[Quaker Logo]
The Quaker Oats
Company
Notice of
Annual Meeting
and
Proxy Statement
Fiscal Year Ended December 31, 1997
April 2, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders of
The Quaker Oats Company on Wednesday, May 13, 1998, at 9:30 a.m. (CDT) at the
Rosemont Conference Center, which is located in the Rosemont Convention Center,
5555 North River Road, Rosemont, Illinois.
The items of business to be acted on during the Meeting include: the election
of directors; the ratification of the appointment of Arthur Andersen LLP as
independent public accountants for the fiscal year ending December 31, 1998;
the adoption of a new long term incentive plan; and such other business as may
properly come before the Meeting or any adjournment thereof, including two
shareholder proposals. The accompanying proxy statement contains complete
details on the proposals and other matters.
Your participation in the affairs of the Company is important, regardless of
the number of shares you hold. To insure your representation at the Meeting,
whether or not you are able to be present, please complete and return the
enclosed proxy card as soon as possible. If you do attend the Meeting, you may
then revoke your proxy and vote in person if you so desire.
I look forward to seeing you on May 13. Refreshments will be served after the
Meeting, when the members of the Board of Directors hope to visit with you.
Cordially,
/s/ Robert S. Morrison
Robert S. Morrison
Chairman, President and Chief Executive Officer
THE QUAKER OATS COMPANY
321 North Clark Street
Chicago, Illinois 60610
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
AND
PROXY STATEMENT
FISCAL YEAR ENDED DECEMBER 31, 1997
T A B L E O F C O N T E N T S
PAGE
Notice of Annual Meeting of Shareholders 3
Proxy Statement 4
General Information 4
Election of Directors 5
Ownership of Company's Securities 9
Executive Compensation 11
Compensation Committee Report 18
Performance Graph 20
Directors' Proposals 20
Shareholders' Proposals 25
Shareholder Proposals for 1999 Annual Meeting 27
Other Business 28
THE QUAKER OATS COMPANY
321 North Clark Street
Chicago, Illinois 60610
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1998
April 2, 1998
To the Shareholders of The Quaker Oats Company:
Notice is hereby given that the Annual Meeting of Shareholders of The Quaker
Oats Company will be held on Wednesday, May 13, 1998 at the Rosemont Conference
Center, which is located in the Rosemont Convention Center, 5555 North River
Road, Rosemont, Illinois at 9:30 a.m. (CDT), for the following purposes:
To elect three directors in Class III to serve for three-year terms
expiring in May, 2001 or until their successors are elected and qualified;
To elect two directors in Class II to serve for two-year terms expiring in
May, 2000 or until their successors are elected and qualified;
To ratify the Board of Directors' appointment of Arthur Andersen LLP as
independent public accountants for the Company for 1998;
To consider and take action on a proposal to adopt The Quaker Long Term
Incentive Plan of 1999; and
To transact such other business as may properly come before the Meeting or
any adjournment thereof, including shareholder proposals concerning: 1)
compensation disclosure of certain employees; and 2) reconsideration of
the Company's Shareholder Rights Plan.
By Board of Directors' resolution, only shareholders of record as of the close
of business on March 18, 1998 are entitled to notice of and to vote at the
Meeting. To insure your representation at the Meeting, whether or not you are
able to attend, please complete and return the enclosed proxy card as soon as
possible. If you do attend the Meeting, you may then revoke your proxy and
vote in person if you so desire.
To obtain an admittance card for the Meeting, please complete the enclosed
reservation form and return it with your proxy card. If your shares are held
by a bank or broker, you may obtain an admittance card by returning the
reservation form they forwarded to you. If you do not receive a reservation
form, you may obtain an admittance card by sending a written request,
accompanied by proof of share ownership (such as your brokerage statement) to
Shareholder Services, The Quaker Oats Company, P.O. Box 049001, Suite 25-9,
Chicago, Illinois 60604-9001. For your convenience, we recommend that you
bring your admittance card to the Meeting so you can avoid the registration
lines and proceed directly to the Meeting. However, if you do not have an
admittance card by the time of the Meeting, please bring proof of share
ownership to the registration area located on the second floor of the
Conference Center, where our staff will assist you.
By order of the Board of Directors,
/s/ John G. Jartz
John G. Jartz
Corporate Secretary
THE QUAKER OATS COMPANY
321 North Clark Street
Chicago, Illinois 60610
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1998
April 2, 1998
GENERAL INFORMATION
This proxy statement is being mailed to shareholders on or about April 2, 1998
and is furnished in connection with the solicitation of proxies by the Board of
Directors of The Quaker Oats Company (Board and Company) for use at the Annual
Meeting of Shareholders to be held on May 13, 1998, including any adjournment
thereof (Annual Meeting or Meeting).
The Meeting is called for the purposes stated in the accompanying Notice of
Annual Meeting. All holders of the Company's $5.00 par value common stock and
Series B ESOP Convertible Preferred Stock (ESOP Preferred Stock) as of the
close of business on March 18, 1998 are entitled to vote at the Meeting. As of
that date, there were 138,889,641 outstanding shares of common stock and
1,032,843 outstanding shares of ESOP Preferred Stock. Treasury shares are not
included in the totals. On each matter coming before the Meeting, a common
stock shareholder is entitled to one vote for each share of stock held as of
the record date and an ESOP Preferred Stock shareholder is entitled to 2.2
votes for each share held as of the record date.
Shares representing a majority of the eligible votes must be represented in
person or by proxy at the Meeting in order to constitute a quorum for the
transaction of business. A proxy marked "abstain" on a matter will be
considered to be represented at the Meeting, but not voted for purposes of the
election of directors and other matters put to a shareholder vote at the
Meeting, and therefore will have no effect on the vote. Shares registered in
the names of brokers or other "street name" nominees will be considered to be
voted only as to those matters actually voted, and will not be considered for
any purpose as to the matters with respect to which a beneficial holder has not
provided voting instructions (commonly referred to as "broker non-votes").
If a proxy is properly signed and is not revoked by the shareholder, the shares
it represents will be voted at the Meeting by the Proxy Committee in accordance
with the instructions of the shareholder. If no specific instructions are
designated, the shares will be voted as recommended by the Board.
A proxy may be revoked at any time before it is voted at the Meeting. Any
shareholder who attends the Meeting and wishes to vote in person may revoke his
or her proxy at that time. Otherwise, revocation of a proxy must be
communicated in writing to the Company's Corporate Secretary, P.O. Box 049001,
Suite 27-9, Chicago, Illinois 60604-9001.
If a shareholder is a participant in the Company's Investment Plan, Stock Bonus
Savings Plan or Employee Stock Ownership Plan, or the Harris DOCS (Direct
Ownership of Corporate Shares) Program (formerly the Dividend Reinvestment and
Stock Purchase Plan), the proxy card will represent the number of shares
registered in the participant's name and the number of whole and fractional
shares credited or allocated to the participant's account under the plans,
except that fractional shares will not be voted under the Harris DOCS Program.
For those shares held in the plans, the proxy card will serve as a direction to
the trustee or voting agent under the various plans as to how the shares in the
accounts are to be voted.
Under the Company's Bylaws, for all matters submitted to the shareholders for a
vote, all proxies, ballots and voting tabulations that identify how
shareholders voted will be kept confidential and not be disclosed to any of the
Company's directors, officers or employees, except as follows: when disclosure
is mandated by law, when disclosure is expressly requested by a shareholder or
during a contested election for the Board.
The Company will bear the cost of the solicitation of proxies, including the
charges and expenses of brokerage firms and other custodians, nominees and
fiduciaries for forwarding proxy materials to the beneficial owners of shares
of stock. Solicitations will be made primarily by mail, but certain directors,
officers or regular employees of the Company may solicit proxies in person or
by telephone or other means without special compensation. In addition, the
Company has retained Kissel-Blake Inc. to assist in soliciting proxies from
brokers, dealers, voting trustees, banks and other nominees and institutional
holders for a fee not to exceed $17,000 plus reimbursement of reasonable out-of
- -pocket expenses.
ELECTION OF DIRECTORS
The Restated Certificate of Incorporation of the Company provides that the
members of the Board shall be divided into three classes with staggered three-
year terms. The terms of the directors in Class III expire this year. The
Board has nominated three persons for election as directors in Class III to
serve for three-year terms expiring in May, 2001 and two persons for election
as directors in Class II for terms expiring in May, 2000, or until their
successors are elected and qualified. All nominees have consented to serve for
the new term. Biographical information (including principal occupations for
the past five years and ages as of April 2, 1998) follows for each person
nominated and each director whose term in office will continue after the
Meeting.
It is the intention of those persons named in the accompanying proxy to vote in
favor of the nominees. Should any one or more of these nominees become
unavailable for election, the proxy will be voted for such other persons, if
any, as the Board may recommend.
The election of directors requires a plurality of the votes cast at the
Meeting. If all nominees are elected, the Board will consist of nine members,
including eight nonemployee directors and one director who is an officer of the
Company.
Nominees for Director - Terms Expiring in 2001
Frank C. Carlucci
Director 1983 - 1987 and then since 1989
Age 67
Chairman, The Carlyle Group (merchant banking).
Also a director of Ashland Inc.; Kaman
Corporation; Neurogen Corp.; Northern Telecom
Limited; Pharmacia & Upjohn, Inc.; Sun Resorts
Ltd. N.V.; and Texas Biotechnology Corporation.
Vernon R. Loucks, Jr.
Director since 1981
Age 63
Chairman and Chief Executive Officer, Baxter
International Inc. (health care products). Also
a director of Affymetrix, Inc.; Anheuser-Busch
Companies, Inc. ; Coastcast Corporation; Dun &
Bradstreet Corporation; and Emerson Electric Co.
Robert S. Morrison
Director since October, 1997
Age 55
Chairman, President and Chief Executive Officer
of the Company since October, 1997; formerly
Chairman and Chief Executive Officer of Kraft
Foods, Inc., a division of Philip Morris
Companies, Inc. (1994-1997); and President of
General Foods U.S.A. of Philip Morris Companies,
Inc. (1991-1994).
Nominees for Director - Terms Expiring in 2000
William L. Weiss
Director since 1985
Age 68
Chairman Emeritus, Ameritech Corporation
(telecommunications) since 1994; formerly
Chairman and Chief Executive Officer (1984 -
1994). Also a director of Abbott Laboratories;
Merrill Lynch & Co., Inc.; and Tenneco Inc.
W. James Farrell
Director since March, 1998
Age 55
Chairman and Chief Executive Officer, Illinois
Tool Works Inc. (engineering and industrial
components) since 1996; formerly President and
Chief Executive Officer (1995-1996); and
Executive Vice President (1983-1994). Also a
director of Hon Industries Inc., Morton
International, Inc., and Premark International,
Inc.
Directors Continuing in Office - Terms Expiring in 2000
John H. Costello
Director since May, 1997
Age 50
Senior Executive Vice President - Marketing,
Sears, Roebuck and Co. (retailing).
Judy C. Lewent
Director since 1994
Age 49
Senior Vice President and Chief Financial
Officer, Merck & Co., Inc. (pharmaceuticals).
Also a director of Astra Merck, Inc.; Chugai
MSD Co., Ltd; The DuPont Merck Pharmaceutical
Company; Johnson & Johnson Merck Consumer
Pharmaceuticals Company; Merial Limited; and
Motorola, Inc.
Directors Continuing in Office - Terms Expiring in 1999
Kenneth I. Chenault
Director since 1992
Age 46
President and Chief Operating Officer, American
Express Company (financial and travel services)
since February, 1997; formerly Vice Chairman
(1995 - February, 1997); and President - USA
American Express Travel Related Services
Company, Inc. (1993 - 1995). Also a director
of American Express Company.
Walter J. Salmon
Director since 1971
Age 67
Stanley Roth Sr., Professor of Retailing,
Emeritus, Harvard Business School since July,
1997; formerly Stanley Roth Sr., Professor of
Retailing (1980 - July, 1997) and Senior
Associate Dean, External Relations (1989-1994).
Also a director of Circuit City Stores, Inc.;
Cole National Corp.; Hannaford Bros. Co.;
Harrah's Entertainment, Inc.; Luby's Cafeterias,
Inc.; Neiman-Marcus Group, Inc.; and PetSmart
Corp.
Attendance
During 1997, the Board held six regular meetings and six special meetings, and
executed two actions by unanimous written consent. In addition to Board
membership, each nonemployee director serves on one or more standing Board
committees. Each director attended 75% or more of the meetings of the Board
and all Board committees on which they served, except for Mr. Chenault.
Compensation and Benefits
Directors who are full-time salaried employees of the Company are not
compensated for their service on the Board or any committee. Nonemployee
directors are paid an annual retainer of $45,000, $1,000 per day for each Board
meeting attended, $1,000 for each committee meeting attended, $1,000 for each
action taken by written consent and travel and lodging expenses where
appropriate. A committee chairman receives an additional annual retainer of
$5,000.
Under the Deferred Compensation Plan for Directors of The Quaker Oats Company
each nonemployee director may elect to defer receipt of all or a portion of
compensation until the individual ceases to be a director. The deferred
amounts may be carried at the option of the director as Cash Units and be
credited with interest; Common Stock Units, which are deferred amounts
converted into whole units on a quarterly basis by dividing the deferred amount
by the fair market value of the Company's common stock, and credited with
amounts equivalent to dividends as paid on the Company's common stock, which
are converted into additional Common Stock Units; or a combination of Cash
Units and Common Stock Units. The accumulated deferred amounts will be
distributed in cash as of the next January 1 after the director leaves the
Board, or in equal annual installments (not exceeding 15) commencing as of the
next January 1 after the director leaves the Board, pursuant to the director's
election, with Common Stock Units valued at the fair market value of the
Company's common stock immediately prior to the payment date. If the director
has not attained age 55 at the time of leaving the Board, payments in
accordance with the foregoing will be made or commence on the January 1 next
following the director's attainment of age 55.
Under The Quaker Oats Company Stock Compensation Plan for Outside Directors
separate accounts are maintained by the Company for each nonemployee director.
On January 1 of each year, each account is credited with Common Stock Units
representing 800 shares of the Company's common stock. In addition, the
account is credited with Common Stock Units with a value equivalent to cash
dividends payable on the shares represented by Units in the account. All
accrued common stock represented by Units in a director's account will be
distributed in kind as of the next January 1 after the director leaves the
Board, or in equal annual installments (not exceeding 15) commencing as of the
next January 1 after the director leaves the Board, pursuant to the director's
election.
Committees
The Board has appointed six standing committees from among its members to
assist it in carrying out its obligations. Committee memberships and
responsibilities are reviewed by the Board in May of each year and committee
appointments are generally made by the Board in May of every fourth year. The
principal responsibilities of each committee are described in the following
paragraphs.
The Audit Committee consists entirely of nonemployee directors and is primarily
concerned with the effectiveness of the Company's accounting policies and
practices, financial reporting and internal controls. Specifically, the
Committee recommends to the Board the firm to be appointed as the Company's
independent public accountants, subject to ratification by the shareholders;
reviews and approves the scope of the annual examination of the books and
records of the Company and its subsidiaries; reviews the audit findings and
recommendations of the independent public accountants; considers the
organization, scope and adequacy of the Company's internal auditing function;
monitors the extent to which the Company has implemented changes recommended by
the independent public accountants, the internal audit staff or the Committee;
reviews and monitors the Company's Compliance Program with regard to the areas
of Law, Quality, Health and Safety, and Environmental Programs, including its
Code of Ethics; and provides oversight with respect to accounting principles to
be employed in the Company's financial reporting. The Committee met four times
during 1997 and its members are Mr. Carlucci - Chairman, Mr. Chenault, Mr.
Costello, Mr. Farrell, Ms. Lewent and Dr. Thomas C. MacAvoy.
The Compensation Committee consists entirely of nonemployee directors and
oversees the Company's compensation and benefit policies and programs,
including administration of the Management Incentive Bonus Plan, The Quaker
Long Term Incentive Plan of 1990 (Long Term Incentive Plan) and 1984 Long-Term
Incentive Plan. It also recommends to the Board annual salaries, bonuses and
stock option awards for elected officers and certain other key executives. The
Committee met five times during 1997 and its members are Mr. Silas S. Cathcart
- - Chairman, Mr. Chenault, Mr. Farrell, Mr. Loucks and Mr. Weiss.
The Executive Committee consists of three nonemployee directors and Mr.
Morrison and exercises all the powers and authority of the Board in the
management of the business and affairs of the Company during the intervals
between meetings of the Board, subject to the restrictions set forth in the
Bylaws. The Committee acted by written consent one time during 1997 and its
members are Mr. Cathcart, Mr. Loucks, Mr. Morrison and Mr. Weiss.
The Finance Committee consists entirely of nonemployee directors and reviews
the Company's annual financing plan, including its projected financial
condition and requirements for funds; approves certain long-term debt borrowing
arrangements; advises the Board on all financial recommendations requiring
Board approval, including dividend payments; and monitors the investment
performance of the Company's pension funds and participant-directed investment
accounts. The Committee met six times during 1997 and its members are Mr.
Weiss - Chairman, Mr. Chenault, Ms. Lewent and Dr. Salmon.
The Nominating Committee consists of all the nonemployee directors and Mr.
Morrison as an ex-officio member and develops and recommends to the Board
guidelines with respect to the size and composition of the Board and criteria
for the selection of director candidates. It also recommends the slate of
director nominees to be included in the proxy statement and recommends
candidates to fill any vacancies that may occur, including any vacancy created
by an increase in the total number of directors. The Committee met one time
during 1997.
The Committee will entertain nominees for directorships recommended by
shareholders. A shareholder recommendation should be sent to the Committee in
care of the Company's Corporate Secretary, accompanied by a statement of the
nominee indicating willingness to serve if elected. The nomination should also
state the shareholder's reasons for the recommendation, the principal
occupations the nominee has held over the past five years and a list of all
publicly held companies for which the individual serves as a director.
The Public Responsibility Committee consists entirely of nonemployee directors
and provides guidance on the Company's policies and programs in major areas of
social responsibility, corporate citizenship and equal employment opportunity.
It also reviews and approves policy guidelines and budgets for the Company's
corporate contributions program. The Committee met two times during 1997 and
its members are Dr. MacAvoy - Chairman, Mr. Carlucci, Mr. Costello, Ms. Lewent
and Dr. Salmon.
OWNERSHIP OF COMPANY'S SECURITIES
Beneficial Owners of More Than 5 Percent
The following table sets forth information as of March 1, 1998, with respect to
each person or entity known to have beneficial ownership of more than 5% of the
Company's outstanding common stock based upon information furnished to the
Company.
Name and address of Amount and nature Percent of
beneficial owner of beneficial ownership class
Northern Trust Corporation(1) 13,988,050(2) 10.10%
50 South LaSalle Street
Chicago, Illinois 60675
Southeastern Asset Management, Inc. 8,713,285 6.3%
6075 Poplar Avenue, Suite 900
Memphis, Tennessee 38119
(1)In accordance with applicable rules of the Securities and Exchange
Commission ("SEC"), all shares beneficially owned by the Northern Trust
Corporation, including those beneficially owned as Trustee of The Quaker
Employee Stock Ownership Plan (Employee Stock Ownership Plan), are required
to be disclosed.
(2)This amount includes the 6,520,089 shares of common stock and 1,032,843
shares of ESOP Preferred Stock (at the convertible rate of 2.16 shares of
common stock for each share of ESOP Preferred Stock and representing 100%
of the issued and outstanding stock of that class) held in the Employee
Stock Ownership Plan.
Directors and Management
As of March 1, 1998, each director, each nominee, each Named Executive (see
page 11) and all directors and executive officers of the Company as a group
beneficially owned the number of shares of the Company's common stock set forth
in the following table. Shares subject to acquisition within 60 days through
the exercise of stock options are included in the first column and are shown
separately in the second column.
<TABLE>
<CAPTION>
Name of individual Amount and nature Shares subject to acquisition
or persons in group of beneficial ownership(a) within 60 days (a)
<S> <C> <C> <C>
Frank C. Carlucci 9,593 (b)(c) 0
Silas S. Cathcart 27,272 (c)(d) 0
Kenneth I. Chenault 5,654 (c) 0
John H. Costello 800 (c) 0
James F. Doyle 313,922 (e)(f) 268,520
W. James Farrell 0 0
Judy C. Lewent 3,794 (c) 0
Vernon R. Loucks, Jr. 14,376 (c) 0
Thomas C. MacAvoy 14,376 (c) 0
Luther C. McKinney 51,326 50,000
Douglas W. Mills 355,560 (e)(f) 261,552
Robert S. Morrison 589,662 (f) 450,000
Walter J. Salmon 20,958 (c) 0
William D. Smithburg 1,994,758 (e)(f) 1,692,360
Robert S. Thomason 297,248 (e)(f)(g) 266,312
William L. Weiss 13,171 (c)(h) 0
All directors and executive officers as a group 4,401,620 (e)(f)(i) 3,567,620
<FN>
(a)Unless otherwise indicated, each named individual and each person in the
group has sole voting and investment power with respect to the shares
shown. Of the total shares outstanding (including shares subject to
acquisition within 60 days after March 1, 1998), Mr. Smithburg beneficially
owns approximately 1.4% of the total shares, each other person beneficially
owns less than 1% of the total shares and the group in total beneficially
owns approximately 3% of the total shares.
(b)Of these shares, 300 are held in a custodial account for Mr. Carlucci's
daughter, through which he shares voting and investment power with his
wife.
(c)The figures shown for all directors include an aggregate of 80,983 common
stock units credited to them under The Quaker Oats Company Stock
Compensation Plan for Outside Directors.
(d)Of these shares, 13,560 are held in a trust of which Mr. Cathcart is a co-
trustee and has a contingent beneficial interest and shares voting and
investment power.
(e)The figures shown for all executive officers include an aggregate of 67,322
shares (which includes 11,076 shares on the basis of the conversion of
5,128 shares of ESOP Preferred Stock at the conversion rate of 2.16)
allocated to them under the Employee Stock Ownership Plan. The Named
Executives hold the following numbers of shares under this Plan: Mr.
Smithburg 11,613; Mr. Doyle, 7,693; Mr. Thomason, 4,359; and Mr. Mills
9,141.
(f)The figures shown for all executive officers include an aggregate of
141,668 shares and stock units granted to them under the Long Term
Incentive Plan for which the restricted period has not lapsed. The Named
Executives hold the following numbers of shares or stock units under this
Plan: Mr. Morrison 119,662; Mr. Smithburg, 2,196; Mr. Doyle, 3,348; Mr.
Thomason, 1,722; and Mr. Mills, 2,385.
(g)Of these shares, 13,032 are held directly by Mr. Thomason's wife, and Mr.
Thomason and each of his two children own 800 jointly.
(h)Of these shares, 800 are held in a trust of which Mr. Weiss' wife is income
beneficiary.
(i)The figures shown for all executive officers include an aggregate of 4,553
shares representing their proportionate interests in the Quaker Stock Fund
of The Quaker Investment Plan. The Named Executives do not hold any shares
under this Plan.
</FN>
</TABLE>
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who beneficially own more than 10% of
a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the SEC and the New York Stock Exchange
("NYSE"). To the best of the Company's knowledge, all such required reports
were timely filed, except for the inadvertent clerical omission of the report
of the grant of 100,000 options under the Long Term Incentive Plan at fair
market value in September, 1996 to Michael Schott, then a Vice President of the
Company. The report was filed in 1997 upon discovery of the omission.
EXECUTIVE COMPENSATION
The following table details annual and long term compensation paid to the two
individuals who served as the Company's Chairman, President and Chief Executive
Officer during 1997 and the four most highly compensated executive officers for
1997 who were serving as executive officers as of the last day of 1997 (Named
Executives), during the Company's three most recent fiscal years (the twelve-
month periods ended June 30, 1995 and December 31, 1996 and 1997) and the
fiscal transition period (the six-month period ended December 31, 1995).
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Other Restricted Securities All
Fiscal Annual Stock Underlying Other
Year Salary Bonus Compensation Awards Options Compensation
Name (1) ($) ($)(2) ($)(3) ($)(4) (#)(5) ($)(6)
<S> <C> <C> <C> <C> <C> <C> <C>
Robert S. Morrison- 1997 $183,667 $ -0- $ -0- $5,715,570 1,000,000 $ -0-
Chairman, President 1996 N/A N/A N/A N/A N/A N/A
and Chief Executive 1995.5 N/A N/A N/A N/A N/A N/A
Officer (effective 1995 N/A N/A N/A N/A N/A N/A
October 22, 1997)
William D. Smithburg- 1997 $729,170 $ -0- $ 10,809 $ -0- -0- $118,326
Chairman, President and 1996 $872,506 $ -0- $ 7,636 $ -0- -0- $ 98,242
Chief Executive Officer 1995.5 $430,008 $ -0- $ 13,421 $ -0- 500,000 $ -0-
(resigned effective 1995 $855,014 $ -0- $ 3,419 $ 76,010 340,000 $171,627
October 22, 1997)
Robert S. Thomason- 1997 $379,486 $451,700 $137,759 $ 27,714 50,000 $ 78,424
Senior Vice President 1996 $366,034 $207,800 $(20,499) $ -0- -0- $ 45,977
Finance and Chief 1995.5 $180,012 $ -0- $ 1,588 $ 7,872 70,000 $ -0-
Financial Officer 1995 $358,520 $ 42,700 $ 3,216 $ 21,786 42,000 $ 62,835
Luther C. McKinney- 1997 $391,064 $400,400 $ -0- $ -0- 50,000 $ 80,055
Senior Vice President 1996 $377,206 $208,500 $ 82 $ -0- -0- $ 42,419
1995.5 $185,508 $ -0- $ 2,262 $ -0- 65,000 $ -0-
1995 $368,682 $ -0- $ -0- $ -0- 44,000 $ 68,406
James F. Doyle- 1997 $364,702 $632,900 $ -0- $ 63,809 64,000 $521,010
Executive Vice President 1996 $351,778 $382,800 $ 942 $ -0- -0- $ 64,240
Worldwide Beverages 1995.5 $173,004 $ -0- $ 592 $ 19,610 90,000 $ -0-
1995 $332,760 $217,600 $ -0- $ 42,449 48,000 $ 70,764
Douglas W. Mills- 1997 $380,392 $448,100 $ 542 $ 31,961 64,000 $ 76,142
Executive Vice President 1996 $363,978 $191,800 $ -0- $ 23,811 -0- $ 59,830
U.S. and Canadian 1995.5 $173,004 $143,000 $ -0- $ -0- 90,000 $ -0-
Quaker Food Products 1995 $323,550 $ 29,700 $ -0- $ 28,517 36,000 $ 59,321
<FN>
(1)The six-month transition period ended December 31, 1995 is identified as
Fiscal Year 1995.5 for purposes of this Table.
(2)Amounts include the cash awards that have been paid under the Management
Incentive Bonus Plan based on the Company's financial performance and the
Named Executive's personal performance for the transition period and each
Fiscal Year.
(3)Of the amount shown for Mr. Thomason for Fiscal Year 1997, $137,259
represents payments relating to his overseas assignment. Of the amount
shown for Mr. Thomason for Fiscal Year 1996, included are amounts recovered
by the Company pursuant to its tax equalization program relating to his
overseas assignment.
(4)Restricted stock and unit award values reflect the fair market value of the
Company's common stock on the date of each grant. Mr. Morrison was
granted 119,000 restricted stock units effective October 22, 1997. An
award of 5,000 units will fully vest on October 22, 1998 and an award of
114,000 units will vest in equal installments of 38,000 units on October
22, 1998, 1999 and 2000. Dividends on restricted shares and units were and
continue to be paid on an on-going basis at the same rate as paid to all
shareholders of common stock. The amount and value of restricted shares or
units held by the Named Executives as of the last day of 1997 were as
follows: Robert S. Morrison, 119,000 and $6,280,820; William D. Smithburg,
2,455 and $129,575; Robert S. Thomason, 1,742 and $91,943; James F. Doyle,
3,415 and $180,244; and Douglas W. Mills, 2,416 and $127,516.
Upon a change in control (see "Pension Plans"), restricted shares
outstanding on the date of the change in control will be cancelled and an
immediate lump sum cash payment will be paid which is equal to the product
of: (1) the higher of (i) the closing price of common stock as reported on
the NYSE Composite Index on or nearest to the date of payment (or, if not
listed on such exchange, on a nationally recognized exchange or quotation
system on which trading volume in the common stock is highest) or (ii) the
highest per share price for common stock actually paid in connection with
the change in control; and (2) the number of shares of such restricted
stock.
(5)All stock option awards in the transition period and Fiscal Years 1997 and
1995 were granted with an exercise price that is equal to the fair market
value of the Company's common stock on the date of the grant. In the
transition period, the Company made a larger-than-normal award of stock
options in order to provide a transition to the new calendar fiscal year.
As a result, no stock option awards were made to the Named Executives in
Fiscal Year 1996.
(6)For Fiscal Years 1997, 1996 and 1995, amounts shown are the total of the
value of the stock allocations to the Named Executives under the Employee
Stock Ownership Plan and cash awards to the Named Executives based on
earnings in excess of the Internal Revenue Code limits on the amount of
earnings deemed eligible for purposes of the annual stock allocations made
directly under the Employee Stock Ownership Plan. In addition, of the
amount shown for Mr. Doyle for Fiscal Year 1997, $441,165 is attributable
to a special incentive award.
</FN>
</TABLE>
The following table contains information covering the grant of stock options to
the Named Executives during Fiscal Year 1997. The exercise price for all
options granted is equal to the fair market value of the Company's common stock
on the date of grant.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants (1) for Option Term (2)
% of Total
Number of Options
Securities Granted to
Underlying Employees
Options in Fiscal Exercise Expiration
Name Granted(#) Year Price ($/Sh) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Robert S. Morrison 1,000,000 31.2% $48.03 10/21/07 $30,205,809 $76,547,450
William D. Smithburg -0- 0.0% N/A N/A N/A N/A
Robert S. Thomason 50,000 1.6% $37.25 03/11/07 $ 1,171,316 $ 2,968,345
Luther C. McKinney 50,000 1.6% $37.25 03/11/07 $ 1,171,316 $ 2,968,345
James F. Doyle 64,000 2.0% $37.25 03/11/07 $ 1,499,285 $ 3,799,482
Douglas W. Mills 64,000 2.0% $37.25 03/11/07 $ 1,499,285 $ 3,799,482
<FN>
(1) All options were granted on March 12, 1997, with the exception of Mr.
Morrison's options which were granted on October 22, 1997, his date of
hire. One-third of the options granted on March 12, 1997 will vest on
each of the three anniversaries following the date of grant. Mr.
Morrison's options vest as follows: one-fifth of 550,000 options will
vest on each of the five anniversaries following the date of grant and
450,000 options vested immediately on the date of grant. Upon the
occurrence of a change in control, all options would be cancelled and a
lump sum cash payment paid for realizable value. (See "Pension Plans".)
(2) Based on fair market value on the date of grant and an annual appreciation
at the rate stated (compounded annually) of such fair market value through
the expiration date of such options. The dollar amounts under these
columns are the result of calculations at the 5% and 10% stock price
appreciation rates set by the SEC and therefore do not forecast possible
future appreciation, if any, of the Company's stock price. However, the
total of the "Potential Realizable Value" for the Named Executives would
represent less than 0.8% of the incremental increase of approximately $3
billion and $8 billion respectively, in the Potential Realizable Value
that shareholders would realize under both the prescribed 5% and 10% stock
price appreciation rates.
</FN>
</TABLE>
The following table contains information covering the exercise of options by
the Named Executives during Fiscal Year 1997 and unexercised options held as of
the end of 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of Value of Unexercised, In-the-
Unexercised Options Money Options at Fiscal Year
at Fiscal Year End (#) End ($)(2)
Shares
Acquired on Value
Name Exercise (#) Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Robert S. Morrison -0- $ -0- 450,000 550,000 $ 2,137,500 $2,612,500
William D. Smithburg 15,204 $ 278,391 1,692,360 170,000 $31,112,298 $3,340,500
Robert S. Thomason -0- $ -0- 249,812 73,800 $ 4,650,763 $1,244,170
Luther C. McKinney 385,944 $6,657,487 -0- 50,000 $ -0- $ 776,500
James F. Doyle 56,688 $1,104,379 247,400 94,600 $ 4,082,620 $1,595,210
Douglas W. Mills -0- $ -0- 240,432 94,600 $ 4,129,328 $1,595,210
<FN>
(1)Represents the difference between the option exercise price and the fair
market value of the Company's common stock on the date of exercise.
(2)Represents the difference between the option exercise price and the fair
market value of the Company's common stock on the last day of 1997.
</FN>
</TABLE>
Pension Plans
The Company and its subsidiaries maintain several pension plans. The Quaker
Retirement Plan (Retirement Plan), which is the principal pension plan, is a
noncontributory, defined benefit plan covering eligible salaried and hourly
employees of the Company who have completed one year of service as defined by
the Retirement Plan.
Under the Retirement Plan, the participant accrues a benefit based upon the
greater of a Years-of-Service Formula and an Earnings/Service Formula. Under
the Years-of-Service Formula, participants accrue annual benefits equivalent to
credited years of service times $216. Under the Earnings/Service Formula, a
participant's benefit is the sum of two parts:
1. Past Service Accrual -- Benefits accrued through December 31, 1993 are set
at the greater of (a) those earned or (b) 1% of Five-Year Average earnings to
$22,700 plus 1.65% of earnings above $22,700, times credited years of
service; and
2. Future Service Accrual -- For each year beginning January 1, 1994 and
after, participants accrue benefits of 1.75% of annual earnings to 80% of the
Social Security wage base plus 2.5% of annual earnings above 80% of the
Social Security wage base.
Eligible earnings used to calculate retirement benefits include wages,
salaries, bonuses, contributions to The Quaker Investment Plan (a 401(k) Plan)
and allocations under the Employee Stock Ownership Plan. Normal retirement age
under the Retirement Plan is age 65. The Retirement Plan provides for early
retirement benefits.
Benefit amounts payable under the Retirement Plan are limited to the extent
required by the Employee Retirement Income Security Act of 1974 ("ERISA"), as
amended, and the Internal Revenue Code of 1986, as amended.
If the benefit formula produces an amount in excess of those limitations, the
excess will be paid out of general corporate funds in accordance with the terms
of The Quaker 415 Excess Benefit Plan and The Quaker Eligible Earnings
Adjustment Plan. The Quaker Eligible Earnings Adjustment Plan also provides
for payment out of general corporate funds, based upon benefit amounts which
would otherwise have been payable under the Retirement Plan and The Quaker 415
Excess Benefit Plan, if the executive had not previously elected to defer
compensation under the Executive Deferred Compensation Plan.
The Quaker Supplemental Executive Retirement Program (Supplemental Executive
Retirement Program), may also provide retirement benefits for officers of the
Company designated as participants by the Compensation Committee. Benefit
amounts payable under the Supplemental Executive Retirement Program are
intended to provide a minimum base retirement benefit and are therefore offset
by the total of amounts payable under the Retirement Plan, The Quaker 415
Excess Benefit Plan and The Quaker Eligible Earnings Adjustment Plan (Basic
Benefit). The Supplemental Executive Retirement Program benefit is based upon
a participant's average annual earnings for the five consecutive calendar years
during which earnings were highest within the last ten years of service
multiplied by a percentage based upon the participant's age at his termination
date. For a participating Chief Executive Officer, this percentage ranges from
40% (for a termination from ages 50 to 55) to 60% (for a termination at age 65
or later), and for other participants from 35% to 50% (based upon their ages at
termination).
The total estimated annual retirement benefits that the Named Executives would
receive as a Basic Benefit and under the Supplemental Executive Retirement
Program are as follows: William D. Smithburg, $971,033; Robert S. Thomason,
$349,420; Luther C. McKinney, $284,280; James F. Doyle, $351,948; and Douglas
W. Mills, $358,678. Except for Mr. Smithburg, the amounts assume that the
Named Executives will continue to work for the Company until their normal
retirement dates, that their earnings will remain the same as in calendar 1997
and that each will elect a straight-lifetime benefit without survivor benefits.
(Payment options such as a lump sum or other annuities are available.) Mr.
Smithburg's amount is based upon the terms of his Agreement Upon Separation of
Employment as described on page 17 of this proxy statement. Mr. Morrison was
not designated as a Supplemental Executive Retirement Program participant by
the Compensation Committee and will be provided a supplemental retirement
benefit in accordance with his Employment Agreement as described on pages 17
and 18 of this proxy statement.
The Retirement Plan assures active and retired employees that, to the extent of
sufficient plan assets, it will continue in effect for a reasonable period
following a change in control of the Company without a reduction of anticipated
benefits, and under certain circumstances may provide increased benefits.
Generally, under the Retirement Plan, a change in control shall be deemed to
have occurred in any of the following circumstances:
(a) An acquisition of 30% or more of Quaker stock, unless such acquisition
is pursuant to an agreement with the Company approved by the Board before
the acquiror becomes the beneficial owner of 5% of the Company's outstanding
voting power;
(b) A majority of the Board consists of persons who were not nominated by
the Board for election as directors;
(c) A plan of complete liquidation of the Company; or
(d) A merger, consolidation or sale of all or substantially all of the
Company's assets unless thereafter: (i) directors of Quaker immediately
prior thereto continue to constitute at least 50% of the directors of the
surviving entity or purchaser; or (ii) Quaker's securities continue to
represent, or are converted to securities which represent, more than 70% of
the combined voting power of the surviving entity or purchaser.
For a two-year period following a change in control, the accrued benefits of
members, who meet specified age and service requirements and who are
terminated, will be increased and no employees of the purchaser may become
members. For a five-year period following such a change in control of the
Company, the accrual of benefits for service during such period cannot be
decreased while there are excess assets (as defined in the Retirement Plan).
For so long as there are excess assets during that five-year period, if the
Retirement Plan is merged with any other plan, the accrued benefit of each
member and the amount payable to retired or deceased members shall be increased
until there are no excess assets. If during that five-year period the
Retirement Plan is terminated, to the extent that assets remain after
satisfaction of liabilities, the accrued benefits shall be increased such that
no assets of the Retirement Plan will directly or indirectly revert to the
Company.
Employment Agreements and Termination and Change in Control Benefits
The Company has entered into change in control agreements, known as Executive
Separation Agreements (Separation Agreements) with the Named Executives and
other executive officers. The Separation Agreements provide for separation pay
should a change in control of the Company occur (as described for the
Retirement Plan). The Separation Agreements were unanimously approved by the
nonemployee directors.
Under the Separation Agreements, the executive's employment must be terminated
involuntarily, without cause, whether actual or "constructive" (demotion,
relocation, loss of benefits, or other changes in the executive's terms of
employment short of actual termination) following a change in control, for
separation pay to be available. Under the Separation Agreement for Mr.
Morrison, separation pay is also available upon voluntary termination occurring
during the thirteenth month following a change in control.
Under the Separation Agreements, separation pay equals two years' annualized
base salary, bonuses under the Management Incentive Bonus Plan and the value of
life and health insurance coverage and pension credited service extended for
each executive for a period of two years. The Separation Agreements provide
that the amount of tax penalties paid under the Internal Revenue Code shall be
reimbursed to the executive officer by the Company, including the income tax on
such reimbursements. The Separation Agreements terminate three years from
their date of execution and are subject to renewal by the Board.
The officers of the Company also participate in The Quaker Salaried Employees
Compensation and Benefits Protection Plan (Protection Plan). Under the
Protection Plan, severance pay and benefits are provided should a change in
control occur (as described for the Retirement Plan) and an employee's
employment is terminated within two years thereafter for any reason other than
death, physical or mental incapacity, voluntary resignation, retirement or
gross misconduct. Severance payments may be paid in a lump sum or monthly
installments (as determined by the Protection Plan's Administrative Committee).
Severance payments are based on the amount of nine months pay, plus two weeks
pay for each year of service over 20 years. Pay is to be based on an
employee's current salary plus bonus, if any. Severance benefits are to be
continued for a minimum of nine months, plus two weeks for each year of service
over 20 years, and include all health and medical benefits, and life insurance
coverage at the time of termination.
The Board believes that the Separation Agreements and the Protection Plan
assure fair treatment of the covered employees following a change in control.
Furthermore, by assuring the executive of some financial security, the
Separation Agreements and the Protection Plan are intended to protect the
shareholders by neutralizing any bias of these employees in considering
proposals to acquire the Company. The Board believes that these advantages
outweigh the disadvantage of the cost of the benefits.
The officers of the Company also participate in the Quaker Officers Severance
Program (Program). Under the Program, severance benefits are payable if an
officer's employment is terminated for any reason other than death, physical or
mental incapacity, voluntary resignation, retirement or gross misconduct and
signs a waiver and release of claims against the Company and agrees to non-
compete, non-raiding and non-disclosure restrictions. Severance benefits will
continue for one year. Severance benefits to be continued are the executive's
base salary at the time of termination, the average bonus for the past two
years under the Management Incentive Bonus Plan, and medical and life insurance
coverage as in effect at the time of severance. Only the greater of the
severance payment and benefits to be provided under the Program or the
Protection Plan will be provided to an officer eligible under both, following a
change in control.
Under the Long Term Incentive Plan, upon the occurrence of a change in control
(as described for the Retirement Plan), options and restricted stock
outstanding on the date on which the change in control occurs shall be
cancelled, and an immediate lump sum cash payment shall be paid to the
participant equal to the product of: (1) the higher of (a) the closing price of
the Company's common stock as reported on the NYSE Composite Index on or
nearest the date of payment (or, if not listed on such exchange, on a
nationally recognized exchange or quotation system on which trading volume in
the Company's common stock is highest), or (b) the highest per share price for
the Company's common stock actually paid in connection with the change in
control (and with respect to options, reduced by the per share option price of
each such option held, whether or not then fully exercisable); and (2) the
number of shares covered by each such option, or shares of restricted stock.
Upon the occurrence of a change in control, performance shares, performance
units and other stock-based awards provided for under the Long Term Incentive
Plan, and still outstanding, shall also be cancelled, and any profit and/or
performance objective with respect to performance shares and performance units
shall be deemed to have been attained to the full and maximum extent. An
immediate lump sum cash payment relating thereto shall be paid to the
participant in an amount determined in accordance with the terms and conditions
set forth in the applicable agreement.
If making of payments pursuant to a change in control would subject the
participant to an excise tax under Section 4999 of the Internal Revenue Code or
would result in the Company's loss of a federal income tax deduction for those
payments (either of these consequences is referred to individually as a Tax
Penalty), then the Company shall reduce the number of benefits to be cancelled
to the extent necessary to avoid the imposition of such Tax Penalty. In
addition, the Company shall establish procedures necessary to maintain for the
participants a form of benefit which may be provided under the Long Term
Incentive Plan so that such participant will be in the same financial position
with respect to those benefits not cancelled as he would have been in the
ordinary course, absent a change in control and assuming his continued
employment, except that the foregoing with respect to the cancellation of
benefits shall not apply if such participant (a) is entitled to a tax
reimbursement for such Tax Penalty under any other agreement, plan or program
of the Company, or (b) disclaims any portion of, or all, payments to be made
pursuant to, or under, any other agreement, plan or program of the Company in
order to avoid such Tax Penalty. Disagreements as to whether such payments
would result in the imposition of a Tax Penalty shall be resolved by an opinion
of counsel chosen by the participant and reasonably satisfactory to the
Company.
The Company entered into a trust agreement, known as The Quaker Oats Company
Benefits Protection Trust (Trust or Trust Agreement). The Trust is to be used
to set aside funds necessary to satisfy the Company's obligations to present
and former executives and directors under deferred compensation programs and
agreements, and with respect to certain retirement and termination benefits, in
the event of a change in control (as described for the Retirement Plan).
Following a change in control, the Trust Agreement becomes irrevocable, and the
Trust shall be funded to provide for the payment of such obligations accrued at
the time of a change in control. The Trust may also be funded for the purpose
of paying legal expenses incurred by executives in pursuing benefit claims
under such programs and agreements following a change in control. The Trust is
currently funded only to a nominal extent. The Trust assets relating to
Company contributions are always subject to the claims of the general creditors
of the Company. No executive with any right or interest to any benefit or
future payment under the Trust Agreement shall have any right or security
interest in any specific asset of the Trust, nor shall he have any right to
alienate, anticipate, commute, pledge, encumber, or assign any of the benefits
or rights which he may expect to receive from the Trust or otherwise.
The Company entered into an Agreement Upon Separation of Employment (Agreement)
with Mr. Smithburg, which became effective immediately following his last date
of active employment, October 31, 1997. The Agreement provides, among other
things, severance pay (based upon salary and bonus) and benefits (medical,
dental, disability and life insurance) under the Quaker Officers Severance
Program through October 31, 1998, based upon Mr. Smithburg's salary and
benefits on his last day as an active employee, October 31, 1997. The
Agreement also provides for the amount necessary to be paid from the
Supplemental Executive Retirement Program as a straight-lifetime annuity, which
when added to Mr. Smithburg's Basic Benefit (as defined under the Supplemental
Executive Retirement Program) will provide for an annual total pension of
$971,033 beginning November 1, 1998. The Agreement also provides for Mr.
Smithburg's waiver and release of claims against the Company and non-compete,
non-raiding and non-disclosure restrictions upon him during the term of the
Agreement.
The Company entered into an Employment Agreement (Employment Agreement) with
Mr. Morrison that provides, among other things, that Mr. Morrison's initial
employment term will continue through December 31, 2000. Except in limited
circumstances, he shall receive a bonus of at least $1,000,000 for 1998 under
the Management Incentive Bonus Plan. The Employment Agreement also provides
for aggregate annual retirement benefits on a straight-lifetime annuity equal
to the greater of: (i) 50% of his average cash compensation for the highest
five consecutive calendar years; or (ii) $950,000, which are subject to
reduction in certain cases of termination of employment before reaching age 60.
Mr. Morrison's Employment Agreement also provided him with restricted stock
units and options in 1997 as described in the Tables on pages 11 through 14 of
this proxy statement and option awards for 1998, 1999 and 2000 of 300,000
options each year subject to the general option terms then in effect. He also
received a cash payment of $3.2 million as of the effective date of the
Employment Agreement which was intended to replace the long term incentive and
bonus payments he would have received from his previous employer had he
remained employed there. The Employment Agreement also provides for severance
benefits in the event of specified terminations which shall consist of the
compensation and benefits remaining under the term of the Employment Agreement
and full vesting of all options and restricted stock units on his last day of
active service. Mr. Morrison's Employment Agreement also provides for his
waiver and release of claims against the Company and non-compete, non-raiding
and non-disclosure restrictions upon him if he is entitled to severance pay and
benefits.
COMPENSATION COMMITTEE REPORT
The Company's executive compensation program is administered by the
Compensation Committee of the Board (Committee). The Committee reviews and
considers the recommendations of management and compensation consultants, and
then determines the compensation of all executive officers, including the Named
Executives. The Committee's determinations are reviewed with all nonemployee
directors, who constitute a majority of the Board.
Overall Policy
The Company's compensation programs have long been tied to Company and/or
business unit performance. The Company's compensation programs are therefore
aimed at enabling it to attract and retain strong executive talent. By linking
executive compensation to Company stock, management's interests are directly
linked to that of shareholders.
At least once each year, the Committee conducts a comprehensive review of the
Company's executive compensation programs. The purpose of the review is to
ensure that the programs are meeting their objectives and that the Company's
executive compensation programs remain consistent with competitive practice.
In its review, the Committee considers data provided by management, and also by
leading compensation consultants, with whom the Committee meets privately.
The Company's policy with respect to qualifying compensation in excess of $1
million to its Named Executives for tax deductibility under Section 162(m) of
the Internal Revenue Code, is to require each Named Executive to defer payment
of any portion of compensation which exceeds $1 million until after retirement
from the Company, at which time the deferred compensation would not be subject
to the limitation on tax deductibility.
The Company's compensation programs consist of base salary, a short-term cash
incentive program (Management Incentive Bonus Plan), and a long-term incentive
program consisting primarily of a broad-based stock option program and
selective use of restricted stock. For executive officers, the mix of
compensation is weighted more toward the performance-based elements of
compensation (short-term and long-term incentive programs) rather than the more
fixed elements of compensation (salary and benefits).
Base Salary
Salary guidelines for executive officers are established by comparing the
responsibilities of the individual's position to similar positions in other
comparable companies. Salary increases are determined by comparing the
person's actual performance to personal performance objectives, as well as the
Company's and/or business unit's performance versus its objectives. Merit
increases awarded to salaried employees in 1997 averaged 4%. The merit
increases awarded to executive officers, including the Named Executives,
averaged 3% during 1997.
Annual Incentive
The Company's key managers, including the executive officers, are eligible to
receive an annual award under the Management Incentive Bonus Plan. Under the
Management Incentive Bonus Plan, individual targets are established based on
position level. Participants may receive more, or less, than the targets
depending upon their performance.
The annual incentive award is based on a combination of business unit and
Company performance compared to financial and nonfinancial objectives, with
business unit performance weighted more than Company performance. Personal
objectives are also considered in judging total compensation.
Company and business unit performance is measured by a tool called Controllable
Earnings. Controllable Earnings directs managers to grow sales profitably,
decrease operating costs and increase operating margins. At the same time,
Controllable Earnings measures their ability to manage assets more effectively.
Controllable Earnings is calculated as operating income (adjusted for certain
financial costs) less a capital usage charge which is based on each business
unit's invested capital. With incentives tied to maximizing Controllable
Earnings, managers focus on generating greater
profitable growth, investing in projects where returns exceed our cost of
capital and efficiently utilizing assets. These are the drivers of long-term
cash flow--ultimately the keys to building shareholder value. The Committee
also considers performance against other key financial measures such as sales,
earnings per share, return on assets, return on equity and operating income.
In order for the full financial portion of the target bonuses to be paid, the
Company must meet its internal financial targets both in the business units and
the entire Company and the Committee also considers how that performance
relates to other comparable companies.
Long-Term Incentive
The Company has long believed in the importance of stock ownership by all
employees. Consequently, its long-term incentive plans are focused on stock-
based vehicles. The Company has adopted share ownership guidelines for all
vice presidents and above. Each is expected to hold Company stock commensurate
with their level in the organization.
The primary long-term incentive vehicle is a broad-based stock option program
for key managers, including the executive officers. Participants are
considered for annual awards of stock options, based upon an assessment of each
person's job level, performance, potential, past award history and competitive
practice. Most stock options currently become exercisable one-third per year
over three years, and all stock options have a ten-year term and are priced at
or above the stock's fair market value on the grant date.
A second broad-based long-term incentive program applying to the same group of
key managers is the Incentive Investment Program. Under the Incentive
Investment Program, participants may elect to invest a percentage of their
Management Incentive Bonus awards in Company stock. Amounts invested are
matched with either one or two shares of restricted stock for each three shares
of stock purchased by the participant, depending on the percent of the
Management Incentive Bonus award invested. The vesting of the restricted stock
occurs over a five-year period, contingent upon the participant's continued
employment and retaining the purchased shares.
Restricted stock and restricted stock units are also periodically used to
motivate and retain selected key employees.
Chief Executive Officer Compensation
In determining Chief Executive Officer compensation, the Committee considers
the Company's financial and nonfinancial performance, as well as an analysis of
total compensation in relation to that of Chief Executive Officers in
comparable companies. Based on an evaluation of these factors, Mr. Smithburg
did not receive a merit increase, a bonus award, or a stock option award in
1997.
Mr. Morrison did not receive a merit increase or bonus for 1997 since he was
not employed until the last quarter of 1997. As part of the process to attract
Mr. Morrison, the Company entered into an Employment Agreement and provided him
with compensation and benefits as described on pages 17 and 18 of this proxy
statement.
MEMBERS OF THE COMMITTEE
Silas S. Cathcart, Chairman
Kenneth I. Chenault
Vernon R. Loucks, Jr.
William L. Weiss
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's common stock against the cumulative total return of the
Standard & Poor's Foods Index and the Standard & Poor's 500 Stock Index for the
period of five and one-half years commencing June 30, 1992 and ending December
31, 1997.
Comparison of Cumulative Total Return*
Quaker, S&P Foods, S&P 500
Transition
Period
Fiscal Year Ending Ending Calendar Year Ending
6/92 6/93 6/94 6/95 12/95 12/96 12/97
Quaker $100 $137 $131 $129 $135 $155 $220
S&P Foods $100 $100 $100 $129 $146 $173 $248
S&P 500 $100 $114 $115 $145 $166 $204 $272
*Assumes $100 invested on June 30, 1992 with reinvestment of dividends.
DIRECTORS' PROPOSALS
Ratification of Appointment of Independent Public Accountants
Upon the recommendation of the Audit Committee, the Board has appointed Arthur
Andersen LLP as independent public accountants for 1998, and is requesting
ratification by the shareholders. Arthur Andersen LLP has examined the
financial statements of the Company each fiscal year since 1970.
In the event the resolution is defeated, the adverse vote will be considered as
a direction to the Board to select other independent public accountants for the
next fiscal year. However, because of the difficulty and expense of making any
substitution of independent public accountants after the beginning of a fiscal
period, it is contemplated that the appointment for 1998 will be permitted to
stand unless the Board finds other reasons for making a change.
During 1997, Arthur Andersen LLP performed recurring audit services including
the examination of annual financial statements and pension plans and limited
reviews of quarterly financial information. Fees for these services aggregated
approximately $1.684 million. Arthur Andersen LLP also performed services for
the Company in other business areas during 1997, including tax and accounting
related services, for which fees aggregated approximately $1.819 million.
Andersen Consulting LLP, the consulting arm of Arthur Andersen & Co., S.C.,
also performed various consulting services for the Company during 1997. Fees
for these services aggregated approximately $1.265 million.
Representatives of Arthur Andersen LLP will attend the Annual Meeting and will
have an opportunity to make a statement, if they desire to do so, and to
respond to appropriate questions.
Ratification of the appointment of Arthur Andersen LLP as independent public
accountants requires the affirmative vote of a majority of votes cast thereon.
The Board unanimously recommends a vote FOR this proposal.
Approval of the Long Term Incentive Plan of 1999
General Description
The Board unanimously recommends that the shareholders approve the adoption of
The Quaker Long Term Incentive Plan of 1999 (1999 Plan). The Quaker Long Term
Incentive Plan of 1990 (1990 Plan) expires by its terms on December 31, 1998.
The 1999 Plan will become effective upon receiving shareholder approval and no
further grants will be made under the 1990 Plan following such approval.
The purpose of the 1999 Plan is to promote the interests of the Company and its
shareholders by providing designated employees of the Company and its
subsidiaries with additional incentive and the opportunity, through stock
ownership, to increase their proprietary interest in the Company and their
personal interest in its continued success and progress. The 1999 Plan provides
for benefits to be awarded to eligible participants in the form of options,
restricted stock, performance shares and other stock based awards. The Board
believes that adoption of the 1999 Plan is imperative for the Company to remain
competitive in attracting and retaining talented employees for the Company.
Set forth below is a description of the essential features of the 1999 Plan.
This description is subject to and qualified in its entirety by the full text
of the 1999 Plan which is available upon written request to the Company's
Corporate Secretary, P.O. Box 049001, Suite 27-9, Chicago, Illinois 60604-9001.
Shares Available
The total number of shares of common stock which may be issued in connection
with benefits awarded under the 1999 Plan shall not exceed the total of (i)
8,000,000 shares; (ii) any shares which are available for future awards under
the 1990 Plan upon the 1999 Plan becoming effective; and (iii) any shares that
are represented by awards granted under the 1990 Plan and the 1999 Plan which
are forfeited, expired or are cancelled without delivery or the forfeiture of
the shares.
Notwithstanding any other provision in the 1999 Plan, if the Company's common
stock is changed by reason of any stock dividend, spin-off, split-up,
recapitalization, merger, consolidation, reorganization, combination or
exchange of shares, the number and class of shares available for future
benefits to be awarded and any outstanding benefits and the price thereof, as
applicable, will be appropriately adjusted by the Compensation Committee
(Committee). Shares issued under the 1999 Plan through the settlement,
assumption or substitution of outstanding awards or obligations to grant future
awards as a condition of the Company acquiring another entity shall not reduce
the maximum number of shares available for delivery under the 1999 Plan.
Limitation on Shares
The total number of options which may be granted to a single participant shall
not exceed 1,000,000 during any calendar year, and the total number of shares
for which incentive stock options may be granted shall not exceed 8,000,000
shares during the term of the 1999 Plan, subject to the limitations, reusage
and adjustments provided in the 1999 Plan.
The total number of shares which may be granted as restricted stock,
performance shares and other stock based awards shall not exceed 3,000,000
during the term of the 1999 Plan, subject to the adjustments provided in the
1999 Plan. The total number of shares which may be granted as performance
shares to a single participant shall not exceed 350,000 during any calendar
year, subject to the adjustments provided in the 1999 Plan. The total number
of shares which may be granted as other stock based awards to a single
participant shall not exceed 350,000 during any calendar year, subject to the
adjustments provided in the 1999 Plan.
Eligibility for Participation
In general, benefits may be awarded only to Company employees as selected by
the Committee.
Administration
The 1999 Plan is administered by the Committee, consisting of nonemployee
members of the Board. Subject to the express provisions of the 1999 Plan, the
Committee has complete authority to (i) determine when and to whom benefits are
granted; (ii) determine the terms and provisions of benefits granted; (iii)
interpret the 1999 Plan; (iv) prescribe, amend and rescind rules and
regulations relating to the 1999 Plan; (v) accelerate, purchase, adjust or
remove restrictions from benefits; and (vi) take any other action which it
considers necessary or appropriate for the administration of the 1999 Plan.
All determinations made by the Committee shall be final.
Amendment and Termination
The Board may amend or terminate the 1999 Plan at any time. The Board may not
amend the 1999 Plan without shareholder approval if such amendment (i) would
increase the number of shares of common stock which may be issued in connection
with benefits under the 1999 Plan; or (ii) would violate applicable law.
Subject to prior termination by the Board, the 1999 Plan shall terminate
December 31, 2007 and no benefits may be awarded after that date under the 1999
Plan.
The amendment or termination of the 1999 Plan will not adversely affect any
benefit granted prior to such amendment or termination. Any benefit may be
modified or cancelled by the Committee if and to the extent permitted in the
1999 Plan, applicable agreement, or with the consent of the participant to whom
such benefit was granted. However, the Committee may not cancel or permit the
surrender of options and reissue new options, or reprice options, at a lower
purchase price.
Change in Control
Upon the occurrence of a change in control, options and restricted stock
outstanding on the date on which the change in control occurs shall be
cancelled, and an immediate lump sum cash payment shall be paid to the
participant equal to the product of (1) the higher of (i) the closing price of
the common stock as reported on the NYSE Composite Index on or nearest the date
of payment (or, if not listed on such exchange, on a nationally recognized
exchange or quotation system on which trading volume in the common stock is
highest), or (ii) the highest per share price for the common stock actually
paid in connection with the change in control, (and with respect to options,
reduced by the per share option price of each such option held, whether or not
then fully exercisable), and (2) the number of shares covered by each such
option or shares of restricted stock.
Upon the occurrence of a change in control, performance shares and other stock
based awards still outstanding shall also be cancelled, and any profit and/or
performance objective with respect to performance shares shall be deemed to
have been attained to the full and maximum extent. An immediate lump sum cash
payment relating thereto shall be paid to the participant in an amount
determined in accordance with the terms and conditions set forth in the
applicable agreement.
If the making of payments pursuant to a change in control would subject the
participant to an excise tax under Section 4999 of the Internal Revenue Code,
or would result in the Company's loss of a federal income tax deduction for
those payments (either of these consequences is referred to as a tax penalty),
then the Company shall reduce the number of benefits to be cancelled to the
extent necessary to avoid the imposition of such tax penalty, and shall
establish procedures necessary to maintain for the participants any form of
benefit which may be provided under the 1999 Plan so that such participant will
be in the same financial position with respect to those benefits not cancelled
as the participant would have been in the ordinary course, absent a change in
control and assuming the participant's continued employment; except that the
foregoing, with respect to the cancellation of benefits, shall not apply if
such participant (i) is entitled to a tax reimbursement for such tax penalty
under any other agreement, plan or program of the Company, or (ii) may disclaim
any portion of or all payments to be made pursuant to or under any other
agreement, plan or program of the Company in order to avoid such tax penalty.
Disagreements as to whether such payments would result in the imposition of a
tax penalty shall be resolved by an opinion of counsel chosen by the
participant and reasonably satisfactory to the Company.
Stock Options
Options granted under the 1999 Plan intended to qualify for special tax
treatment under Section 422 of the Internal Revenue Code are referred to as
incentive stock options and options not intended to so qualify are referred to
as nonstatutory stock options.
The option price per share of common stock in the case of any option shall be
no less than the fair market value of the shares on the effective date of the
option granted. The average of the high and low prices of the common stock as
reported on the NYSE Composite Transactions on March 20, 1998 was $57.44 per
share. The term of any option may not exceed ten years. All rights to
exercise an option will terminate immediately upon termination of a
participant's employment for any reason other than death or retirement. If a
participant dies or retires, the option will terminate five years after the
participant's death or retirement but in no event later than the option expires
pursuant to its terms.
Payment for shares purchased pursuant to the exercise of options may be made
(i) in cash, (ii) with the authorization of the Committee, (a) by exchanging
shares of common stock having an aggregate fair market value equal to the cash
exercise price of the option being exercised, or (b) in other property, or
(iii) with the authorization of the Committee, by any combination of the
foregoing.
The other terms of options shall be determined by the Committee, and, in the
case of options intended to qualify as incentive stock options, shall meet all
requirements of Section 422 of the Internal Revenue Code. Currently, such
requirements are (i) the option must be granted within ten years from the
adoption of the 1999 Plan; (ii) the option may not have a term longer than ten
years; (iii) the option must be non-transferable other than by will or the laws
of descent and distribution and may be exercised only by the participant during
his lifetime; and (iv) such individual, at the time the option is granted, does
not own stock of the Company possessing more than 10% of the total combined
voting power of all classes of stock of the Company.
Restricted Stock
The Committee may grant shares of restricted stock at no cost, or any amount
not in excess of the par value of such shares of the Company's common stock.
Such shares shall be issued at the time of the grant, but shall be subject to
forfeiture until those conditions set forth by the applicable agreement with
the participant are satisfied. Shares of restricted stock may not be sold,
assigned, transferred, pledged or otherwise encumbered during the restricted
period; provided, however, that at the Committee's discretion, the restricted
period may be reduced or terminated. Stock certificates representing shares of
restricted stock shall bear a legend referring to the 1999 Plan, noting the
risk of forfeiture of the shares and stating that such shares are non-
transferable until all restrictions have been satisfied and the legend has been
removed. As of the date restricted stock is granted, the participant shall be
entitled to full voting and dividend rights with respect to all such shares.
Performance Shares and Other Awards
The Committee may grant awards of performance shares, which represent the right
to receive common stock or cash equal to the fair market value of the common
stock at a future date in accordance with the terms of such grant. The
Committee may grant other stock based awards at such times, in such amounts and
subject to such terms and conditions as it deems appropriate.
Performance shares and other stock based awards may be governed by the
achievement of performance goals as the Committee shall determine. Performance
goals that may be used by the Committee for such grants shall consist of:
operating profits (which includes earnings before income taxes, depreciation
and amortization), net profits, earnings per share, profit returns and margins,
revenues, shareholder return and/or value, stock price, working capital and
controllable earnings. Performance goals may be measured solely on a
corporate, subsidiary or business unit basis, or a combination thereof and may
reflect absolute entity performance or a relative comparison of entity
performance to the performance of a peer group of entities or other external
measure of the selected performance criteria. Profit earnings and revenues
used for any performance goal measurement may exclude: gains or losses on
operating asset sales or dispositions; asset write-downs; litigation or claim
judgments or settlements; accruals for historic environmental obligations;
effect of changes in tax law or rate on deferred tax liabilities; accruals for
reorganization and restructuring programs; uninsured catastrophic property
losses; the cumulative effect of changes in accounting principles; and any
extraordinary non-recurring items as described in Accounting Principles Board
Opinion No. 30 and/or in management's discussion and analysis of financial
performance appearing in the Company's annual report to shareholders for the
applicable year.
Federal Income Tax Consequences
The following is a summary of the federal income tax consequences of the 1999
Plan, based on current income tax laws, regulations and rulings. Any time a
distribution is made under the 1999 Plan, the Company may withhold any amount
necessary in cash or shares to satisfy federal and state tax withholding
requirements with respect to the distribution.
Incentive Stock Options
An optionee does not recognize income on the grant of an incentive stock
option. If an optionee exercises an incentive stock option in accordance with
the terms of the option and does not dispose of the shares acquired within two
years from the date of the grant of the option nor within one year from the
date of exercise, the optionee will not realize any income by reason of the
exercise and the Company will be allowed no deduction by reason of the grant or
exercise. The optionee's basis in the shares acquired upon exercise will be
the amount paid upon exercise. Provided the optionee holds the shares as a
capital asset at the time of sale or other disposition of the shares, the gain
or loss, if any, recognized on the sale or other disposition will be capital
gain or loss. The amount of the gain or loss will be the difference between
the amount realized on the disposition of the shares and his basis in the
shares.
If an optionee disposes of the shares within two years from the date of grant
of the option or within one year from the date of exercise, the optionee will
realize ordinary income at the time of such early disposition which will equal
the excess, if any, of the lesser of (i) the amount realized on the early
disposition or (ii) the fair market value of the shares on the date of exercise
over the optionee's basis in the shares. The Company will be entitled to a
deduction in an amount equal to such income. The excess, if any, of the amount
realized on the early disposition of such shares over the fair market value of
the shares on the date of exercise will be long-term or short-term capital
gain, depending upon the holding period of the shares, provided the optionee
holds the shares as a capital asset at the time of early disposition. If an
optionee disposes of such shares for less than his basis in the shares, the
difference between the amount realized and his basis will be a long-term or
short-term capital loss, depending upon the holding period of the shares,
provided the optionee holds shares as a capital asset at the time of
disposition.
The excess of the fair market value of the shares at the time the incentive
stock option is exercised over the exercise price for the shares is an
adjustment for calculating the optionee's alternative minimum taxable income.
Nonstatutory Stock Options
An optionee does not recognize income on the grant of a nonstatutory stock
option. The optionee recognizes ordinary income upon the exercise of a
nonstatutory stock option in an amount equal to the difference between the fair
market value of the shares on the exercise date and the amount paid for the
shares. As a result of the optionee's exercise of a nonstatutory stock option,
the Company will be entitled to deduct an amount equal to the amount included
in the optionee's gross income in the Company's taxable year in which the
option is exercised.
Payment in Shares
If the optionee exercises an option and surrenders shares already owned by
him (old shares), the following rules apply:
(i) To the extent the number of shares acquired (new shares) exceeds the
number of old shares exchanged, the optionee will recognize ordinary income on
the receipt of such additional shares (provided the option is not an incentive
stock option) in an amount equal to the fair market value of such additional
shares less any cash paid for them and the Company will be entitled to a
deduction in an amount equal to such income. The basis of such additional
shares will be equal to the fair market value of such shares (or in the case of
an incentive stock option, the cash if any, paid for the additional shares) on
the date of exercise and the holding period for such additional shares will
commence on the date the option is exercised.
(ii) Except as provided below, to the extent the number of new shares
acquired does not exceed the number of old shares exchanged, no gain or loss
will be recognized on such exchange, the basis of the new shares received will
be equal to the basis of the old shares surrendered, and the holding period of
the new shares received will include the holding period of the old shares
surrendered. However, if the optionee exercises an incentive stock option by
surrendering old shares, the holding period for the new shares will begin on
the date the new shares are transferred to the optionee for purposes of
determining whether there is an early disposition of the new shares and if the
optionee makes an early disposition of the new shares, he will be deemed to
have disposed of the new shares with the lowest basis first. If the optionee
exercises an incentive stock option by surrendering old shares which were
acquired through the exercise of an incentive stock option and if the surrender
occurs prior to the expiration of the holding period applicable to the option
under which the old shares were acquired, the surrender will be deemed to be an
early disposition of the old shares. The tax consequences of an early
disposition are discussed above.
(iii) If the old shares surrendered were acquired by exercise of an
incentive stock option, then, except as provided in (ii) above, the exchange
will not constitute an early disposition of the old shares.
Restricted Stock and Performance Shares
Grantees of restricted stock and performance shares do not recognize income at
the time of the grant. When shares of restricted stock become free from any
restrictions or when performance shares are paid, grantees recognize ordinary
income in an amount equal to the fair market value of the shares on the date
all restrictions or requirements are satisfied. Alternatively, the grantee of
restricted stock may elect to recognize income at the time of the grant.
The foregoing statement is only a summary of the federal income tax
consequences of the 1999 Plan and is based on the Company's understanding of
present federal tax laws and regulations.
Approval of the 1999 Plan requires the affirmative vote of a majority of votes
cast thereon.
The Board unanimously recommends a vote FOR this proposal.
SHAREHOLDERS' PROPOSALS
Compensation Disclosure
Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Avenue, N.W.
Suite 215, Washington, D.C. 20037, record holder of 200 shares of common stock
of the Company, has given notice that she will introduce the following
resolution and supporting statement at the Meeting:
RESOLVED: "That the shareholders recommend that the Board take the necessary
step that Quaker Oats specifically identify by name and corporate title in all
future proxy statements those executive officers, not otherwise so identified,
who are contractually entitled to receive in excess of $250,000 annually as a
base salary, together with whatever other additional compensation bonuses and
other cash payments were due them."
REASONS: "In support of such proposed Resolution it is clear that the
shareholders have a right to comprehensively evaluate the management in the
manner in which the Corporation is being operated and its resources utilized."
"At present only a few of the most senior executive officers are so identified,
and not the many other senior executive officers who should contribute to the
ultimate success of the Corporation." "Through such additional identification
the shareholders will then be provided an opportunity to better evaluate the
soundness and efficacy of the overall management."
"Last year the owners of 11,169,598 shares, representing approximately 10.2% of
shares voting, voted FOR my similar proposal."
"If you AGREE, please mark your proxy FOR this proposal."
Approval of the foregoing shareholder proposal requires the affirmative vote of
a majority of the votes cast thereon.
The Board unanimously recommends a vote AGAINST this Proponent's proposal for
the following reasons:
The proposal is not currently relevant to the Company since it calls for
disclosure only of contractual employment obligations and the Company does not
maintain employment contracts for any of its executive officers, except the
CEO. The CEO's contract has been filed with the SEC in accordance with current
requirements and is described on pages 17 and 18 of this proxy statement.
Moreover, the Company already provides extensive disclosure on compensation of
executive officers in accordance with the rules and regulations of the SEC that
apply to all public companies. The proposal attempts to impose disclosure
obligations beyond what is required by the SEC and beyond what is reported by
other public companies.
The SEC's compensation disclosure rules were significantly revised in 1992
after comprehensive review and comment from numerous reporting companies,
investors and other interested persons. In accordance with these rules, this
proxy statement discloses the compensation of the Company's five highest paid
executive officers, as well as a Compensation Committee Report disclosing the
Company's polices with respect to compensation for executive officers. The
Board believes that the existing disclosure provides stockholders with a clear
overview of the compensation structure for executive officers and provides an
adequate basis for stockholders to evaluate the Company's use of resources for
compensation.
If the Company were to provide additional and specific disclosure related to a
broader group of employees, the Board believes that the Company would be at a
competitive disadvantage because it would have to provide more extensive
compensation information than other companies. Except when disclosure is
required under SEC rules applicable to all public companies, the Company treats
each employee's salary as a private matter. Compensation levels within the
Company vary based on factors such as performance, experience, job
classification and differences in geographic location. Disclosure of
compensation information for a broad group of employees would invade employee
privacy, compromise employee security and harm employee morale.
Reconsideration of Shareholder Rights Plan
The Amalgamated Bank of New York Long View Collective Investment Fund, 11-15
Union Square, New York, NY 10003, record holder of 37,700 shares of common
stock of the Company, has given notice that it will introduce the following
resolution and supporting statement at the Meeting:
Resolved: That the shareholders of The Quaker Oats Company ("Quaker Oats" or
the "Company") request the Board of Directors to redeem the shareholder rights
previously issued unless such issuance is approved by the affirmative vote of
shareholders, to be held as soon as may be practicable.
Supporting Statement:
The Quaker Oats Board of Directors has issued, without shareholder approval,
certain shareholder rights (the "rights") pursuant to a shareholder rights
plan. We strongly believe that such rights are a type of anti-takeover device,
commonly known as a poison pill, which injures shareholders by reducing
management accountability and adversely affecting shareholder value.
The shareholders of the Company believe the terms of the rights are designed to
discourage or thwart an unwanted takeover of the Company. While management and
the Board of Directors should have appropriate tools to ensure that all
shareholders benefit from any proposal to acquire the Company, the shareholders
do not believe that the future possibility of a takeover justifies the
unilateral imposition of such a poison pill.
Rather, we believe that the shareholders should have the right to vote on the
necessity of such a powerful tool, which could be used to entrench existing
management. Rights plans like the Company's have become increasingly unpopular
in recent years.
The negative effects of poison pill rights plans on the trading value of
companies' stock have been the subject of extensive research. A 1986 study
(covering 245 companies adopting poison pills between 1983 and July 1986) was
prepared by the Office of the Chief Economist of the U.S. Securities and
Exchange Commission on the effect of poison pills on the wealth of target
shareholders. It states that "empirical tests, taken together, show that
poison pills are harmful to target shareholders, on net." A 1992 study by
Professor John Pound of Harvard's Corporate Research Project and Lilli A.
Gordon of the Gordon Group found a correlation between high corporate
performance and the absence of poison pills.
At the 1997 annual meeting, 44% of the voting shares were cast in favor of this
resolution. We therefore resubmit this proposal based on our continuing belief
that the Company's unilateral and undeniably undemocratic adoption of the
rights plan by the Company is unjustified, that the continued existence of such
a rights plan is unjustified and not in the best interest of the shareholders.
WE URGE YOU TO VOTE FOR THIS RESOLUTION!
Approval of the foregoing shareholder proposal requires the affirmative vote of
a majority of the votes cast thereon.
The Board unanimously recommends a vote AGAINST this Proponent's proposal for
the following reasons:
In May 1996, the Board unanimously adopted a new Shareholder Rights Plan
(Rights Plan) and declared a dividend distribution of one Right on each
outstanding share of the Company's Common Stock. The Rights Plan was
established to replace the Shareholder Rights Plan originally adopted in 1986,
which expired on July 30, 1996. The Rights Plan is designed to provide the
Board with the ability to take what the Board believes are the most effective
steps to protect and maximize the value of shareholders' investment in the
Company. It is designed to encourage potential acquirors to negotiate directly
with the Board, which the Company believes is in the best position to negotiate
on behalf of all shareholders, evaluate the adequacy of any potential offer,
and protect shareholders against potential abuses during the takeover process
such as partial and two-tiered tender offers and creeping stock accumulation
programs, which do not treat all shareholders fairly and equally. The Rights
do not affect any takeover proposal which the Board believes is in the best
interests of the Company's shareholders. The overriding objective of the Board
in adopting the Rights Plan was, and continues to be, the preservation and
maximization of the Company's value for all shareholders.
The Rights Plan is not intended to prevent a takeover on terms that are fair
and equitable to all shareholders, nor is it intended as a deterrent to a
shareholder's initiation of a proxy contest. Under the terms of the Rights
Plan, the Board has the power to redeem the Rights to permit an acquisition
that it determines, in the exercise of its fiduciary duties, adequately
reflects the value of the Company and is in the best interests of all
shareholders.
The adoption of the Rights Plan by action of the Board is in accord with the
Board's responsibility under New Jersey law to manage and direct the management
of the Company's business and affairs and, as a legal matter, does not require
shareholder approval.
Shareholder rights plans have become very common for public companies. The
Rights do not in any way weaken the financial strength of the Company or
interfere with its business plans, have no dilutive effect, do not affect
reported earnings per share, are not taxable to the Company or to shareholders
and do not change the way in which shares of the Company presently can be
traded.
The Board believes there is strong empirical evidence that such plans better
position the Board to negotiate the most attractive and fair price for all
shareholders. Many companies with rights plans have received unsolicited
offers and have redeemed their rights after their directors were satisfied that
the offer, as negotiated by the target company's board of directors, adequately
reflected the underlying value of the company and was fair and equitable to all
shareholders. Thus, experience indicates that rights plans neither prevent
unsolicited offers from occurring, nor prevent companies from being acquired at
prices that are fair and adequate to shareholders.
The Board believes that the only proper time to consider redemption of the
Rights is when a specific offer is made to acquire the Company's stock.
Redemption of the Rights prior to that time would be premature and would remove
any incentive for a potential acquiror to negotiate with the Board so that
shareholders are treated fairly.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Shareholders may submit proposals appropriate for shareholder action at the
Company's annual meetings consistent with regulations adopted by the SEC. To
be considered for inclusion in the Company's proxy statement and proxy for the
1999 Annual Meeting a proposal must be received by the Company no later than
December 3, 1998. Proposals should be directed to John G. Jartz, Corporate
Secretary, The Quaker Oats Company, P.O. Box 049001, Suite 27-9, Chicago,
Illinois 60604-9001.
OTHER BUSINESS
The Board is not aware of any matters requiring shareholder action to be
presented at the Meeting other than those stated in the Notice of Annual
Meeting. Should other proper matters be introduced at the Meeting, those
persons named in the enclosed proxy have discretionary authority to act on such
matters and will vote the proxy in accordance with their best judgment.
By order of the Board of Directors,
/s/ John G. Jartz
John G. Jartz
Corporate Secretary
[THIS PAGE INTENTIONALLY LEFT BLANK.]
[Front Part]
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATIONS MADE, OR IF NO
CHOICES ARE INDICATED, FOR ITEMS 1, 2 AND 3 AND AGAINST ITEMS 4 AND 5.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
[Quaker logo and "1998 PROXY" appears down the left margin]
A vote FOR items 1, 2 and 3 is recommended
by the Board of Directors.
1. Election of Directors - Nominees: Frank C. Carlucci, Vernon R. Loucks, Jr.,
Robert S. Morrison, W. James Farrell and William L. Weiss
For All [ ] Withheld All [ ] For All Except As Named Below [ ]
__________________
2. Ratification of Appointment of Independent Public Accountants
For [ ] Against [ ] Abstain [ ]
3. Adoption of Long Term Incentive Plan of 1999
For [ ] Against [ ] Abstain [ ]
A vote AGAINST items 4 and 5 is recommended by the Board of Directors.
4. Shareholder Proposal - Compensation Disclosure
For [ ] Against [ ] Abstain [ ]
5. Shareholder Proposal - Reconsideration of Rights Plan
For [ ] Against [ ] Abstain [ ]
Dated______________, 1998
x______________________________
Signature
x______________________________
Signature
NOTE: Please sign exactly as name appears hereon. For joint accounts, both
owners should sign. When signing as executor, administrator, attorney, trustee
or guardian, etc., please sign your full title.
[Back Part]
THE QUAKER OATS COMPANY
Proxy for Annual Meeting of May 13, 1998
This proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Kenneth I. Chenault, John H. Costello, Judy C.
Lewent and Walter J. Salmon proxies each with power to appoint his or her
substitute to represent and to vote all shares of stock of The Quaker Oats
Company which the undersigned is entitled to vote at the Annual Meeting of
Shareholders of the Company to be held at the Rosement Conference Center, which
is located in the Rosemont Convention Center, 5555 North River Road, Rosemont,
Illinois, on Wednesday, May 13, 1998 at 9:30 a.m. (CDT), and any adjournment
thereof, as indicated on the proposals described in the proxy statement and all
other matters properly coming before the Meeting.
IMPORTANT - This proxy must be signed and dated on the reverse side.
