
Dr. Thomas C. MacAvoy
Paul M. Hammaker
Professor of Business Administration
Darden Graduate
School of Business Administration
University of Virginia
Charlottesville, VA 22906
Mr. Luther C. McKinney
Senior Vice President - Law
and Corporate Affairs
The Quaker Oats Company
Quaker Tower, 27-10
P.O. Box 049001
Chicago, IL 60604-9001
Dr. Walter J. Salmon
Stanley Roth Sr.
Professor of Retailing
Harvard Business School
Morgan Hall - Room 175
Soldiers Field Road
Boston, MA 02163
Mr. William D. Smithburg
Chairman, President and CEO
The Quaker Oats Company
Quaker Tower, 27-13
P.O. Box 049001
Chicago, IL 60604-9001
Mr. William L. Weiss
Chairman Emeritus
Ameritech Corporation
One First National Plaza
21 S. Clark Street
Suite 2530 C
Chicago, IL 60603-2006
Sixth. The business and affairs of the Corporation shall be managed by
a Board of Directors. The number of directors (exclusive of directors, if any,
elected by the holders of one or more classes of preference stock, voting
separately as a class pursuant to the provisions of the Certificate of
Incorporation applicable thereto) shall be not less than 6 or more than 24
directors, the exact number of directors to be determined from time to time by
resolution adopted by affirmative vote of a majority of the entire Board of
Directors. The directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as
possible, of one-third of the total number of directors constituting the entire
Board of Directors. At the 1983 Annual Meeting of Shareholders, Class I
directors shall be elected for a one-year term, Class II for a two-year term
and Class III directors for a three-year term. At each succeeding annual
meeting of shareholders beginning in 1984, successors to directors whose terms
expire at that annual meeting shall be of the same class as the directors they
succeed, and shall be elected for three-year terms. If the number of directors
is changed by resolution of the Board of Directors pursuant to this Article
Sixth, any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, but
in no case shall a decrease in the number of directors shorten the term of any
incumbent director.
A director shall hold office until the annual meeting for the year in
which his or her term expires and until his or her successor shall be elected
and shall qualify, subject, however, to prior death, resignation, retirement,
or removal from office. Any newly created directorship resulting from an
increase in the number of directors and any other vacancy on the Board of
Directors, however caused, may be filled by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director; provided
that if the number of directors is increased, not more than two such newly
created directorships may be filled by the directors in any period between
annual meetings of shareholders. Any director so elected to fill a vacancy
shall, without regard to the class in which such vacancy occurred, hold office
until the next succeeding annual meeting of shareholders and until his or her
successor shall have been elected and qualified. The term of a director elected
by shareholders to fill a newly created directorship or other vacancy shall
expire at the same time as the terms of the other directors of the class in
which the vacancy occurred.
Exclusive of directors, if any, elected by the holders of one or more
classes of preference stock, one or more or all the directors of the
Corporation may be removed for cause by the shareholders by the affirmative
vote of two-thirds of the votes cast by the holders of shares entitled to vote
at a meeting of shareholders for which proper notice of such proposed removal
has been given.
No person shall be eligible for election as a director at any annual or
special meeting of shareholders unless a written request that his or her name
be placed in nomination is received from a shareholder of record by the
Secretary of the Corporation not less than 30 days prior to the date fixed for
the meeting, together with the written consent of such person to serve as a
director. Where such a request for nomination and such consent have been
timely received, but such nominee is unable or declines to serve, the person
who placed the individual's name in nomination may request that an alternate
name be placed in nomination at the meeting.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preference stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of shareholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto. Directors so
elected shall not be divided into classes unless expressly provided by such
terms, and during the prescribed terms of office of such directors, the Board
of Directors shall consist of such directors in addition to the number of
directors determined as provided in the first paragraph of this Article Sixth.
Seventh. Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law), the Bylaws may be
amended, altered or repealed, and new Bylaws may be enacted, only by the
affirmative vote of the holders of not less that two-thirds of the outstanding
shares of capital stock of the Corporation or by a vote of not less than two-
thirds of the entire Board of Directors.
Eighth. The affirmative vote of the holders of two-thirds of all Voting
Shares (as defined herein) of the Corporation considered for the purposes of
this Article Eighth as one class, shall be required for the adoption or
authorization of any Combination as defined herein with any person if, as of
the record date for the determination of shareholders entitled to notice
thereof and to vote thereon, such person is an Interested Shareholder or an
affiliate of an Interested Shareholder; provided, that such two-thirds voting
requirement shall not be applicable if all of the conditions specified in
either of the following paragraphs (1) or (2) are met:
(1) If the Combination shall have been approved by a majority of the
Disinterested Directors (as defined herein) who were directors prior to the
time that such person became an Interested Shareholder, but only if the
Disinterested Directors were a majority of the Board of Directors before such
person became an Interested Shareholder.
(2) (a) The cash, or fair market value of other consideration
(determined by the experts provided for in Subparagraph (iii) below of this
Article Eighth), to be received per share in the Combination by holders of
common stock of the Corporation is not less than the greatest of:
(i) the highest per-share price (including brokerage commissions,
transfer taxes, and soliciting dealer's fees) paid during the preceding twelve
months by the Interested Shareholder in acquiring the beneficial ownership,
directly or indirectly, of any of its holdings of the common stock of the
Corporation. (In making this computation, appropriate adjustments shall be
made for any stock splits, stock dividends, stock combinations and other
similar events.);
(ii) the closing price per share of the common stock of the Corporation as
listed on the New York Stock Exchange on the business day immediately preceding
the date that the meeting of the shareholders of the Corporation is held for
the purpose of voting on the Combination;
(iii) a price that is approved as being fair to the holders of
outstanding common stock of the Corporation not owned by such Interested
Shareholder, as determined by at least two independent experts selected by at
least three Disinterested Directors. (This determination shall be based on the
value of the total Corporation in an arm's-length sale.) The Corporation shall
pay the reasonable fees and expenses associated with the retention of these
experts; and
(b) A proxy statement which complies with the requirements of the
Securities Exchange Act of 1934, as amended, shall be mailed to the holders of
common stock for the purpose of soliciting shareholder approval of such
Combination. The proxy statement shall contain (as exhibits or otherwise) the
entire opinions of the independent experts required by this Article Eighth.
The requirements of this Article Eighth are in addition to, and do not
supersede, amend, alter, change or eliminate any board approval, shareholder
vote or consent or other conditions required by the laws of New Jersey in
effect at the time a Combination is proposed.
The following definitions shall apply for the purposes of this Article Eighth:
A. "Combination" means a merger or consolidation of the Corporation or
any subsidiary of the Corporation with any other corporation, or the sale or
lease of all or a substantial part of the assets of the Corporation or any
subsidiary of the Corporation to any other person, or any other transaction
which has achieved substantially the same effect.
B. An "Interested Shareholder" is any person who owns ten percent or
more of the outstanding Voting Shares of the Corporation.
C. A "person" includes a natural person, corporation, partnership,
association, joint stock company, trust, unincorporated association or other
entity. When two or more persons act as a partnership, limited partnership,
syndicate, or other group for the purpose of acquiring, holding, voting, or
disposing of Voting Shares, they shall be deemed a single person for purposes
of this Article Eighth.
D. "Voting Shares" means the issued and outstanding shares of any class
of stock of the Corporation which is entitled to vote generally in the election
of directors.
E. Ownership of Voting Shares includes beneficial ownership. A
beneficial owner of Voting Shares includes any person who, directly or
indirectly, through any contract, options, warrants, convertible securities or
other contract rights to acquire Voting Shares, arrangement, understanding,
relationship or otherwise, has or shares (i) voting power, which includes the
power to vote, or to direct the voting of, the Voting Shares, or (ii)
investment power, which includes the power to dispose of, or to direct the
disposition of, the Voting Shares.
F. A "subsidiary" of the Corporation is any company a majority or more
of the voting securities of which is owned by the Corporation.
G. A "Disinterested Director" is a director of the Corporation who (i)
is not and never has been an officer or director of an Interested Shareholder
or any affiliate or associate of such Interested Shareholder and is not and has
not been for the past five years an employee of an Interested Shareholder or
any affiliate or associate of such Interested Shareholder; (ii) does not own
more than one percent or 10,000 shares, whichever is the lesser of any class of
equity securities of an Interested Shareholder or any affiliate or associate of
such Interested Shareholder; (iii) is not the settlor of any trust, and does
not serve as the trustee, executor or in a similar capacity for any trust or
estate, which owns more than one percent or 10,000 shares, whichever is the
lesser, of any class of equity securities of any Interested Shareholder or any
affiliate or associate of such Interested Shareholder; (iv) is not the relative
of any person or of the spouse of such person who could not be a Disinterested
Director because of any of the provisions of the clauses (i), (ii), or (iii)
above who has the same home as such person; (v) is not the spouse, brother,
sister, son, daughter, father or mother of any person who could not be a
Disinterested Director because of any of the provisions of clauses (i), (ii),
or (iii) above; and (vi) is not otherwise by reason of past, present or
anticipated circumstances unable to act solely in the interest of the
Corporation with respect to the Combination, provided that no officer or
employee of the Corporation shall be disqualified from being a Disinterested
Director solely by reason of being an officer or employee of the Corporation.
H. An "affiliate" of a specified person is a person who directly, or
indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, such specified person.
I. An "associate" of a specified person is (i) any person of which such
specified person is an officer or partner or is the owner of ten percent or
more of any class of equity securities, (ii) any trust or other estate in which
such specified person owns ten percent or more of the total beneficial interest
or as to which such specified person serves as trustee or in a similar
fiduciary capacity, (iii) any relative or spouse of such specified person, or
any relative of such spouse, who has the same home as such specified person,
(iv) any person who is a director or officer of such specified person or any
corporation which controls or is controlled by such specified person, or (v)
any other member or partner in a partnership, limited partnership, syndicate or
other group, formal or informal, of which such specified person is a member or
partner and which is acting together for the purpose of acquiring, holding or
disposing of securities of the Corporation.
Enforcement. The Board of Directors is specifically authorized to seek
equitable relief, including an injunction, to enforce the provisions of this
Article Eighth.
Amendment. No amendment to this Certificate of Incorporation shall amend,
alter, change or repeal any of the provisions of this Article Eighth unless
such amendment, in addition to receiving any shareholder vote or consent
required by the laws of the State of New Jersey in effect at the time, shall
receive the affirmative vote of the holders of two-thirds of all Voting Shares.
Ninth.
A. Limitation of Liability
To the full extent from time to time permitted by New Jersey law, no
director or officer of the Company shall be personally liable to the Company or
its shareholders for damages for breach of any duty owed to the Company or its
shareholders. Neither the amendment or repeal of this Article, nor the adoption
of any provision of this Certificate of Incorporation inconsistent with this
Article, shall eliminate or reduce the protection afforded by this Article to a
director or officer of the Company with respect to any matter which occurred,
or any cause of action, suit or claim which, but for this Article, would have
accrued or arisen, prior to such amendment, repeal or adoption.
B. Indemnification
(1) The Company shall indemnify any person who is or was a director,
officer, employee or agent of the Company or of any constituent corporation
absorbed by the Company in a consolidation or merger, and any person who is or
was a director, officer, trustee, employee or agent of any other corporation
(domestic or foreign) or of any partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise (whether or
not for profit), serving as such at the request of the Company or at the
request of any such constituent corporation, or the legal representative of any
such director, officer, trustee, employee or agent, against such person's
reasonable costs, disbursements and counsel fees and amounts paid or incurred
in satisfaction of settlements, judgments, fines and penalties in connection
with any pending, threatened or completed civil, criminal, administrative or
arbitrative action, suit or proceeding, whether brought in the right of the
Company or otherwise, and any appeal therein and any inquiry or investigation
which could lead to such action, suit or proceeding, to the fullest extent now
or hereafter permitted by New Jersey law.
(2) The Company shall pay expenses as they are incurred by any person
covered by this Article in connection with any proceeding, as defined above, in
advance of the final disposition of the proceeding to the fullest extent now or
hereafter permitted by New Jersey law.
(3) The foregoing indemnification and advancement of expenses shall not
be deemed exclusive of any other rights to which any person indemnified may be
entitled.
(4) The rights provided to any person under this Article Ninth shall be
enforceable against the Company by such person, who shall be presumed to have
relied upon it in serving or continuing to serve as a director or in any of the
other capacities set forth in this Article Ninth. No elimination of or
amendment to this Article Ninth shall deprive any person of rights hereunder
arising out of alleged or actual occurrences, acts or failures to act occurring
prior to notice to such person of such elimination or amendment.
Dated this 11th day of September, 1996
THE QUAKER OATS COMPANY
By
Vice President
(Name and full title)
EXHIBIT A
By resolution of the Board of Directors there is created a series of
preferred stock, no par value, of the Company (such preferred stock being
herein referred to as "Preferred Stock," which term shall include any
additional shares of preferred stock of the same class heretofore or hereafter
authorized to be issued by the Company), consisting of 4,000,000 shares, which
shall be identical in all respects to the preferred stock described in
Paragraph Fourth B of the Corporation's Certificate of Incorporation, with such
variations as may be contained in this Exhibit A, and hereby fixes the
designation and the voting powers, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, as follows:
Section 1. Designation and Amount. There shall be a series of
Preferred Stock of the Corporation which shall be designated as "Series C
Junior Participating Preferred Stock," no par value (hereinafter called "Series
C Preferred Stock"), and the number of shares constituting such series shall be
4,000,000. Such number of shares may be increased or decreased by resolution
of the Board of Directors and by the filing of a certificate pursuant to the
provisions of the Business Corporation Act of the State of New Jersey stating
that such increase or reduction has been so authorized; provided, however, that
no decrease shall reduce the number of shares of Series C Preferred Stock to a
number less than that of the shares then outstanding plus the number of shares
of Series C Preferred Stock issuable upon exercise of outstanding rights,
options or warrants or upon conversion of outstanding securities issued by the
Corporation.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the
shares of Series C Preferred Stock with respect to dividends, the holders of
shares of Series C Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash to holders of record on the last
business day of March, June, September and December in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series C Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a)
$1.00 or (b) subject to the provision for adjustment hereinafter set forth, 100
times the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock
(hereinafter defined) or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, par
value $5.00 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series C Preferred Stock. In the event the Corporation
shall at any time following July 31, 1996 (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount to which holders of shares of Series
C Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying each such amount
by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution on the
Series C Preferred Stock as provided in paragraph (A) above at the time it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock).
(C) No dividend or distribution (other than a dividend payable in
shares of Common Stock) shall be paid or payable to the holders of shares of
Common Stock unless, prior thereto, all accrued but unpaid dividends to the
date of such dividend or distribution shall have been paid to the holders of
shares of Series C Preferred Stock.
(D) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series C Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series C Preferred Stock,
unless the date of issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or unless the date
of issue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series C Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to accrue
and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of
Series C Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of holders
of shares of Series C Preferred Stock entitled to receive payment of a dividend
or distribution declared thereon, which record date shall be no more than 30
days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series C Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each one one-hundredth of a share of Series C Preferred Stock shall entitle the
holder thereof to one vote on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at any
time following July 31, 1996 (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the number of votes per share to which holders of shares of
Series C Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series C Preferred Stock and the holders of shares of Common Stock
and any other capital stock of the Corporation having general voting rights
shall vote together as one class on all matters submitted to a vote of
shareholders of the Corporation.
(C) (i) Whenever, at any time or times, dividends payable on any
share or shares of Series C Preferred Stock shall be in arrears in an amount
equal to at least six full quarterly dividends (whether or not declared and
whether or not consecutive), the holders of record of the outstanding Preferred
Stock shall have the exclusive right, voting separately as a single class, to
elect two directors of the Corporation at a special meeting of shareholders of
the Corporation or at the Corporation's next annual meeting of shareholders,
and at each subsequent annual meeting of shareholders, as provided below. At
elections for such directors, the holders of shares of Series C Preferred Stock
shall be entitled to cast one vote for each one one-hundredth of a share of
Series C Preferred Stock held.
(ii) Upon the vesting of such right of the holders of the
Preferred Stock, the maximum authorized number of members of the Board of
Directors shall automatically be increased by two and the two vacancies so
created shall be filled by vote of the holders of the outstanding Preferred
Stock as hereinafter set forth. A special meeting of the shareholders of the
Corporation then entitled to vote shall be called by the Chairman or the
President or the Secretary of the Corporation, if requested in writing by the
holders of record of not less than 10% of the Preferred Stock then outstanding.
At such special meeting, or, if no such special meeting shall have been called,
then at the next annual meeting of shareholders of the Corporation, the holders
of the shares of the Preferred Stock shall elect, voting as above provided, two
directors of the Corporation to fill the aforesaid vacancies created by the
automatic increase in the number of members of the Board of Directors. At any
and all such meetings for such election, the holders of a majority of the
outstanding shares of the Preferred Stock shall be necessary to constitute a
quorum for such election, whether present in person or by proxy, and such two
directors shall be elected by the vote of at least a plurality of shares held
by such shareholders present or represented at the meeting. Any director
elected by holders of shares of the Preferred Stock pursuant to this Section
may be removed at any annual or special meeting, by vote of a majority of the
shareholders voting as a class who elected such director, with or without
cause. In case any vacancy shall occur among the directors elected by the
holders of the Preferred Stock pursuant to this Section, such vacancy may be
filled by the remaining director so elected, or his successor then in office,
and the director so elected to fill such vacancy shall serve until the next
meeting of shareholders for the election of directors. After the holders of
the Preferred Stock shall have exercised their right to elect Directors in any
default period and during the continuance of such period, the number of
Directors shall not be further increased or decreased except by vote of the
holders of Preferred Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to or pari passu with the Series C Preferred
Stock.
(iii) The right of the holders of the Preferred Stock,
voting separately as a class, to elect two members of the Board of Directors of
the Corporation as aforesaid shall continue until, and only until, such time as
all arrears in dividends (whether or not declared) on the Preferred Stock shall
have been paid or declared and set apart for payment, at which time such right
shall terminate, except as herein or by law expressly provided, subject to
revesting in the event of each and every subsequent default of the character
above-mentioned. Upon any termination of the right of the holders of the
shares of the Preferred Stock as a class to vote for directors as herein
provided, the term of office of all directors then in office elected by the
holders of Preferred Stock pursuant to this Section shall terminate
immediately. Whenever the term of office of the directors elected by the
holders of the Preferred Stock pursuant to this Section shall terminate and the
special voting powers vested in the holders of the Preferred Stock pursuant to
this Section shall have expired, the maximum number of members of the Board of
Directors of the Corporation shall be such number as may be provided for in the
By-laws of the Corporation, irrespective of any increase made pursuant to the
provisions of this Section.
(D) Except as set forth herein, holders of Series C Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series C Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series C Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series C Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series C
Preferred Stock, except dividends paid ratably on the Series C Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are
then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series C Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series C Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series C Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series
or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series C Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued shares
of Preferred Stock and may be reissued as part of a new series of Preferred
Stock to be created by resolution or resolutions of the Board of Directors,
subject to the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any voluntary liquidation, dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series C Preferred Stock unless, prior thereto, the holders
of shares of Series C Preferred Stock shall have received $1.00 per share, plus
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment (the "Series C Liquidation
Preference"). Following the payment of the full amount of the Series C
Liquidation Preference, no additional distributions shall be made to the
holders of shares of Series C Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have received an amount per share (the
"Common Adjustment") equal to the quotient obtained by dividing (i) the Series
C Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph C below to reflect such events as stock splits, stock dividends
and recapitalizations with respect to the Common Stock) (such number in clause
(ii), the "Adjustment Number"). Following the payment of the full amount of
the Series C Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series C Preferred Stock and Common Stock, respectively,
holders of Series C Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio, on a per share basis, of the Adjustment Number to 1
with respect to such Preferred Stock and Common Stock, on a per share basis,
respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series C Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series C Preferred Stock, then such remaining
assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences.
(C) In the event the Corporation shall at any time following July
31, 1996 (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series C Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series C Preferred
Stock shall be adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 8. Redemption. The shares of a Series C Preferred Stock shall
not be redeemable by the Corporation. The preceding sentence shall not limit
the ability of the Corporation to purchase or otherwise deal in such shares of
stock to the extent permitted by law.
Section 9. Ranking. The Series C Preferred Stock shall rank junior to
all other series of the Corporation's preferred stock (whether with or without
par value) as to the payment of dividends and the distribution of assets,
unless the terms of any such series shall provide otherwise.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series C Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of a majority or more of the outstanding shares of Series C Preferred
Stock, voting separately as a class.
Section 11. Fractional Shares. Series C Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series C Preferred Stock.
EXHIBIT B
By unanimous written consent of the Board of Directors of The Quaker Oats
Company dated June 16, 1989, there is created a series of Preferred Stock
designated "Series B ESOP Convertible Preferred Stock" which shall be identical
in all respects to the preferred stock described in Paragraph Fourth 3 of the
Corporation's Restated Certificate of Incorporation, with such variations as
may be contained in the following description:
Section 1. Designation and Amount; Special Purpose Restricted Transfer
Issue.
(A) The shares of such series shall be designated as "Series B ESOP
Convertible Preferred Stock"("Series B Preferred Stock") and the number of
shares constituting such series shall be 1,750,000.
(B) Shares of Series B Preferred Stock shall be issued only to The
Northern Trust Company, as trustee (the "Trustee") of The 1989 Quaker Employee
Stock Ownership Trust under The Quaker Employee Stock Ownership Plan, as
amended (the "Plan"). All references to the holder of shares of Series B
Preferred Stock shall mean the Trustee or any successor or trustee under the
Plan. In the event of any transfer of record ownership of shares of Series B
Preferred Stock to any person other than any successor trustee under the Plan,
the shares of Series B Preferred Stock so transferred, upon such transfer and
without any further action by the Corporation or the holder thereof, shall be
automatically converted into shares of common stock of the Corporation (the
"Common Stock") pursuant to Section 5 hereof and no such transferee shall have
any of the voting powers, preferences and relative, participating, optional or
special rights ascribed to shares of Series B Preferred Stock hereunder but,
rather, only the powers and rights pertaining to the Common Stock into which
such shares of Series B Preferred Stock shall be so converted. In the event of
such a conversion, the transferee of the shares of Series B Preferred Stock
shall be treated for all purposes as the record holder of the shares of Common
Stock into which such shares of Series B Preferred Stock have been
automatically converted as of the date of such transfer. Certificates
representing shares of Series B Preferred Stock shall bear a legend to reflect
the foregoing provisions. Notwithstanding the foregoing provisions of this
paragraph (B) of Section 1, shares of Series B Preferred Stock (i) may be
converted into shares of Common Stock as provided by Section 5 hereof and the
shares of Common Stock issued upon such conversion may be transferred by the
holder thereof as permitted by law and (ii) shall be redeemable by the
Corporation upon the terms and conditions provided by Sections 6, 7 and 8
hereof.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any stock of the
Corporation ranking senior to the Series B Preferred Stock in respect of
dividends and subject to the provisions for adjustment hereinafter set forth,
the holders of shares of Series B Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available therefor, cumulative cash dividends ("Preferred Dividends") in an
amount per share equal to $5.46 per share per annum, and no more, payable
quarterly in arrears, one-fourth on each fifteenth day of January, April, July
and October of each year (each a "Dividend Payment Date") commencing on July
15, 1989, to holders of record at the start of business on such Dividend
Payment Date. In the event that any Dividend Payment Date shall fall on any
day other than a "Business Day" (as hereinafter defined), the dividend payment
due on such dividend Payment Date shall be paid on the Business Day immediately
succeeding such Dividend Payment Date. Preferred Dividends shall begin to
accrue on outstanding shares of Series B Preferred Stock from the date of
issuance of such shares of Series B Preferred Stock. Preferred Dividends shall
accrue on a daily basis, but Preferred Dividends accrued after issuance on the
shares of Series B Preferred Stock for any period less than a full quarterly
period between Dividend Payment Dates shall be computed on the basis of a 360-
day year of 30-day months. Accrued but unpaid Preferred Dividends shall
cumulate as of the Dividend Payment Date on which they first became payable,
but no interest shall accrue on accumulated but unpaid Preferred Dividends.
(B) So long as any shares of Series B Preferred Stock shall be
outstanding, no dividend shall be declared or paid or set apart for payment on
any other series of stock ranking on a parity with the Series B Preferred Stock
as to dividends, unless there shall also be or have been declared and paid or
set apart for payment on the Series B Preferred Stock dividends for all
dividend payment periods of the Series B Preferred Stock ending on or before
the dividend payment date of such parity stock, ratably in proportion to the
respective amounts of dividends accumulated and unpaid through such dividend
period on the Series B Preferred Stock and accumulated and unpaid on such
parity stock through the dividend payment period on such parity stock next
preceding such dividend payment date. In the event that full cumulative
dividends on the Series B Preferred Stock have not been declared and paid or
set apart for payment when due, the Corporation shall not declare or pay or set
apart for payment any dividends or make any other distributions on, or make any
payment on account of the purchase, redemption or other retirement of any other
class of stock or series thereof of the Corporation ranking, as to dividends or
as to distributions in the event of a liquidation, dissolution or winding-up of
the Corporation, junior to the Series B Preferred Stock until full cumulative
dividends on the Series B Preferred Stock shall have been paid or declared and
set apart for payment; provided, however, that the foregoing shall not apply to
(i) any dividend payable solely in any shares of any stock ranking, as to
dividends and as to distributions in the event of a liquidation, dissolution or
winding-up of the Corporation, junior to the Series B Preferred Stock or (ii)
the acquisition of shares of any stock ranking as to dividends or as to
distributions in the event of a liquidation, dissolution or winding-up of the
Corporation, junior to the Series B Preferred Stock in exchange solely for
shares of any other stock ranking, as to dividends and as to distributions in
the event of a liquidation, dissolution or winding-up of the Corporation junior
to the Series B Preferred Stock.
Section 3. Voting Rights. The holders of shares of Series B Preferred
Stock shall have the following voting rights:
(A) The holders of Series B Preferred Stock shall be entitled to
vote on all matters submitted to a vote of the stockholders of the Corporation,
voting together with the holders of Common Stock as one class. The holder of
each share of Series B Preferred Stock shall be entitled to a number of votes
equal to the number of shares of Common Stock into which such share of Series B
Preferred Stock could be converted on the record date for determining the
stockholders entitled to vote, rounded to the nearest one-tenth of a vote; it
being understood that whenever the "Conversion Price" (as defined in Section 5
hereof) is adjusted as provided in Section 9 hereof, the voting rights of the
Series B Preferred Stock shall also be similarly adjusted.
(B) Except as otherwise required by law or set forth herein, holders
of Series B Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for the taking of any
corporate action; provided, however, that the vote of at least 66-2/3% of the
outstanding shares of Series B Preferred Stock, voting separately as a series,
shall be necessary to adopt any alteration, amendment or repeal of any
provision of the Restated Certificate of Incorporation of the Corporation
(including any such alteration, amendment or repeal effected by any merger or
consolidation in which the Corporation is the surviving or resulting
corporation), if such amendment, alteration or repeal would alter or change the
powers, preferences, or special rights of the shares of Series B Preferred
stock so as to affect them adversely.
Section 4. Liquidation, Dissolution or Winding Up.
(A) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of Series B Preferred Stock shall be
entitled to receive out of assets of the Corporation which remain after
satisfaction in full of all valid claims of creditors of the Corporation and
which are available for payment to stockholders, and subject to the rights of
the holders of any stock of the Corporation ranking senior to or on a parity
with the Series B Preferred Stock in respect of distribution upon liquidation,
dissolution or winding up of the Corporation, before any amount shall be paid
or distributed among the holders of Common Stock or any other shares ranking
junior to the Series B Preferred Stock in respect of distributions upon
liquidation, dissolution or winding up of the Corporation, liquidating
distributions in the amount of $78.00 per share (the "Liquidation Preference"),
plus an amount equal to all accrued and unpaid dividends thereon to the date
fixed for distribution, and no more. If upon any liquidation, dissolution or
winding up of the Corporation, the amounts payable with respect to the Series B
Preferred Stock and any other Stock ranking as to any such distribution on a
parity with the Series B Preferred Stock are not paid in full, the holders of
the Series B Preferred Stock and such other stock shall share ratably in any
distribution of assets in proportion to the full respective preferential
amounts to which they are entitled. After payment of the full amount to which
they are entitled as provided by the foregoing provisions of this Section 4(A),
the holders of shares of Series B Preferred Stock shall not be entitled to any
further right or claim to any of the remaining assets of the Corporation.
(B) Neither the merger or consolidation of the Corporation with or
into any other corporation, nor the merger or consolidation of any other
corporation with or into the Corporation, nor the sale, lease, exchange or
other transfer of all or any portion of the assets of the Corporation, shall be
deemed to be a dissolution, liquidation or winding up of the affairs of the
Corporation for purposes of this Section 4, but the holders of Series B
Preferred Stock shall nevertheless be entitled in the event of any such merger
or consolidation to the rights provided by Section 8 hereof.
(C) Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, stating the payment date or dates
when, and the place or places where, the amounts distributable to holders of
Series B Preferred Stock in such circumstances shall be payable, shall be given
by first-class mail, postage prepaid, mailed not less than twenty (20) days
prior to any payment date stated therein, to the holders of Series B Preferred
Stock, at the address shown on the books of the Corporation or any transfer
agent for the Series B Preferred Stock.
Section 5. Conversion into Common Stock.
(A) A holder of shares of Series B Preferred Stock shall be
entitled, at any time prior to the close of business on the date fixed for
redemption of such shares pursuant to Sections 6, 7 and 8 hereof, to cause any
or all of such shares to be converted into shares of Common Stock, initially at
a conversion rate equal to the ratio of:
(i) $78.00; to
(ii) the amount which initially shall be $78.00, and which shall
be adjusted as hereinafter provided (and, as so adjusted,
rounded to the nearest ten-thousandth, is hereinafter
sometimes referred to as the "Conversion Price") (that
is, a conversion rate initially equivalent to one share of
Common Stock for each share of Series B Preferred Stock
so converted, which is subject to adjustment as the
Conversion Price is adjusted as hereinafter provided).
(B) Any holder of shares of Series B Preferred Stock desiring to
convert such shares into shares of Common Stock shall surrender the certificate
or certificates representing the shares of Series B Preferred Stock being
converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the transfer agent for
the Series B Preferred Stock or such office or offices in the continental
United States of an agent for conversion as may from time to time be designated
by notice to the holders of the Series B Preferred Stock by the Corporation or
the transfer agent for the Series B Preferred Stock, accompanied by written
notice of conversion. Such notice of conversion shall specify (i) the number
of shares of Series B Preferred Stock to be converted and the name or names in
which such holder wishes the certificate or certificates for Common Stock and
for any shares of Series B Preferred Stock not to be so converted to be issued
and (ii) the address to which such holder wishes delivery to be made of such
new certificates to be issued upon such conversion.
(C) Upon surrender of a certificate representing a share or shares
of Series B Preferred Stock for conversion, the Corporation shall issue and
send by hand delivery (with receipt to be acknowledged) or by first class mail,
postage prepaid, to the holder thereof or to such holder's designee, at the
address designated by such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled upon
conversion. In the event that there shall have been surrendered a certificate
or certificates representing shares of Series B Preferred Stock, only part of
which are to be converted, the Corporation shall issue and deliver to such
holder or such holder's designee a new certificate or certificates representing
the number of shares of Series B Preferred Stock which shall not have been
converted.
(D) The issuance by the Corporation of shares of Common Stock upon a
conversion of shares of Series B Preferred Stock into shares of Common Stock
made at the option of the holder thereof shall be effective as of the earlier
of (i) the delivery to such holder or such holder's designee of the
certificates representing the shares of Common Stock issued upon conversion
thereof or (ii) the commencement of business on the second business day after
the surrender of the certificate or certificates for the shares of Series B
Preferred Stock to be converted, duly assigned or endorsed for transfer to the
Corporation (or accompanied by duly executed stock powers relating thereto) as
provided by this Resolution. On and after the effective day of conversion, the
person or persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock, but no allowance or adjustment shall be made in
respect of dividends payable to holders of Common Stock in respect of any
period prior to such effective date. The Corporation shall not be obligated to
pay any dividends which shall have been declared and shall be payable to
holders of shares of Series B Preferred Stock on a Dividend Payment Date if
such Dividend Payment Date for such dividend is subsequent to the effective
date of conversion of such shares.
(E) The Corporation shall not be obligated to deliver to holders of
Series B Preferred Stock any fractional share of a share of Common Stock
issuable upon any conversion of such shares of Series B Preferred Stock, but in
lieu thereof may make a cash payment in respect thereof in any manner permitted
by law.
(F) The Corporation shall at all times reserve and keep available
out of its authorized and unissued Common Stock, solely for issuance upon the
conversion of shares of Series B Preferred Stock as herein provided, free from
any preemptive rights, such number of shares of Common Stock as shall from time
to time be issuable upon the conversion of all the shares of Series B Preferred
Stock then outstanding. Nothing contained herein shall preclude the
Corporation from issuing shares of Common Stock held in its treasury upon the
conversion of shares of Series B Preferred Stock into Common Stock pursuant to
the terms hereof. The Corporation shall prepare and shall use its best efforts
to obtain and keep in force such governmental or regulatory permits or other
authorizations as may be required by law, and shall comply with all
requirements as to registration or qualification of the Common Stock, in order
to enable the Corporation lawfully to issue and deliver to each holder of
record of Series B Preferred Stock such number of shares of its Common Stock as
shall from time to time be sufficient to effect the conversion of all shares of
Series B Preferred Stock then outstanding and convertible into shares of Common
Stock.
Section 6. Redemption At the Option of the Corporation.
(A) The Series B Preferred Stock shall be redeemable, in whole or in
part, at any time after the date of issuance, to the extent permitted by
paragraphs 6(D) and 8(C), at the following percentages of the Liquidation
Preference:
During the Twelve Percentage of
Month Period Liquidation
Beginning June 15 Preference
1989 107.0%
1990 106.3%
1991 105.6%
1992 104.9%
1993 104.2%
1994 103.5%
1995 102.8%
1996 102.1%
1997 101.4%
1998 100.7%
and thereafter at the Liquidation Preference, plus, in each case, an amount
equal to all accrued and unpaid dividends thereon to the date fixed for
redemption. Payment of the redemption price shall be made by the Corporation in
cash or shares of Common Stocks or a combination thereof, as permitted by
paragraph (E) of this Section 6. From and after the date fixed for redemption,
dividends on shares of Series B Preferred Stock called for redemption will
cease to accrue, such shares will no longer be deemed to be outstanding and all
rights in respect of such shares of the Corporation shall cease, except the
right to receive the redemption price. If less than all of the outstanding
shares of Series B Preferred Stock are to be redeemed, the Corporation shall
either redeem a portion of the shares of each holder determined pro rata based
on the number of shares held by each holder or shall select the shares to be
redeemed by lot, as may be determined by the Board of Directors of the
Corporation.
(B) Unless otherwise required by law, notice of any redemption
effected pursuant to Sections 6 or 7 hereof will be sent to the holders of
Series B Preferred Stock at the address shown on the books of the Corporation
or any transfer agent for the Series B Preferred Stock by first class mail,
postage prepaid, mailed not less than thirty (30) days nor more than sixty (60)
days prior to the redemption date. Each such notice shall state: (i) the
redemption date; (ii) the total number of shares of the Series B Preferred
stock to be redeemed and, if fewer than all the shares held by such holder are
to be redeemed, the number of such shares to be redeemed from such holder;
(iii) the redemption price; (iv) the place or places where certificates for
such shares are to be surrendered for conversion or payment of the redemption
price; (v) that dividends on the shares to be redeemed will cease to accrue on
such redemption date; and (vi) the conversion rights of the shares to be
redeemed, the period within which conversion rights may be exercised, and the
Conversion Price and number of shares of Common Stock issuable upon conversion
of a share of Series B Preferred Stock at the time. Upon surrender of the
certificate for any shares so called for redemption and not previously
converted (properly endorsed or assigned for transfer, if the Board of
Directors of the Corporation shall so require and the notice shall so state),
such shares shall be redeemed by the Corporation at the date fixed for
redemption and at the redemption price set forth in paragraph (A) of this
Section 6.
(C) In the event of a change in the federal tax law of the United
States of America which has the effect of precluding the Corporation from
claiming any of the tax deductions for dividends paid on the Series B Preferred
Stock when such dividends are used as provided under Section 404(k)(2) of the
Internal Revenue Code of 1986, as amended, as in effect on the date shares of
Series B Preferred Stock are initially issued, or if the Plan is determined by
the Internal Revenue Service not to be initially qualified within the meaning
of Sections 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986, as
amended, the Corporation may, in its sole discretion, and notwithstanding
anything to the contrary in paragraph (A) of this Section 6, within 60 days of
such event, elect to redeem any or all of such shares for the greater of (A)
the Fair Market Value of the shares of Series B Preferred Stock to be so
redeemed or (B) the amount payable in respect of the shares upon liquidation of
the Corporation pursuant to Section 4 hereof.
(D) In the event that the Plan is terminated in accordance with its
terms, and notwithstanding anything to the contrary in paragraph (A) of this
Section 6, the Corporation shall, as soon thereafter as practicable, call for
redemption all then outstanding shares of Series B Preferred Stock for an
amount equal to the greater of the Fair Market Value or the redemption price,
as calculated pursuant to Section 6(A). The Corporation shall give 30 Business
Days' notice to all record holders of Preferred Stock prior to any such
termination, provided, however, that the failure to give any such notice shall
not affect the validity of such corporate action.
(E) The Corporation, at its option, may make payment of the
redemption price required upon redemption of shares of Series B Preferred Stock
in cash or in shares of Common Stock or in a combination of such shares and
cash, any such shares of Common Stock to be valued for such purposes at their
Fair Market Value (as defined in paragraph (G) of Section 9 hereof).
Section 7. Other Redemption Rights.
Shares of Series B Preferred Stock shall be redeemed by the
Corporation for cash or, if the Corporation so elects, in shares of Common
Stock, or a combination of such shares and Cash, any such shares of Common
Stock to be valued for such purpose as provided by paragraph (E) of Section 6,
at the redemption price as set forth in the following sentence, at the option
of the holder at any time and from time to time upon notice to the Corporation
given not less than five (5) Business Days prior to the date fixed by the
holder in such notice for such redemption, upon certification by such holder to
the Corporation of the following events: (i) when and to the extent necessary
for such holder to provide for distributions required to be made to
participants under, or to satisfy an investment election provided to
participants in accordance with, the Plan, or any successor plan; (ii) when and
to the extent necessary for such holder to make any payments of principal,
interest or premium due and payable (whether as scheduled or upon acceleration)
under (a) the Loan Agreement between the Trustee and the lenders, (b) any
refinancing of or substitution for either of the foregoing; or (c) any other
indebtedness incurred by the holder for the benefit of the Plan; or ( iii ) in
the event that the Plan is not initially determined by the Internal Revenue
Service to be qualified within the meaning of Sections 401(a) and 4975(e) (7)
of the Internal Revenue Code of 1986, as amended. The redemption price for
shares of Series B Preferred Stock to be redeemed under this Section 7 shall be
equal to: (I) in the case of clause (i) next above, the Fair Market Value of
the shares of Series B Preferred Stock to be so redeemed; (II) in the case of
clause (ii) next above, the greater of (A) the Fair Market Value of the shares
of Series B Preferred Stock to be so redeemed or (B) the redemption price set
forth in paragraph (A) of Section 6 hereof; or (III) in the case of clause
(iii) next above, the greater of (A) the Fair Market Value of the shares of
Series B Preferred Stock to be so redeemed or (B) the amount payable in respect
of the shares upon liquidation of the Corporation pursuant to Section 4 hereof.
Section 8. Consolidation, Merger, etc.
(A) In the event that the Corporation shall consummate any
consolidation or merger or similar business combination, pursuant to which the
outstanding shares of Common Stock are by operation of law exchanged solely for
or changed, reclassified or converted solely into stock of any successor or
resulting corporation (including the Corporation) that constitutes "employer
securities" with respect to a holder of Series B Preferred Stock within the
meaning of Section 409(1) of the Internal Revenue Code of 1986, as amended. and
"qualifying employer securities" within the meaning of Section 407(d)(5) of the
Employee Retirement Income Security Act of 1974, as amended, or any successor
provisions of law, and, if applicable, for a cash payment in lieu of fractional
shares, if any, the shares of Series B Preferred Stock of such holder shall, in
connection with such consolidation, merger or similar business combination, be
converted into and exchanged for preferred stock of such successor or resulting
corporation, having in respect of such corporation, insofar as possible, the
same powers, preferences and relative, participating, optional or other special
rights (including the redemption rights provided by Sections 6, 7 and 8
hereof), and the qualifications, limitations or restrictions thereon, that the
Series B Preferred Stock had immediately prior to such transaction, except that
after such transaction each share of the Series B Preferred Stock shall be
convertible, otherwise on the terms and conditions provided by Section 5
hereof, into the number and kind of qualifying employer securities so
receivable by a holder of the number of shares of Common Stock into which such
shares of Series B Preferred Stock could have been converted immediately prior
to such transaction; provided, however, that if by virtue of the structure of
such transaction, a holder of Common Stock is required to make an election with
respect to the nature and kind of consideration to be received in such
transaction, which election cannot practicably be made by the holders of the
Series B Preferred Stock, then the shares of Series B Preferred Stock shall, by
virtue of such transaction and on the same terms as apply to the holders of
Common Stock, be converted into or exchanged for the aggregate amount of stock,
securities, cash or other property (payable in kind) receivable by a holder of
the number of shares of Common Stock into which such shares of Series B
Preferred Stock could have been converted immediately prior to such transaction
if such holder of Common Stock failed to exercise any rights of election to
receive any kind or amount of stock, securities, cash or other property (other
than such qualifying employer securities and a cash payment, if applicable, in
lieu of fractional shares) receivable upon such transaction (provided that, if
the kind or amount of qualifying employer securities receivable upon such
transaction is not the same for each nonelecting share, then the kind and
amount so receivable upon such transaction for each non-electing share shall be
the kind and amount so receivable per share by the plurality of the non-
electing shares). The rights of the Series B Preferred Stock as preferred stock
of such successor or resulting corporation shall successively be subject to
adjustments pursuant to Section 9 hereof after any such transaction as nearly
equivalent as practicable to the adjustment provided for by such section prior
to such transaction. The Corporation shall not consummate any such merger,
consolidation or similar transaction unless the successor or resulting
corporation shall have agreed to recognize and honor the rights of the holders
of shares of Series B Preferred Stock as set forth in this paragraph (A).
(B) In the event that the Corporation shall consummate any
consolidation or merger or similar business combination, pursuant to which the
outstanding shares of Common Stock are by operation of law exchanged for or
changed, reclassified or converted into other stock or securities or cash or
any other property, or any combination thereof, other than any such
consideration which is constituted solely of qualifying employer securities (as
referred to in paragraph (A) of this Section 8) and cash payments, if
applicable, in lieu of fractional shares, outstanding shares of Series B
Preferred Stock shall, without any action on the part of the Corporation or any
holder thereof (but subject to paragraph (C) of this Section 8), be deemed to
have been automatically converted immediately prior to the consummation of such
merger, consolidation or similar transaction into the number of shares of
Common Stock into which such shares of Series B Preferred Stock could have been
converted at such time so that each share of Series B Preferred Stock shall, by
virtue of such transaction and on the same terms as apply to the holders of
Common Stock, be converted into or exchanged for the aggregate amount of stock,
securities, cash or other property (payable in like kind) receivable by a
holder of the number of shares of Common Stock into which such shares of Series
B Preferred Stock could have been converted immediately prior to such
transaction; provided, however, that if by virtue of the structure of such
transaction, a holder of Common Stock is required to make an election with
respect to the nature and kind of consideration to be received in such
transaction. which election cannot practicably be made by the holders of the
Series B Preferred Stock, then the shares of Series B Preferred Stock shall, by
virtue of such transaction and on the same terms as apply to the holders of
Common Stock, be converted into or exchanged for the aggregate amount of stock,
securities, cash or other property (payable in kind) receivable by a holder of
the number of shares of Common Stock into which such shares of Series B
Preferred Stock could have been converted immediately prior to such transaction
if such holder of Common Stock failed to exercise any rights of election as to
the kind or amount of stock, securities, cash or other property receivable upon
such transaction (provided that, if the kind or amount of stock, securities,
cash or other property receivable upon such transaction is not the same for
each non-electing share, then the kind and amount of stock, securities, cash or
other property receivable upon such transaction for each non-electing share
shall be the kind and amount so receivable per share by a plurality of the non-
electing shares).
(C) In the event the Corporation shall enter into any agreement
providing for any consolidation or merger or similar business combination
described in paragraph (3) of this Section 8, then the Corporation shall as
soon as practicable thereafter (and in any event at least 10 Business Days
before the closing of such transaction) give notice of such agreement and the
material terms thereof to each holder of Series B Preferred Stock and each such
holder shall have the right to elect, by written notice to the Corporation, to
receive, upon consummation of such transaction (if and when such transaction is
consummated), from the Corporation or the successor of the Corporation, in
redemption and retirement of such Series B Preferred Stock, a cash payment
equal to the higher of the redemption price as determined in accordance with
paragraph 6(A) or the Fair Market Value of shares of Series B Preferred Stock.
No such notice of redemption shall be effective unless given to the Corporation
prior to the close of business on the second Business Day prior to the closing
of such transaction, unless the Corporation or the successor of the Corporation
shall waive such prior notice, but any notice of redemption so given prior to
such time may be withdrawn by notice of withdrawal given to the Corporation
prior to the close of business on the second Business Day prior to the closing
of such transaction.
Section 9. Anti-dilution Adjustments.
(A) In the event the Corporation shall, at any time or from time to
time while any of the shares of the Series B Preferred Stock are outstanding,
(i) pay a dividend or make a distribution in respect of the Common Stock in
shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock,
or (iii) combine the outstanding shares of Common Stock into a smaller number
of shares, in each case whether by reclassification of shares, recapitalization
of the Corporation (including a recapitalization effected by a merger or
consolidation to which Section B hereof does not apply) or otherwise, the
Conversion Price in effect immediately prior to such action shall be adjusted
by multiplying such Conversion Price by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately before such event,
and the denominator of which is the number of shares of Common Stock
outstanding immediately after such event. An adjustment made pursuant to this
paragraph 9(A) shall be given effect, upon payment of such a dividend or
distribution, as of the record date for the determination of stockholders
entitled to receive such dividend or distribution (on a retroactive basis) and
in the case of a subdivision or combination shall become effective immediately
as of the effective date thereof.
(B) In the event that the Corporation shall, at any time or from
time to time while any of the shares of Series B Preferred Stock are
outstanding, issue to holders of shares of Common Stock as a dividend or
distribution, including by way of a reclassification of shares or a
recapitalization of the Corporation, any right or warrant to purchase shares of
Common Stock (but not including as such a right or warrant (i) any security
convertible into or exchangeable for shares of Common Stock and (ii) any rights
issued pursuant to the Rights Agreement dated as of May 8, 1996 between the
Corporation and Harris Trust & Savings Bank, as the same may be amended from
time to time) at a purchase price per share less than the Fair Market Value (as
hereinafter defined) of a share of Common Stock on the date of issuance of such
right or warrant, then, subject to the provisions of paragraphs (E) and (F) of
this Section 9, the Conversion Price shall be adjusted by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately before such issuance of rights
or warrants plus the number of shares of Common Stock which could be purchased
at the Fair Market Value of a share of Common Stock at the time of such
issuance for the maximum aggregate consideration payable upon exercise in full
of all such rights or warrants, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately before such issuance
of rights or warrants plus the maximum number of shares of Common Stock that
could be acquired upon exercise in full of all such rights and warrants.
(C) In the event the Corporation shall, at any time or from time to
time while any of the shares of Series B Preferred Stock are outstanding,
issue, sell or exchange shares of Common Stock (other than pursuant to (i) any
right or warrant to purchase or acquire shares of Common Stock for which
adjustment has been made pursuant to paragraph (B) of this Section 9 (including
as such a right or warrant any security convertible into or exchangeable for
shares of Common Stock) and (ii) any employee or director incentive or benefit
plan or arrangement, including any employment, severance or consulting
agreement, of the Corporation or any subsidiary of the Corporation heretofore
or hereafter adopted) for a consideration having a Fair Market Value, on the
date of such issuance, sale or exchange, less than the Fair Market Value of
such shares on the date of issuance, sale or exchange, then, subject to the
provisions of paragraphs (E) and (F) of this Section 9, the Conversion Price
shall be adjusted by multiplying such Conversion Price by a fraction, the
numerator of which shall be the sum of (i) the Fair Market Value of all the
shares of Common Stock outstanding on the day immediately preceding the first
public announcement of such issuance, sale or exchange plus (ii) the Fair
Market Value of the consideration received by the Corporation in respect of
such issuance, sale or exchange of shares of Common Stock, and the denominator
of which shall be the product of (a) the Fair Market Value of a share of Common
Stock on the day immediately preceding the first public announcement of such
issuance, sale or exchange multiplied by (b) the sum of the number of shares of
Common Stock outstanding on such day plus the number of shares of Common Stock
so issued, sold or exchanged by the Corporation. In the event the Corporation
shall, at any time or from time to time while any shares of Series B Preferred
Stock are outstanding, issue, sell or exchange any right or warrant to purchase
or acquire shares of Common Stock (including as such a right or warrant any
security convertible into or exchangeable for shares of Common Stock), other
than any such issuance to holders of shares of Common Stock as a dividend or
distribution (including by way of a reclassification of shares or a
recapitalization of the corporation) and other than pursuant to any employee or
director incentive or benefit plan or arrangement (including any employment,
severance or consulting agreement) of the Corporation or any subsidiary of the
Corporation heretofore or hereafter adopted, for a consideration having a Fair
Market Value, on the date of such issuance, sale or exchange, less than the Non-
Dilutive Amount (as hereinafter defined), then, subject to the provisions of
paragraphs (E) and (F) of this Section 9, the Conversion Price shall be
adjusted by multiplying such Conversion Price by a fraction the numerator of
which shall be the sum of (I) the Fair Market Value of all the shares of Common
Stock outstanding on the day immediately preceding the first public
announcement of such issuance, sale or exchange plus (II) the Fair Market Value
of the consideration received by the Corporation in respect of such issuance,
sale or exchange of such right or warrant plus (III) the Fair Market Value at
the time of such issuance of the consideration which the Corporation would
receive upon exercise in full of all such rights or warrants, and the
denominator of which shall be the product of (i) the Fair Market Value of a
share of Common Stock on the day immediately preceding the first public
announcement of such issuance, sale or exchange multiplied by (ii) the sum of
the number of shares of Common Stock outstanding on such day plus the maximum
number of shares of Common Stock which could be acquired pursuant to such right
or warrant at the time of the issuance, sale or exchange of such right or
warrant (assuming shares of Common Stock could be acquired pursuant to such
right or warrant at such time).
(D) In the event the Corporation shall, at any time or from time to
time while any of the shares of Series B Preferred Stock are outstanding, make
an Extraordinary Distribution (as hereinafter defined) in respect of the Common
Stock, whether by dividend, distribution, reclassification of shares or
recapitalization of the Corporation (including a recapitalization or
reclassification effected by a merger or consolidation to which Section 8
hereof does not apply) or effect a Pro Rata Repurchase (as hereinafter defined)
of Common Stock, the Conversion Price in effect immediately prior to such
Extraordinary Distribution or Pro Rata Repurchase shall, subject to paragraphs
(E) and (F) of this Section 9, be adjusted by multiplying such Conversion Price
by the fraction the numerator of which is (i) the Fair Market Value of all the
shares of Common Stock outstanding on the day before the ex-dividend date with
respect to an Extraordinary Distribution which is paid in cash and on the
distribution date with respect to an Extraordinary Distribution which is paid
other than in cash, or on the applicable expiration date (including all
extensions thereof) of any tender offer which is a Pro Rata Repurchase, or on
the date of purchase with respect to any Pro Rata Repurchase which is not a
tender offer, as the case may be, minus (ii) the Fair Market Value of the
Extraordinary Distribution or the aggregate purchase price of the Pro Rata
Repurchase, as the case may be, and the denominator of which shall be the
product of (a) the number of shares of Common Stock outstanding immediately
before such Extraordinary Distribution or Pro Rata Repurchase minus, in the
case of a Pro Rata Repurchase, the number of shares of Common Stock repurchased
by the Corporation multiplied by (b) the Fair Market Value of a share of Common
Stock on the day before the exdividend date with respect to an Extraordinary
Distribution which is paid in cash and on the distribution date with respect to
an Extraordinary Distribution which is paid other than in cash, or on the
applicable expiration date (including all extensions thereof) of any tender
offer which is a Pro Rata Repurchase or on the date of purchase with respect to
any Pro Rata Repurchase which is not a tender offer, as the case may be. The
Corporation shall send each holder of Series B Preferred Stock (i) notice of
its intent to make any dividend or distribution and (ii) notice of any offer by
the Corporation to make a Pro Rata Repurchase, in each case at the same time
as, or as soon as practicable after, such offer is first communicated
(including by announcement of a record date in accordance with the rules of any
stock exchange on which the Common Stock is listed or admitted to trading) to
holders of Common Stock. Such notice shall indicate the intended record date
and the amount and nature of such dividend or distribution, or the number of
shares subject to such offer for a Pro Rata Repurchase and the purchase price
payable by the Corporation pursuant to such offer, as well as the Conversion
Price and the number of shares of Common Stock into which a share of Series B
Preferred Stock may be converted at such time.
(E) Notwithstanding any other provisions of this Section 9, the
Corporation shall not be required to make any adjustment to the Conversion
Price unless such adjustment would require an increase or decrease of at least
one percent (1%) in the Conversion Price. Any lesser adjustment shall be
carried forward and shall be made no later than the time of, and together with,
the next subsequent adjustment which, together with any adjustment or
adjustments so carried forward, shall amount to an increase or decrease of at
least one percent (1%) in the Conversion Price.
(F) If the Corporation shall make any dividend or distribution on
the Common Stock or issue any Common Stock, other capital stock or other
security of the Corporation or any rights or warrants to purchase or acquire
any such security, which transaction does not result in an adjustment to the
Conversion Price pursuant to the foregoing provisions of this Section 9, the
Board of Directors of the Corporation shall consider whether such action is of
such a nature that an adjustment to the Conversion Price should equitably be
made in respect of such transaction. If in such case the Board of Directors of
the Corporation determines that an adjustment to the Conversion Price should be
made, an adjustment shall be made effective as of such date, as determined by
the Board of Directors of the Corporation (which adjustment shall in no event
adversely affect the powers, preferences, or special rights of this Series B
Preferred Stock as set forth herein). The determination of the Board of
Directors of the Corporation as to whether an adjustment to the Conversion
Price should be made pursuant to the foregoing provisions of this paragraph
9(F), and, if so, as to what adjustment should be made and when, shall be final
and binding on the Corporation and all stockholders of the Corporation. The
Corporation shall be entitled to make such additional adjustments in the
Conversion Price, in addition to those required by the foregoing provisions of
this Section 9, as shall be necessary in order that any dividend or
distribution in shares of capital stock of the Corporation, subdivision,
reclassification or combination of shares of stock of the Corporation or any
recapitalization of the Corporation shall not be taxable to the holders of the
Common Stock.
(G) For purposes of this Resolution, the following definitions
shall apply:
"Business Day" shall mean each day that is not a Saturday,
Sunday or a day on which state or federally chartered banking institutions in
Chicago, Illinois or New York, New York are not required to be open.
"Current Market Price" of publicly traded shares of Common Stock
or any other class of capital stock or other security of the Corporation or any
other issuer for any day shall mean the last reported sales price, regular way,
or, in the event that no sale takes place on such day, the average of the
reported closing bid and asked prices, regular way, in either case as reported
on the New York Stock Exchange Composite Tape or, if such security is not
listed or admitted to trading on the New York Stock Exchange on the principal
national securities exchange on which such security is listed or admitted to
trading or, if not listed or admitted to trading on any national securities
exchange, on the NASDAQ National Market System or, if such security is not
quoted on such National Market System, the average of the closing bid and asked
prices on each such day in the over-the-counter market as reported by NASDAQ
or, if bid and asked prices for such security on each such day shall not have
been reported through NASDAQ, the average of the bid and asked prices for such
day as furnished by any New York Stock Exchange member firm regularly making a
market in such security selected for such purpose by the Board of Directors of
the Corporation or a committee thereof, in each case, on each trading day
during the Adjustment Period. "Adjustment Period" shall mean the period of
five (5) consecutive trading days preceding, and including, the date as of
which the Fair Market Value of a security is to be determined.
"Extraordinary Distribution" shall mean any dividend or other
distribution to holders of Common Stock (effected while any of the shares of
Series B Preferred Stock are outstanding) (i) of cash, where the aggregate
amount of such cash dividend or distribution together with the amount of all
cash dividends and distributions made during the preceding period of 12 months,
when combined with the aggregate amount of all Pro Rata Repurchases (for this
purpose, including only that portion of the aggregate purchase price of such Pro
Rata Repurchase which is in excess of the Fair Market Value of the Common Stock
repurchased as determined on the applicable expiration date (including all
extensions thereof) of any tender offer or exchange offer which is a Pro Rata
Repurchase, or the date of purchase with respect to any other Pro Rata
Repurchase which is not a tender offer or exchange offer made during such
period), exceeds 12 1/2% of the aggregate Fair Market Value of all shares of
Common Stock outstanding on the day before the ex-dividend date with respect to
such Extraordinary Distribution which is paid in cash and on the distribution
date with respect to an Extraordinary Distribution which is paid other than in
cash, and/or (ii) of any shares of capital stock of the Corporation (other than
shares of Common Stock), other securities of the Corporation (other than the
securities of the type referred to in paragraph (B) or (C) of this Section 9),
evidences of indebtedness of the Corporation or any other person or any other
property (including shares of any subsidiary of the Corporation) or any
combination thereof. The Fair Market Value of an Extraordinary Distribution for
purposes of paragraph (D) of this Section 9 shall be equal to the sum of the
Fair Market Value of such Extraordinary Distribution plus the amount of any cash
dividends which are not Extraordinary Distributions made during such 12-month
period and not previously included in the calculation of an adjustment pursuant
to paragraph (D) of this Section 9.
"Fair Market Value" shall mean the amount of cash received or,
as to shares of Common Stock or any other class of capital stock or securities
of the Corporation or any other issuer which are publicly traded, the average
of the Current Market Prices of such shares or securities for each day of the
Adjustment Period. The "Fair Market Value" of any security which is not
publicly traded or of any other property shall mean the fair value thereof as
determined by an independent commercial or investment banking or appraisal firm
experienced in the valuation of such securities or property selected in good
faith by the Board of Directors of the Corporation or a committee thereof, or,
if no such commercial or investment banking or appraisal firm is in the good
faith judgment of the Board of Directors or such committee available to make
such determination, as determined in good faith by the Board of Directors of
the Corporation or such committee.
"Non-Dilutive Amount" in respect of an issuance, sale or
exchange by the Corporation of any right or warrant to purchase or acquire
shares of Common Stock (including any security convertible into or exchangeable
for shares of Common Stock) shall mean the remainder of (i) the product of the
Fair Market Value of a share of Common Stock on the day preceding the first
public announcement of such issuance, sale or exchange multiplied by the
maximum number of shares of Common Stock which could be acquired on such date
upon the exercise in full of such rights and warrants (including upon the
conversion or exchange of all such convertible or exchangeable securities),
whether or not exercisable (or convertible or exchangeable) at such date, minus
(ii) the aggregate amount payable pursuant to such right or warrant to purchase
or acquire such maximum number of shares of Common Stock; provided, however,
that in no event shall the Non-Dilutive Amount be less than zero. For purposes
of the foregoing sentence, in the case of a security convertible into or
exchangeable for shares of Common Stock, the amount payable pursuant to a right
or warrant to purchase or acquire shares of Common Stock shall be the Fair
Market Value of such security on the date of the issuance, sale or exchange of
such security by the Corporation.
"Pro Rata Repurchase" shall mean any purchase of shares of
Common Stock by the Corporation or any subsidiary thereof, whether for cash,
shares of capital stock of the Corporation, other securities of the
Corporation, evidences of indebtedness of the Corporation or any other person
or any other property (including shares of a subsidiary of the Corporation), or
any combination thereof, effected while any of the shares of Series B Preferred
Stock are outstanding, pursuant to any tender offer or exchange offer subject
to Section 13(e) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any successor provision of law, or pursuant to any other
offer available to substantially all holders of Common Stock; provided,
however, that no purchase of shares by the Corporation, or any subsidiary
thereof made in open market transactions shall be deemed a Pro Rata Repurchase.
For purposes of this paragraph 9(G), shares shall be deemed to have been
purchased by the Corporation or any subsidiary thereof "in open market
transactions" if they have been purchased substantially in accordance with the
requirements of Rule lOb-18 as such rule is in effect under the Exchange Act on
the date shares of Series B Preferred Stock are initially issued by the
Corporation, or on such other terms and conditions as the Board of Directors of
the Corporation or a committee thereof shall have determined are reasonably
designed to prevent such purchases from having a material effect on the trading
market for the Common Stock.
(H) Whenever an adjustment to the Conversion Price and the related
voting rights of the Series B Preferred Stock is required, the Corporation
shall forthwith place on file with the transfer agent(s) for the Common Stock
and for the Series B Preferred Stock, if any, and with the Secretary of the
Corporation, a statement signed by two officers of the Corporation stating the
adjusted Conversion Price determined as provided herein, and the resulting
conversion ratio, and the voting rights (as appropriately adjusted), of the
Series B Preferred Stock. Such statement shall set forth in reasonable detail
such facts as shall be necessary to show the reason for and the manner of
computing such adjustment, including any determination of Fair Market Value
involved in such computation. Promptly after each adjustment to the Conversion
Price and the related voting rights of the Series B Preferred Stock, the
Corporation shall mail a notice thereof and of the then prevailing conversion
rate to each holder of shares of the Series B Preferred Stock.
Section 10. Ranking; Retirement of Shares.
(A) The Series B Preferred Stock shall rank senior to the Series A
Junior Participating Preferred Stock and the Common Stock as to the payment of
dividends and the distribution of assets on liquidation, dissolution and
winding up of the Corporation, and, unless otherwise provided in the Restated
Certificate of Incorporation of the Corporation, as the same may be amended,
the Series B Preferred Stock shall rank pari passu with all future series of
the Corporation's Preferred Stock as to the payment of dividends and the
distribution of assets on liquidation, dissolution or winding up.
(B) Any shares of Series B Preferred Stock acquired by the
Corporation by reason of the conversion or redemption of such shares, or
otherwise so acquired, shall be restored to the status of authorized but
unissued shares of Preferred Stock, with no par value per share, of the
Corporation, undesignated as to series, and may thereafter be reissued as part
of a new or existing series of such Preferred Stock as permitted by law.
Section 11. Miscellaneous.
(A) All notices referred to herein shall be in writing, and all
notices hereunder shall be deemed to have been given upon the earlier of
receipt thereof or three (3) Business Days after the mailing thereof if sent by
registered mail (unless first-class mail shall be specifically permitted for
such notice elsewhere herein) with postage prepaid, addressed: (i) if to the
Corporation, to its office at P.O. Box 049001, Chicago, Illinois 60604-9001
(Attention: Secretary), or to the transfer agent for the Series B Preferred
Stock, or other agent of the Corporation designated as permitted herein or (ii)
if to any holder of the Series B Preferred Stock or Common Stock, as the case
may be, to such holder at the address of such holder as listed in the stock
record books of the Corporation (which may include the records of any transfer
agent for the Series B Preferred Stock or Common Stock, as the case may be) or
(iii) to such other address as the Corporation or any such holder, as the case
may be, shall have designated by notice similarly given.
(B) The Corporation shall give 15 Business Days' notice to all
record holders of Series B ESOP Convertible Preferred Stock prior to the record
date to be established with respect to any Extraordinary Event, setting forth
the material provisions relating to such Extraordinary Event, provided,
however, that the failure to give any such notice shall not affect the validity
of any such corporate action.
"Extraordinary Event" as used herein means (i) any non-cash
dividend payable with respect to the Common Stock, (ii); any cash dividend in
an amount exceeding 10% of the Conversion Price on the date the dividend is
declared, (iii) any recapitalization, reclassification, consolidation, merger
or similar event as a result of which shares of Common Stock are converted into
or exchanged for any other securities or property, (iv) any sale of all or
substantially all of the assets of the Corporation, or (v) the adoption of any
repurchase program under which the Corporation may purchase more than 15% of
the Corporation's then outstanding Common Stock.
(C) The term "Common Stock" as used in this Resolution means the
Corporation's Common Stock, par value $5.00 per share (as the same exists at
the date of amendment of the Restated Certificate of Incorporation of the
Corporation in respect of the Series B Preferred Stock), or any other class of
stock resulting from successive changes or reclassifications of such Common
Stock consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value. In the event that, at any time as a
result of an adjustment made pursuant to Section 9 hereof, the holder of any
share of the Series B Preferred Stock upon thereafter surrendering such shares
for conversion, shall become entitled to receive any shares or other securities
of the Corporation other than shares of Common Stock, the Conversion Prize in
respect of such other shares or securities so receivable upon conversion of
shares of Series B Preferred Stock shall thereafter be adjusted, and shall be
subject to further adjustment from time to time, in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to Common Stock
contained in Section 9 hereof, and the provisions of Sections 1 through 8, 10
and 11 hereof with respect to the Common Stock shall apply on like or similar
terms to any such other shares or securities.
(D) The Corporation shall pay any and all stock transfer and
documentary stamp taxes that may be payable in respect of any issuance or
delivery of shares of Series B Preferred Stock or shares of Common Stock or
other securities issued on account of Series B Preferred Stock pursuant hereto
or certificates representing such shares or securities. The Corporation shall
not, however, be required to pay any such tax which may be payable in respect
of any transfer involved in the issuance or delivery of shares of Series B
Preferred Stock or Common Stock or other securities in a name other than that
in which the shares of Series B Preferred Stock with respect to which such
shares or other securities are issued or delivered were registered, or in
respect of any payment to any person with respect to any such shares or
securities other than a payment to the registered holder thereof, and shall not
be required to make any such issuance, delivery or payment unless and until the
person otherwise entitled to such issuance, delivery or payment has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid or is not payable.
(E) In the event that a holder of shares of Series B Preferred Stock
shall not by written notice designate the name in which shares of Common Stock
to be issued upon conversion of such shares should be registered or to whom
payment upon redemption of shares of Series B Preferred Stock should be made or
the address to which the certificate or certificates representing such shares,
or such payment, should be sent, the Corporation shall be entitled to register
such shares, and make such payment, in the name of the holder of such Series B
Preferred Stock as shown on the records of the Corporation and to send the
certificate or certificates representing such shares, or such payment, to the
address of such holder shown on the records of the Corporation.
(F) Unless otherwise provided in the Restated Certificate of
Incorporation, as the same may be amended, of the Corporation, all payments in
the form of dividends, distributions on voluntary or involuntary dissolution,
liquidation or winding up or otherwise made upon the shares of Series B
Preferred Stock and any other stock ranking on a parity with the Series B
Preferred Stock with respect to such dividend or distribution shall be pro
rata, so that amounts paid per share on the Series B Preferred Stock and such
other stock shall in all cases bear to each other the same ratio that the
required dividends, distributions or payments, as the case may be, then payable
per share on the shares of the Series B Preferred Stock and such other stock
bear to each other.
(G) The Corporation may appoint, and from time to time discharge and
change, a transfer agent for the Series B Preferred Stock. Upon any such
appointment or discharge of a transfer agent, the Corporation shall send notice
thereof by first-class mail, postage prepaid, to each holder of record of
Series B Preferred Stock.
Exhibit 3(b)
B Y L A W S
OF
THE QUAKER OATS COMPANY
AS AMENDED - NOVEMBER 13, 1996
EFFECTIVE - NOVEMBER 13, 1996
B Y L A W S
OF
THE QUAKER OATS COMPANY
CORPORATE OFFICES AND SEAL
Bylaw 1 - The principal and registered office of this Corporation shall be
at 820 Bear Tavern Road, West Trenton, Mercer County, New Jersey.
Bylaw 2 - The Corporation shall also have and maintain a general office
and place of business at the City of Chicago in the State of Illinois, where it
may keep all books, records, documents, and papers; it may also establish
offices in such other states and foreign countries as the board shall from time
to time determine.
Bylaw 3 - The Corporate Seal shall have inscribed thereon the name of the
Corporation, the state of its organization, and the words "Corporate Seal."
CAPITAL STOCK AND TRANSFERS THEREOF
Bylaw 4 - Certificates of stock in the Corporation shall be in the form
adopted by the board, and be consecutively numbered; they shall be signed by
the Chairman of the Board of Directors, the President or a Vice President and
either the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary, whose signatures may be facsimiles. The names of the
owners of such shares, the dates of issue, and the certificate numbers thereof
shall be entered upon the Corporation's books. The board shall appoint one or
more transfer agents, and also one or more registrars of transfers, outside of
the State of New Jersey, and shall require all valid certificates of stock in
the Corporation to bear the countersignatures of one such agent, which may be a
facsimile, and one such registrar. The same bank or trust company may act as
both transfer agent and registrar.
Bylaw 5 - Transfers of shares of stock in the Corporation upon the books
of the Corporation shall be made only by the holders thereof in person or by
attorney thereunto duly authorized in writing. Outstanding certificates for a
like number of shares shall be surrendered and cancelled at the time of such
transfers, except as provided in Bylaw 8.
Bylaw 6 - For the purpose of determining the shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment thereof,
or for the purpose of determining shareholders entitled to receive payment of
any dividend or allotment of any right, or for the purpose of any other action,
the board may fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than 60 nor less
than 10 days before the date of such meeting, nor more than 60 days prior to
any other action.
Bylaw 7 - The Corporation shall be entitled to treat the record holder of
any share or shares of stock, as shown by its books, as the sole legal and
equitable owner and holder thereof, and shall not be bound to recognize any
interest or claim on the part of others, whether it shall have notice thereof
or not, save as expressly provided otherwise by the laws of New Jersey.
Bylaw 8 - The board may issue or cause to be issued new certificates of
stock to replace certificates of stock alleged to have been lost or destroyed,
upon such reasonable terms and conditions as may be prescribed by the board to
protect the interests of the Corporation.
SHAREHOLDERS
Bylaw 9 - Meetings of the shareholders of the Corporation shall be held at
such place, within or without the State of New Jersey, as may be fixed by the
board from time to time.
Bylaw 10 - The annual meeting of the shareholders for election of
directors and transaction of other business shall be held on the second
Wednesday of May in each year at the hour of nine-thirty o'clock in the
forenoon, or at such other time as may be fixed by the board. Directors shall
be elected by ballot and a plurality vote. Written notice of the time, place,
and purpose or purposes of every regular meeting of shareholders shall be given
not less than 10 nor more than 60 days before the date of the meeting, either
personally or by mail, to each shareholder of record entitled to vote at the
meeting.
Bylaw 11 - Special meetings of the shareholders for purposes allowed by
law may be held at any time when called by the Chairman of the Board or
President, or upon resolution or written request of a majority of the board or
of a majority of the executive committee. Written notice of the time, place,
and purposes of every special meeting of shareholders shall be given not less
than 10 nor more than 60 days before the date of the meeting, either personally
or by mail, to each shareholder of record entitled to vote at the meeting.
Only those matters set forth in the notice of the special meeting may be
considered or acted upon at such special meeting, unless otherwise provided by
law.
Bylaw 12 - If a shareholder desires to submit a proposal for consideration
at an annual shareholders' meeting, written notice of such shareholder's intent
to make such a proposal must be given and received by the Secretary of the
Corporation at the principal executive offices of the Corporation either by
personal delivery or by United States mail not later than 90 days prior to the
anniversary date of the immediately preceding annual meeting. Each notice
shall describe the proposal in sufficient detail for the proposal to be
summarized on the agenda for the meeting and shall set forth (i) the name and
address, as it appears on the books of the Corporation, of the shareholder who
intends to make the proposal; (ii) a representation that the shareholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to present such
proposal; and (iii) the class and number of shares of the Corporation which are
beneficially owned by the shareholder. In addition, the notice shall set forth
the reasons for conducting such proposed business at the meeting and any
material interest of the shareholder in such business. The presiding officer
of the annual meeting shall, if the facts warrant, refuse to acknowledge a
proposal not made in compliance with the foregoing procedure, and any such
proposal not properly brought before the meeting shall not be transacted.
Nothing contained in this Section shall be deemed to decrease any time period
set forth in the Securities Exchange Act of 1934, as amended, or any rule or
regulation of the Securities and Exchange Commission thereunder.
Bylaw 13 - Unless otherwise provided in the certificate of incorporation
or the laws of New Jersey, the holders of shares entitled to cast a majority of
the votes at a meeting shall constitute quorum at such meeting. The
shareholders present in person or by proxy at a duly organized meeting may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum. Less than a quorum may
adjourn the meeting. Whenever the holders of any class or series of shares are
entitled to vote separately on a specified item of business, the provisions of
this section shall apply in determining the presence of a quorum of such class
or series for the transaction of such specified item of business.
Bylaw 14 - The Chairman of the Board shall act as chairman of each
shareholders' meeting. If he is absent, the President or a Vice President
shall so act. If all of the foregoing are absent, then the meeting itself by a
majority vote in interest may select some shareholder present to preside, which
vote shall be recorded in the minutes. The Secretary of the Corporation, if
present, shall act as secretary of each shareholders' meeting. If the
Secretary of the Corporation is absent, an Assistant Secretary shall so act.
If all of the foregoing are absent, then the chairman of the meeting shall
designate a person to act as secretary. A declaration by the chairman that any
resolution has been duly carried, and an entry to that effect in the minutes of
the meeting, shall, in all cases where a poll in not demanded, be competent and
sufficient evidence of the fact and legality of adoption of such resolution.
Bylaw 15 - (a) At all elections of directors by the shareholders, two
independent inspectors of election shall be chosen by the presiding officer of
the meeting; they need not be shareholders, but in no case shall they be either
employees of the Corporation or candidates for the office of director. Each
inspector shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability, and shall perform such duties as are provided by the laws of New
Jersey.
(b) At all elections of directors by the shareholders, all proxies,
ballots, and voting tabulations that identify how shareholders voted will be
kept confidential and not be disclosed to any of the directors, officers or
employees of the Corporation except when disclosure is mandated by law,
expressly requested by a shareholder, or during a contested election for the
board.
(c) The same voting procedure shall be followed with regard to other
matters submitted to shareholders for their vote.
Bylaw 16 - The officer or agent having charge of the stock transfer books
for shares of the Corporation shall make and certify a complete list of the
shareholders entitled to vote at a shareholders' meeting or any adjournment
thereof. Such list shall
(a) be arranged alphabetically within each class and
series, with the address of, and the number of shares
held by, each shareholder;
(b) be produced at the time and place of the meeting;
(c) be subject to the inspection of any shareholder during the
whole time of the meeting; and
(d) be prima facie evidence as to who are the shareholders
entitled to examine such list or to vote at any
meeting.
Bylaw 17 - Except as otherwise provided by law, if any shareholder desires
to solicit written consents for action to be taken by shareholders of the
Corporation without a meeting, prior written notice of any such solicitation
must be given and received by the Secretary of the Corporation at the principal
executive offices of the Corporation either by personal delivery or by United
States mail not later than 45 days prior to the date such written consents, or
soliciting material relating thereto, are first published, sent or given to any
shareholder. Such notice shall describe the matter for which written consent
is being sought and shall set forth (i) the name and address, as it appears on
the books of the Corporation, of the shareholder who seeks the written consent;
(ii) a representation that the shareholder is a holder of record of stock of
the Corporation entitled to vote on the matter for which written consent is
being sought and intends to vote on the matter for which written consent is
being sought; and (iii) the class and number of shares of the Corporation which
are beneficially owned by the shareholder. In addition, the notice shall set
forth the reasons for conducting such proposed business by means of the written
consent and any material interest of the shareholder in such business. No
action taken by written consent shall be valid unless taken in accordance with
the foregoing procedures.
BOARD OF DIRECTORS
Bylaw 18 - The property, affairs, and business of the Corporation shall be
managed and controlled by a board of directors. The number of directors shall
be determined in accordance with the provisions of the certificate of
incorporation. The directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as
possible, of one-third of the total number of directors constituting the entire
board of directors. At each annual meeting of shareholders beginning in 1984,
successors to directors whose terms expire at that annual meeting shall be of
the same class as the directors they succeed, and shall be elected for three-
year terms.
Bylaw 19 - A director shall hold office until the annual meeting for the
year in which his or her term expires and until his or her successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, or removal from office. Any newly created directorship resulting
from an increase in the number of directors and any other vacancy on the board
of directors, however caused, may be filled by a majority of the directors then
in office, although less than a quorum, or by a sole remaining director;
provided that if the number of directors is increased, not more than two such
newly created directorships may be filled by the directors in any period
between annual meetings of shareholders. Any director so elected to fill a
vacancy shall, without regard to the class in which such vacancy occurred, hold
office until the next succeeding annual meeting of shareholders and until his
or her successor shall have been elected and qualified. The term of a director
elected by shareholders to fill a newly created directorship or other vacancy
shall expire at the same time as the terms of the other directors of the class
in which the vacancy occurred.
Bylaw 20 - Regular meetings of the board shall be held six times each year
at such time and place as the board may determine, subject to the right of the
Chairman of the Board, the President, or the executive committee, by notice
required for a special meeting of the board, to change the time or place of a
regular meeting. Except as aforesaid, no notice of a regular meeting is
required.
Bylaw 21 - Special meetings of the board may be held at any time and place
whenever called by the Chairman of the Board, the President, or any three of
the directors. Notice to each director of the time and place of the meeting
shall be mailed not less than three calendar days before the meeting, or
telegraphed or telephoned or delivered to his office not less than 24 hours
before the meeting.
Bylaw 22 - A majority of the board shall constitute a quorum for the
transaction of business, but any less number present may adjourn the meeting
from time to time.
Bylaw 23 - In addition to the powers specifically enumerated in these
Bylaws, the board shall also have, and may exercise, all other and further
powers, privileges, and authority expressly or impliedly conferred upon them by
the Statues of New Jersey and the articles of incorporation of the Corporation.
EXECUTIVE COMMITTEE
Bylaw 24 - The board shall appoint from among its members an executive
committee of not less than four and not more than 10 regular members. The
board may also designate one or more of its members as alternates to serve as
members of the executive committee in the absence of a quorum of that committee
at any regular or special meeting.
(a) The executive committee shall have the powers of the
board in the management of the business, affairs, and
property of the Corporation during the intervals
between the meetings of the board, except that the
executive committee shall not:
(i) make, alter or repeal any Bylaw of the
Corporation;
(ii) elect or appoint any director, or remove
any officer or director;
(iii) submit to shareholders any action that
requires shareholders' approval; or
(iv) amend or repeal any resolution theretofore
adopted by the board which by its terms
is amendable or repealable only by the board.
(b) Regular meetings of the executive committee may be
held without notice at such time and place as shall
from time to time be determined by the executive
committee or by the board.
(c) Special meetings of the executive committee may be
called by the President, or the Chairman of the Board,
or by any two regular members of the committee by
causing 24 hours' notice of the time and place thereof
to be given to each regular member by mail or by
telegram or by telephone, or by delivery to his
office, but any regular member may waive such notice.
The purpose of the meeting need not be stated in the
notice or waiver of notice.
(d) Whenever it appears that a quorum of regular members
will not present at a meeting, the Secretary may
request the attendance of an alternate member, who,
if he attends, and if his attendance is necessary
to obtain quorum, shall be deemed a regular member
of the executive committee for the purposes of such
meeting.
(e) Any regular or special meeting of the executive
committee may be adjourned and no notice need be
given of the adjourned meeting whether or not a
quorum shall be present.
(f) A majority of members of the executive committee shall
constitute a quorum. Actions taken at a meeting of
the executive committee shall be reported to the board
at its next meeting following such executive committee
meeting; except that, when the meeting of the board is
held within two days after the executive committee
meeting, such report shall, if not made at the first
meeting, be made to the board at its second meeting
following such executive committee meeting.
OTHER COMMITTEES
Bylaw 25 - The board by resolution adopted by a majority of the entire
board may appoint from among its members one or more other committees, each of
which shall have one or more members.
MEETINGS AND ACTION OF DIRECTORS WITHOUT A MEETING
Bylaw 26 - Any or all directors may participate in a meeting of the board
or executive committee by means of conference telephone or any means of
communication by which all persons participating in the meeting are able to
hear each other.
Any action required or permitted to be taken pursuant to authorization
voted at a meeting of the board or executive committee may be taken without a
meeting if, prior or subsequent to such action, all members of the board or of
the executive committee, as the case may be, consent thereto in writing and
such written consents are filed with the minutes of the proceedings of the
board or executive committee.
OFFICERS
Bylaw 27 - The officers of the Corporation shall be a Chairman of the
Board, a President, one or more Vice Presidents, a Treasurer, and a Secretary,
and such additional officers and such assistant officers as may be deemed
necessary from time to time by the board or the executive committee. One or
more Vice Presidents may be designated as Executive Vice Presidents or as
Senior Vice Presidents or as other types of Vice Presidents. The Chairman of
the Board, President, Treasurer, Secretary and any Vice President designated as
a Senior or Executive Vice President shall be elected by the board. Any other
officers shall be elected by the board or the executive committee. Each
officer shall hold office for a term expiring at the first board meeting
following the annual meeting of the shareholders and until his successor is
elected, but subject to removal by the board at any time. Salaries of officers
elected by the board or who are directors shall be fixed by the board.
Salaries of other officers and assistant officers shall be fixed by the board
or the executive committee.
Bylaw 28 - The Chairman of the Board shall be the Chief Executive Officer
of the Corporation and shall have general supervision of its business and
affairs, subject, however, to control of the board and the executive committee.
He shall be a regular member of the executive committee and shall preside at
all meetings of the shareholders, the board, and the executive committee.
Bylaw 29 - The President shall serve as a regular member of the executive
committee and shall have such other powers and duties as shall be assigned to
him by the board or the executive committee or the Chairman of the Board. In
the absence of the Chairman of the Board, he shall preside at meetings of the
board and of the executive committee.
Bylaw 30 - The Vice Presidents shall have such powers and duties as shall
be assigned to them by the board, the executive committee, or the Chairman of
the Board. The President or the Senior or Executive Vice President with the
longest service with the Corporation who is a member of the executive committee
and who is present and able to act shall have the powers and duties of the
Chairman of the Board during his absence or inability to act.
Bylaw 31 - The Treasurer shall have custody of the corporate funds and
securities. He shall keep full and accurate accounts of all receipts and
disbursements and generally shall perform all the duties usually incident to
the office of Treasurer and shall have such other powers and duties as shall be
assigned to him by the board, the executive committee or the Chairman of the
Board.
Each Assistant Treasurer shall have power to act in the place and stead of
the Treasurer in case of his absence or inability to act, and shall have such
other powers and duties as shall be assigned to him by the board, the executive
committee or the Chairman of the Board.
Bylaw 32 - The Secretary shall have custody of the corporate seal and
shall be present at and make a true record of the votes and proceedings of all
meetings of the shareholders, the board, and the executive committee. He shall
supervise the giving and mailing of all notices of shareholders' and directors'
meetings; shall have charge of the certificate books, transfer books, and
capital stock ledgers; and generally shall perform all the duties and have
charge of all other books and papers usually incident to the office of
Secretary. He shall have such other powers and duties as shall be assigned to
him by the board, the executive committee or the Chairman of the Board.
Each Assistant Secretary shall have power to act in the place and stead of
the Secretary in case of his absence or inability to act, and shall have such
other powers and duties as shall be assigned to him by the board, the executive
committee or the Chairman of the Board.
Bylaw 33 - Unless otherwise ordered by the board or the executive
committee, the Secretary, and in case of his absence or inability to act an
Assistant Secretary, shall have the power, and it shall be his duty, to vote in
the name and behalf of the Corporation all stock held by it in other companies;
and the Chairman of the Board, President, or a Vice President, and the
Secretary or an Assistant Secretary, shall have the power to execute an deliver
proxies for the purpose of voting such stock; but the board or the executive
committee may by resolution confer such power to vote and to execute proxies
upon any other person or persons, and in all cases may instruct how such stock
shall be voted at any meeting or election.
Bylaw 34 - The board or the executive committee shall by resolution
designate one or more banks as authorized principal depositories of the funds
and securities of the Corporation and appoint and authorize officers of other
persons to sign checks thereon and otherwise control and dispose of such funds
and securities. The Treasurer or any two other elected officers of the
Corporation may designate other banks as secondary depositories in connection
with the business of the Corporation, and appoint and authorize officers or
other persons to sign checks thereon or otherwise control and dispose of funds
therein.
All notes payable issued by the Corporation shall be signed in its behalf
by such officer or officers of the Corporation authorized for that purpose by
the board or the executive committee.
FISCAL YEAR AND DIVIDENDS
Bylaw 35 - The fiscal year of the Corporation shall begin on the first day
of January in each year.
Bylaw 36 - Dividends may be declared by the board, from the profits, at
any regular or special meeting of the board, whenever in their judgment it
shall be consistent with the best interests of the Corporation. The executive
committee shall also have power, between sessions of the board, to declare the
usual quarterly dividends on all classes of stock.
AMENDMENTS
Bylaw 37 - These Bylaws may be amended, altered or repealed, and new
Bylaws may be enacted, only by the affirmative vote of the holders of not less
than two-thirds of the outstanding shares of capital stock of the Corporation
or by a vote of not less than two-thirds of the entire board of directors.
INDEMNIFICATION
Bylaw 38 - The Corporation shall indemnify any person who is or was a
director, officer, employee or agent of the Corporation or of any constituent
corporation absorbed by the Corporation in a consolidation or merger, and any
person who is or was a director, officer, trustee, employee or agent of any
other domestic or foreign corporation and any partnership, joint venture, sole
proprietorship, trust or other enterprise, whether or not for profit, served by
a person covered by this Bylaw, serving at the request of the Corporation, or
of any such constituent corporation, or the legal representative of any such
director, officer, trustee, employee or agent, against his reasonable costs,
disbursements and counsel fees and amounts paid or incurred in satisfaction of
settlements, judgments, fines and penalties in connection with any pending,
threatened or completed civil, criminal administrative or arbitrative action,
suit or proceeding, and any appeal therein and any inquiry, or investigation
which could lead to such action, suit or proceeding, to the fullest extent now
or hereafter permitted by New Jersey law.
The Corporation shall pay expenses as they are incurred by any person
covered by this Bylaw in connection with any proceeding covered by this Bylaw
in advance of the final disposition of the proceeding to the fullest extent now
or hereafter permitted by New Jersey law.
Any determination required to be made pursuant to Section 14A3-5(5) of the
New Jersey Business Corporation Act shall be made only by either (a) the Board
or a committee thereof, acting by a majority vote of a quorum consisting of
directors who were not parties to or otherwise involved in the proceeding, or
(b) if such a quorum is not obtainable, or even if obtainable and such quorum
of the Board or committee by a majority vote of the disinterested directors so
directs, by independent legal counsel in a written opinion, such counsel to be
designated by the Board and reasonably satisfactory to the person who is being
indemnified.
SENIOR LEADERSHIP TEAM (SLT) COMMITTEE
Bylaw 39 - The Chairman of the Board shall appoint such officers of the
Corporation who, together with the Chairman of the Board, shall constitute the
Senior Leadership Team (SLT)Committee of the Corporation. Members of the SLT
Committee shall serve at the discretion of the Chairman of the Board and shall
advise regarding management of the Corporation and otherwise assist the
Chairman as requested. The SLT Committee shall meet at such places and times
as are designated by the Chairman of the Board.
Exhibit 10(b)
DEFERRED COMPENSATION PLAN
FOR DIRECTORS OF THE QUAKER OATS COMPANY
(As Amended and Restated Effective as of November 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
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,
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 Compensation Committee of the Board of Directors (the "Compensation
Committee" and the "Board") 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, as defined in Section
7, such acceleration may be carried our for any reason deemed appropriate
by the Compensation Committee.
7. 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 November 13, 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 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 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.
8. AMENDMENT OR TERMINATION
The Board 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 November 1, 1996,
and is executed by a duly authorized officer of the Company.
THE QUAKER OATS COMPANY
March 5, 1997 By: /s/Douglas J. Ralston
Its: Senior Vice President
Exhibit 10(c)
DEFERRED COMPENSATION PLAN
FOR EXECUTIVES OF THE QUAKER OATS COMPANY
(As Amended and Restated Effective as of November 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
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 Compensation Committee of the Company's Board of Directors (the
"Compensation Committee" and the "Board") 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 Compensation
Committee.
8. 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 November 13, 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 "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.
9. 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.
10. AMENDMENT OR TERMINATION
The Company reserves the right, at any time or from time to time, by
action of its Board 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.
IN WITNESS WHEREOF, this Plan, as stated, is effective as of November 1, 1996,
and is executed by a duly authorized officer of the Company.
THE QUAKER OATS COMPANY
March 5, 1997 By: /s/ Douglas J. Ralston
Its: Senior Vice President
Exhibit 10(e)
THE QUAKER OATS COMPANY STOCK COMPENSATION PLAN
FOR OUTSIDE DIRECTORS
(As Amended and Restated Effective as of November 1, 1996)
1. Purpose. The Quaker Oats Company (the "Company") has amended and
restated this Stock Compensation Plan (the "Plan"), effective as of November 1,
1996, to promote the interests of the Company and its shareholders by causing a
portion of the total compensation payable to its outside directors to be
deferred and paid in the form of Company stock, thereby increasing the
director's beneficial ownership of Company stock and their proprietary interest
in the Company.
2. Common Stock Units. In addition to the cash compensation otherwise
payable to its outside directors, the Company shall establish and maintain a
Deferred Stock Account in the name of each outside director. Subject to the
provisions of Section 10, as of the first day of each fiscal year or period,
the Company shall credit 800 Common Stock Units to the Deferred Stock Account
of each person who was an outside director of the Company on the last day of
the immediately preceding fiscal year or period or who ceased to be a director
during such preceding fiscal year or period by reason of his retirement,
disability or death. In the event such immediately preceding fiscal period is
less than twelve months, the number of Common Stock Units to be credited as
stated above shall be pro rated based upon the number of months in such fiscal
period.
3. Dividend Equivalents. As of each dividend payment date declared with
respect to the Company's common stock, the Company shall credit the Deferred
Stock Account of each director with an additional number of Common Stock Units
equal to:
a) the product of (I) the dividend per share of the Company's common stock
which is payable as of the dividend payment date, multiplied by (II) the
number of Common Stock Units credited to the director's Deferred Stock
Account as of the applicable dividend record date;
DIVIDED BY
b) the closing price of a share of the Company's common stock on the
dividend payment date (or if such stock was not traded on that date, on
the next preceding date on which it was traded), as reported by the
New York Stock Exchange - Composite Transactions Reporting System;
provided, however, that in lieu of crediting fractional Common Stock Units, the
value thereof shall be carried forward, without interest, and treated as an
additional dividend on the next following dividend payment date.
4. Transfer of Shares of Common Stock. Each director, or in the event
of his death his beneficiary, shall be entitled to receive one share of the
Company's common stock for each Common Stock Unit credited to his Deferred
Stock Account. Unless otherwise elected by the director or beneficiary in
accordance with the following provisions of this Section 4, all such shares
shall be transferred to the director or beneficiary as of the January 1 next
following the date on which the director ceases to be a director for any
reason. At any time prior to the first day of the first fiscal year that the
Company is to credit Common Stock Units to the Director's Deferred Stock
Account, the director shall irrevocably elect to have such shares of common
stock transferred to him (or in the event of his death his beneficiary) in
fifteen or fewer annual installments commencing as of the January 1 next
following such cessation. The number of shares of common stock to be
distributed with each installment shall be equal to the whole number obtained
by dividing the number of Common Stock Units then credited to the director's
Deferred Stock Account by the number of unpaid installments. Common Stock
Units with respect to which no transfer of stock has yet occurred shall
continue to be credited with dividend equivalents in accordance with Section 3.
As of the date on which the last transfer of shares of common stock is made to
any director or his beneficiary under this Section 4, 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 3; and (b) the amount which would
be determined in accordance with Section 3, paragraph (a), for any dividend
payment date following the actual last transfer date, if such transfer follows
the record date relating to such dividend payment date.
5. Beneficiary. Each director may, from time to time, in writing filed
with the Secretary of the Company, designate any legal or natural person or
persons (who may be designated contingently or successively) to whom shares of
the Company's common stock attributable to his Common Stock Units are to be
transferred if the director dies prior to his receipt of all such shares. A
beneficiary designation will be effective only if the signed form is filed with
the Secretary of the Company while the director is alive and will cancel all
beneficiary designation forms filed earlier. If a director fails to designate
a beneficiary as provided above, or if all designated beneficiaries die before
the director or before transfer of all shares of common stock attributable to
the director's Common Stock Units, all remaining shares attributable to such
Common Stock Units shall be transferred to the estate of the last to die of the
director and his designated beneficiaries as soon as practicable after such
death.
6. Acceleration. The Compensation Committee of the Company's Board of
Directors (the "Compensation Committee" and the "Board") may accelerate the
transfer of shares of common stock with respect to Common Stock Units credited
to the Deferred Stock Account of any director or directors for reasons of
individual hardship, death, changes in tax laws or accounting principles or any
other reason which negates or diminishes the continued value of the Deferred
Stock Account to the Company or its directors; provided however that following
a Change in Control, as defined in Section 7 hereof, such acceleration may be
carried out for any reason deemed appropriate by the Compensation Committee.
7. 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 November 13, 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 "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.
8. Nontransferability. The interests of any director of
beneficiary under the Plan are not subject to the claims of his creditors
and may not otherwise be voluntarily or involuntarily assigned, alienated
or encumbered.
9. Shareholder Status. As of the date of transfer, a director or
beneficiary shall have all rights of the shareholder with respect to
shares of common stock transferred in accordance with Section 4. Prior to
such date, the Company's obligation under this Plan is an unsecured
promise to deliver shares of the Company's common stock. The Company
shall not hold any such shares in trust or as a segregated fund.
10. Changes in Stock. In the event of any change in the outstanding
shares of the Company's common stock by reason of any stock dividend,
split up, recapitalization, merger, consolidation, exchange of shares or
other similar corporate change, the number of Common Stock Units to be
credited in accordance with Section 2 and the shares of common stock to be
transferred in accordance with Section 4 shall be adjusted
proportionately.
11. Successors. This Plan shall be binding upon any assignee or
successor in interest to the Company whether by merger, consolidation or
sale of all or substantially all of the Company's assets.
12. Amendment and Termination. The Board may, from time to time,
amend or terminate the Plan; provided, however, that no such amendment or
termination shall adversely affect the rights of any director or
beneficiary without his consent with respect to Common Stock Units
credited prior to such amendment or termination.
IN WITNESS WHEREOF, this Plan, as stated, is effective as of
November 1, 1996 and is executed by a duly authorized officer of the
Company.
THE QUAKER OATS COMPANY
March 5, 1997 By: /s/Douglas J. Ralston
Its: Senior Vice President
Exhibit 10(g)
THE QUAKER
SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM
(As Amended and Restated Effective as of November 1, 1996)
The Quaker Supplemental Executive Retirement Program (the "Program") is
amended and restated effective as of November 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 "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.
1.5 "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.
1.6 "Board" shall mean the Board of Directors of the Company.
1.7 "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 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 November 13, 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 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.
1.8 "Company" means The Quaker Oats Company and any successor thereto.
1.9 "Compensation Committee" shall mean the Compensation Committee of the
Board.
1.10 "Earnings" means the Participant's earnings as that term is defined
for purposes of determining the Participant's Basic Retirement Benefit.
1.11 "Effective Date" means the Participant's effective date of
participation in the Program as specified by the Compensation Committee as
described in Section II.
1.12 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
1.14 "Management Committee" shall mean the Management Committee of the
Company as provided for and described in its Bylaws.
1.15 "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.
1.16 "Program" means The Quaker Supplemental Executive Retirement Program.
1.17 "Retirement Date" means a Participant's Retirement Date as described
in Section III.
1.18 "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.
1.19 "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.
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%
(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. Except as provided in Section 4.3, 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
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. Notwithstanding any other provision of this Plan to the
contrary, the Administrator may delay payment of any Participant's benefit (or
any portion thereof) under this Section IV (including Section 4.3) to preserve
the Company's full tax deduction under applicable provisions of the Internal
Revenue Code (including section 162(m) thereof).
4.3 Lump Sum and Accelerated Payments. Subject to the approval of the
Administrator, a Participant may elect to have his entire benefit under the
Program paid in the form of an actuarially-equivalent lump sum (instead of the
annuity forms contemplated by Sections 4.1 and 4.2) as soon as practicable
after his benefit under the Retirement Plan commences to be paid, or if he
should die prior to such commencement, as soon as practicable after his death,
if all of the following conditions are satisfied:
(a) The Participant's election to receive his benefit in the form of a
lump sum is submitted in writing to the Administrator at least twelve
(12) months prior to the day he ceases active employment with the
Company; provided, however, that a Participant who submits his lump
sum election no later than 45 days after the Company makes its first
general notification to employees of the availability of the lump sum
form of payment under the Program, shall be deemed to have satisfied
the requirements of this paragraph (a) if he submits his election at
least 15 days before the date his active employment ceases.
(b) The Participant also elects payment in the form of a lump sum under
all other non-qualified defined benefit pension plans maintained by
the Company in which the Participant participates, including but not
limited to The Quaker 415 Excess Benefit Plan and The Quaker Eligible
Earnings Adjustment Plan.
(c) The election is submitted on a form prescribed by the Administrator.
A Participant may revoke his election under this Section 4.3, but no such
revocation will be effective unless it has been submitted in writing to the
Administrator at least 12 months before the Participant ceases active
employment. In addition, the Compensation Committee in its sole discretion may
accelerate payment of any Participant's benefit under the Program to such
Participant, his Surviving Spouse or his Beneficiary at any time (regardless of
his employment or retirement status), whether alone or as part of a more
general distribution. Any such accelerated payment shall be in whatever form
the Compensation Committee determines, including but not limited to a lump sum,
provided that the benefit paid in such accelerated form shall be the actuarial
equivalent of the Participant's benefit as of the date distribution commences.
Any such acceleration must be for reasons of individual hardship, death,
changes in tax laws or accounting principles, or any other reasons which negate
or diminish the continued value of benefits under the Program to its
Participants or their Surviving Spouses and beneficiaries or to the Company, as
determined by the Compensation Committee in its sole discretion. For purposes
of this Section 4.3, actuarial equivalence shall be determined using interest
and mortality assumptions consistent with those set forth in the Retirement
Plan, except that in the event of a lump sum payment, actuarial equivalence
shall be determined on the basis of the interest rate and mortality assumptions
prescribed by Section 417(e) of the Internal Revenue Code (as amended by the
Small Business Job Protection Act of 1996), using the 30-year Treasury rate
published for the third month preceding the month that contains the
Participant's benefit commencement date.
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 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
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
March 5, 1997 By: /s/Douglas J. Ralston
Its: Senior Vice President
Exhibit 10(i)
THE QUAKER ELIGIBLE EARNINGS ADJUSTMENT PLAN
(As Amended and Restated Effective as of November 1, 1996)
The Quaker Eligible Earnings Adjustment Plan, formerly "The Quaker Deferral
Adjustment Benefit Plan" (the "Plan"), maintained by The Quaker Oats Company
(the "Company"), is amended and restated effective as of November 1, 1996 and
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(a)(3) and 401(a)(1) of the Employee Retirement
Income Security Act of 1974 ("ERISA"), and is also intended to comply with Reg.
Section 2520.104-23 under ERISA. The Plan is intended to provide benefits to
certain Members of The Quaker Retirement Plan, as amended and restated from
time to time (the "Retirement Plan"), who (I) participate in the Deferred
Compensation Plan for Executives of The Quaker Oats Company the ("Deferral
Plan"), and whose benefits under the Retirement Plan will be reduced because
the amounts deferred and credited under the Deferral Plan are not considered
earnings for purposes of the Retirement Plan; and/or (II) earn annual
compensation exceeding the limitation of Section 401(a)(17) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder,
and whose benefits under the Retirement Plan will be reduced because Code
Section 401(a)(17) limits the amount of annual compensation which may be
considered earnings for purposes of the Retirement Plan.
The Company hereby formalizes the terms and provisions of the Plan as follows:
1. Each term used in this Plan and also used in the Retirement Plan shall
have the same meaning herein as under the Retirement Plan.
2. If, and so long as, a Member (or the Qualified Spouse or other beneficiary
of a former Member) shall be entitled to receive benefits under the
Retirement Plan, the benefit payable under this Plan shall be based on the
amount equal to (a) minus (b) determined as follows:
(a) The Member's accrued monthly pension benefit (as calculated under the
Retirement Plan), and any additional benefits distributed upon
termination of the Retirement Plan, payable as a straight life
annuity, that would otherwise have been payable under the Retirement
Plan with the following adjustments: (I) without regard to the
limitation on benefits imposed by Code Section 415; (II) including
amounts deferred under the Deferral Plan as earnings at the time of
deferral; and (III) without regard to the compensation limit imposed
by Code Section 401(a) (17).
(b) The Member's accrued monthly pension benefit under the Retirement
Plan as a straight life annuity, and any additional benefits
distributed upon termination of the Retirement Plan, plus the amount
payable under The Quaker 415 Excess Benefit Plan paid on a monthly
basis and as a straight life annuity.
3. Except as provided in Section 4, the benefit payable as determined in
accordance with Section 2 shall be paid on the same terms and conditions,
in the same form, and at the same times, as would have been paid under the
Retirement Plan if the limitations referred to in Section 2(a) did not
exist.
4. Subject to the approval of the Administrator, a Member may elect to have
his entire benefit under this Plan paid in the form of an actuarially-
equivalent lump sum (instead of the annuity forms contemplated by Sections
2) as soon as practicable after his benefit under the Retirement Plan
commences to be paid, or if he should die prior to such commencement, as
soon as practicable after his death, if all of the following conditions
are satisfied:
(a) The Member's election to receive his benefit in the form of a lump
sum is submitted in writing to the Administrator at least twelve (12)
months prior to the day he ceases active employment with the Company;
provided, however, that a Member who submits his lump sum election no
later than 45 days after the Company makes its first general
notification to employees of the availability of the lump sum form of
payment under this Plan, shall be deemed to have satisfied the
requirements of this paragraph (a) if he submits his election at
least 15 days before the date his active employment ceases.
(b) The Member also elects payment in the form of a lump sum under all
other non-qualified defined benefit pension plans maintained by the
Company in which the Member participates, including but not limited
to The Quaker 415 Excess Benefit Plan and The Quaker Supplemental
Executive Retirement Program.
(c) The election is submitted on a form prescribed by the Administrator.
A Member may revoke his election under this Section 4, but no such
revocation will be effective unless it has been submitted in writing to
the Administrator at least 12 months before the Member ceases active
employment. In addition, the Compensation Committee of the Company's
Board of Directors (the "Compensation Committee" and the "Board") in its
sole discretion may accelerate payment of any Member's benefit under this
Plan to such Member, his Qualified Spouse or his Beneficiary at any time
(regardless of his employment or retirement status), whether alone or as
part of a more general distribution. Any such accelerated payment shall
be in whatever form the Compensation Committee determines, including but
not limited to a lump sum, provided that the benefit paid in such
accelerated form shall be the actuarial equivalent of the Member's benefit
as of the date distribution commences. Any such acceleration must be for
reasons of individual hardship, death, changes in tax laws or accounting
principles, or any other reasons which negate or diminish the continued
value of benefits under this Plan to its Members or their Qualified
Spouses and beneficiaries or to the Company, as determined by the
Compensation Committee in its sole discretion. For purposes of this
Section 4, actuarial equivalence shall be determined using interest and
mortality assumptions consistent with those set forth in the Retirement
Plan, except that in the event of a lump sum payment, actuarial
equivalence shall be determined on the basis of the interest rate and
mortality assumptions prescribed by Section 417(e) of the Internal Revenue
Code (as amended by the Small Business Job Protection Act of 1996), using
the 30-year Treasury rate published for the third month preceding the
month that contains the Member's benefit commencement date.
5. 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 November 13, 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 "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.
6. The Company may enter into a contract with any Member who is projected to
be entitled to receive benefits under this Plan, or with any Member (or
any Qualified Spouse or other beneficiary) who is entitled to receive
benefits under this Plan, stipulating the terms and manner of payments to
be made under this Plan, but the entitlement of such a person to receive
benefits under this Plan shall not be conditioned upon the entering into
of such a contract prior to the entitlement to benefits under the Plan.
7. This Plan shall not be a funded plan, and the Company shall not set aside
any funds, or make any investments, for the specific purpose of making
payments under this Plan, that would make the Plan considered funded under
ERISA. Any payments hereunder shall be made out of the general assets of
the Company. The Company may transfer funds to and may make payments
through any trust which it deems to comply with the preceding, in order
to meet its obligations under this Plan.
8. The Company, by action of its Board or the Executive Committee thereof,
shall have the right at any time to amend this Plan in any respect or to
terminate this Plan; provided, however, that such amendment or termination
shall not reduce the benefits payable under this Plan below the benefits
to which any person would have been entitled hereunder at the time of such
amendment or termination.
9. Except as otherwise provided herein, the Company shall administer this
Plan and shall have the same powers and duties, and shall be subject to
the same limitations as are set forth in the Retirement Plan.
10. The interest of any Member and the interest, if any, of any Qualified
Spouse or other beneficiary of any Member may not be assigned or alienated
either by voluntary or involuntary assignment or by operation of law.
11. Neither this Plan nor any of its provisions shall be construed as giving
any Member a right to continue in the employ of the Company.
12. Subject to the provisions of Section 8, this Plan shall terminate when the
Retirement Plan terminates.
IN WITNESS WHEREOF, this plan is executed by a duly authorized officer of the
Company.
THE QUAKER OATS COMPANY
March 5, 1997 By: /s/Douglas J. Ralston
Its: Senior Vice President
Exhibit 10(j)
QUAKER OFFICERS SEVERANCE PROGRAM
(As Amended and Restated Effective as of November 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 November 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.
(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 target 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 target communicated 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
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 November 13, 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
(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, subject to paragraph 3(a)(1), for so long as he holds such office
while the Program is in effect. After a Change in Control of Quaker, an
officer shall continue to be considered eligible under the Program, subject to
paragraph 3(a)(2).
4. SEVERANCE BENEFITS.
(a) An eligible officer pursuant to paragraph 3 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
management incentive bonuses (or in the event of a
Change in Control the bonus shall not be less than the
Section 4(a)(1) of the Quaker Salaried Employees
Compensation and Benefits Protection Plan) (the
"Plan") at the time of termination (on an annualized
basis, if necessary); 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 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
"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, or (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.
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
January 15, 1997 By: /s/ Douglas J. Ralston
Its: Senior Vice President
Exhibit 10(l)
THE QUAKER 415 EXCESS BENEFIT PLAN
(As Amended and Restated Effective as of November 1, 1996)
The Quaker 415 Excess Benefit Plan (the "Plan") was originally adopted
effective as of January 1, 1983, and was amended and restated effective as of
November 1, 1996. The Plan is established and maintained by The Quaker Oats
Company (the "Company") and is intended to be an unfunded "excess benefit plan"
within the meaning of Sections 3(36) and 4(b) (5) of the Employee Retirement
Income Security Act of 1974 ("ERISA"). As such, the purpose of this Plan is
solely to provide benefits to certain Members of The Quaker Retirement Plan, as
amended and restated from time to time (the "Retirement Plan"), in excess of
the limitations on benefits imposed by Section 415 of the Internal Revenue
Code, or any future comparable provision(s) ("Code Section 415").
The Company hereby formalizes the terms and provision of the Plan as
follows:
1. Each term used in this Plan and also used in the Retirement Plan shall
have the same meaning herein as under the Retirement Plan.
2. If, and so long as, a Member (or the Qualified Spouse or other beneficiary
of a former Member) shall be entitled to receive benefits under the Retirement
Plan, the benefits payable under this Plan shall equal: (a) the "retirement
income" (as calculated under the Retirement Plan), and any other benefits,
including benefits distributed upon termination of the Retirement Plan, that
such person would have been paid under the Retirement Plan without regard to
the limitation on benefits imposed by Code Section 415; reduced by (b) the
retirement income and any other benefits that such person actually receives
under the Retirement Plan. Except as provided in Section 4, such amounts
shall be paid on the same terms and conditions, and at the same times, as they
would have been paid under the Retirement Plan if no such limitation existed.
3. The Company may enter into a contract with any Member who is projected to
be entitled to receive benefits under this Plan, or with any Member (or any
Qualified Spouse or other beneficiary) who is entitled to receive benefits
under this Plan, stipulating the terms and manner of payments to be made under
this Plan, but the entitlement of such a person to receive benefits under this
Plan shall not be conditioned upon the entering into of such a contract prior
to the entitlement to benefits under this Plan.
4. Subject to the approval of the Administrator, a Member may elect to have
his entire benefit under this Plan paid in the form of an actuarially-
equivalent lump sum (instead of the annuity forms contemplated by Section 2)
as soon as practicable after his benefit under the Retirement Plan commences
to be paid, or if he should die prior to such commencement, as soon as
practicable after his death, if all of the following conditions are satisfied:
(a) The Member's election to receive his benefit in the form of a lump sum
is submitted in writing to the Administrator at least twelve (12)
months prior to the day he ceases active employment with the Company;
provided, however, that a Member who submits his lump sum election no
later than 45 days after the Company makes its first general
notification to employees of the availability of the lump sum form of
payment under this Plan, shall be deemed to have satisfied the
requirements of this paragraph (a) if he submits his election at least
15 days before the date his active employment ceases.
(b) The Member also elects payment in the form of a lump sum under all
other non-qualified defined benefit pension plans maintained by the
Company in which the Member participates, including but not limited to
The Quaker Supplemental Executive Retirement Program and The Quaker
Eligible Earnings Adjustment Plan.
(c) The election is submitted on a form prescribed by the Administrator.
A Member may revoke his election under this Section 4, but no such
revocation will be effective unless it has been submitted in writing to the
Administrator at least 12 months before the Member ceases active employment.
In addition, the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee" and the "Board") in its sole discretion may
accelerate payment of any Member's benefit under this Plan to such Member,
his Qualified Spouse or his Beneficiary at any time (regardless of his
employment or retirement status), whether alone or as part of a more general
distribution. Any such accelerated payment shall be in whatever form the
Compensation Committee determines, including but not limited to a lump sum,
provided that the benefit paid in such accelerated form shall be the
actuarial equivalent of the Member's benefit as of the date distribution
commences. Any such acceleration must be for reasons of individual
hardship, death, changes in tax laws or accounting principles, or any other
reasons which negate or diminish the continued value of benefits under this
Plan to its Members or their Qualified Spouses and beneficiaries or to the
Company, as determined by the Compensation Committee in its sole discretion.
For purposes of this Section 4, actuarial equivalence shall be determined
using interest and mortality assumptions consistent with those set forth in
the Retirement Plan, except that in the event of a lump sum payment,
actuarial equivalence shall be determined on the basis of the interest rate
and mortality assumptions prescribed by Section 417(e) of the Internal
Revenue Code (as amended by the Small Business Job Protection Act of 1996),
using the 30-year Treasury rate published for the third month preceding the
month that contains the Member's benefit commencement date.
5. 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 November 13, 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 "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.
6. This Plan shall not be a funded plan, and the Company shall not set aside
any funds, or make any investments, for the specific purpose of making
payments under this Plan, that would make the Plan considered funded under
ERISA. Any payments hereunder shall be made out of the general assets of
the Company. Notwithstanding the preceding, the Company may transfer funds
to and may make payments through an trust which it deems to comply with the
preceding, in order to meet its obligations under this Plan.
7. The Company, by action of its Board or the Executive Committee thereof,
shall have the right at any time to amend this Plan in any respect or
to terminate this Plan; provided, however, that such amendment or termination
shall not reduce the benefits payable under this Plan below the benefits to
which any person would have been entitled hereunder at the time of such
amendment or termination.
8. Except as otherwise provided herein, the Company shall administer this
Plan and shall have the same powers and duties, and shall be subject to the
same limitations as are set forth in the Retirement Plan.
9. The interest of any Member and the interest, if any, of any Qualified
Spouse or to other beneficiary of any Member may not be assigned or alienated
either by voluntary or involuntary assignment or by operation of law.
10.Neither this Plan nor any of its Provisions shall be construed as giving
any Member a right to continue in the employ of the Company.
11.Subject to the provisions of Section 7, this Plan shall terminate when the
Retirement Plan terminates.
IN WITNESS THEREOF, this Plan is executed by a duly authorized officer of the
Company.
THE QUAKER OATS COMPANY
March 5, 1997 By: /s/Douglas J. Ralston
Its: Senior Vice President
Exhibit 10(m)
QUAKER SALARIED EMPLOYEES
COMPENSATION AND BENEFITS PROTECTION PLAN
(As Amended and Restated Effective as of November 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 November 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 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;
(3) the employee is to be paid on an hourly basis;
(4) for purposes of Section 4(a)(3) only, there is a
significant change in the nature of scope of any of the
authorities and powers which the employee may exercise or
is exercising, and duties and function which the employee
may perform or is performing, immediately prior to the
Change in Control; or
(5) for purposes of Section 4(a)(3) only, there is a reasonable
determination by the employee that, as a result of the
Change in Control, his position is significantly affected
so that he is unable to exercise any authorities and
powers, or perform any duties and functions describe in
(4) above.
(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 November 13, 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
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.
(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, the
amount of the incentive bonus shall be the greater of the
target incentive bonus for such year, or the incentive
bonus calculated for such year); 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
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. If an entire
fiscal year has been completed prior to termination of
employment, the amount of such incentive bonus shall be the
greater of (i) the target incentive bonus for such year, or
(ii) the incentive bonus calculated for such year. In
addition for the fiscal year including termination of
employment the amount of such incentive bonus shall be the
greater of (A) the target incentive bonus for such year, or
(B) an incentive bonus calculated for such year, with
amount of the incentive bonus prorated based on the number
of completed months during such 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
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
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
March 5 , 1997 By: /s/ Douglas J. Ralston
Its: Senior Vice President
Exhibit 10 (f) (2)
Schedule of Termination Benefit Agreements with Certain Executive Officers
The attached Termination Benefit Agreement is identical in all material
respects to the executive Termination Benefit Agreements for those executive
employees listed below and which have been omitted from this filing:
Name Execution Date
John A. Boynton November 19, 1996
John H. Calhoun November 19, 1996
Penelope C. Cate November 27, 1996
Michael L. Cohen November 19 ,1996
Janet K. Cooper November 27, 1996
A. Stephen Diamond November 27, 1996
James F. Doyle November 27, 1996
Margaret M. Eichman November 18, 1996
Scott Gantwerker November 20, 1996
Thomas L. Gettings December 10, 1996
John G. Jartz December 10, 1996
James E. LeGere November 18, 1996
I. Charles Mathews November 27, 1996
Mart C. Matthews November 18, 1996
Luther C. McKinney November 20, 1996
Douglas W. Mills November 27, 1996
Kenneth W. Murray November 21, 1996
Douglas J. Ralston November 20, 1996
Michael B. Schott November 27, 1996
Robert S. Thomason November 27, 1996
Russell A. Young December 13, 1996
Exhibit 10(f)(2)
EXECUTIVE SEPARATION AGREEMENT
THIS AGREEMENT is made between The Quaker Oats Company, a New Jersey
corporation (the "Company"), and Barbara R. Allen (the "Executive"), dated this
19th day of November, 1996.
WITNESSETH THAT:
WHEREAS, the Company wishes to attract and retain well-qualified
executive personnel and to assure both itself and the Executive of continuity
of management in the event of any actual or threatened change in control of the
Company;
NOW, THEREFORE, it is hereby agreed by and between the parties as
follows:
1. Operation of Agreement. The "effective date of this Agreement" shall be
the date on which the Executive declares it effective, by notice to the
Company in writing, but only if a change in control of the Company (as
defined in Section 2) has occurred on or before the date of the notice.
2. Change in Control. A "change in control of the Company" 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
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 November 13, 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 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.
3. Employment Period. The Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ of the
Company, for the period commencing on the effective date of this Agreement
and ending on the earlier to occur of the third anniversary of such
effective date or the 65th birthday of the Executive (the "employment
period"), to exercise such authorities and powers, and perform such duties
and functions, as are commensurate with the authorities and powers being
exercised, and duties and functions being performed, by the Executive
immediately prior to the effective date of this Agreement, which services
shall be performed at the current location where the Executive was employed
immediately prior to the effective date of this Agreement or at such other
location within a 30-mile radius of such current location. The Executive
shall not be required to accept any other location. The Executive agrees
that during the employment period she shall devote her full business time
exclusively to her executive duties as described herein and perform such
duties faithfully and efficiently.
4. Compensation, Compensation Plans, Benefit Plans, Perquisites. During
the employment period and prior to termination (as defined in Section 5)
of the Executive, the Executive shall be compensated as follows:
a. She shall receive an annual salary which is not less than her annual
salary immediately prior to the effective date of this Agreement, with
the opportunity for increases, from time to time thereafter, which are
in accordance with the Company's regular practices.
b. She shall be eligible to participate on a reasonable basis in bonus,
stock option, restricted stock and other incentive compensation plans,
which shall provide benefits comparable to those to which she was
provided immediately prior to the effective date of this Agreement.
c. She shall be eligible to participate on a reasonable basis in tax-
qualified employee benefit plans (including but not limited to pension,
profit sharing and employee stock ownership plans), and supplemental
non-qualified employee benefit plans relating thereto, which shall
provide benefits comparable to those to which she was provided
immediately prior to the effective date of this Agreement.
d. She shall be entitled to receive employee welfare benefits (currently
elected medical, dental and life insurance benefits) and perquisites
which are comparable to those to which she was provided immediately
prior to the effective date of this Agreement.
5. Termination. "Termination" shall mean either (a) termination by the
Company of the employment of the Executive with the Company for any reason
other than death, physical or mental incapacity, or cause (as defined
below), or (b) resignation of the Executive upon the occurrence of any of
the following events:
(1) a significant change in the nature or scope of the Executive's
authorities, powers, functions, or duties from those described in
Section 3;
(2) a reduction in total compensation from that provided in Section 4;
(3) the breach by the Company of any other provision of this Agreement; or
(4) a reasonable determination by the Executive that, as a result of a
change in control of the Company her position is significantly
affected so that she is unable to exercise the authorities, powers,
functions or duties attached to her position as described in Section 3.
"Cause" means gross misconduct or willful and material breach of this
Agreement by the Executive. No act, or failure to act, on the Executive's
part shall be deemed "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the action
or omission was in the best interest of the Company.
6. Confidentiality. The Executive agrees that during and after the
employment period, she will not divulge or appropriate to her own use or
the use of others any secret or confidential information or knowledge
pertaining to the business of the Company, or any of its subsidiaries,
obtained during her employment by the Company or any of its subsidiaries.
7. Severance and Benefit Payments.
a. In the event of termination of the Executive during the employment
period, the Company shall pay the Executive a lump-sum severance
allowance equal to salary and bonus payments for the following 24
calendar months. The initial salary rate shall not be less than her
annual salary immediately prior to termination, or if greater, not
less than her annual salary immediately prior to the change in control
of the Company; such salary shall be increased every March 1,
thereafter, according to the then current Hewitt Associate's projection
for movement in executive base salaries. The initial bonus amount
shall not be less than the annual equivalent of the incentive bonus
calculated under Section 4(a)(1) of the Salaried Employees Compensation
and Benefits Protection Plan; such bonus amount shall be increased
every January 1, thereafter, according to the then current Hewitt
Associates' projection for movement in executive total cash
compensation. The lump-sum severance allowance shall not be adjusted
on a present value basis.
b. In the event of termination of the Executive during the employment
period, the Company shall also pay the Executive a lump-sum benefit
payment in an amount equivalent to (1) the benefits she would have
accrued or been allocated under any tax-qualified employee benefit
plan (including but not limited to pension, profit sharing and employee
stock ownership plans) and any non-qualified supplemental benefit plan
relating thereto, maintained by the Company as if she had remained in
the employ of the Company for 24 calendar months after her termination,
which benefits will be paid in addition to the benefits provided under
such plans and (2) employee welfare benefits (currently elected
coverage under the medical, dental and life insurance programs) to which
she would have been entitled under all such employee benefit plans,
programs or arrangements maintained by the Company as if she had
remained in the employ of the company for 24 calendar months after her
termination. Such a benefit payment shall be adjusted to include
expected increases to the Executive's salary, bonus and other
compensation as specified in paragraph 7a. having an effect on such
benefits for such period. The lump-sum benefit payment shall
not be adjusted on a present value basis (except for benefits accrued
in a defined benefit pension plan).
c. The amount of the severance allowance and benefit payment described in
this Section shall be determined and such payment shall be made as soon
as it is reasonably practicable.
d. The severance allowance and benefit payment to be provided pursuant to
this Section 7 shall be in addition to, and shall not be reduced by, any
other amounts or benefits provided by separate agreement with the
Executive, or plan or arrangement of the Company or its subsidiaries,
unless specifically stipulated in an agreement which constitutes an
amendment to this Agreement as provided in Section 14.
8. Make-Whole Payments. If any amount payable to the Executive by the
Company or any subsidiary or affiliate thereof, whether under this
Agreement or otherwise (a "Payment"), is subject to any tax under section
4999 of the Internal Revenue Code of 1986, as amended, (the "Code"), or
any similar federal or state law (an "Excise Tax"), the Company shall pay
to the Executive an additional amount (the "Make Whole-Amount") which is
equal to (I) the amount of the Excise Tax, plus (II) the aggregate amount
of any interest, penalties, fines or additions to any tax which are
imposed in connection with the imposition of such Excise Tax, plus (III)
all income, excise and other applicable taxes imposed on the Executive
under the laws of any Federal, state, or local government or taxing
authority by reason of the payments required under clause (I) and clause
(II) and this clause (III).
a.For purposes of determining the Make-Whole Amount, the Executive
shall be deemed to be taxed at the highest marginal rate under all
applicable local, state, federal and foreign income tax laws for the
year in which the Make-Whole Amount is paid. The Make-Whole Amount
payable with respect to an Excise Tax shall be paid by the Company
coincident with the Payment with respect to which such Excise Tax
relates.
b.All calculations under this paragraph 8 shall be made initially by the
Company and the Company shall provide prompt written notice thereof to
the Executive to timely file all applicable tax returns. Upon request
of the Executive, the Company shall provide the Executive with
sufficient tax and compensation data to enable the Executive or her tax
advisor to independently make the calculations described in
subparagraph a. above and the Company shall reimburse the Executive for
reasonable fees and expenses incurred for any such verification.
c.If the Executive gives written notice to the Company of any objection
to the results of the Company's calculations within 60 days of the
Executive's receipt of written notice thereof, the dispute shall be
referred for determination to tax counsel selected by the independent
auditors of the Company ("Tax Counsel"). The Company shall pay all
fees and expenses of such Tax Counsel. Pending such determination by
Tax Counsel, the Company shall pay the Executive the Make-Whole Amount
as determined by it in good faith. The Company shall pay the Executive
any additional amount determined by Tax Counsel to be due under this
Section 8 (together with interest thereon at a rate equal to 120% of
the Federal short-term rate determined under section 1274(d) of the
Code) promptly after such determination.
d.The determination by Tax Counsel shall be conclusive and binding upon
all parties unless the Internal Revenue Service, a court of competent
jurisdiction, or such other duly empowered governmental body or agency
(a "Tax Authority") determines that the Executive owes a greater or
lesser amount of Excise Tax with respect to any Payment than the amount
determine by Tax Counsel.
e.If a Tax Authority makes a claim against the Executive which, if
successful, would require the Company to make a payment under this
Section 8, the Executive agrees to contest the claim on request of the
Company subject to the following conditions:
(1) The Executive shall notify the Company of any such claim within 10
days of becoming aware thereof. In the event that the Company desires
the claim to be contested, it shall promptly (but in no event more
than 30 days after the notice from the Executive or such shorter time
as the Tax Authority may specify for responding to such claim)
request the Executive to contest the claim. The Executive shall not
make any payment of any tax which is the subject of the claim before
the Executive has given the notice or during the 30-day period
thereafter unless the Executive receives written instructions from
the Company to make such payment together with an advance of funds
sufficient to make the requested payment plus any amounts payable
under this Section 8 determined as if such advance were an Excise
Tax, in which case the Executive will act promptly in accordance with
such instructions.
(2) If the Company so requests, the Executive will contest the claim by
either paying the tax claimed and suing for a refund in the
appropriate court or contesting the claim in the United States Tax
Court or other appropriate court, as directed by the Company;
provided, however, that any request by the Company for the Executive
to pay the tax shall be accompanied by an advance from the Company to
the Executive of funds sufficient to make the requested payment plus
any amounts payable under this Section 8 determined as if such
advance were an Excise Tax. If directed by the Company in writing
the Executive will take all action necessary to compromise or settle
the claim, but in no event will the Executive compromise or settle
the claim or cease to contest claim without the written consent of
the Company; provided, however, that the Executive may take any such
action if the Executive waives in writing her right to a payment
under this Section 8 for any amounts payable in connection with such
claim. The Executive agrees to cooperate in good faith with the
Company in contesting the claim and to comply with any reasonable
request from the Company concerning the contest of the claim,
including the pursuit of administrative remedies, the appropriate
forum for any judicial proceedings, and the legal basis for
contesting the claim. Upon request of the Company, the Executive
shall take appropriate appeals of any judgment or decision that would
require the Company to make a payment under this Section 8.
Provided that the Executive is in compliance with the provisions of
this section, the Company shall be liable for and indemnify the
Executive against any loss in connection with, and all costs
and expenses, including attorney's fees, which may be incurred as a
result of, contesting the claim, and shall provide the Executive
within 30 days after each written request therefor by the Executive
cash advances or reimbursement for all such costs and expenses
actually incurred or reasonably expected to be incurred by the
Executive as a result of contesting the claim.
f.Should a Tax Authority finally determine that an additional Excise Tax
is owed, then the Company shall pay an additional Make-Up Amount to the
Executive in a manner consistent with this Section 8 with respect to
any additional Excise Tax and any assessed interest, fines, or
penalties. If any Excise Tax as calculated by the Company or Tax
Counsel, as the case may be, is finally determined by a Tax Authority
to exceed the amount required to be paid under applicable law, then the
Executive shall repay such excess to the Company, but such repayment
shall be reduced by the amount of any taxes paid by the Executive on
such excess which are not offset by the tax benefit attributable to the
repayment.
9. Mitigation and Set Off. The Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment or otherwise. The Company shall not be entitled to set off
against the amounts payable to the Executive under this Agreement any
amounts owed to the Company by the Executive, any amounts earned by the
Executive in other employment after termination of her employment with the
Company, or any amounts which might have been earned by the Executive in
other employment had she sought such other employment.
10. Arbitration of All Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof, except with respect to
Section 8, shall be settled by arbitration in the City of Chicago in
accordance with the laws of the State of Illinois by three arbitrators
appointed by the parties. If the parties cannot agree on the appointment,
one arbitrator shall be appointed by the Company and one by the Executive,
and the third shall be appointed by the first two arbitrators. If the first
two arbitrators cannot agree on the appointment of a third arbitrator, then
the third arbitrator shall be appointed by the Chief Judge of the United
States Court of Appeals for the Seventh Circuit. The arbitration shall be
conducted in accordance with the rules of the American Arbitration
Association, except with respect to the selection of arbitrators which
shall be as provided in this Section 10. Judgment upon the award rendered
by the arbitrators may be entered in any court having jurisdiction thereof.
In the event that it shall be necessary or desirable for the Executive to
retain legal counsel or incur other costs and expenses in connection with
enforcement of her rights under this Agreement, Executive shall be entitled
to recover from the Company her reasonable attorneys' fees and costs and
expenses in connection with enforcement of her rights (including the
enforcement of any arbitration award in court). Payment shall be made to
the Executive by the Company at the time these attorneys' fees and costs
and expenses are incurred by the Executive. If, however, the arbitrators
should later determine that under the circumstances the Executive could
have had no reasonable expectation of prevailing on the merits at the time
she initiated the arbitration based on the information then available to
her, she shall repay any such payments to the Company in accordance with
the order of the arbitrators. Any award of the arbitrators shall include
interest at a rate or rates considered just under the circumstances by the
arbitrators.
11. Notices. Any notices, requests, demands, and other communications
provided for by this Agreement shall be sufficient if in writing and if
sent by registered or certified mail to the Executive at the last address
she has filed in writing with the Company or, in the case of the Company,
at its principal executive offices.
12. Non-Alienation. The Executive shall not have any right to pledge,
hypothecate, anticipate or in any way create a lien upon any amounts
provided under this Agreement; and no benefits payable hereunder shall be
assignable in anticipation of payment either by voluntary or involuntary
acts, or by operation of law. Nothing in this paragraph shall limit the
Executive's rights or powers which her executor or administrator would
otherwise have.
13. Governing Law. The Agreement 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.
14. Amendment. This Agreement may be amended or canceled by mutual
agreement of the parties in writing without the consent of any other person
and, so long as the Executive lives, no person, other than the parties
hereto, shall have any rights under or interest in this Agreement or the
subject matter hereof.
15. Term. Unless the Executive has theretofore declared this Agreement
effective, pursuant to Section 1 of this Agreement, this Agreement shall
terminate (a) March 31, 1998 or (b) when the Executive has been placed on
inactive service by the Company prior to a change in control of the
Company.
16. Successors to the Company. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the Company and
any successor of the Company.
17. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
18. Prior Agreement. Any prior Executive Separation Agreement between the
Executive and the Company which has not yet terminated pursuant to its
terms, is canceled by mutual consent of the Executive and the Company
pursuant to execution of this Agreement, effective as of the day and year
first above written.
IN WITNESS WHEREOF, the Executive has hereunto set her hand and, pursuant
to the authorization from its Board, the Company has caused these presents to
be executed in its name on its behalf, and its corporate seal to be hereunto
affixed and attested by its Assistant Secretary, all as of the day and year
first above written.
ATTEST: THE QUAKER OATS COMPANY
Gerald A. Cassioppi By: /s/Douglas J. Ralston
Assistant Secretary Its: Senior Vice President
By: /s/ Barbara Allen
Its: EXECUTIVE
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-
Robert S. Thomason 11/13/96 -0-
A. Stephen Diamond 11/13/96 -0-
EXHIBIT 11
THE QUAKER OATS COMPANY AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Calculation of Fully Diluted Earnings Per Share
Dec 31, Dec 31, Dec 31,
Dollars in Millions (Except Per Share Data) 1996 1995 1994
Income Before Cumulative Effect of Accounting
Change $247.9 $724.0 $193.1
Less: Adjustments attributable to conversion of
ESOP Convertible Preferred Stock (0.8) (1.0) (1.3)
Income Before Cumulative Effect of Accounting
Change Used for Fully Diluted Calculation 247.1 723.0 191.8
Cumulative Effect of Accounting Change - net of tax -- -- (4.1)
Net Income Used for Fully Diluted Calculation $247.1 $723.0 $187.7
Shares in Thousands
Average Number of Common Shares Outstanding 135,466 134,149 133,709
Plus Dilutive Securities:
Stock Options 1,276 1,309 1,703
ESOP Convertible Preferred Stock 2,441 2,586 2,659
Average Shares Outstanding Used for Fully
Diluted Calculation 139,183 138,044 138,071
Fully Diluted Earnings Per Share Before
Cumulative Effect of Accounting Change $ 1.78 $ 5.23 $ 1.39
Fully Diluted Cumulative Effect of Accounting
Change -- -- (0.03)
Fully Diluted Earnings Per Share $ 1.78 $ 5.23 $ 1.36
EXHIBIT 12
THE QUAKER OATS COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions) Year Ended
Dec. 31, 1996 Dec. 31, 1995
Earnings:
Income Before Income Taxes $415.6 $1,220.5
Add Fixed Charges - net of capitalized interest 118.2 147.3
Earnings $533.8 $1,367.8
Fixed Charges
Interest on Indebtedness $112.3 $ 139.5
Portion of rents representative of the
interest factor 12.1 12.1
Fixed Charges $124.4 $ 151.6
Ratio of Earnings to Fixed Charges (a) 4.29 9.02
(a) For purposes of computing the ratio of earnings to fixed charges, earnings
represent pretax income from continuing operations plus fixed charges (net of
capitalized interest). Fixed charges represent interest (whether expensed or
capitalized) and one-third (the portion deemed representative of the interest
factor) of rents.
Exhibit 13
Management's Discussion and Analysis
Operating Results
The following discussion addresses the operating results and financial
condition of the Company for the year ended December 31, 1996, which represents
the first full calendar year since the Company changed from a June 30 fiscal
year. Previously reported amounts have been restated to conform to the current
presentation. The comparisons of 1996 operations to those of 1995, and of 1995
to 1994 are affected by the significant changes the Company has made in its
portfolio of businesses during these years. As a result of these changes,
comparative results are more difficult to analyze. To aid in the analysis of
operating results, this discussion will address the financial results as
reported, then note the impact of divested businesses where applicable, and
finally, review the results of the ongoing businesses by industry segment.
See Note 2 to the Consolidated Financial Statements for further discussion of
the Company's acquisition and divestiture activities.
The following tables summarize the net sales and operating results of the
Company for the years ended December 31, 1996 (current year), 1995 (prior year)
and 1994:
<TABLE>
<CAPTION>
Net Sales Dollars in Millions
Year Ended December 31 1996 1995 1994
U.S. and U.S. and U.S. and
Canadian International Total Canadian International Total Canadian International Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Foods $2,559.2 $625.5 $3,184.7 $2,604.9 $ 594.5 $3,199.4 $2,518.6 $ 543.2 $3,061.8
Beverages 1,614.7 314.0 1,928.7 1,603.9 353.8 1,957.7 933.4 268.7 1,202.1
Ongoing Businesses 4,173.9 939.5 5,113.4 4,208.8 948.3 5,157.1 3,452.0 811.9 4,263.9
Divested Businesses 81.6 4.0 85.6 376.5 420.4 796.9 950.0 997.2 1,947.2
Total Company $4,255.5 $943.5 $5,199.0 $4,585.3 $1,368.7 $5,954.0 $4,402.0 $1,809.1 $6,211.1
<CAPTION>
Operating Income (Loss) Dollars in Millions
Year Ended December 31 1996 1995 1994
U.S. and U.S. and U.S. and
Canadian International Total Canadian International Total Canadian International Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Foods $ 359.8 $ 6.6 $ 366.4 $ 260.2 $(22.7) $ 237.5 $ 320.9 $ 50.2 $371.1
Beverages 84.4 (29.7) 54.7 18.9 (58.0) (39.1) 69.8 (29.1) 40.7
Ongoing Businesses 444.2 (23.1) 421.1 279.1 (80.7) 198.4 390.7 21.1 411.8
Gains on divestitures 133.6 2.8 136.4 604.2 566.6 1,170.8 -- 9.8 9.8
Divested Businesses 7.9 0.5 8.4 29.7 16.1 45.8 1.9 62.9 64.8
141.5 3.3 144.8 633.9 582.7 1,216.6 1.9 72.7 74.6
Total Company $ 585.7 $ (19.8) $ 565.9 $ 913.0 $502.0 $1,415.0 $ 392.6 $ 93.8 $486.4
<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 Businesses": includes the net sales and operating income of all
Company businesses not reported as Divested Businesses (see below).
"Divested Businesses": 1996 includes current year (through the divestiture
date) net sales and operating income for the U.S. and Canadian frozen foods
business (July 1996) and Italian products business (January 1996). 1995
includes prior year net sales and operating income for the following businesses
(through their respective divestiture dates): U.S. and Canadian pet food
(March 1995), U.S. bean and chili (June 1995), European pet food (April 1995),
Mexican chocolate (May 1995), Dutch honey (February 1995) and the businesses
divested in 1996.
1994 includes net sales and operating income for the year ended December 31,
1994 for businesses divested in 1995 and 1996.
"Gains on divestitures": 1996 includes pretax gains related to the following
divestitures: U.S. and Canadian frozen foods business ($133.6 million) and
Italian products business ($2.8 million). 1995 includes pretax gains on the
following divestitures: U.S. and Canadian pet food ($513.0 million), U.S. bean
and chili ($91.2 million), European pet food ($487.2 million), Mexican
chocolate ($74.5 million) and Dutch honey ($4.9 million). 1994 includes
pretax gains on the divestiture of a business in Venezuela ($9.8 million).
</FN>
</TABLE>
25
1996 Compared with 1995
Consolidated net sales decreased 13 percent primarily due to the absence of
divested businesses in the current year. Divested businesses accounted for
$85.6 million and $796.9 million of sales in 1996 and 1995, respectively. (See
"Divested Businesses" footnote in the preceding tables.) Sales were up for
U.S. Gatorade thirst quencher and hot cereals, Canadian and International
Foods; however, these increases were offset by declines in Snapple beverages,
ready-to-eat cereals (due to a June price reduction) and rice cakes, as well as
declines in less profitable sales in the food service coffee, Golden Grain and
European beverages businesses. With the exception of a ready-to-eat cereals
price reduction, price changes did not have a significant impact on 1996 sales.
Consolidated gross profit margin was 46.0 percent in 1996 compared to 44.7
percent in 1995. The gross profit margin increase is primarily due to lower
costs in the U.S. and Canadian Beverages business.
Selling, general and administrative (SG&A) expenses declined 16 percent, driven
by an 18 percent decrease in advertising and merchandising (A&M) expenses.
$182.6 million of the decrease in A&M spending relates to the absence of
divested businesses in the current year. The remaining decrease reflects
increased efficiency in A&M spending in U.S. and Canadian Foods and Gatorade
thirst quencher businesses. A&M expenses were 23.1 percent of sales, down from
24.6 percent in the prior year. The Company intends to continue to implement
changes in A&M programs in an effort to increase the efficiency and
effectiveness of its sales efforts.
Consolidated operating income of $565.9 million for the current year included
$136.4 million in gains on divestitures. Prior year operating income of $1.42
billion included $1.17 billion in gains on divestitures. (See "Gains on
divestitures" footnote in the preceding tables.) Operating income in 1996 and
1995 also included restructuring charges of $23.0 million and $117.3 million,
respectively. Estimated savings from the 1996 restructuring actions are about
$6 million annually beginning in 1997, of which approximately 90 percent will
be in cash. See Note 3 to the Consolidated Financial Statements for further
discussion on restructuring charges. Excluding the gains on divestitures,
restructuring charges and operating income from divested businesses in both
years, operating income of $444.1 million increased 41 percent from the prior
year, reflecting improvement across the Foods and Beverages segments.
Net financing costs (net interest expense and foreign exchange losses)
decreased $25.5 million in the current year. Debt levels declined due to
proceeds from the 1996 and 1995 divestitures, resulting in lower interest
expense.
The effective tax rate in 1996 was 40.4 percent versus 40.7 percent in the
prior year. Excluding the impact of the gains on divestitures and
restructuring charges in both years, and a non-recurring foreign tax benefit of
$7.2 million in the current year, the effective tax rate was 41.0 percent in
1996 versus 40.2 percent in 1995.
Industry Segment Operating Results
Foods - U.S. and Canadian net sales declined 2 percent on flat volume. During
1996 the Company implemented changes in the A&M programs of its U.S. and
Canadian businesses with the intention of removing less profitable promotions
from its merchandising mix. Operating income margins expanded both in
businesses with volume increases, including hot cereals, Canadian foods and
granola bars, as well as those with volume declines, including Golden Grain and
food service, reflecting the success of these A&M program changes. During 1996
the rice cakes and ready-to-eat cereals businesses faced significant
competitive issues which adversely affected sales. Rice cakes volume declined
due to increased competitive pressure in the low-fat snacks category. In June,
the Company took price reductions averaging 15 percent on 87 percent of its
ready-to-eat cereals brands. These pricing actions, a response to comparable
actions taken by major competitors, resulted in significantly lower ready-to-
eat sales and operating income in 1996 as compared to 1995. The adverse affect
of the price reductions on ready-to-eat cereals operating income was partially
mitigated by a 3 percent volume gain in ready-to-eat cereals. International
sales were up 5 percent while volume decreased 2 percent compared to the prior
year. Price increases in the Latin American business, particularly in Brazil,
were the key driver of the International sales gain. Volume declines were
primarily in the Brazilian pasta and European foods businesses, which more than
offset volume gains in other foods businesses in Brazil and Venezuela. The
Brazilian pasta volume decline was due to competitive pricing pressures, while
the decrease in European foods volume reflects the business realignment in that
region.
1996 operating income included $6.4 million of restructuring charges related to
U.S. plant consolidations. 1995 operating income included restructuring
charges of $39.1 million and $31.3 million for cost-reduction and realignment
activities in the U.S. and Canadian and International businesses, respectively.
Excluding these charges, operating income increased $64.9 million or 21 percent
compared to 1995. U.S. and Canadian operating results excluding restructuring
26
charges reflected a 2.8 percentage-point improvement in operating margin,
mainly the result of A&M efficiency improvements. The International operating
income increase from the prior year is primarily due to the absence of 1995
restructuring charges. Improved profits in Europe were offset by operating
income declines in Latin America, due to increased operating losses in the
Brazilian pasta business.
Beverages - Net sales decreased 1 percent reflecting lower Snapple beverages
volume, which offset Gatorade thirst quencher volume gains. U.S. and Canadian
sales increased 1 percent while volume decreased 2 percent. U.S. and Canadian
Gatorade thirst quencher sales growth of 5 percent on a 4 percent volume gain
was aided by successful new flavors and packaging and retail shelf space gains.
U.S. and Canadian Snapple beverages sales were 8 percent below last year on a
volume decline of 11 percent. A shift in the sales mix (Company-owned versus
third-party distribution) resulted in the disproportionate sales and volume
changes. Sales results trailed the prior year as Snapple beverages never
gained necessary volume momentum early in the beverage season. In addition, a
mid-summer change in advertising and promotion tactics, which resulted in over
$20 million of incremental marketing expenses, did not generate anticipated
volume gains. The sales decline, combined with higher marketing and
overhead expenses, increased U.S. Snapple beverages operating loss versus 1995.
International sales and volume decreased 11 percent primarily due to decreases
in European Gatorade thirst quencher, reflecting 1995 restructuring actions,
and declines in International Snapple beverages.
1996 operating income of the U.S. and Canadian business included restructuring
charges of $16.6 million related to the transition from a Company-owned Snapple
beverages distributor in certain Texas markets to a third-party beverages
distributor. 1995 total Beverages operating results included restructuring
charges of $46.9 million for cost-reduction and realignment activities and a
$19.1 million inventory charge related to Snapple beverages. In the U.S. and
Canadian business an increase in gross margin was a key driver of operating
profitability improvement. Gross margin increased 3.6 percentage-points
primarily due to cost-reductions and other supply chain efficiency gains. A&M
spending was lower than the prior year with significant efficiencies in
Gatorade thirst quencher A&M offsetting increases in Snapple beverages support.
The improvement in International operating results was mainly due to overhead
reductions, principally in Europe.
1995 Compared with 1994
Consolidated net sales decreased 4 percent primarily due to the businesses
divested in 1995. Net sales from ongoing businesses increased 21 percent
largely due to the inclusion of a full year of Snapple beverages operations.
Snapple beverages contributed $610.3 million in sales in 1995 compared to $25.0
million in 1994. Excluding Snapple beverages from the comparison, sales rose 7
percent reflecting growth in the ongoing Foods and Beverages segments. Price
increases did not significantly affect the comparison of 1995 and 1994 net
sales.
Significant changes in the Company's portfolio account for the decline in gross
profit margin from 49.7 percent in 1994 to 44.7 percent in 1995. The inclusion
of Snapple beverages and an inventory charge of $19.1 million, pertaining to
Snapple beverages, contributed to the overall gross profit margin percentage
decline, as did changes in the product mix and geographic segment mix of the
Foods businesses.
SG&A expenses were 8 percent lower than 1994 due mainly to a 13 percent
decrease in A&M spending. The Company spent $204.8 million in 1995 and $531.1
million in 1994 on A&M to support businesses that have been divested. For
ongoing businesses, A&M expenses were 24.4 percent and 27.1 percent of sales in
1995 and 1994, respectively.
1995 consolidated operating income increased over $900 million from 1994,
largely driven by gains on divestitures of $1.17 billion in 1995. Operating
income from ongoing businesses declined in 1995 mainly due to lower gross
profit margin in the Foods segment and the Snapple beverages operating loss.
Restructuring charges of $117.3 million in 1995 were down $1.1 million from
1994; $45.8 million of the 1994 restructuring charges pertained to Divested
businesses.
Net financing costs (net interest expense and foreign exchange losses)
increased by $28.3 million in 1995 to $133.8 million. Higher interest expense,
resulting from borrowings related to the Company's 1994 acquisitions, was
partly offset by lower foreign exchange losses.
The effective tax rate in 1995 was 40.7 percent versus 39.7 percent in 1994.
Excluding the impact of the gains on divestitures and restructuring charges in
1995 and 1994, the effective tax rates were 40.2 and 40.1 percent,
respectively.
Industry Segment Operating Results
Foods - 1995 net sales increased 4 percent from 1994, with higher sales in both
the U.S. and Canadian and International businesses. U.S. and Canadian sales
rose 3 percent on a volume gain of 2 percent, driven by growth in grain-based
snacks, Canadian foods, food service and Golden Grain, which more than offset
declines in ready-to-eat and hot cereals. Hot cereals 1995 sales performance
was adversely affected by increased competition from private-label products.
27
International sales and volume increases of 9 percent and 31 percent,
respectively, reflect the overall changes made in the International portfolio,
most notably the November 1994 acquisition of the Brazilian pasta business.
U.S. and Canadian operating income was down 19 percent, almost entirely due to
a decline in gross profit margin primarily driven by a change in the mix of
products sold, principally lower sales of hot and ready-to-eat cereals. 1995
operating income of U.S. and Canadian Foods included $39.1 million of
restructuring charges related to cost-reduction and realignment activities.
1995 restructuring charges were $23.6 million lower than 1994, with the
decrease in charges offset by higher overhead expenses in 1995. International
1995 operating results were adversely affected by restructuring charges of
$31.3 million related to business realignment (compared to $5.3 million in
1994) and operating losses of the Brazilian pasta business. Reduced inflation
and currency changes in Brazil also contributed to the operating income
decline, although lower net financing costs in that country more than offset
the decline.
Beverages - The comparison of 1995 and 1994 operating results of the Beverages
segment is significantly affected by the December 1994 acquisition of Snapple
beverages. 1995 net sales increased 63 percent, reflecting the first full year
of Snapple beverages sales. U.S. and Canadian sales increased $670.5 million
with $539.1 million of the increase due to Snapple beverages and the remaining
growth driven by Gatorade thirst quencher. New packaging, new flavors and
favorable weather conditions all contributed to the U.S. and Canadian Gatorade
thirst quencher's 15 percent sales increase on a 13 percent volume gain. The
International sales gain of 32 percent reflects the significant changes made
across the Company's International businesses to pursue opportunities for
growth in the Latin America and Asia/Pacific regions. Excluding Snapple
beverages, International sales grew 15 percent in 1995, with growth in Latin
America and Asia/Pacific regions more than offsetting lower sales in Europe.
The U.S. and Canadian Beverages 1995 operating income declined $50.9 million
from 1994, with the Snapple beverages operating loss more than offsetting
Gatorade thirst quencher operating income increases. The Snapple beverages
1995 operating loss included a restructuring charge of $24.4 million to reduce
excess contract manufacturing capacity and an inventory charge of $19.1 million
for excess and obsolete ingredients, labels, packaging and finished product.
Operating income for Gatorade thirst quencher in the U.S. and Canadian
business increased significantly over 1994 driven by sales growth and lower A&M
spending. U.S. and Canadian cost-reduction and realignment activities resulted
in $8.0 million of restructuring charges in 1995, a $3.6 million increase from
1994. The International operating loss increased in 1995 driven by a $14.5
million restructuring charge for realignment activities in Gatorade thirst
quencher, mainly in Europe, and underwriting of expansion in the Latin America
and Asia/Pacific regions.
Liquidity and Capital Resources
Net cash provided by operating activities was $410.4 million in 1996, an
increase of $3.3 million compared to 1995, reflecting improvements in operating
profitability. Net cash provided by operating activities in 1995 and 1994 was
$407.1 million and $415.8 million, respectively. Operating cash flow in 1995
was adversely impacted by lower gross margins in 1995 compared to 1994 and a
decrease in current liabilities that reflected the reduction of 1994 tax
liabilities related to divestiture gains and payments related to restructuring
liabilities.
Capital expenditures were $242.7 million, $301.2 million and $218.5 million for
1996, 1995 and 1994, respectively. Capital expenditures are expected to
continue at about the current rate in 1997, as the Company plans to continue
its expansion of production capacity for beverages and grain-based products in
the United States and China. Additional capital expenditures are planned to
support efforts to reduce supply chain costs and improve manufacturing and
distribution efficiencies. The Company expects that its future capital
expenditures and cash dividends will be financed through cash flow from
operating activities.
Proceeds from business divestitures and asset dispositions during 1996, 1995
and 1994 were $174.4 million, $1.28 billion and $13.2 million, net of tax,
respectively. Net cash outlays related to business acquisitions were $57.3
million in 1995 and $1.83 billion in 1994. The proceeds of the 1995 business
divestitures were used to reduce commercial paper borrowings secured in 1994 to
finance the Snapple beverages acquisition. Cash provided from the 1996
divestitures was primarily used to further reduce short-term debt.
Financing activities used cash of $331.3 million and $1.34 billion in 1996 and
1995, respectively, primarily reflecting the use of business divestiture
proceeds to reduce short-term debt. Net cash of $1.64 billion was provided by
the Company's 1994 financing activities, principally the commercial paper
borrowings used to finance the Snapple beverages acquisition. Short-term and
long-term debt (total debt) as of December 31, 1996 was $1.56 billion, a
decrease of $202.2 million from December 31, 1995. Total debt at December 31,
1994 was $2.96 billion. The total debt-to-total capitalization ratio was 55.6
percent, 61.7 percent and 86.3 percent as of December 31, 1996, 1995 and 1994,
respectively.
28
The Company reduced the level of its revolving credit facilities by $300.0
million during the second quarter and an additional $300.0 million during the
fourth quarter of 1996. The Company now has a $900.0 million annually
extendible five-year revolving credit facility. Credit facilities secured by
the Company have dramatically decreased over the last two years as commercial
paper borrowings supported by the revolving credit facilities were reduced.
The Company's levels of revolving credit facilities at December 31, 1995 and
1994 were $1.5 billion and $2.4 billion, respectively.
Following the announcement by the Company in June 1996 that the Snapple
beverages 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
would review the status of the Company's debt ratings. In late 1996 the
Company's long-term debt ratings were downgraded and its commercial paper
ratings were affirmed. The Company's long-term debt and commercial paper
ratings had been previously downgraded early in 1995 by Moody's and early in
1996 by Standard & Poor's and Fitch. The Company's current debt and commercial
paper ratings are as follows: Standard & Poor's (BBB+ and A2); Fitch (BBB and
F2); and Moody's (Baa1 and P2).
The Company utilizes derivative financial instruments to hedge exposure to
foreign currency fluctuations. The majority of the Company's international
business is currently in Latin American countries, principally Brazil, where
hedging markets are rapidly evolving but are not yet as developed or as
efficient as the traditional foreign exchange markets. The Company's exposure
to European foreign currency changes has been significantly reduced due to the
divestiture of the European pet food and Italian products businesses. The
Company intends to continue to use foreign currency hedge instruments to reduce
the risk that the U.S. dollar value of cash flows from foreign operations will
decrease as exchange rates fluctuate. Additional information on the Company's
hedging activities is in Note 7 to the Consolidated Financial Statements.
Current Accounting Changes
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement #123, "Accounting for Stock-Based Compensation." The Company
implemented the disclosure provisions of this Statement in 1996, and has
decided that it will not recognize the expense related to stock options in the
financial statements. See Note 10 to the Consolidated Financial Statements for
further discussion.
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. The Company's 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 governmental
interpretations of regulations and changes in accounting standards; customer
demand; effectiveness of spending or programs; distributor relations;
fluctuations in the cost and availability of supply chain resources; and
foreign economic conditions, including currency rate fluctuations.
The Company has evaluated the recoverability of Snapple beverages long-lived
assets as of December 31, 1996 pursuant to FASB Statement #121. Although the
Company's latest evaluation of recoverability has not resulted in the
recognition of an impairment loss, given the disappointing performance of the
business, management expects to update its assessment during 1997.
Accordingly, the Company's estimate of undiscounted future cash flows to be
generated by Snapple beverages could change in the near term. A change 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. The
carrying value of Snapple beverages long-lived assets, including intangible
assets, as of December 31, 1996 was $1.7 billion.
For the U.S. ready-to-eat cereals business, returning the business to higher
profit levels will largely depend on the competitive environment and the
Company's achievement of greater levels of efficiency and effectiveness in A&M
and overhead spending.
The reduction of future operating losses of the Brazilian pasta business will
depend on the competitive and commodity environments. The Company will be
reviewing strategies relative to this business during the first half of 1997.
29
<TABLE>
<CAPTION>
Five-Year Year Ended December 31 1996 1995 1994 1993 1992
Selected Financial Data Operating Results(a)(b)(c)(d)(e)(f)(g)
<S> <C> <C> <C> <C> <C>
Net sales $ 5,199.0 $ 5,954.0 $6,211.1 $5,791.9 $ 5,704.7
Gross profit 2,391.5 2,659.6 3,088.4 2,920.0 2,841.1
Income before income taxes and cumulative
effect of accounting changes 415.6 1,220.5 320.4 495.0 465.3
Provision for income taxes 167.7 496.5 127.3 190.4 188.4
Income before cumulative effect of
accounting changes 247.9 724.0 193.1 304.6 276.9
Cumulative effect of accounting
changes - net of tax -- -- (4.1) -- (115.5)
Net income $ 247.9 $ 724.0 $ 189.0 $ 304.6 $ 161.4
Per common share:
Income before cumulative effect
of accounting changes $ 1.80 $ 5.39 $ 1.41 $ 2.14 $ 1.85
Cumulative effect of accounting changes -- -- (0.03) -- (0.79)
Net income $ 1.80 $ 5.39 $ 1.38 $ 2.14 $ 1.06
Dividends declared:
Common stock $ 153.3 $ 150.8 $ 145.8 $ 138.2 $ 131.8
Per common share $ 1.14 $ 1.14 $ 1.10 $ 1.01 $ 0.91
Convertible preferred and redeemable
preference stock $ 3.7 $ 4.0 $ 4.0 $ 4.1 $ 4.2
Average number of common shares
outstanding (in thousands) 135,466 134,149 133,709 139,833 146,135
<FN>
(a) 1996 operating results include pretax restructuring charges of $23.0 million, or $.14 per share, and pretax
gains of $136.4 million, or $.60 per share, for business divestitures.
(b) 1995 operating results include pretax restructuring charges of $117.3 million, or $.53 per share, and pretax
gains of $1.17 billion, or $5.20 per share, for business divestitures.
(c) 1994 operating results include pretax restructuring charges of $118.4 million, or $.55 per share, and a pretax
gain of $9.8 million, or $.07 per share, for a business divestiture.
(d) See Notes 2 and 3 to the consolidated financial statements for further discussion of 1994 through 1996 gains on
divestitures and restructuring charges.
(e) See Note 13 to the consolidated financial statements for discussion of the 1994 cumulative effect of accounting
change.
(f) Per share data reflect the 1994 two-for-one stock split-up.
(g) 1992 cumulative effect of accounting changes includes an after-tax charge of $125.4 million for the adoption of
FASB Statement #106 and a $9.9 million tax benefit for the adoption of FASB Statement #109.
</FN>
30
<CAPTION>
Dollars in Millions (Except Per Share Data)
Year Ended December 31 1996 1995 1994 1993 1992
Financial Statistics
<S> <C> <C> <C> <C> <C>
Current ratio 0.7 0.6 0.5 0.9 1.2
Working capital $ (465.0) $ (621.6) $(1,616.9) $ (89.4) $ 177.6
Property, plant and equipment - net $1,200.7 $1,167.8 $ 1,333.1 $1,222.0 $1,217.2
Depreciation expense $ 119.1 $ 115.3 $ 133.1 $ 132.3 $ 131.7
Total assets $4,394.4 $4,620.4 $ 5,061.1 $2,805.2 $2,783.2
Long-term debt $ 993.5 $1,051.8 $ 1,025.9 $ 708.4 $ 673.8
Convertible preferred stock (net of
deferred compensation) and redeemable
preference stock $ 19.0 $ 17.7 $ 17.0 $ 13.1 $ 9.5
Common shareholders' equity $1,229.9 $1,079.3 $ 452.7 $ 437.4 $ 780.0
Net cash provided by operating activities $ 410.4 $ 407.1 $ 415.8 $ 506.6 $ 503.7
Operating return on assets (a) 13.3% 30.9% 13.1% 24.0% 21.9%
Gross profit as a percentage of sales 46.0% 44.7% 49.7% 50.4% 49.8%
Advertising and merchandising as a
percentage of sales 23.1% 24.6% 27.2% 25.9% 25.6%
Income before cumulative effect of
accounting changes as a percentage of sales 4.8% 12.2% 3.1% 5.3% 4.9%
Total debt-to-total capitalization ratio (b) 55.6% 61.7% 86.3% 69.9% 49.6%
Common dividends as a percentage of
income available for common shares
(excluding cumulative effect of
accounting changes) 63.3% 21.2% 78.0% 47.2% 49.2%
Number of common shareholders 29,690 30,353 28,142 28,237 33,721
Number of employees worldwide 14,800 16,100 20,753 20,207 20,792
Market price range of common stock:
High (c) $39 1/2 $37 1/2 $42 1/2 $38 1/2 $37 3/16
Low (c) $30 3/8 $30 1/4 $29 3/4 $30 3/16 $25 1/8
<FN>
(a) Operating income divided by average identifiable assets of the consolidated total (excluding corporate).
(b) Total debt divided by total debt plus total shareholders' equity including convertible preferred stock
(net of deferred compensation) and redeemable preference stock.
(c) Per share data reflect the 1994 two-for-one stock split-up.
</FN>
31
</TABLE>
The Quaker Oats Company and Subsidiaries
<TABLE>
<CAPTION>
Eleven-Year Transition Fiscal
Selected Financial Data Year Ended Period Ended Years Ended
December 31 December 31 June 30
1996 1995 1995
Operating Results(a)(b)(c)(d)(e)(f)(g)(h)(i)(j)
<S> <C> <C> <C>
Net sales $5,199.0 $2,733.1 $6,365.2
Gross profit 2,391.5 1,203.8 2,983.7
Income from continuing operations before income taxes
and cumulative effect of accounting changes 415.6 25.6 1,359.9
Provision for income taxes 167.7 11.9 553.8
Income from continuing operations before cumulative
effect of accounting changes 247.9 13.7 806.1
(Loss) income from discontinued operations - net of tax -- -- --
Income from the disposal of discontinued operations - net of tax -- -- --
Cumulative effect of accounting changes - net of tax -- -- (4.1)
Net income $ 247.9 $ 13.7 $ 802.0
Per common share:
Income from continuing operations before cumulative effect
of accounting changes $ 1.80 $ 0.09 $ 6.00
(Loss) income from discontinued operations -- -- --
Income from the disposal of discontinued operations -- -- --
Cumulative effect of accounting changes -- -- (0.03)
Net income $ 1.80 $ 0.09 $ 5.97
Dividends declared:
Common stock $ 153.3 $ 75.7 $ 150.8
Per common share $ 1.14 $ 0.57 $ 1.14
Convertible preferred and redeemable preference stock $ 3.7 $ 2.0 $ 4.0
Average number of common shares outstanding (in thousands) 135,466 134,355 133,763
<FN>
(a) 1996 operating results include pretax restructuring charges
of $23.0 million, or $.14 per share, and pretax gains of $136.4
million, or $.60 per share, for business divestitures.
(b) 1995 transition period reflects only six months of operating
results.
(c) 1995 transition period operating results include pretax
restructuring charges of $40.8 million, or $.18 per share.
(d) Fiscal 1995 operating results include pretax restructuring
charges of $76.5 million, or $.35 per share, and pretax gains of
$1.17 billion, or $5.20 per share, for business divestitures.
</FN>
32
<CAPTION>
Dollars in Millions (Except Per Share Data)
1994 1993 1992 1991 1990 1989 1988 1987 1986
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$5,955.0 $5,730.6 $5,576.4 $5,491.2 $5,030.6 $4,879.4 $4,508.0 $3,823.9 $2,968.6
3,028.8 2,860.6 2,745.3 2,652.7 2,350.3 2,229.0 2,114.6 1,750.7 1,298.7
378.7 467.6 421.5 411.5 382.4 239.1 314.6 295.9 255.8
147.2 180.8 173.9 175.7 153.5 90.2 118.1 141.3 113.4
231.5 286.8 247.6 235.8 228.9 148.9 196.5 154.6 142.4
-- -- -- (30.0) (59.9) 54.1 59.2 33.5 37.2
-- -- -- -- -- -- -- 55.8 --
-- (115.5) -- -- -- -- -- -- --
$ 231.5 $ 171.3 $ 247.6 $ 205.8 $ 169.0 $ 203.0 $ 255.7 $ 243.9 $ 179.6
$ 1.68 $ 1.96 $ 1.63 $ 1.53 $ 1.47 $ 0.94 $ 1.23 $ 0.98 $ 0.89
-- -- -- (0.20) (0.40) 0.34 0.37 0.22 0.23
-- -- -- -- -- -- -- 0.35 --
-- (0.79) -- -- -- -- -- -- --
$ 1.68 $ 1.17 $ 1.63 $ 1.33 $ 1.07 $ 1.28 $ 1.60 $ 1.55 $ 1.12
$ 140.6 $ 136.1 $ 128.6 $ 118.7 $ 106.9 $ 95.2 $ 79.9 $ 63.2 $ 55.3
$ 1.06 $ 0.96 $ 0.86 $ 0.78 $ 0.70 $ 0.60 $ 0.50 $ 0.40 $ 0.35
$ 4.0 $ 4.2 $ 4.2 $ 4.3 $ 3.6 -- -- -- $ 2.3
135,236 143,948 149,762 151,808 153,074 158,614 159,670 157,624 158,120
<FN>
(e) Fiscal 1994 operating results include pretax restructuring charges of
$118.4 million, or $.55 per share, and a pretax gain of $9.8 million, or $.07
per share, for a business divestiture.
(f) See Notes 2 and 3 to the consolidated financial statements for further
discussion of 1994 through 1996 gains on divestitures and restructuring
charges.
(g) See Note 13 to the consolidated financial statements for discussion of
fiscal 1995 cumulative effect of accounting change.
(h) Fiscal 1993 cumulative effect of accounting changes includes an after-
tax charge of $125.4 million for the adoption of FASB Statement #106
and a $9.9 million tax benefit for the adoption of FASB Statement #109.
(i)Fiscal 1989 operating results include pretax restructuring charges of
$124.3 million, or $.50 per share, for plant consolidations and
overhead reductions and a pretax charge of $25.6 million, or $.10 per
share, for a change to the LIFO method of accounting for the majority
of U.S. Foods and Beverages inventories.
(j) Per share data and average number of common shares outstanding reflect
the fiscal 1995 two-for-one stock split-up.
</FN>
33
The Quaker Oats Company and Subsidiaries
<CAPTION>
Eleven-Year Transition Fiscal Years
Selected Financial Data Year Ended Period Ended Ended
December 31 December 31 June 30
1996 1995 1995
Financial Statistics(a)(b)(c)
<S> <C> <C> <C>
Current ratio 0.7 0.6 0.7
Working capital $ (465.0) $ (621.6) $ (496.3)
Property, plant and equipment - net $1,200.7 $1,167.8 $1,113.4
Depreciation expense $ 119.1 $ 59.2 $ 125.4
Total assets $4,394.4 $4,620.4 $4,826.9
Long-term debt $ 993.5 $1,051.8 $1,103.1
Convertible preferred stock (net of deferred
compensation) and redeemable preference stock $ 19.0 $ 17.7 $ 18.8
Common shareholders' equity $1,229.9 $1,079.3 $1,128.8
Net cash provided by operating activities $ 410.4 $ 84.3 $ 475.5
Operating return on assets (d) 13.3% 2.4% 42.3%
Gross profit as a percentage of sales 46.0% 44.0% 46.9%
Advertising and merchandising as a percentage of sales 23.1% 24.1% 26.3%
Income from continuing operations before cumulative
effect of accounting changes as a percentage of sales 4.8% 0.5% 12.7%
Total debt-to-total capitalization ratio (e) 55.6% 61.7% 59.0%
Common dividends as a percentage of income available
for common shares (excluding cumulative
effect of accounting changes) 63.3% 633.3% 19.0%
Number of common shareholders 29,690 30,353 29,148
Number of employees worldwide 14,800 16,100 17,300
Market price range of common stock:
High (f) $39 1/2 $37 3/8 $42 1/2
Low (f) $30 3/8 $30 3/4 $29 3/4
<FN>
(a) Income-related statistics exclude the results of
businesses reported as discontinued operations. Balance
sheet amounts and related statistics have not been restated
for discontinued operations, other than Fisher-Price, due
to materiality.
(b) 1995 transition period reflects only six months of
results.
(c) Effective fiscal 1991, common shareholders' equity and
number of employees worldwide were reduced as a result of
the Fisher-Price spin-off.
</FN>
34
<CAPTION>
Dollars in Millions (Except Per Share Data)
1994 1993 1992 1991 1990 1989 1988 1987 1986
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1.0 1.0 1.2 1.3 1.3 1.8 1.4 1.4 1.4
$ (5.5) $ (37.5) $ 168.7 $ 317.8 $ 342.8 $ 695.8 $ 417.5 $ 507.9 $ 296.8
$1,214.2 $1,228.2 $1,273.3 $1,232.7 $1,154.1 $ 959.6 $ 922.5 $ 898.6 $ 691.0
$ 133.3 $ 129.9 $ 129.7 $ 125.2 $ 103.5 $ 94.2 $ 88.3 $ 81.6 $ 59.1
$3,043.3 $2,815.9 $3,039.9 $3,060.5 $3,377.4 $3,125.9 $2,886.1 $3,136.5 $1,944.5
$ 759.5 $ 632.6 $ 688.7 $ 701.2 $ 740.3 $ 766.8 $ 299.1 $ 527.7 $ 160.9
$ 15.3 $ 11.4 $ 7.9 $ 4.8 $ 1.8 -- -- -- --
$ 445.8 $ 551.1 $ 842.1 $ 901.0 $1,017.5 $1,137.1 $1,251.1 $1,087.5 $ 831.7
$ 450.8 $ 558.2 $ 581.3 $ 543.2 $ 460.0 $ 408.3 $ 320.8 $ 375.1 $ 266.9
19.9% 21.1% 18.9% 18.8% 20.4% 14.4% 18.3% 22.1% 25.8%
50.9% 49.9% 49.2% 48.3% 46.7% 45.7% 46.9% 45.8% 43.7%
26.6% 25.7% 26.0% 25.6% 23.8% 23.4% 24.9% 22.9% 21.7%
3.9% 5.0% 4.4% 4.3% 4.6% 3.1% 4.4% 4.0% 4.8%
68.8% 59.0% 48.7% 47.4% 52.3% 44.2% 33.8% 50.2% 35.7%
63.1% 48.9% 52.9% 58.9% 65.1% 46.9% 31.3% 25.9% 31.2%
28,197 33,154 33,580 33,603 33,859 34,347 34,231 32,358 27,068
20,000 20,200 21,100 20,900 28,200 31,700 31,300 30,800 29,500
$41 $ 38 1/2 $ 37 7/8 $32 7/16 $34 7/16 $ 33 1/8 $28 11/16 $28 13/16 $ 19 7/8
$30 15/16 $28 1/16 $ 25 1/8 $ 20 7/8 $22 9/16 $21 5/16 $ 15 1/2 $16 5/16 $ 11 3/4
<FN>
(d) Operating income divided by average identifiable assets of the
consolidated total (excluding corporate).
(e) Total debt divided by total debt plus total shareholders' equity
including convertible preferred stock (net of deferred compensation) and
redeemable preference stock.
(f) Per share data reflect the fiscal 1995 two-for-one stock split-up.
35
</FN>
</TABLE>
The Quaker Oats Company and Subsidiaries
<TABLE>
<CAPTION>
Dollars in Millions (Except Per Share Data)
Consolidated Year Ended December 31 1996 1995 1994
Statements of Income
<S> <C> <C> <C>
Net Sales $5,199.0 $ 5,954.0 $6,211.1
Cost of goods sold 2,807.5 3,294.4 3,122.7
Gross profit 2,391.5 2,659.6 3,088.4
Selling, general and administrative expenses 1,981.0 2,358.8 2,553.9
Gains on divestitures and restructuring
charges - net (113.4) (1,053.5) 108.6
Interest expense 106.8 131.6 101.5
Interest income (7.4) (6.2) (9.0)
Foreign exchange loss - net 8.9 8.4 13.0
Income Before Income Taxes and Cumulative Effect
of Accounting Change 415.6 1,220.5 320.4
Provision for income taxes 167.7 496.5 127.3
Income Before Cumulative Effect of Accounting
Change 247.9 724.0 193.1
Cumulative effect of accounting change - net of
tax -- -- (4.1)
Net Income 247.9 724.0 189.0
Preferred dividends - net of tax 3.7 4.0 4.0
Net Income Available for Common $ 244.2 $ 720.0 $ 185.0
Per Common Share:
Income Before Cumulative Effect of Accounting
Change $ 1.80 $ 5.39 $ 1.41
Cumulative effect of accounting change -- -- (0.03)
Net Income $ 1.80 $ 5.39 $ 1.38
Dividends declared $ 1.14 $ 1.14 $ 1.10
Average Number of Common Shares Outstanding
(in thousands) 135,466 134,149 133,709
See accompanying notes to the consolidated financial statements.
36
<CAPTION>
Dollars in Millions
Consolidated Year Ended December 31 1996 1995 1994
Statements of Cash Flows Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net income $ 247.9 $ 724.0 $ 189.0
Adjustments to reconcile net
income to net cash provided by
operating activities:
Cumulative effect of accounting change -- -- 4.1
Depreciation and amortization 200.6 204.0 173.0
Deferred income taxes 14.3 22.5 (20.5)
Gains on divestitures - net
of tax of $54.6, $476.2 and $1.0
in 1996, 1995 and 1994, respectively (81.8) (694.6) (8.8)
Restructuring charges 23.0 117.3 118.4
Loss on disposition of property
and equipment 29.0 27.4 12.2
Decrease (increase) in trade accounts
receivable 62.6 43.7 (94.3)
Decrease (increase) in inventories 19.6 44.8 (92.4)
Decrease (increase) in other current
assets 65.1 (76.0) (27.4)
(Decrease) increase in trade accounts
payable (53.7) 49.8 11.3
(Decrease) increase in other current
liabilities (164.2) (117.0) 81.8
Change in deferred compensation 21.5 21.4 16.7
Other items 26.5 39.8 52.7
Net Cash Provided by Operating Activities 410.4 407.1 415.8
Cash Flows from Investing Activities:
Additions to property, plant
and equipment (242.7) (301.2) (218.5)
Business acquisitions -- (57.3) (1,833.9)
Business divestitures - net of tax of
$54.6, $476.2 and $1.0 in 1996, 1995 and
1994, respectively - and asset dispositions 174.4 1,278.7 13.2
Change in other assets 0.2 4.2 (2.5)
Net Cash (Used in) Provided
by Investing Activities (68.1) 924.4 (2,041.7)
Cash Flows from Financing Activities:
Cash dividends (157.0) (154.8) (149.8)
Change in short-term debt (124.5) (1,243.5) 1,520.3
Proceeds from long-term debt 2.4 212.6 77.9
Reduction of long-term debt (77.7) (60.0) (87.5)
Proceeds from short-term debt
to be refinanced -- (112.0) 300.0
Issuance of common treasury stock 31.0 20.4 20.8
Repurchases of common stock -- -- (44.7)
Repurchases of preferred stock (5.5) (5.7) (1.5)
Net Cash (Used in) Provided
by Financing Activities (331.3) (1,343.0) 1,635.5
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 6.3 1.7 17.7
Net Increase (Decrease) in Cash
and Cash Equivalents 17.3 (9.8) 27.3
Cash and Cash Equivalents - Beginning of Period 93.2 103.0 75.7
Cash and Cash Equivalents - End of Period $ 110.5 $ 93.2 $ 103.0
See accompanying notes to the consolidated financial statements.
37
The Quaker Oats Company and Subsidiaries
<CAPTION>
Consolidated December 31 1996 1995
Balance Sheets Assets
<S>
Current Assets <C> <C>
Cash and cash equivalents $ 110.5 $ 93.2
Trade accounts receivable - net of allowances 294.9 398.3
Inventories
Finished goods 181.8 203.6
Grains and raw materials 62.1 69.7
Packaging materials and supplies 31.0 33.4
Total inventories 274.9 306.7
Other current assets 209.4 281.9
Total Current Assets 889.7 1,080.1
Property, Plant and Equipment
Land 29.6 26.0
Buildings and improvements 389.5 398.4
Machinery and equipment 1,524.2 1,521.6
Property, plant and equipment 1,943.3 1,946.0
Less accumulated depreciation 742.6 778.2
Property - Net 1,200.7 1,167.8
Intangible Assets - Net of Amortization 2,237.2 2,309.2
Other Assets 66.8 63.3
Total Assets $4,394.4 $ 4,620.4
See accompanying notes to the consolidated financial statements.
38
<CAPTION>
Dollars in Millions
December 31 1996 1995
Liabilities and Shareholders' Equity
<S> <C> <C>
Current Liabilities
Short-term debt $ 517.0 $ 643.4
Current portion of long-term debt 51.1 68.6
Trade accounts payable 210.2 298.4
Accrued payroll, benefits and bonus 111.3 105.1
Accrued advertising and merchandising 130.2 150.9
Income taxes payable 42.4 65.4
Other accrued liabilities 292.5 369.9
Total Current Liabilities 1,354.7 1,701.7
Long-term Debt 993.5 1,051.8
Other Liabilities 558.9 536.3
Deferred Income Taxes 238.4 233.6
Preferred Stock, Series B, 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, 187,810 shares
and 122,562 shares, respectively (16.1) (10.6)
Common Shareholders' Equity
Common stock, $5 par value, authorized 400
million shares 840.0 840.0
Reinvested earnings 1,521.3 1,433.6
Cumulative translation adjustment (68.2) (77.8)
Deferred compensation (103.4) (118.1)
Treasury common stock, at cost (959.8) (998.4)
Total Common Shareholders' Equity 1,229.9 1,079.3
Total Liabilities and Shareholders' Equity $4,394.4 $4,620.4
39
The Quaker Oats Company and Subsidiaries
<CAPTION>
Consolidated
Statements of Common
Shareholders' Equity Common Stock Issued Common Shares
Shares Amount Outstanding
<S> <C> <C> <C>
Balance as of December 31, 1993 83,989,396 $420.0 66,905,833
Net income
Cash dividends declared on
common stock
Cash dividends declared on
preferred stock
Common stock issued for stock purchase
and incentive plans 1,103,130
Repurchases of common stock (1,228,000)
Two-for-one stock split-up 83,989,396 420.0 66,905,833
Foreign currency adjustments
(net of allocated income tax
benefits of $6.3)
Deferred compensation
Other
Balance as of December 31, 1994 167,978,792 840.0 133,686,796
Net income
Cash dividends declared on common stock
Cash dividends declared on preferred stock
Common stock issued for stock purchase and
incentive plans 1,119,259
Foreign currency adjustments (net of
allocated income tax benefits of $4.0)
Deferred compensation
Other
Balance as of December 31, 1995 167,978,792 840.0 134,806,055
Net income
Cash dividends declared on common stock
Cash dividends declared on preferred stock
Common stock issued for stock purchase and
incentive plans 1,287,010
Foreign currency adjustments (net of
allocated income tax benefits of $1.1)
Deferred compensation
Other
Balance as of December 31, 1996 167,978,792 $840.0 136,093,065
See accompanying notes to the consolidated financial statements.
40
<CAPTION>
Dollars in Millions
Additional Cumulative
Paid-In Reinvested Translation Deferred Treasury Common Stock
Capital Earnings Adjustment Compensation Shares Amount Total
<C> <C> <C> <C> <C> <C> <C>
$ -- $1,250.3 $(68.9) $(144.4) 17,083,563 $(1,019.6) $ 437.4
189.0 189.0
(145.8) (145.8)
(4.0) (4.0)
(1.9) (1.9) (1,103,130) 32.5 28.7
1,228,000 (44.7) (44.7)
(420.0) 17,083,563
(21.1) (21.1)
11.3 11.3
1.9 1.9
-- 867.6 (90.0) (133.1) 34,291,996 (1,031.8) 452.7
724.0 724.0
(150.8) (150.8)
(4.0) (4.0)
(2.7) (3.2) (1,119,259) 33.4 27.5
12.2 12.2
15.0 15.0
2.7 2.7
-- 1,433.6 (77.8) (118.1) 33,172,737 (998.4) 1,079.3
247.9 247.9
(153.3) (153.3)
(3.7) (3.7)
(3.0) (3.2) (1,287,010) 38.6 32.4
9.6 9.6
14.7 14.7
3.0 3.0
$ -- $1,521.3 $(68.2) $(103.4) 31,885,727 $ (959.8) $1,229.9
41
The Quaker Oats Company and Subsidiaries
<CAPTION>
Industry Segment and Identifiable Assets
Geographic Area Information Year Ended December 31 1996 1995 1994
Industry Segment Information
<S> <C> <C> <C>
Foods $1,735.4 $1,761.2 $1,715.9
Beverages 2,438.2 2,483.2 2,294.4
Total Ongoing Businesses 4,173.6 4,244.4 4,010.3
Divested Businesses (a) -- 107.4 804.0
Total Businesses 4,173.6 4,351.8 4,814.3
Corporate (b) 220.8 268.6 246.8
Total Consolidated $4,394.4 $4,620.4 $5,061.1
<CAPTION>
Identifiable Assets
Year Ended December 31 1996 1995 1994
Geographic Area Information
<S> <C> <C> <C>
United States and Canada $3,609.2 $3,678.8 $3,553.3
Latin America 343.7 344.8 277.5
Europe and Asia/Pacific 220.7 220.8 179.5
International 564.4 565.6 457.0
Total Ongoing Businesses 4,173.6 4,244.4 4,010.3
Divested Businesses (a) -- 107.4 804.0
Total Businesses 4,173.6 4,351.8 4,814.3
Corporate (b) 220.8 268.6 246.8
Total Consolidated $4,394.4 $4,620.4 $5,061.1
<FN>
(a) Includes the following Divested Businesses: 1996 (U.S. and Canadian frozen foods and Italian products);
1995 and 1994 (U.S. and Canadian frozen foods, U.S. and Canadian pet food, U.S. bean and chili, Italian
products, European pet food, Mexican chocolate and Dutch honey).
(b) Identifiable assets include corporate cash and cash equivalents, short-term investments and miscellaneous
receivables and investments.
42
<CAPTION>
Dollars in Millions
Capital Expenditures Depreciation & Amortization
1996 1995 1994 1996 1995 1994
<C> <C> <C> <C> <C> <C>
$ 132.3 $ 171.2 $ 106.2 $ 103.5 $ 100.9 $ 95.1
110.1 101.9 48.2 93.9 87.6 26.6
242.4 273.1 154.4 197.4 188.5 121.7
0.3 22.9 56.6 1.7 13.5 49.5
242.7 296.0 211.0 199.1 202.0 171.2
-- 5.2 7.5 1.5 2.0 1.8
$ 242.7 $ 301.2 $ 218.5 $ 200.6 $ 204.0 $ 173.0
Net Sales (c) Operating Income (d)(e)(f)(g)(h)
1996 1995 1994 1996 1995 1994
<C> <C> <C> <C> <C> <C>
$4,173.9 $4,208.8 $3,452.0 $ 444.2 $ 279.1 $ 390.7
625.4 600.6 465.9 15.4 26.1 62.1
314.1 347.7 346.0 (38.5) (106.8) (41.0)
939.5 948.3 811.9 (23.1) (80.7) 21.1
5,113.4 5,157.1 4,263.9 421.1 198.4 411.8
85.6 796.9 1,947.2 144.8 1,216.6 74.6
5,199.0 5,954.0 6,211.1 565.9 1,415.0 486.4
-- -- -- -- -- --
$5,199.0 $5,954.0 $6,211.1 $ 565.9 $1,415.0 $486.4
<FN>
(c) Represents net sales to unaffiliated customers only. Net sales between
geographic areas have been eliminated.
(d) U.S. and Canada includes restructuring charges of $23.0 million, $71.5
million and $67.1 million in 1996, 1995 and 1994, respectively.
(e) Latin America includes restructuring charges of $4.1 million and $3.8
million in 1995 and 1994, respectively.
(f) Europe and Asia/Pacific includes restructuring charges of $41.7 million
and $1.7 million in 1995 and 1994, respectively.
(g) Divested Businesses includes restructuring charges of $45.8 million in
1994 and gains on divestitures of $136.4 million, $1.17 billion and $9.8
million in 1996, 1995 and 1994, respectively.
(h) See Notes 2 and 3 to consolidated financial statements for further
discussion of 1994 through 1996 gains on divestitures and restructuring
charges.
43
The Quaker Oats Company and Subsidiaries
<CAPTION>
Dollars in Millions (Except Per Share Data)
Industry Segment Net Sales Operating Income (a)(b)(c)(d)
Information Year Ended December 31 1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Foods
U.S. and Canadian $2,559.2 $2,604.9 $2,518.6 $ 359.8 $ 260.2 $320.9
International 625.5 594.5 543.2 6.6 (22.7) 50.2
Total Foods 3,184.7 3,199.4 3,061.8 366.4 237.5 371.1
Beverages
U.S. and Canadian 1,614.7 1,603.9 933.4 84.4 18.9 69.8
International 314.0 353.8 268.7 (29.7) (58.0) (29.1)
Total Beverages 1,928.7 1,957.7 1,202.1 54.7 (39.1) 40.7
Total Ongoing Businesses 5,113.4 5,157.1 4,263.9 421.1 198.4 411.8
Total Divested Businesses (e)(f)(g)(h) 85.6 796.9 1,947.2 144.8 1,216.6 74.6
Net Sales and Operating Income $5,199.0 $5,954.0 $6,211.1 565.9 1,415.0 486.4
Less: General corporate expenses(i) 42.0 60.7 60.5
Interest expense - net 99.4 125.4 92.5
Foreign exchange loss - net 8.9 8.4 13.0
Income before income taxes and
cumulative effect of accounting
change 415.6 1,220.5 320.4
Provision for income taxes 167.7 496.5 127.3
Income before cumulative effect of
accounting change $ 247.9 $ 724.0 $193.1
Income per common share before
cumulative effect of accounting
change (j) $ 1.80 $ 5.39 $ 1.41
<FN>
(a) 1996 operating results for Ongoing Businesses include pretax restructuring
Charges of $23.0 million, or $.14 per share; $6.4 million is included in U.S.
and Canadian Foods and $16.6 million is included in U.S. and Canadian Beverages.
(b) 1995 operating results for Ongoing Businesses include pretax restructuring
charges of $117.3 million, or $.53 per share; $39.1 million, $32.4 million,
$31.3 million and $14.5 million are included in U.S. and Canadian Foods, U.S.
and Canadian Beverages, International Foods and International Beverages,
respectively.
(c) 1994 operating results include pretax restructuring charges of $118.4
million, or $.55 per share; $62.7 million, $4.4 million, $5.3 million, $0.2
million and $45.8 million are included in U.S. and Canadian Foods, U.S. and
Canadian Beverages, International Foods, International Beverages and Divested
Businesses, respectively.
(d) See Notes 2 and 3 to the consolidated financial statements for further
discussion of 1994 through 1996 gains on divestitures and restructuring charges.
(e) 1996 operating results for Divested Businesses include pretax gains of
$136.4 million, or $.60 per share.
(f) 1995 operating results for Divested Businesses include pretax gains of $1.17
billion, or $5.20 per share.
(g) 1994 operating results for Divested Businesses include a pretax gain of $9.8
million, or $.07 per share.
(h) 1996 includes current year (through the divestiture date) net sales and
operating income for the U.S. and Canadian frozen foods business and Italian
products business. 1995 includes prior year net sales and operating income for
the following businesses (through the divestiture date): U.S. and Canadian pet
food, U.S. bean and chili, European pet food, Mexican chocolate,Dutch honey and
the businesses divested in 1996.
(i) 1995 and 1994 general corporate expenses include a provision of $10.6
million and $18.4 million, or $.05 and $.08 per share, respectively, for
estimated litigation costs.
(j) Per share data reflect the 1994 two-for-one stock split-up
</FN>
</TABLE>
44
Notes to the Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies
Consolidation - The consolidated financial statements include The Quaker Oats
Company and all of its subsidiaries (the Company). All significant
intercompany transactions have been eliminated. Acquired businesses are
included in the results of operations since their acquisition dates. Divested
businesses are included in the results of operations until their divestiture
dates.
Fiscal-Year Change - The Consolidated Financial Statements and Notes to the
Consolidated Financial Statements for the year ended December 31, 1996,
represent the first full calendar year since the Company changed from a June 30
fiscal year. Previously reported amounts have been restated to conform to the
current presentation.
Foreign Currency Translation - Assets and liabilities of the Company's foreign
subsidiaries, other than those located in highly inflationary countries, are
translated at current exchange rates, while income and expense are translated
at average rates for the period. For entities in highly inflationary
countries, a combination of current and historical rates is used to determine
foreign currency gains and losses resulting from financial statement
translation. Translation gains and losses are reported as a component of
common shareholders' equity, except for those associated with highly
inflationary countries, which are reported directly in the consolidated income
statements.
Futures, Swaps, Options, Caps and Forward Contracts - The Company uses a
variety of futures, swaps, options, caps and forward contracts in its
management of foreign currency, commodity price and interest rate exposures.
Realized and unrealized gains and losses on foreign exchange contracts that are
effective as net investment hedges are recognized as a component of common
shareholders' equity. Realized and unrealized gains and losses on commodity
options and futures contracts that hedge commodity price exposure are deferred
in inventory and subsequently included in cost of goods sold as the inventory
is sold. Expenses associated with interest rate swap and cap agreements that
hedge interest rate exposure are deferred and recognized as a component of
interest expense over the term of each agreement. Other realized and unrealized
gains and losses on financial instruments are recognized currently in the
consolidated income statements.
Cash and Cash Equivalents - Cash equivalents are composed of all highly liquid
investments with an original maturity of three months or less. As a result of
the Company's cash management system, checks issued but not presented to the
banks for payment may create negative book cash balances. Such negative
balances are included in trade accounts payable and amounted to $45.5 million
and $64.7 million as of December 31, 1996 and 1995, respectively.
Inventories - Inventories are valued at the lower of cost or market, using
various cost methods, and include the cost of raw materials, labor and
overhead. The percentages of year-end inventories valued using each of the
methods were as follows:
December 31 1996 1995
Last-in, first-out (LIFO) 53% 49%
Average quarterly cost 39% 44%
First-in, first-out (FIFO) 8% 7%
If the LIFO method of valuing these inventories was not used, total inventories
would have been $15.3 million and $12.2 million higher than reported as of
December 31, 1996 and 1995, respectively.
Long-lived Assets - Long-lived assets are comprised of intangible assets and
property, plant and equipment. Long-lived assets, including certain
identifiable intangibles and goodwill related to those assets to be held and
used, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. An
estimate of undiscounted future cash flows produced by the asset, or the
appropriate grouping of assets, is compared to the carrying amount to determine
whether an impairment exists. If an asset is determined to be impaired, the
loss is measured based on quoted market prices in active markets, if available.
If quoted market prices are not available, the estimate of fair value is based
on the best information available, including considering prices for similar
assets and the results of valuation techniques to the extent available. Long-
lived assets and certain identifiable intangibles to be disposed of that are
not covered by Accounting Principles Board (APB) Opinion No. 30, "Reporting
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," are reported at the lower of the asset's carrying amount or its
fair value less cost to sell. The Company reports an asset to be disposed of
at the lower of its carrying amount or its estimated net realizable value.
45
The Company has evaluated the recoverability of Snapple beverages long-lived
assets, including intangible assets, as of December 31, 1996 pursuant to
Financial Accounting Standards Board (FASB) Statement #121. In performing its
review for recoverability, the Company compared the estimated undiscounted
future cash flows to the carrying value of Snapple beverages long-lived assets,
including intangible assets. The carrying value of Snapple beverages long-
lived assets at December 31, 1996 was $1.7 billion. As the estimated
undiscounted future cash flows exceeded the carrying value of long-lived
assets, the Company was not permitted or required to recognize an impairment
loss.
Although the Company's latest evaluation of recoverability has not resulted in
the recognition of an impairment loss, given the disappointing performance of
the business, management expects to update its assessment during 1997.
Accordingly, the Company's estimate of undiscounted future cash flows to be
generated by Snapple beverages could change in the near term. A change 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.
Intangibles - Intangible assets consist principally of excess purchase price
over net tangible assets of businesses acquired (goodwill) and trademarks.
Goodwill is amortized on a straight-line basis over periods not exceeding 40
years.
Intangible assets, net of amortization, and their estimated useful lives
consist of the following:
Estimated
Useful Lives
Dollars in Millions (In Years) 1996 1995
Goodwill 10 to 40 $1,887.1 $1,893.2
Trademarks and other 2 to 40 586.8 588.4
Intangible assets 2,473.9 2,481.6
Less accumulated amortization 236.7 172.4
Intangible assets - net of amortization $2,237.2 $2,309.2
Property and Depreciation - Property, plant and equipment are carried at cost
and depreciated on a straight-line basis over their estimated useful lives.
Useful lives range from 20 to 50 years for buildings and improvements and from
three to 17 years for machinery and equipment.
Software Costs - The Company defers significant software development project
costs. No software costs were deferred during 1996. Software costs of $0.2
million were deferred during 1995. Amounts deferred are amortized over a three-
year period beginning with a project's completion. Net deferred software costs
as of December 31, 1996 and 1995 were $1.5 million and $4.2 million,
respectively.
Current Accounting Changes - The Company adopted FASB Statement #123,
"Accounting for Stock-Based Compensation," as of December 31, 1996 and
implemented the disclosure provisions of this Statement. While the Statement
encourages companies to recognize expense for stock options at estimated fair
value based on an option-pricing model, the Company has elected to disclose the
pro forma net income and earnings per share that would have been obtained under
the Statement's approach for valuing and expensing stock options. See Note 10
for further discussion and related disclosures.
Income Taxes - The Company uses an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income taxes are provided
when tax laws and financial accounting standards differ with respect to the
amount of income for a year and the bases of assets and liabilities. Income
taxes have been provided on $111.0 million of the $142.9 million of unremitted
earnings from foreign subsidiaries. Taxes are not provided on earnings
expected to be indefinitely reinvested.
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.
Note 2
Acquisitions and Divestitures
The Company has made significant changes in its business portfolio with the
1994 acquisitions and the 1995 through 1996 divestitures.
On December 6, 1994, the Company purchased Snapple Beverage Corp. for a tender-
offer price of $1.7 billion. The acquisition was accounted for as a purchase
and the results of Snapple beverages are included in the consolidated financial
46
statements since the date of acquisition. The acquisition was initially
financed with commercial paper borrowings. The after-tax proceeds on the 1995
divestitures of $1.25 billion were used to reduce the commercial paper
borrowings.
The following table presents unaudited pro forma combined historical results as
if Snapple Beverage Corp. was acquired at the beginning of 1994. The pro forma
results are not necessarily indicative of what actually would have occurred if
the acquisition had been completed as of the beginning of 1994, nor are they
necessarily indicative of future consolidated results.
Pro Forma Results (Unaudited)
Dollars in Millions (Except Per Share Data) 1994
Net Sales $ 6,859.7
Income before cumulative effect of accounting change $ 150.0
Income per common share before cumulative effect of accounting change $ 1.09
In 1994, the Company also purchased the Adria pasta business in Brazil, the
Southern Foods oat milling business in Australia, and the Arnie's bagel
business in the United States. In 1994, the Company realized a $9.8 million
gain on the sale of a business in Venezuela. Sales and operating income from
these businesses were not material.
On March 14, 1995, the Company completed the sale of its U.S. and Canadian pet
food business to H.J. Heinz Company for $725.0 million and realized a gain of
$513.0 million. On April 24, 1995, the Company completed the sale of its
European pet food business to Dalgety PLC for $700.0 million and realized a
gain of $487.2 million. Other divestitures in 1995 included the Dutch honey
business in February 1995, the Mexican chocolate business in May 1995 and the
U.S. bean and chili businesses in June 1995. The Company realized gains on
these divestitures of $4.9 million, $74.5 million and $91.2 million,
respectively. In 1995, the Company also purchased the Nile Spice variety soup-
in-a-cup business in the United States. Pro forma information for the 1994 and
1995 acquisitions was not material in the aggregate.
On January 15, 1996, the Company completed the sale of its Italian products
business and realized a gain of $2.8 million. On July 9, 1996, the Company
completed the sale of its U.S. and Canadian frozen foods business for $185.8
million and realized a gain of $133.6 million.
The following table presents sales and operating income from the businesses
divested in 1996 and 1995 through the divestiture dates. Operating income
includes certain allocations of overhead expenses and excludes gains on
divestitures and restructuring charges in all years.
Dollars in Millions 1996 1995 1994
Sales:
U.S. and Canadian $81.6 $376.5 $950.0
International 4.0 420.4 997.2
Sales from divested businesses $85.6 $796.9 $1,947.2
Operating income:
U.S. and Canadian $7.9 $29.7 $47.7
International 0.5 16.1 62.9
Operating income from divested businesses $8.4 $45.8 $110.6
Note 3
Restructuring Charges
In September 1996, the Company recorded restructuring charges of $23.0 million.
These charges included $16.6 million to change how the Company sells Snapple
beverages in certain Texas markets and $6.4 million for plant consolidations in
the U.S. Foods business. Estimated savings from the 1996 restructuring actions
are about $6 million annually beginning in 1997, of which approximately 90
percent will be in cash.
In December 1995, the Company recorded restructuring charges of $40.8 million.
These charges included $24.4 million to reduce the amount of contract
manufacturing capacity in the Snapple beverages supply chain system and $16.4
million to realign the European beverage and Asia/Pacific grain-based food
businesses. The realignment in Europe and Asia/Pacific resulted in the
elimination of about 80 positions and allowed the Company to focus on more
attractive growth areas in Southern Europe for beverages and China for foods.
In June 1995, the Company recorded restructuring charges of $76.5 million for
cost-reduction and realignment activities in order to address the changes in
its business portfolio and to allow it to more quickly and effectively respond
to the needs of trade customers and consumers. These changes resulted in the
elimination of approximately 850 positions and primarily included the
realignment of the corporate, U.S. shared services and business unit
structures, the European cereal business and the U.S. distribution center
network. Savings realized from these restructuring activities have been in
line with expectations.
47
In 1994, the Company recorded restructuring charges of $118.4 million to
eliminate positions at the headquarters and research and development
facilities, a combination and realignment of the U.S. sales force,
manufacturing consolidations for the bean and chili, rice cake and Aunt Jemima
syrup businesses and the closing of a Canadian pet food facility and refocusing
of the Canadian business, as well as other cost-reduction initiatives.
Approximately 1,500 positions were eliminated as a result of these initiatives.
Savings realized from the 1994 restructuring activities have been in line with
expectations. With the 1995 divestitures of the U.S. and Canadian and European
pet food businesses, as well as the U.S. bean and chili businesses, there are
no remaining reserves and no recurring savings to be realized from the
restructuring activities related to these businesses.
Restructuring provisions were determined based on estimates prepared at the
time the restructuring actions were approved by management and the Board of
Directors. The 1996 and 1995 restructuring reserve balances are considered
adequate to cover committed restructuring actions.
The restructuring charges and utilization to date were as follows:
<TABLE>
<CAPTION>
As of December 31, 1996
Amounts Charged Amounts Remaining
Dollars in Millions Cash Non-Cash Total Utilized Reserve
<S> <C> <C> <C> <C> <C>
1996
Severance and termination benefits $ 1.4 $ -- $ 1.4 $ 0.9 $ 0.5
Asset write-offs -- 18.9 18.9 14.0 4.9
Loss on lease and other 2.6 0.1 2.7 0.1 2.6
Subtotal 4.0 19.0 23.0 15.0 8.0
1995
Severance and termination benefits 48.8 -- 48.8 44.6 4.2
Loss on reduction of contract
manufacturing capacity 22.5 1.9 24.4 8.1 16.3
Asset write-offs to consolidate
facilities 0.1 22.8 22.9 18.8 4.1
Contract cancellation fees, loss on
leases and other 21.2 -- 21.2 7.6 13.6
Subtotal 92.6 24.7 117.3 79.1 38.2
1994
Severance and termination benefits 44.7 -- 44.7 44.7 --
Asset write-offs and loss on leases 7.6 30.7 38.3 38.3 --
Product-line discontinuations 3.3 32.1 35.4 35.4 --
Subtotal 55.6 62.8 118.4 118.4 --
Total $152.2 $106.5 $258.7 $212.5 $46.2
</TABLE>
Operating income excluding restructuring charges, gains on divestitures and
divested businesses in all periods was as follows:
Dollars in Millions 1996 1995 1994
Operating Income as reported $565.9 $1,415.0 $486.4
Restructuring charges:
Foods 6.4 70.4 68.0
Beverages 16.6 46.9 4.6
Ongoing Businesses 23.0 117.3 72.6
Divested Businesses -- -- 45.8
Subtotal 23.0 117.3 118.4
Gains on divestitures (136.4) (1,170.8) (9.8)
Operating income from Divested Businesses (8.4) (45.8) (110.6)
Subtotal (144.8) (1,216.6) (120.4)
Operating income excluding charges, gains
and Divested Businesses $444.1 $ 315.7 $484.4
Note 4
Trade Accounts Receivable Allowances
Dollars in Millions 1996 1995
Balance at beginning of year $26.8 $20.8
Provision for doubtful accounts 12.3 13.5
Provision for discounts and allowances 32.2 23.9
Write-offs of doubtful accounts - net of recoveries (8.4) (7.4)
Discounts and allowances taken (28.0) (21.2)
Effect of divestitures (5.3) (1.9)
Effect of exchange rate changes (0.3) (0.9)
Balance at end of year $29.3 $26.8
Note 5
Revolving Credit Facilities and Short-term Debt
In 1996, the Company reduced the level of its revolving credit facilities by a
total of $600.0 million. The Company now has a $900.0 million annually
extendible five-year revolving credit facility with various banks. The
facility supports the Company's commercial paper borrowings and is also
available for direct borrowings. There were no direct borrowings in 1996 or in
1995. The revolving credit facility requires the Company and certain domestic
subsidiaries to maintain certain financial ratios.
48
The Company had an Adjusted Principal Revolving Credit Agreement through
December 29, 1995, at which time the Company terminated the Agreement. The
Company borrowed the predetermined amount available each quarter during 1995.
Short-term debt consists primarily of commercial paper borrowings in the United
States and notes payable to banks in foreign countries. Commercial paper
borrowings outstanding as of December 31, 1996 and 1995 were $438.6 million and
$693.0 million, respectively. Notes payable to banks were $78.4 million and
$19.4 million as of December 31, 1996 and 1995, respectively. See Note 6 for
discussion of reclassification of short-term debt to long-term debt. Weighted
average interest rates on all short-term debt outstanding as of December 31,
1996 and 1995 were 5.8 percent and 6.4 percent, respectively. Nominal interest
rates in highly inflationary countries have been adjusted for currency
devaluation to express interest rates in U.S. dollar terms.
Note 6
Long-term Debt
Dollars in Millions 1996 1995
7.76% Senior ESOP notes due through 2001 $ 64.9 $ 71.7
8.0% Senior ESOP notes due through 2001 100.3 115.6
7.75%-7.9% Series A medium-term notes due through 2000 41.5 56.7
8.63%-9.34% Series B medium-term notes due through 2019 185.6 216.1
6.5%-7.48% Series C medium-term notes due through 2024 200.0 200.0
6.45%-7.78% Series D medium-term notes due through 2026 400.0 331.0
6.63% deutsche mark swap due 1997 18.1 19.4
5.7%-8.0% Industrial Revenue Bonds due through 2009, tax-exempt 24.9 33.4
Non-interest bearing installment note due 2014 6.1 5.4
Short-term debt to be refinanced -- 69.0
Other 3.2 2.1
Subtotal 1,044.6 1,120.4
Less current portion of long-term debt 51.1 68.6
Long-term debt $ 993.5 $1,051.8
Aggregate required payments for long-term debt maturing over the next five
years are as follows:
Dollars in Millions 1997 1998 1999 2000 2001
Required payments $51.1 $108.6 $94.4 $80.5 $47.7
In January 1990, the Company filed a $600.0 million medium-term note shelf
registration with the SEC. In April 1995, the Company filed a prospectus
supplement for $400.0 million Series D medium-term notes in addition to the
$200.0 million Series C medium-term notes previously issued under the 1990
shelf registration.
As of December 31, 1995, the Company had issued $331.0 million of Series D
medium-term notes with the intent to issue the remaining $69.0 million of
medium-term notes in the near future. As a result, the consolidated balance
sheet as of December 31, 1995, included the reclassification of $69.0 million
of short-term debt to long-term debt, reflecting the Company's intent and
ability to refinance this debt on a long-term basis.
As of December 31, 1996, the Company had issued $400.0 million of Series D
medium-term notes bearing interest ranging from 6.45 percent to 7.78 percent
per annum with maturities from three to 30 years.
The non-interest bearing installment note for $55.5 million had an unamortized
discount of $49.4 million and $50.1 million as of December 31, 1996 and 1995,
respectively, based on an imputed interest rate of 13 percent.
Note 7
Financial Instruments
The Company actively monitors its exposure to foreign currency rate, commodity
price and interest rate risks. Financial instruments are used to reduce the
impact of these risks and to fund operating requirements. The primary
financial instruments used are foreign exchange forward contracts, purchased
foreign currency options, commodity options and futures contracts, and short-
term and long-term debt instruments. In addition, the Company has occasionally
used interest rate swap and cap agreements.
Foreign currency hedge instruments are used to reduce the risk that the U.S.
dollar value of the net investment in and cash flows from foreign operations
will decrease as exchange rates fluctuate. Similarly, commodity hedge
instruments are used to reduce the risk that raw material purchases will be
adversely affected as commodity prices change. Interest rate swap and cap
agreements are used to reduce the risk that interest costs will increase as
interest rates change. While the hedge instruments are subject to the risk of
loss from exchange rate, commodity price or interest rate changes, the losses
would generally be offset by expected gains on translation of the net
49
investments, higher operating results, lower costs of the purchases being
hedged or lower interest costs. The Company uses financial instruments only
for purposes of hedging risk associated with underlying exposures. The Company
does not trade or use these instruments with the objective of earning financial
gains on the exchange rate, commodity price or interest rate fluctuations
alone, nor does it utilize instruments in currencies, commodities or interest
for which there are no underlying exposures. Management believes that its use
of financial instruments to reduce risk is in the Company's best interest.
Latin American and Asian currency hedging markets are rapidly evolving but are
not yet fully developed. Historically, the Company has not hedged these
currencies because the opportunities were limited and costly. During 1996, the
Company executed certain hedging instruments to reduce exposure to Brazilian
currency movements. As of December 31, 1996, no Brazilian currency hedges were
outstanding. As in Europe and Canada, the Company will continue to use foreign
currency hedge instruments, where economical, to reduce exposure to potentially
significant currency movements in Latin America and in Asia. Where hedging
opportunities are not available, the exposures are addressed through managing
net asset positions and borrowing or investing in a combination of local
currency and U.S. dollars.
The counterparties to the Company's financial instruments are major financial
institutions. The Company continually evaluates the creditworthiness of the
counterparties and has never experienced, nor does it anticipate,
nonperformance by any of its counterparties.
Balance Sheet Hedges - The Company utilizes net investment hedges and foreign
currency swaps to offset foreign currency gains and losses which are recognized
in the balance sheet.
Net Investment Hedges - The Company's significant net hedges and the related
foreign currency net investments and net exposures as of December 31, 1996 were
as follows:
Dollars in Millions Net Investment Net Hedge Net Exposure
Currency:
British pound $ 23.2 $ 5.2 $ 18.0
Canadian dollar $ 26.5 $ 9.5 $ 17.0
Dutch guilder $ 19.8 $18.5 $ 1.3
German mark $ 20.1 $16.3 $ 3.8
Italian lira $ 24.5 $ 4.4 $ 20.1
The Company actively monitors its net exposures and adjusts the hedge amounts
as appropriate. The net hedges are stated above on an after-tax basis. The
net exposures are subject to gain or loss if foreign currency exchange rates
fluctuate. On a consolidated basis, the net gain or loss is recognized as an
increase or decrease in cumulative translation adjustment in the consolidated
balance sheet, except in highly inflationary economies where net gains and
losses are reported in net income.
As of December 31, 1996 and 1995, the Company had net foreign exchange forward
contracts to sell primarily European and Canadian currencies for $35.3 million
and $74.7 million, respectively, to hedge its net investments. These contracts
will mature in 1997. Unrealized losses as of December 31, 1996 and 1995 were
$0.2 million and $1.0 million, respectively. The carrying value of these
contracts approximates fair value.
Foreign Currency Swaps - In 1988, the Company swapped $15.0 million of long-
term debt for 27.9 million in deutsche mark (DM) denominated long-term debt,
effectively hedging part of the German net investment. The DM swap agreement
requires the Company to re-exchange DM 27.9 million for $15.0 million in August
1997 and to make semiannual interest payments of DM 0.9 million through August
1997. The DM swap was included in current long-term debt as of December 31,
1996 for $18.1 million. The DM swap was included in long-term debt as of
December 31, 1995 for $19.4 million. The long-term debt is revalued as the
U.S. dollar/DM exchange rate changes.
Due to the sale of the European pet food business in 1995, the net investment
in Germany was reduced to the point where the DM swap was no longer effective
as a net investment hedge, requiring any subsequent revaluation adjustments to
be charged or credited to the consolidated income statement. To offset this
charge or credit, the Company entered into a foreign exchange forward contract
and the net effect on the consolidated income statements for 1996 and 1995 was
not material. The interest payments are subject to exchange rate fluctuations;
however, the effect on the Company's consolidated income statements was not
material.
Income Statement Hedges - The Company uses foreign currency options and
forwards, commodity options and futures, and interest rate hedges to offset
gains and losses which are recognized in the income statement.
Foreign Currency Hedges - The Company uses foreign currency options and
forwards to offset the impact of foreign currency fluctuations recognized in
the Company's operating results. Included in the consolidated income
50
statements were losses from foreign currency hedge instruments of $1.0 million,
$3.5 million and $2.0 million in 1996, 1995 and 1994, respectively.
Commodity Options and Futures - The Company uses commodity options and futures
contracts to reduce its exposure to commodity price changes. The Company
regularly hedges purchases of oats, corn, corn sweetener, wheat, coffee beans
and orange juice concentrate. Of the $2.81 billion in cost of goods sold,
approximately $275 million to $325 million is in commodities that may be
hedged. The Company's strategy is typically to hedge certain production
requirements for various periods up to 12 months. As of December 31, 1996 and
1995, approximately 32 percent and 54 percent, respectively, of hedgeable
production requirements for the next 12 months were hedged. Deferred
unrecognized losses related to commodity options and futures contracts as of
December 31, 1996 and 1995 were $0.1 million and $0.4 million, respectively.
Realized gains (losses) charged to cost of goods sold in 1996, 1995 and 1994
were $5.1 million, $0.3 million and $(5.2) million, respectively. The fair
values of these commodity instruments as of December 31, 1996 and 1995, based
on quotes from brokers, were net losses of $2.9 million and $0.2 million,
respectively.
Interest Rate Hedges - The Company actively monitors its interest rate
exposure. In 1995, the Company entered into interest rate swap agreements with
a notional value of $150.0 million. The swap agreements were used to hedge
fixed interest rate risk related to anticipated issuance of long-term debt.
The swap agreements were subsequently terminated at a cost of $11.9 million as
long-term debt was issued. Included in the consolidated balance sheets as of
December 31, 1996 and 1995 were $8.9 million and $10.8 million, respectively,
of prepaid interest expense as settlement of all the interest rate swap
agreements. Prepaid interest expense is recognized in the consolidated income
statements on a straight-line basis over the original term of the swap
agreements, which ranged from three to 10 years. The carrying value of the
settled interest rate swap agreements approximates the fair value of the swap
at the settlement date less amortized interest. In 1994, the Company entered
into interest rate cap agreements with a notional value of $600.0 million to
hedge floating interest rate risk. As of December 31, 1996 and 1995 there were
no interest rate cap agreements in place and no deferred prepaid interest
related to these agreements. Included in 1996 interest expense was $1.9
million related to the interest rate swap agreements. In 1995, interest
expense included $2.0 million related to both the interest rate swap and cap
agreements.
Debt Instruments - The carrying value of cash and cash equivalents and short-
term debt approximates fair value due to the short-term maturity of the
instruments. The fair value of long-term debt was $1.07 billion and $1.10
billion as of December 31, 1996 and 1995, respectively, and was based on market
prices for the same or similar issues or on the current rates offered to the
Company for similar debt of the same maturities. The carrying value of long-
term debt, including current maturities, as of December 31, 1996 and 1995 was
$1.04 billion and $1.12 billion, respectively.
Note 8
Capital Stock
In November 1994, shareholders approved an increase in authorized shares from
200 million to 400 million. Pursuant to the two-for-one stock split-up,
shareholders of record received an additional share of common stock for each
share held. Per share data and average number of common shares outstanding
have been retroactively restated. As a result of the increase in issued
shares, common stock has been increased and reinvested earnings has been
decreased by $420.0 million.
During 1994, 0.6 million shares of the Company's outstanding common stock were
repurchased for $22.5 million under a 10 million share repurchase program
announced in August 1993.
The Company is authorized to issue 10 million shares of preferred stock in
series, with terms fixed by resolution of the Board of Directors. One million
shares of Series A Junior Participating Preferred Stock had been reserved for
issuance in connection with the 1986 Shareholder Rights Plan. The 1986
Shareholder Rights Plan expired on July 30, 1996 and was replaced by a new
Shareholder Rights Plan adopted on May 8, 1996. As a result, the one million
shares of Series A Junior Participating Preferred Stock have been canceled and
four million shares of Series C Junior Participating Preferred Stock have been
reserved for issuance in connection with the new Shareholder Rights Plan. See
Note 11 for further discussion.
An additional 1,750,000 shares of Series B Employee Stock Ownership Plan (ESOP)
Convertible Preferred Stock (Series B Stock) have been reserved for issuance in
connection with the Company's ESOP. As of December 31, 1996, 1,282,051 shares
of the Series B Stock had been issued and are each convertible into 2.1576
shares of the Company's common stock. The Series B Stock will be issued only
for the ESOP and will not be traded on the open market.
51
The Company is also authorized to issue one million shares of redeemable
preference stock, none of which had been issued as of December 31, 1996.
Note 9
Deferred Compensation
The ESOP was established to issue debt and to use the proceeds of such debt to
acquire shares of the Company's stock for future allocation to ESOP
participants. The ESOP borrowings are included as long-term debt on the
Company's consolidated balance sheets. See Note 6 for further discussion on
the ESOP notes.
Deferred compensation of $168.3 million as of December 31, 1996 primarily
represents the Company's payment of future compensation expense related to the
ESOP. As the Company makes annual contributions to the ESOP, these
contributions, along with the dividends accumulated on the common and preferred
stock held by the ESOP, are used to repay the outstanding loans. As the loans
are repaid, common and preferred stock are allocated to ESOP participants and
deferred compensation is reduced by the amount of the principal payments on the
loans.
The following table presents the ESOP loan payments:
Dollars in Millions 1996 1995
Principal payments $22.1 $19.4
Interest payments 14.7 16.2
Total ESOP payments $36.8 $35.6
As of December 31, 1996, 4,171,785 shares of common stock and 453,105 shares of
preferred stock were held in the accounts of ESOP participants.
Note 10
Employee Stock Option and Award Plans
In November 1989, the Company's shareholders approved the adoption of The
Quaker Long Term Incentive Plan of 1990 (Plan). The purpose of the Plan is to
promote the interests of the Company and its shareholders by providing the
officers and other key employees with additional incentives and the
opportunity, through stock ownership, to increase their proprietary interest in
the Company and their personal interest in its continued success. The Plan
provides for benefits to be awarded in a variety of ways, with stock options
being used most frequently. Twenty-six million shares of common stock have
been authorized for grant under the Plan. Previously, stock options were issued
under the 1984 Long-Term Incentive Plan, which expired by its terms on December
31, 1990.
Stock options may be granted for the purchase of common stock at a price not
less than the fair market value on the date of grant. Generally, the exercise
price of each stock option equals the market price of the Company's stock on
the date of grant. However, portions of the 1992 option awards were granted at
exercise prices higher than the fair market value on the date of grant.
Options are generally exercisable after one or more years and expire no later
than 10 years from the date of grant. As of December 31, 1996, 726 persons
held such options.
Effective December 31, 1996, the Company has elected to disclose the pro forma
effects of FASB Statement #123, "Accounting for Stock-Based Compensation." As
allowed under the provisions of this new Statement, the Company will continue
to apply APB Opinion #25 and related Interpretations in accounting for the
stock options awarded under the Plan. Accordingly, no compensation cost has
been recognized for these stock options. Had compensation cost for the Plan
been determined consistent with FASB Statement #123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
Dollars in Millions 1996 1995
Net Income:
As reported $247.9 $724.0
Pro forma $242.0 $720.7
Earnings per share:
As reported $ 1.80 $ 5.39
Pro forma $ 1.76 $ 5.37
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
1996 1995
Dividend yield 3.3 % - 3.4 % 3.2 %
Expected volatility 14.4 % - 20.1 % 20.6 % - 20.9 %
Risk-free interest rates 5.66 % - 6.76 % 5.78 % - 6.23 %
Expected lives 2 to 8 years 2 to 8 years
52
A summary of the status of the Company's option plans is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 16,724,814 $33.99 14,706,033 $33.78 12,899,425 $31.70
Granted 152,150 $33.93 4,038,115 $33.13 3,138,450 $39.98
Exercised 1,260,977 $24.66 927,371 $22.97 847,806 $22.97
Forfeited 1,351,957 $38.14 1,091,963 $37.36 484,036 $37.40
Outstanding at end of year 14,264,030 $34.42 16,724,814 $33.99 14,706,033 $33.78
Exercisable at end of year 10,947,837 $34.33 10,150,528 $34.00 8,159,018 $30.47
Weighted-average fair value of
options granted during the year $ 5.97 $ 6.38 N/A
<FN>
N/A: Information not applicable as the date of issue for the 1994 option
grants precedes the effective date of FASB Statement #123 requirements.
</FN>
The following summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding Options Exercisable
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Shares Life Price Shares Price
$20.38-40.35 14,264,030 6.43 Years $34.42 10,947,837 $34.33
Under the Plan, restricted stock awards grant shares of the Company's common
stock to key officers and employees. These shares are subject to a restriction
period from the date of grant, during which they may not be sold, assigned,
pledged or otherwise encumbered. The number of shares of the Company's common
stock awarded were 55,600, 19,400 and 45,000 in 1996, 1995 and 1994,
respectively. The 1994 awards reflect the 1994 two-for-one stock split-up.
Restrictions on these awards lapse after a period of time designated by the
Compensation Committee of the Board of Directors.
Note 11
Shareholder Rights Plan
On May 8, 1996, the Company's Board of Directors adopted a new Shareholder
Rights Plan to replace the Shareholder Rights Plan originally adopted in 1986
which expired on July 30, 1996. The Company's Shareholder Rights Plan is
designed to deter coercive or unfair takeover tactics and to prevent a person
or group from gaining control of the Company without offering a fair price to
all shareholders.
Under the terms of the 1996 Shareholder Rights Plan, all common shareholders
own one "Right" per outstanding share of common stock entitling them to
purchase from the Company one one-hundredth of a share of Series C Junior
Participating Preferred Stock at an exercise price of $150. The Rights become
exercisable: 10 days after a public announcement that a person or group has
acquired shares representing 15 percent or more of the outstanding shares of
common stock; or 15 business days following commencement of a tender offer for
15 percent or more of such outstanding shares of common stock.
The Company can redeem the Rights for $0.01 per Right at any time prior to
their becoming exercisable. The Rights will expire on July 31, 2006, unless
redeemed earlier by the Company or exchanged for common stock.
If after the Rights become exercisable the Company is involved in a merger or
other business combination at any time when there is a holder of 15 percent or
more of the Company's stock, the Rights will then entitle holders, upon
exercise of the Rights, to receive shares of common stock of the acquiring or
surviving company with a market value equal to twice the exercise price of each
Right. There is an exemption for any issuance of common stock by the Company
directly to any person, even if that person would become the beneficial owner
of 15% or more of the common stock provided that such person does not acquire
any additional shares of common stock. The Rights described in this paragraph
shall not apply to an acquisition, merger or consolidation which is determined
by a majority of the Company's independent directors, after consulting one or
more investment banking firms, to be fair and otherwise in the best interest of
the Company and its shareholders.
53
Note 12
Pension Plans
The Company has various pension plans covering substantially all U.S. employees
and certain foreign employees. Plan benefits are based on compensation paid to
employees and their years of service. Company policy is to make contributions
to its U.S. plans within the maximum amount deductible for Federal income tax
purposes. Plan assets consist primarily of equity securities and government,
corporate and other fixed-income obligations.
The components of net pension costs for the plans were as follows:
Dollars in Millions 1996 1995 1994
Service cost (benefits earned during the year) $ 34.0 $53.5 $ 49.9
Interest cost on projected benefit obligation 70.0 63.3 57.6
Return on plan assets (72.4) (69.0) (65.0)
Net amortization and deferral (8.7) (7.3) (8.1)
Multi-employer plans 0.5 0.4 0.3
Net pension costs $ 23.4 $40.9 $ 34.7
The decline in the Company's 1996 pension expense is due primarily to an
increase in the actual rate of return on the plans' net assets, a reduction
in the number of active employees and changes in certain actuarial assumptions
to better reflect the Company's actual experience.
Reconciliations of the funded status of the Company's U.S. plans to the accrued
pension costs were as follows:
</TABLE>
<TABLE>
<CAPTION>
Overfunded Underfunded
Dollars in Millions 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Vested benefits $ 702.5 $ 658.7 $ 65.6 $ 59.3
Non-vested benefits 25.0 15.4 0.9 1.5
Accumulated benefit obligation 727.5 674.1 66.5 60.8
Effect of projected future salary increases 65.1 75.3 10.5 13.9
Projected benefit obligation 792.6 749.4 77.0 74.7
Plan assets at market value 880.4 783.7 26.9 27.1
Projected benefit obligation less
(greater) than plan assets 87.8 34.3 (50.1) (47.6)
Unrecognized net (gain) loss (135.7) (64.3) 1.5 1.7
Unrecognized prior service cost 16.4 19.0 4.2 5.2
Unrecognized net (asset) liability at
transition (9.9) (22.1) 0.9 1.5
Accrued pension costs $ (41.4) $ (33.1) $ (43.5) $ (39.2)
<FN>
Assumptions (reflecting averages across all plans): Weighted average discount
rate: 7.5%, Rate of future compensation increases: 4.5%, Long-term rate of
return on plan assets: 9.5%.
</FN>
</TABLE>
Reconciliations of the funded status of the Company's foreign plans to the
prepaid (accrued) pension costs were as follows:
<TABLE>
<CAPTION>
Overfunded Underfunded
Dollars in Millions 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Vested benefits $ 95.1 $ 78.2 $ 14.0 $ 21.0
Non-vested benefits -- 0.1 0.6 2.2
Accumulated benefit obligation 95.1 78.3 14.6 23.2
Effect of projected future salary increases 29.0 24.4 0.7 0.8
Projected benefit obligation 124.1 102.7 15.3 24.0
Plan assets at market value 139.0 114.6 0.1 --
Projected benefit obligation less
(greater) than plan assets 14.9 11.9 (15.2) (24.0)
Unrecognized net (gain) loss (4.7) (3.5) 0.5 0.2
Unrecognized prior service cost 2.7 3.9 -- --
Unrecognized net asset at transition (7.3) (7.9) (0.1) (0.1)
Prepaid (accrued) pension costs $ 5.6 $ 4.4 $(14.8) $(23.9)
<FN>
Assumptions (reflecting averages across all plans): Weighted average discount rate: 7.9%,
Rate of future compensation increases: 6.1%, Long-term rate of return on plan
assets: 8.1%.
</FN>
</TABLE>
Unrecognized prior service cost is being amortized over periods ranging from 10
to 18 years.
The foreign pension plans included unfunded termination indemnity reserves of
$6.7 million and $15.4 million as of December 31, 1996 and 1995, respectively.
Note 13
Postretirement Benefits Other Than Pensions and Other
Postemployment Benefits
The Company has various postretirement health care plans covering substantially
all U.S. employees and certain foreign employees. The plans provide for the
payment of certain health care and life insurance benefits for retired
employees who meet certain service-related eligibility requirements. The
Company funds only the plans' annual cash requirements.
54
The components of postretirement benefit costs were as follows:
Dollars in Millions 1996 1995 1994
Service cost (benefits earned during the year) $ 6.7 $ 6.9 $ 7.1
Interest cost on projected benefit obligation 17.3 19.4 19.0
Amortization 0.4 0.2 0.1
Total postretirement benefit costs $24.4 $26.5 $26.2
The Company's unfunded accumulated postretirement benefit obligations and
accrued postretirement benefit costs were as follows:
Dollars in Millions 1996 1995
Current retirees $ 132.3 $ 136.4
Current active employees - fully eligible 11.7 15.8
Current active employees - not fully eligible 105.1 113.6
Accumulated postretirement benefit obligation 249.1 265.8
Unrecognized net gain (loss) 27.1 (5.5)
Unrecognized prior service cost (5.2) (2.3)
Accrued postretirement benefit costs $ 271.0 $ 258.0
Assumptions:
Weighted average discount rate: 7.50%
Health care trend rates (varies by plan): 1997 2007 and Beyond
Pre-age 65 9-12% 4-6%
Age 65 and over 7-12% 4-6%
If the health care trend rates were increased one percentage point, the current-
year postretirement benefit costs would have been $3.9 million higher and the
accumulated postretirement benefit obligation as of December 31, 1996 would
have been $34.3 million higher.
Effective July 1, 1994, the Company adopted FASB Statement #112, "Employers'
Accounting for Postemployment Benefits." The Statement requires that the
expected cost of other postemployment benefits be charged to expense during the
years that employees render services. The cumulative effect of adoption was a
$6.8 million pretax charge, or $4.1 million after-tax, in the third quarter of
1994. The adoption of the Statement has not had a material effect on annual
operating results or cash flows since adoption, nor is it expected to have a
material effect in future years.
Note 14
Lease and Other Commitments
Certain equipment and operating properties are rented under non-cancelable and
cancelable operating leases. Total rental expense under operating leases was
$36.4 million, $36.3 million and $33.5 million for the years ended December 31,
1996, 1995 and 1994, respectively. The following is a schedule of future
minimum annual rentals on non-cancelable operating leases, primarily for sales
offices, distribution centers and corporate headquarters, in effect as of
December 31, 1996.
<TABLE>
<CAPTION>
Dollars in Millions 1997 1998 1999 2000 2001 Thereafter Total
<S> <C> <C> <C> <C> <C> <C> <C>
Total payments $29.3 $28.0 $24.7 $17.5 $16.3 $66.1 $181.9
</TABLE>
The Company enters into executory contracts to promote various products. As of
December 31, 1996, future commitments under these contracts amounted to $47.0
million.
Note 15
Supplementary Income Statement Information
Dollars in Millions 1996 1995 1994
Advertising, media and production $ 289.8 $ 271.5 $ 303.5
Merchandising 913.5 1,192.7 1,383.9
Total advertising and merchandising $1,203.3 $1,464.2 $1,687.4
Depreciation expense $ 119.1 $ 115.3 $ 133.1
Amortization of intangibles $ 78.5 $ 86.7 $ 36.9
Research and development $ 33.0 $ 40.4 $ 56.2
Note 16
Interest Expense
Dollars in Millions 1996 1995 1994
Interest expense $ 113.0 $135.9 $103.1
Interest expense capitalized (6.2) (4.3) (1.6)
Subtotal 106.8 131.6 101.5
Interest income (7.4) (6.2) (9.0)
Interest expense - net $ 99.4 $125.4 $ 92.5
Interest paid in the years ended December 31, 1996, 1995 and 1994 was $109.0
million, $129.9 million and $96.6 million, respectively.
55
Note 17
Income Taxes
The Company uses an asset and liability approach to financial accounting and
reporting for income taxes in accordance with FASB Statement #109, "Accounting
for Income Taxes." Provisions for income taxes on income before cumulative
effect of accounting change were as follows:
Dollars in Millions 1996 1995 1994
Currently payable:
Federal $ 99.4 $339.1 $129.8
Foreign 10.2 131.7 15.0
State 26.6 54.9 40.2
Total currently payable 136.2 525.7 185.0
Deferred - net:
Federal 15.9 (19.8) (42.2)
Foreign 10.4 (7.3) (3.1)
State 5.2 (2.1) (12.4)
Total deferred - net 31.5 (29.2) (57.7)
Provision for income taxes $167.7 $496.5 $127.3
The components of the deferred income tax provision (benefit) were as follows:
Dollars in Millions 1996 1995 1994
Accelerated tax depreciation $ 3.7 $(23.8) $ 8.8
Postretirement benefits 0.6 (6.5) (6.0)
Accrued expenses including
restructuring charges 40.6 12.6 (30.8)
Loss carryforwards (7.1) 3.5 (6.1)
Foreign gain deferral 9.8 -- --
Other (16.1) (15.0) (23.6)
Provision (benefit) for deferred
income taxes $31.5 $(29.2) $(57.7)
Total income tax provisions (benefits) were allocated as follows:
Dollars in Millions 1996 1995 1994
Continuing operations $ 167.7 $ 496.5 $ 127.3
Cumulative effect of accounting change $ -- $ -- $ (2.7)
Items charged directly to common
shareholders' equity $ (8.4) $ (11.4) $ (12.7)
The sources of pretax income before cumulative effect of accounting change were
as follows:
Dollars in Millions 1996 1995 1994
U.S. sources $362.8 $ 925.4 $302.2
Foreign sources 52.8 295.1 18.2
Income before income taxes and
cumulative effect of accounting
change $415.6 $1,220.5 $320.4
Reconciliations of the statutory Federal income tax rates to the effective
income tax rates were as follows:
<TABLE>
<CAPTION>
Dollars in Millions 1996 1995 1994
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
Tax provision based on the
Federal statutory rate $145.5 35.0% $427.2 35.0% $112.1 35.0%
State and local income
taxes - net of Federal
income tax benefit 20.7 5.0 34.3 2.8 18.1 5.6
Repatriation of foreign
earnings (11.3) (2.7) 18.9 1.5 (3.9) (1.2)
Foreign tax rate differential 2.1 0.5 21.1 1.7 5.5 1.7
Miscellaneous items 10.7 2.6 (5.0) (0.3) (4.5) (1.4)
Provision for income taxes $167.7 40.4% $496.5 40.7% $127.3 39.7%
</TABLE>
Deferred tax assets and deferred tax liabilities were as follows:
Dollars in Millions 1996 1995
Assets Liabilities Assets Liabilities
Depreciation and amortization $ 56.9 $400.1 $ 58.8 $ 405.6
Postretirement benefits 100.3 -- 100.9 --
Other benefit plans 60.8 9.2 59.8 20.2
Accrued expenses including
restructuring charges 80.3 7.9 147.9 10.4
Loss carryforwards 14.5 -- 13.5 --
Other 13.3 33.2 15.9 22.8
Subtotal 326.1 450.4 396.8 459.0
Valuation allowance (14.2) -- (20.0) --
Total $311.9 $450.4 $ 376.8 $459.0
56
As of December 31, 1996, the Company had $48.3 million of operating and capital
loss carryforwards available to reduce future taxable income of certain
international subsidiaries. These loss carryforwards must be utilized within
the carryforward periods of these international jurisdictions. The majority of
loss carryforwards have no expiration restrictions. Those with restrictions
expire primarily in five years. A valuation allowance has been provided for a
portion of the deferred tax assets related to the loss carryforwards.
Included in other current assets were deferred tax assets of $99.9 million and
$151.4 million as of December 31, 1996 and 1995, respectively. Income taxes
paid during 1996, 1995 and 1994 were $161.1 million, $434.7 million and $100.4
million, respectively.
Note 18
Litigation
The case entitled Sands, Taylor & Wood v. The Quaker Oats Company, which dealt
with the Company's use of the words "thirst aid" in advertising Gatorade thirst
quencher, was settled in September 1995 while the case was pending before the
U.S. Court of Appeals for the Seventh Circuit. The Company did not incur any
additional charge above the amount previously recorded in connection with this
settlement.
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.
Note 19
Quarterly Financial Data (Unaudited)
Dollars in Millions (Except Per Share Data)
First Second Third Fourth
1996 Quarter(a) Quarter Quarter(b) Quarter
Net sales $1,222.8 $1,481.8 $ 1,436.2 $1,058.2
Cost of goods sold 664.5 790.1 754.3 598.6
Gross profit $ 558.3 $ 691.7 $ 681.9 $ 459.6
Net income $ 32.2 $ 64.6 $ 133.0 $ 18.1
Per common share:
Net income $ 0.23 $ 0.47 $ 0.98 $ 0.12
Cash dividends declared $ 0.285 $ 0.285 $ 0.285 $ 0.285
Market price range:
High $ 35 7/8 $ 37 5/8 $ 36 7/8 $ 39 1/2
Low $ 32 3/4 $ 32 3/8 $ 30 3/8 $ 34 1/8
(a)Includes a $2.8 million pretax gain ($1.7 million after-tax or $.01 per
share) for the sale of the Italian products business.
(b)Includes a $133.6 million pretax gain ($80.1 million after-tax or $.59 per
share) for the sale of the U.S. and Canadian frozen foods business and pretax
restructuring charges of $23.0 million ($19.4 million after-tax or $.14 per
share) related to plant consolidations in the U.S. Foods business and a change
in how the Company sells Snapple beverages in certain Texas markets.
Dollars in Millions (Except Per Share Data)
First Second Third Fourth
1995 Quarter(a) Quarter(b) Quarter Quarter(c)
Net sales $1,633.5 $1,587.4 $1,553.6 $1,179.5
Cost of goods sold 871.0 894.1 825.0 704.3
Gross profit $ 762.5 $ 693.3 $ 728.6 $ 475.2
Net income $ 366.1 $ 344.2 $ 61.5 $ (47.8)
Per common share:
Net income $ 2.73 $ 2.57 $ 0.45 $ (0.36)
Cash dividends declared $ 0.285 $ 0.285 $ 0.285 $ 0.285
Market price range:
High $ 36 1/2 $ 37 1/2 $ 36 $ 37 3/8
Low $ 30 1/4 $ 32 1/8 $ 30 3/4 $ 31 1/8
(a) Includes a $513.0 million pretax gain ($322.2 million after-tax or $2.41
per share) for the sale of the U.S. and Canadian pet food business and a $4.9
million pretax gain ($2.8 million after-tax or $.02 per share) for the sale of
the Dutch honey business.
(b) Includes a $487.2 million pretax gain ($272.6 million after-tax or $2.04
per share) for the sale of the European pet food business; a $74.5 million
pretax gain ($43.9 million after-tax or $.33 per share) for the sale of the
Mexican chocolate business; a $91.2 million pretax gain ($53.1 million after-
tax or $.40 per share) for the sale of the U.S. bean and chili businesses;
pretax restructuring charges of $76.5 million ($46.1 million after-tax or $.35
per share) for cost-reduction and realignment activities; and an additional
$10.6 million pretax provision ($6.2 million after-tax or $.05 per share) for
estimated litigation costs.
(c)Includes pretax restructuring charges of $40.8 million ($24.5 million after-
tax or $.18 per share) for Snapple beverages supply chain cost reductions and
for realignment activities in Europe and Asia/Pacific.
57
Report of Independent Public Accountants
To the Shareholders of The Quaker Oats Company:
We have audited the accompanying consolidated balance sheets of The Quaker Oats
Company (a New Jersey corporation) and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, common shareholders'
equity and cash flows for the years ended December 31, 1996, 1995 and 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Quaker Oats Company and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years ended December 31, 1996, 1995 and
1994 in conformity with generally accepted accounting principles.
As indicated in Note 13, effective July 1, 1994, the Company changed its
accounting for postemployment benefits.
/s/Arthur Andersen LLP
Chicago, Illinois
February 5, 1997
Report of Management
Management is responsible for the preparation and integrity of the Company's
financial statements. The financial statements have been prepared in
accordance with generally accepted accounting principles and necessarily
include some amounts that are based on management's estimates and judgment.
To fulfill its responsibility, management's goal is to maintain strong systems
of internal controls, supported by formal policies and procedures that are
communicated throughout the Company. Management regularly evaluates its
systems of internal controls with an eye toward improvement. Management also
maintains a staff of internal auditors who evaluate the adequacy of and
investigate the adherence to these controls, policies and procedures.
Our independent public accountants, Arthur Andersen LLP, have audited the
financial statements and have rendered an opinion as to the statements'
fairness in all material respects. During the audit, they obtain an
understanding of the Company's internal control systems and perform tests and
other procedures to the extent required by generally accepted auditing
standards.
The Board of Directors pursues its oversight role with respect to the Company's
financial statements through the Audit Committee, which is composed solely of
non-management directors. The Audit Committee meets periodically with the
independent public accountants, internal auditors and management to assure that
all are properly discharging their responsibilities. The Audit Committee
approves the scope of the annual audit and reviews the recommendations the
independent public accountants have for improving internal accounting controls.
The Board of Directors, on recommendation of the Audit Committee, engages the
independent public accountants, subject to shareholder approval.
Both Arthur Andersen LLP and the internal auditors have unrestricted access to
the Audit Committee.
58
Additional 10-K Information
Description of Property
As of December 31, 1996, the Company operated 57 manufacturing plants in 19
states and 15 foreign countries and owned or leased distribution centers and
sales offices in 20 states and 23 foreign countries.
Owned and Leased
Owned and Leased Distribution Owned and Leased
Mfg. Locations Centers Sales Offices
Industry Segment U.S. Foreign U.S. Foreign U.S. Foreign
Foods 22 20 7 14 6 22
Beverages 7 7 -- 3 18 13
Shared -- 1 2 3 12 10
Total 29 28 9 20 36 45
The Company owns a research and development laboratory in Barrington, Illinois
and leases corporate office space in downtown Chicago, Illinois. Management
believes manufacturing, distribution and office space owned and leased are
suitable and adequate for the business and productive capacity is appropriately
utilized.
Trademarks
The Company and its subsidiaries own a number of trademarks and are not aware
of any circumstances that could adversely affect the continued use of these
trademarks. Among the most important of the domestic trademarks owned by the
Company are Quaker, Cap'n Crunch, Quaker Toasted Oatmeal, Life, Quaker 100%
Natural and Quaker Oatmeal Squares for breakfast cereals; Gatorade for thirst-
quenching beverages; Snapple for teas and juice drinks; Quaker and Quaker Chewy
for grain-based snacks; Rice-A-Roni and Near East for value-added rice and
grain products; Pasta Roni for value-added pasta; Nile Spice for soup in a cup;
Golden Grain and Mission for pasta; Quaker and Aunt Jemima for mixes, syrups
and corn goods; Ardmore Farms for citrus and fruit juices; Continental,
Maryland Club and Continental WB for coffee, and; Mrs. Richardson's for ice
cream toppings. Many of the grocery product trademarks owned by the Company in
the United States are registered in foreign countries in which the Company does
substantial business. Internationally, key trademarks owned include: Quaker,
Cruesli, Honey Monster, Sugar Puffs and Scott's for breakfast cereals; Coqueiro
for fish; Toddy and ToddYnho for chocolate beverages; and Adria for pasta
products.
Worldwide Foods Description
The Company is a major participant in the competitive packaged food industry in
the United States and is a leading manufacturer of hot cereals, pancake mixes,
grain-based snacks, cornmeal, hominy grits and value-added rice products. In
addition, the Company is the second-largest manufacturer of syrups and value-
added pasta products and is among the five largest manufacturers of ready-to-
eat cereals and dry pasta products. The Company competes with a significant
number of large and small companies on the basis of price, value, innovation,
quality and convenience, among other attributes. The Company's food products
are purchased by consumers through a wide range of food distributors. The
Company utilizes both its own and broker sales forces and has distribution
centers throughout the country, each of which carries an inventory of most of
the Company's food products. In addition, the Company markets a line of over
400 items for the food service market, including Quaker hot and ready-to-eat
cereals; Continental and Maryland Club coffee; Ardmore Farms single-serve
frozen fruit juices; a specialty line of custom-blended dry baking mixes; ready-
to-bake biscuits; Arnie's Bagelicious Bagels and Petrofsky's bagels; Burry
cookies and crackers; and Mrs. Richardson's syrups, ice cream toppings and
condiments. Outside the United States, the Company manufactures and markets
its products in countries throughout Latin America, Europe and the Asia/Pacific
region. It is the leading hot cereals producer in the United Kingdom and many
other countries and is a leading pasta manufacturer and canned fish processor
in Brazil.
Worldwide Beverage Description
The Company is the world's leading manufacturer of sports beverages. It sells
its sports beverages in over 45 countries around the world and is the leading
sports drink distributor in the United States, Canada, Mexico, Italy,
Argentina, Brazil, Venezuela, Colombia, Indonesia and the Philippine Islands.
It is also one of the leading sports drink brands in Korea and Australia, where
Gatorade thirst quencher is sold through licensee arrangements. In the U.S.,
Gatorade thirst quencher utilizes a combination of brokers and the Company's
own sales force and has distribution centers throughout the country. The
Company is also a leading marketer of single-serve, alternative beverages
(which include ready-to-drink teas, lemonades and juice drinks) in the United
States and Canada where it competes with a significant number of large and
small companies on the basis of price, value, innovation, quality and
convenience, among other attributes. The Company sells Snapple beverages in
the United States through a network of independent beverage distribution
companies and a few self-owned distributors; each maintains a complete
inventory.
Raw Materials
The raw materials used in manufacturing include oats, wheat, soy products,
corn, rice, sweeteners, tea, orange and other juice concentrates, almonds,
coffee beans, raisins, beef, chicken, shortening and fish, as well as a variety
of packaging materials. These products are purchased mainly in the open
market. Supplies of all raw materials have been adequate and continuous.
59
Directors
Members of the
Board of Directors
Frank C. Carlucci 1*,5,6
Chairman
The Carlyle Group
(Banking)
Washington, D.C.
Silas S. Cathcart 2*,3,5
Retired Chairman
Illinois Tool Works
(Diversified Products)
Chicago, Illinois
Kenneth I. Chenault 1,2,4,5
President and Chief Operating Officer
American Express
Company
(Financial and Travel
Services)
New York, New York
Judy C. Lewent 1,4,5,6
Senior Vice President and Chief Financial Officer
Merck & Co., Inc.
(Pharmaceuticals)
Whitehouse Station,
New Jersey
Vernon R. Loucks, Jr. 2,3,5*
Chairman and Chief
Executive Officer
Baxter International Inc.
(Medical Care Products)
Deerfield, Illinois
Thomas C. MacAvoy 1,5,6*
Paul M. Hammaker
Professor of Business
Administration
Darden Graduate
School of Business
Administration
University of Virginia
Charlottesville, Virginia
Luther C. McKinney 3
Senior Vice President
Law, Corporate Affairs and Corporate Secretary
Walter J. Salmon
4,5,6
Stanley Roth, Sr.
Professor of Retailing
Harvard Business School
Boston, Massachusetts
William D. Smithburg 3,5
Chairman, President and
Chief Executive Officer
William L. Weiss 2,3,4*,5
Chairman Emeritus
Ameritech Corporation
(Telecommunications)
Chicago, Illinois
Board Committees
1 Audit
2 Compensation
3 Executive
4 Finance
5 Nominating
(William D. Smithburg
Ex Officio Member)
6 Public Responsibility
* Denotes Committee Chairman
Officers
Senior Officers
William D. Smithburg +
Age 58
Chairman, President and
Chief Executive Officer
Joined Quaker in 1966.
Elected to present office in 1995.
Luther C. McKinney +
Age 65
Senior Vice President
Law, Corporate Affairs
and Corporate Secretary
Joined Quaker in 1974.
Elected to present office in November 1996.
Douglas J. Ralston +
Age 51
Senior Vice President
Human Resources
Joined Quaker in 1981.
Elected to present
office in 1992.
Robert S. Thomason +
Age 52
Senior Vice President
Finance and Chief
Financial Officer
Joined Quaker in 1971.
Elected to present office in 1995.
Corporate Staff
Officers
John H. Calhoun
Vice President and
Associate General
Corporate Counsel
Penelope C. Cate
Vice President
Government and
Community Relations
Michael L. Cohen
Vice President
Human Resource Development
Janet K. Cooper +
Age 43
Vice President and Treasurer
Joined Quaker in 1978.
Elected to present office in 1992.
Margaret M. Eichman
Vice President
Investor Relations and
Corporate
Communications
Scott Gantwerker
Vice President
Quality Worldwide
Thomas L. Gettings +
Age 40
Vice President and
Corporate Controller
Joined Quaker in 1987.
Elected to present office in 1992.
Mary M. Hoskins
Assistant Treasurer
John G. Jartz +
Age 43
Vice President
General Counsel and
Business Development
Joined Quaker in 1980.
Elected to present office
in November 1996.
James E. LeGere
Vice President
Information Services
I. Charles Mathews
Vice President
Diversity Management
Mart C. Matthews
Vice President and
Associate General
Corporate Counsel
Kenneth W. Murray
Vice President
Internal Auditing
Quaker Foods
(U.S. and Canada)
Douglas W. Mills +
Age 51
Executive Vice President
Joined Quaker in 1969.
Elected to present office in 1994.
John A. Boynton
Vice President and
Chief Customer Officer
Polly B. Kawalek
President - Hot
Breakfasts
David L. Morton
President and
Chief Executive Officer
The Quaker Oats
Company of Canada Limited
Mark A. Shapiro
President
Golden Grain
Russell A. Young
Vice President
Supply Chain
Worldwide Beverages
James F. Doyle +
Age 44
Executive Vice President
Joined Quaker in 1981.
Elected to present
office in 1994.
Bernardo Wolfson
President - Beverages,
Latin America and Europe
Michael B. Schott +
Age 48
Vice President and
President - Snapple
Beverages
Joined Quaker in August 1996.
Elected to present office in
September 1996.
Worldwide Quaker
Food Service
A. Stephen Diamond +
Age 51
Executive Vice President
Joined Quaker in 1993.
Elected to present office in November 1996.
Ronald L. Bane
Vice President and
Business Leader
Continental Coffee
Dale W. Tremblay
Vice President and
Business Leader -
McDonald's and In-Store
Bakery Business Units
International
Food Products
Barbara R. Allen +
Age 44
Executive Vice President
Joined Quaker in 1977.
Elected to present office in 1995.
Europe
George F. Sewell
President -
Cereals, Europe
Pacific
Cassian Cheung
President -
Pacific International Foods
+ also Executive Officers as defined by Securities and Exchange Commission
regulations. Such Executive Officers serve at the pleasure of the Board of
Directors. All Executive Officers (except Michael B. Schott, who joined the
Company in August 1996 and was formerly the Vice President of Nantucket Nectars
[1996], Chief Operating Officer of Arizona Beverages [1993-1996], and General
Manager of Don Lee Distributor, Inc. [1991-1993], and A. Stephen Diamond, who
joined the Company in August 1993 and was formerly President of Pillsbury
Europe and Managing Director of Grand Met Food Group UK) have been
employed by The Quaker Oats Company in an executive capacity for five years or
more.
Shareholder Information
Dividend Reinvestment and Stock Purchase Plan
Owners of Quaker Oats common stock may use the Company's Dividend Reinvestment
and Stock Purchase Plan to purchase additional shares through automatic dividend
reinvestment and/or optional cash investments. A booklet describing the Plan
and enrollment procedures is available on request from the Harris Bank.
(Telephone and address are listed on page 65.)
Dividends
Cash dividends on Quaker common stock have been paid for 91 consecutive years.
Dividends are generally declared on a quarterly basis, with holders as of the
record date being entitled to receive the cash dividend on the payable date.
Shareholder Services
Harris Trust and Savings Bank acts as transfer agent and registrar for the
Company stock and maintains all primary shareholder records. Shareholders may
obtain information relating to their share positions, dividends, stock transfer
requirements, lost certificates, dividend reinvestment accounts and other
related matters by telephoning the Shareholder Hotline toll-free at 1-800-344-
1198.
Form 10-K
This Annual Report includes all financial statements and notes required by
Form 10-K. If you request a Form 10-K, you will receive the annual report,
proxy statement, and the Form 10-K cover page, exhibit list and conformed
signature page.
Annual Meeting
Shareholders are cordially invited to attend the Annual Meeting, which will
be held at the Rosemont Theatre, 5400 North River Road in Rosemont, Illinois,
May 14, 1997, at 9:30 a.m. (CST).
Investor Relations
Security analysts, investment professionals and shareholders should direct
their business-related inquiries to:
Investor Relations - Suite 27-7
or call (312) 222-7818
Media Relations
Copies of Press Releases are available at no charge through PR Newswire's
Company News On-Call fax service.
Call 1-800-758-5804, extension 103689.
Press and media related inquiries should be addressed to:
Media Relations - Suite 27-6
or call (312) 222-7388
Consumer Affairs
Inquiries regarding our products should be addressed to:
Consumer Affairs
The Quaker Oats Company
P.O. Box 049003
Chicago, Illinois 60604-9003
For information about a specific product, call the toll-free number shown
on the package.
The Quaker Oats Company was incorporated in 1901
under the laws of the state of New Jersey.
Ticker Symbol: OAT
Internet address: www.quakeroats.com
Corporate Headquarters Mailing Address: Street Address:
The Quaker Oats Quaker Tower
Company 321 North Clark Street
P.O. Box 049001 Chicago, Illinois 60610-4714
Chicago, Illinois (312) 222-7111
60604-9001
Transfer Agent, Harris Trust and Savings Bank, Shareholder Services
Registrar and Dividend Division
Disbursing Agent P.O. Box 755, 311 West Monroe
Chicago, Illinois 60690-0755
1-800-344-1198
Dividend Reinvestment Harris Trust and Savings Bank, Dividend Reinvestment
and and Stock Purchase Plan
Stock Purchase Plan P.O. Box A3309
Chicago, Illinois 60690-3309
1-800-344-1198
Independent Public Arthur Andersen LLP
Accountants 33 West Monroe
Chicago, Illinois 60603
(312) 580-0033
Shares Listed New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
The Stock Exchange, London
EXHIBIT 21
State of Subsidiary
Incorporation
THE QUAKER OATS COMPANY
ACTIVE DOMESTIC SUBSIDIARIES AS OF 12/31/96
Subsidiary State of Incorporation
Ardmore Farms, Inc. Pennsylvania
Arnie's Bagelicious Bagels, Inc. Delaware
Continental Coffee Products Company Delaware
The Gatorade Company Delaware
Gatorade Puerto Rico Company Delaware
Golden Grain Company California
Grocery International Holdings, Inc. Delaware
Liqui-Dri Foods, Inc. Kentucky
Mr. Natural, Inc. Delaware
Pacific Snapple Distributors, Inc. California
QO Coffee Holdings, Inc. Delaware
Quaker Custom Foods, Inc. Delaware
Quaker Food Service Holdings Pte. Ltd. Delaware
Quaker Latin America, Inc. Delaware
Quaker Oats Asia, Inc. Delaware
Quaker Oats Europe, Inc. Illinois
Quaker Oats Holdings, Inc. Delaware
Quaker Oats Music, Inc. Delaware
Quaker Oats Phillipines, Inc. Delaware
Quaker South Africa, Inc. Delaware
Richardson Foods Corporation New York
Snapple Beverage Corp. Delaware
Snapple Caribbean Corp. Delaware
Snapple Finance Corp. Delaware
Snapple International Corp. Delaware
Snapple Worldwide Corp. Delaware
Southwest Snapple Corp. Delaware
Southwest Snapple Holdings Corp. Delaware
Stokely-Van Camp, Inc. Indiana
ACTIVE FOREIGN SUBSIDIARIES AS OF 12/31/96
Subsidiary Country
Elaboradora Argentina de Cereales, S.A. Argentina
Quaker Oats Australia, Pty. Ltd. Australia
The Gatorade Company of Australia Pty. Ltd. Australia
Quaker Oats Foreign Sales Corporation Barbados
QUIC Ltd. Bermuda
Quaker Brasil, Ltda. Brazil
The Quaker Oats Company of Canada Limited Canada
Beverages Gatorade (Chile) Ltda Chile
Productos Quaker, S.A. Colombia
Quaker Oats Limited England
Quaker Trading Limited England
The Quaker Beverages GmbH Germany
Quaker Beverages Italia, S.p.A. Italy
Quaker Oats Japan, Ltd. Japan
Quaker Products (Malaysia) Sdn. Bhd Malaysia
Quaker de Mexico, S.A. de C.V. Mexico
Productos Quaker de Mexico S.A. de C.V. Mexico
Quaker Oats B.V. The Netherlands
QO Puerto Rico, Inc. Puerto Rico
Quaker Bebidas, S.A. Spain
Productos Quaker, C.A. Venezuela
DOMESTIC PARTNERSHIPS
Rhode Island Beverage Corp., GP Snapple Beverage Corp. 50%
Jeffrey A. Honickman, and
Jeffrey A. Honickman Trustee 50%
Select Beverages, Inc. Snapple Beverage Corp. 20.0%
T.H. Lee and Affiliates 70.1%
Kemmerer Group 5.0%
Select Management 4.9%
DOMESTIC LIMITED PARTNERSHIPS
Rhode Island Beverage Snapple Beverage Corp. 49.5%
Packing Company L.P. Honickman Trust 49.5%
Rhode Island Beverage Corp. 1.0%
DOMESTIC JOINT VENTURES
Rhone Poulenc The Quaker Oats Company 50%
Rhone Poulenc 50%
Uni-Quaker Ltd. South Africa Quaker South Africa, Inc. 50%
Unimil Pty. Ltd. 50%
FOREIGN JOINT VENTURES
Guangzhou Quaker Oats Food and The Quaker Oats Company 90%
Beverage Co. Ltd. Stokely-VanCamp, Inc. 10%
P.T. Gatorade Indonesia The Quaker Oats Company 90%
P.T. Gatorade Indonesia 10%
Shanghai Guan Sheng Yuan Quaker The Quaker Oats Company 70%
Oats Co. Ltd. Shanghai Guan Sheng Yuan
Quaker Oats Co., Ltd. 30%
Shanghai Quaker Oats Beverages Co. The Quaker Oats Company 80%
Ltd. Shanghai Quaker Oats
Beverages Co. Ltd. 20%
Quaker Cremica Foods Pte. Ltd. Quaker Food Service Holdings
Pte. Ltd. 50%
Quaker Cremica Foods Pte.
Ltd. 50%
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated February 5, 1997, included in this
Form 10-K for the year ended December 31, 1996 into the Company's
previously filed Registration Statement File Nos. 33-13980, 33-13981,
33-32970, 2-79503 and 33-33253.
/s/ Arthur Andersen LLP
Chicago, Illinois
March 19, 1997
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<PERIOD-END> DEC-31-1996
<CASH> 111
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<RECEIVABLES> 324
<ALLOWANCES> 29
<INVENTORY> 275
<CURRENT-ASSETS> 890
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<OTHER-SE> 309
<TOTAL-LIABILITY-AND-EQUITY> 4394
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<TOTAL-REVENUES> 5199
<CGS> 2808
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<LOSS-PROVISION> 12
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<INCOME-TAX> 168
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Exhibit 10 (f)(1)
EXECUTIVE SEPARATION AGREEMENT
THIS AGREEMENT is made between The Quaker Oats Company, a New Jersey
corporation (the "Company"), and William D. Smithburg (the "Executive"), dated
this 18th day of November, 1996.
WITNESSETH THAT:
WHEREAS, the Company wishes to attract and retain well-qualified
executive personnel and to assure both itself and the Executive of continuity
of management in the event of any actual or threatened change in control of the
Company;
NOW, THEREFORE, it is hereby agreed by and between the parties as
follows:
1. Operation of Agreement. The "effective date of this Agreement" shall be
the date on which the Executive declares it effective, by notice to the
Company in writing, but only if a change in control of the Company (as
defined in Section 2) has occurred on or before the date of the notice.
2. Change in Control. A "change in control of the Company" 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 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 November 13, 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 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.
3. Employment Period. The Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ of the
Company, for the period commencing on the effective date of this Agreement
and ending on the earlier to occur of the third anniversary of such
effective date or the 65th birthday of the Executive (the "employment
period"), to exercise such authorities and powers, and perform such duties
and functions, as are commensurate with the authorities and powers being
exercised, and duties and functions being performed, by the Executive
immediately prior to the effective date of this Agreement, which services
shall be performed at the current location where the Executive was employed
immediately prior to the effective date of this Agreement or at such other
location within a 30-mile radius of such current location. The Executive
shall not be required to accept any other location. The Executive agrees
that during the employment period he shall devote his full business time
exclusively to his executive duties as described herein and perform such
duties faithfully and efficiently.
4. Compensation, Compensation Plans, Benefit Plans, Perquisites. During
the employment period and prior to termination (as defined in Section 5) of
the Executive, the Executive shall be compensated as follows:
a. He shall receive an annual salary which is not less than his annual
salary immediately prior to the effective date of this Agreement, with
the opportunity for increases, from time to time thereafter, which are
in accordance with the Company's regular practices.
b. He shall be eligible to participate on a reasonable basis in bonus,
stock option, restricted stock and other incentive compensation plans,
which shall provide benefits comparable to those to which he was
provided immediately prior to the effective date of this Agreement.
c. He shall be eligible to participate on a reasonable basis in tax-
qualified employee benefit plans (including but not limited to pension,
profit sharing and employee stock ownership plans), and supplemental
non-qualified employee benefit plans relating thereto, which shall
provide benefits comparable to those to which he was provided
immediately prior to the effective date of this Agreement.
d. He shall be entitled to receive employee welfare benefits (currently
elected medical, dental and life insurance benefits) and perquisites
which are comparable to those to which he was provided immediately
prior to the effective date of this Agreement.
5. Termination. "Termination" shall mean either (a) termination by the
Company of the employment of the Executive with the Company for any reason
other than death, physical or mental incapacity, or cause (as defined
below); (b) resignation of the Executive, which, notwithstanding anything
else herein to the contrary, may be declared by the executive during
the 30-day period following the first anniversary of the effective date of
this Agreement; or (c) resignation of the Executive upon the occurrence of
any of the following events:
(1) a significant change in the nature or scope of the Executive's
authorities, powers, functions, or duties from those described in
Section 3;
(2) a reduction in total compensation from that provided in Section 4;
(3) the breach by the Company of any other provision of this Agreement; or
(4) a reasonable determination by the Executive that, as a result of a
change in control of the Company his position is significantly
affected so that he is unable to exercise the authorities, powers,
functions or duties attached to his position as described in Section 3.
"Cause" means gross misconduct or willful and material breach of this
Agreement by the Executive. No act, or failure to act, on the Executive's
part shall be deemed "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the action
or omission was in the best interest of the Company.
6. Confidentiality. The Executive agrees that during and after the
employment period, he will not divulge or appropriate to his own use or the
use of others any secret or confidential information or knowledge
pertaining to the business of the Company, or any of its subsidiaries,
obtained during his employment by the Company or any of its subsidiaries.
7. Severance and Benefit Payments.
a. In the event of termination of the Executive during the employment
period, the Company shall pay the Executive a lump-sum severance
allowance equal to salary and bonus payments for the following 24
calendar months. The initial salary rate shall not be less than his
annual salary immediately prior to termination, or if greater, not
less than his annual salary immediately prior to the change in control
of the Company; such salary shall be increased every March 1,
thereafter, according to the then current Hewitt Associate's
projection for movement in executive base salaries. The initial bonus
amount shall not be less than the annual equivalent of the incentive
bonus calculated under Section 4(a)(1) of the Salaried Employees
Compensation and Benefits Protection Plan; such bonus amount shall be
increased every January 1, thereafter, according to the then current
Hewitt Associates' projection for movement in executive total cash
compensation. The lump-sum severance allowance shall not be adjusted
on a present value basis.
b. In the event of termination of the Executive during the employment
period, the Company shall also pay the Executive a lump-sum benefit
payment in an amount equivalent to (1) the benefits he would have
accrued or been allocated under any tax-qualified employee benefit
plan (including but not limited to pension, profit sharing and
employee stock ownership plans) and any non-qualified supplemental
benefit plan relating thereto, maintained by the Company as if he had
remained in the employ of the Company for 24 calendar months after
his termination, which benefits will be paid in addition to the
benefits provided under such plans and (2) employee welfare benefits
(currently elected coverage under the medical, dental and life
insurance programs) to which he would have been entitled under all
such employee benefit plans, programs or arrangements maintained by
the Company as if he had remained in the employ of the company for 24
calendar months after his termination. Such a benefit payment shall
be adjusted to include expected increases to the Executive's salary,
bonus and other compensation as specified in paragraph 7a. having an
effect on such benefits for such period. The lump-sum benefit payment
shall not be adjusted on a present value basis (except for benefits
accrued in a defined benefit pension plan).
c. The amount of the severance allowance and benefit payment described in
this Section shall be determined and such payment shall be made as
soon as it is reasonably practicable.
d. The severance allowance and benefit payment to be provided pursuant to
this Section 7 shall be in addition to, and shall not be reduced by,
any other amounts or benefits provided by separate agreement with the
Executive, or plan or arrangement of the Company or its subsidiaries,
unless specifically stipulated in an agreement which constitutes an
amendment to this Agreement as provided in Section 14.
8. Make-Whole Payments. If any amount payable to the Executive by the
Company or any subsidiary or affiliate thereof, whether under this
Agreement or otherwise (a "Payment"), is subject to any tax under section
4999 of the Internal Revenue Code of 1986, as amended, (the "Code"), or
any similar federal or state law (an "Excise Tax"), the Company shall pay
to the Executive an additional amount (the "Make Whole-Amount") which is
equal to (I) the amount of the Excise Tax, plus (II) the aggregate amount
of any interest, penalties, fines or additions to any tax which are
imposed in connection with the imposition of such Excise Tax, plus
(III) all income, excise and other applicable taxes imposed on the
Executive under the laws of any Federal, state, or local government or
taxing authority by reason of the payments required under clause (I) and
clause (II) and this clause (III).
a.For purposes of determining the Make-Whole Amount, the Executive shall
be deemed to be taxed at the highest marginal rate under all applicable
local, state, federal and foreign income tax laws for the year in which
the Make-Whole Amount is paid. The Make-Whole Amount payable with
respect to an Excise Tax shall be paid by the Company coincident with
the Payment with respect to which such Excise Tax relates.
b.All calculations under this paragraph 8 shall be made initially by the
Company and the Company shall provide prompt written notice thereof to
the Executive to timely file all applicable tax returns. Upon request
of the Executive, the Company shall provide the Executive with
sufficient tax and compensation data to enable the Executive or his tax
advisor to independently make the calculations described in
subparagraph a. above and the Company shall reimburse the Executive for
reasonable fees and expenses incurred for any such verification.
c.If the Executive gives written notice to the Company of any objection
to the results of the Company's calculations within 60 days of the
Executive's receipt of written notice thereof, the dispute shall be
referred for determination to tax counsel selected by the independent
auditors of the Company ("Tax Counsel"). The Company shall pay all
fees and expenses of such Tax Counsel. Pending such determination by
Tax Counsel, the Company shall pay the Executive the Make-Whole Amount
as determined by it in good faith. The Company shall pay the Executive
any additional amount determined by Tax Counsel to be due under this
Section 8 (together with interest thereon at a rate equal to 120% of
the Federal short-term rate determined under section 1274(d) of the
Code) promptly after such determination.
d.The determination by Tax Counsel shall be conclusive and binding upon
all parties unless the Internal Revenue Service, a court of competent
jurisdiction, or such other duly empowered governmental body or agency
(a "Tax Authority") determines that the Executive owes a greater or
lesser amount of Excise Tax with respect to any Payment than the amount
determine by Tax Counsel.
e.If a Tax Authority makes a claim against the Executive which, if
successful, would require the Company to make a payment under this
Section 8, the Executive agrees to contest the claim on request of the
Company subject to the following conditions:
(1) The Executive shall notify the Company of any such claim within 10
days of becoming aware thereof. In the event that the Company desires
the claim to be contested, it shall promptly (but in no event more
than 30 days after the notice from the Executive or such shorter time
as the Tax Authority may specify for responding to such claim)
request the Executive to contest the claim. The Executive shall not
make any payment of any tax which is the subject of the claim before
the Executive has given the notice or during the 30-day period
thereafter unless the Executive receives written instructions from
the Company to make such payment together with an advance of funds
sufficient to make the requested payment plus any amounts payable
under this Section 8 determined as if such advance were an Excise
Tax, in which case the Executive will act promptly in accordance with
such instructions.
(2) If the Company so requests, the Executive will contest the claim by
either paying the tax claimed and suing for a refund in the
appropriate court or contesting the claim in the United States Tax
Court or other appropriate court, as directed by the Company;
provided, however, that any request by the Company for the Executive
to pay the tax shall be accompanied by an advance from the Company to
the Executive of funds sufficient to make the requested payment plus
any amounts payable under this Section 8 determined as if such
advance were an Excise Tax. If directed by the Company in writing
the Executive will take all action necessary to compromise or settle
the claim, but in no event will the Executive compromise or settle
the claim or cease to contest claim without the written consent of
the Company; provided, however, that the Executive may take any such
action if the Executive waives in writing his right to a payment
under this Section 8 for any amounts payable in connection with such
claim. The Executive agrees to cooperate in good faith with the
Company in contesting the claim and to comply with any reasonable
request from the Company concerning the contest of the claim,
including the pursuit of administrative remedies, the appropriate
forum for any judicial proceedings, and the legal basis for
contesting the claim. Upon request of the Company, the Executive
shall take appropriate appeals of any judgment or decision that would
require the Company to make a payment under this Section 8. Provided
that the Executive is in compliance with the provisions of this
section, the Company shall be liable for and indemnify the Executive
against any loss in connection with, and all costs and expenses,
including attorney's fees, which may be incurred as a result of,
contesting the claim, and shall provide the Executive within 30 days
after each written request therefore by the Executive cash advances
or reimbursement for all such costs and expenses actually incurred or
reasonably expected to be incurred by the Executive as a result of
contesting the claim.
f.Should a Tax Authority finally determine that an additional Excise Tax
is owed, then the Company shall pay an additional Make-Up Amount to the
Executive in a manner consistent with this Section 8 with respect to
any additional Excise Tax and any assessed interest, fines, or
penalties. If any Excise Tax as calculated by the Company or Tax
Counsel, as the case may be, is finally determined by a Tax Authority
to exceed the amount required to be paid under applicable law, then the
Executive shall repay such excess to the Company, but such repayment
shall be reduced by the amount of any taxes paid by the Executive on
such excess which are not offset by the tax benefit attributable to the
repayment.
9. Mitigation and Set Off. The Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment or otherwise. The Company shall not be entitled to set off
against the amounts payable to the Executive under this Agreement any
amounts owed to the Company by the Executive, any amounts earned by the
Executive in other employment after termination of his employment with the
Company, or any amounts which might have been earned by the Executive in
other employment had he sought such other employment.
10. Arbitration of All Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof, except with respect to
Section 8, shall be settled by arbitration in the City of Chicago in
accordance with the laws of the State of Illinois by three arbitrators
appointed by the parties. If the parties cannot agree on the appointment,
one arbitrator shall be appointed by the Company and one by the Executive,
and the third shall be appointed by the first two arbitrators. If the
first two arbitrators cannot agree on the appointment of a third
arbitrator, then the third arbitrator shall be appointed by the Chief
Judge of the United States Court of Appeals for the Seventh Circuit. The
arbitration shall be conducted in accordance with the rules of the
American Arbitration Association, except with respect to the selection
of arbitrators which shall be as provided in this Section 10. Judgment
upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. In the event that it shall be necessary
or desirable for the Executive to retain legal counsel or incur other costs
and expenses in connection with enforcement of his rights under this
Agreement, Executive shall be entitled to recover from the Company his
reasonable attorneys' fees and costs and expenses in connection with
enforcement of his rights (including the enforcement of any arbitration
award in court). Payment shall be made to the Executive by the Company at
the time these attorneys' fees and costs and expenses are incurred by the
Executive. If, however, the arbitrators should later determine that under
the circumstances the Executive could have had no reasonable expectation of
prevailing on the merits at the time he initiated the arbitration based on
the information then available to him, he shall repay any such payments to
the Company in accordance with the order of the arbitrators. Any award of
the arbitrators shall include interest at a rate or rates considered just
under the circumstances by the arbitrators.
11. Notices. Any notices, requests, demands, and other communications
provided for by this Agreement shall be sufficient if in writing and if
sent by registered or certified mail to the Executive at the last address
he has filed in writing with the Company or, in the case of the Company, at
its principal executive offices.
12. Non-Alienation. The Executive shall not have any right to pledge,
hypothecate, anticipate or in any way create a lien upon any amounts
provided under this Agreement; and no benefits payable hereunder shall be
assignable in anticipation of payment either by voluntary or involuntary
acts, or by operation of law. Nothing in this paragraph shall limit the
Executive's rights or powers which his executor or administrator would
otherwise have.
13. Governing Law. The Agreement 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.
14. Amendment. This Agreement may be amended or canceled by mutual
agreement of the parties in writing without the consent of any other person
and, so long as the Executive lives, no person, other than the parties
hereto, shall have any rights under or interest in this Agreement or the
subject matter hereof.
15. Term. Unless the Executive has theretofore declared this Agreement
effective, pursuant to Section 1 of this Agreement, this Agreement shall
terminate (a) March 31, 1998 or (b) when the Executive has been placed on
inactive service by the Company prior to a change in control of the
Company.
16. Successors to the Company. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the Company and
any successor of the Company.
17. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
18. Prior Agreement. Any prior Executive Separation Agreement between the
Executive and the Company which has not yet terminated pursuant to its
terms, is canceled by mutual consent of the Executive and the Company
pursuant to execution of this Agreement, effective as of the day and year
first above written.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization from its Board, the Company has caused these presents to
be executed in its name on its behalf, and its corporate seal to be hereunto
affixed and attested by its Assistant Secretary, all as of the day and year
first above written.
ATTEST: THE QUAKER OATS COMPANY
Gerald A. Cassioppi By: /s/ Douglas J. Ralston
Assistant Secretary Its: Senior Vice President
/s/ William D. Smithburg
EXECUTIVE
