UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998
___ Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from ____ to ____
Commission file number 1-12
THE QUAKER OATS COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 36-1655315
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Quaker Tower P.O. Box 049001 Chicago, Illinois 60604-9001
(Address of principal executive office) (Zip Code)
(312) 222-7111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file for such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES XX NO ___
The number of shares of Common Stock, $5.00 par value, outstanding as
of the close of business on March 31, 1998 was 138,555,449
THE QUAKER OATS COMPANY AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Income
and Reinvested Earnings for the Three Months
Ended March 31, 1998 and 1997 3
Condensed Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997 4
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended
March 31, 1998 and 1997 5
Net Sales and Operating Income by Segment for the
Three Months Ended March 31, 1998 and 1997 6
Notes to the Condensed Consolidated Financial Statements 7-11
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12-16
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 17
Item 6 - Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
2
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS (UNAUDITED)
Three Months Ended
Dollars in Millions (Except Per Share Data) March 31,
1998 1997
Net sales $ 1,092.3 $ 1,201.7
Cost of goods sold 552.2 627.7
Gross profit 540.1 574.0
Selling, general and administrative expenses 435.0 491.5
Restructuring charges and loss on divestiture 9.1 1,404.0
Interest expense 18.2 25.5
Interest income (2.2) (1.5)
Foreign exchange loss - net 4.2 2.5
Income (loss) before income taxes 75.8 (1,348.0)
Provision (benefit) for income taxes 28.8 (238.2)
Net Income (Loss) 47.0 (1,109.8)
Preferred dividends - net of tax 0.8 0.9
Net Income (Loss) Available for Common $ 46.2 $(1,110.7)
Per Common Share:
Net income (loss) $ 0.33 $ (8.15)
Net income (loss) - assuming dilution $ 0.32 $ (8.15)
Dividends declared $ 0.285 $ 0.285
Average Number of Common Shares Outstanding
(in thousands) 138,625 136,305
Reinvested Earnings:
Balance beginning of year $ 431.0 $ 1,521.3
Net income (loss) 47.0 (1,109.8)
Dividends (40.0) (39.5)
Balance end of period $ 438.0 $ 372.0
See accompanying notes to the condensed consolidated financial statements.
3
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
Dollars in Millions 1998 1997
Assets
Current Assets:
Cash and cash equivalents $ 187.9 $ 84.2
Marketable securities 103.3 --
Trade accounts receivable - net of allowances 326.4 305.7
Inventories:
Finished goods 194.9 172.6
Grains and raw materials 63.5 59.0
Packaging materials and supplies 27.5 24.5
Total inventories 285.9 256.1
Other current assets 195.0 487.0
Total Current Assets 1,098.5 1,133.0
Property, plant and equipment 1,909.5 1,913.1
Less: accumulated depreciation 762.6 748.4
Property - net 1,146.9 1,164.7
Intangible assets - net of amortization 325.8 350.5
Other assets 51.5 48.8
Total Assets $ 2,622.7 $ 2,697.0
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $ 48.4 $ 61.0
Current portion of long-term debt 106.5 108.4
Trade accounts payable 209.7 191.3
Other current liabilities 563.9 585.0
Total Current Liabilities 928.5 945.7
Long-term debt 867.6 887.6
Other liabilities 569.6 578.9
Deferred income taxes 22.5 36.3
Preferred Stock, Series B, no par value,
authorized 1,750,000 shares; issued 1,282,051
of $5.46 cumulative convertible shares
(liquidating preference of $78 per share) 100.0 100.0
Deferred compensation (52.8) (57.2)
Treasury Preferred Stock, at cost, 253,850 shares
and 245,147 shares, respectively (23.4) (22.3)
Common Shareholders' Equity:
Common stock, $5 par value, authorized 400
million shares; issued 167,978,792 shares 840.0 840.0
Additional paid-in capital 45.8 29.0
Reinvested earnings 438.0 431.0
Cumulative translation adjustment (74.0) (82.4)
Deferred compensation (89.8) (91.0)
Treasury common stock, at cost, 29,423,343
shares and 29,165,692 shares, respectively (949.3) (898.6)
Total Common Shareholders' Equity 210.7 228.0
Total Liabilities and Shareholders' Equity $ 2,622.7 $ 2,697.0
See accompanying notes to the condensed consolidated financial statements.
4
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
Dollars in Millions March 31,
1998 1997
Cash Flows from Operating Activities:
Net income (loss) $ 47.0 $(1,109.8)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 33.5 51.4
Deferred income taxes (3.1) (4.2)
Loss on divestiture - net of tax benefit of $260.0 -- 1,144.0
Restructuring charges 9.1 --
(Gain) loss on disposition of property,
plant and equipment (1.1) 9.2
Increase in trade accounts receivable (22.8) (60.8)
Increase in inventories (34.6) (45.9)
Decrease (increase) in other current assets 15.2 (3.2)
Increase in trade accounts payable 19.2 54.2
Decrease in other current liabilities (21.8) (19.4)
Change in deferred compensation 5.6 4.0
Other items (11.8) 8.7
Net Cash Provided by Operating Activities 34.4 28.2
Cash Flows from Investing Activities:
Capital gains tax recovery 240.0 --
Business divestitures 73.2 --
Purchase of marketable securities (103.3) --
Additions to property, plant and equipment (34.9) (40.9)
Proceeds on sale of property, plant and equipment 3.2 --
Net Cash Provided By (Used in) Investing Activities 178.2 (40.9)
Cash Flows from Financing Activities:
Cash dividends (40.0) (39.5)
Change in short-term debt (12.5) 44.5
Proceeds from long-term debt 0.5 2.4
Reduction of long-term debt (22.7) (4.4)
Issuance of common treasury stock 53.4 8.1
Repurchases of common stock (87.8) --
Repurchases of preferred stock (1.1) (1.3)
Net Cash (Used in) Provided by Financing Activities (110.2) 9.8
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 1.3 (2.5)
Net Increase (Decrease) in Cash and Cash Equivalents 103.7 (5.4)
Cash and Cash Equivalents - Beginning of Year 84.2 110.5
Cash and Cash Equivalents - End of Period $187.9 $ 105.1
See accompanying notes to the condensed consolidated financial statements.
5
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NET SALES AND OPERATING INCOME BY SEGMENT
(UNAUDITED)
Net Sales Operating Income (Loss)(a)
Three Months Three Months
Dollars in Millions Ended March 31, Ended March 31,
1998 1997 1998 1997
Foods (b)
U.S. and Canadian $ 636.2 $ 642.7 $ 82.4 $ 77.9
International 161.3 155.2 2.7 0.8
Total Foods $ 797.5 $ 797.9 $ 85.1 $ 78.7
Beverages (b)
U.S. and Canadian $ 205.7 $ 213.6 $ 13.7 $ 34.7
International 89.1 71.0 5.0 (0.3)
Total Beverages $ 294.8 $ 284.6 $ 18.7 $ 34.4
Divested Businesses (c) -- $ 119.2 -- $ (1,424.8)
Total Sales/Operating Income (Loss) $ 1,092.3 $ 1,201.7 $ 103.8 $ (1,311.7)
Less: General corporate expenses 7.8 9.8
Interest expense - net 16.0 24.0
Foreign exchange loss - net 4.2 2.5
Income (loss) before income taxes $ 75.8 $ (1,348.0)
(a) Operating income (loss) includes certain allocations of overhead expenses.
(b) 1998 operating income for the Foods and Beverages businesses includes
pretax restructuring charges of $9.1 million. U.S. and Canadian Foods and
Beverages operating income each includes $3.3 million of these charges.
International Foods and Beverages operating income includes $1.3 million and
$1.2 million, respectively, of these charges.
(c) 1997 includes the sales and operating results of the Snapple beverages and
certain food service businesses that were divested in 1997. Operating loss for
the three months ended March 31, 1997, includes a noncash, pretax impairment
loss of $1.40 billion related to the sale of the Snapple beverages business.
See Note 3 for further discussion.
6
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
Note 1 - Basis of Presentation
The condensed consolidated financial statements include The Quaker
Oats Company and its subsidiaries (the Company). The condensed
consolidated statements of income and reinvested earnings for the
three months ended March 31, 1998 and 1997, the condensed
consolidated balance sheet as of March 31, 1998, and the condensed
consolidated statements of cash flows for the three months ended
March 31, 1998 and 1997, have been prepared by the Company without
audit. In the opinion of management, these financial statements
include all adjustments necessary to present fairly the financial
position, results of operations and cash flows as of March 31, 1998,
and for all periods presented. All adjustments made have been of a
normal recurring nature. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles (GAAP) have
been condensed or omitted. The Company believes that the disclosures
included are adequate and provide a fair presentation of interim
period results. Interim financial statements are not necessarily
indicative of the financial position or operating results for an
entire year. It is suggested that these interim financial statements
be read in conjunction with the audited financial statements and the
notes thereto included in the Company's report to shareholders for
the year ended December 31, 1997.
Certain previously reported amounts have been reclassified to conform
to the current presentation.
Note 2 - Litigation
The Company is a party to a number of lawsuits and claims, which it
is vigorously defending. Such matters arise out of the normal course
of business and relate to the Company's past acquisition activity and
other issues. Certain of these actions seek damages in large
amounts. While the results of litigation cannot be predicted with
certainty, management believes that the final outcome of such
litigation will not have a material adverse effect on the Company's
consolidated financial position or results of operations. Changes in
assumptions, as well as actual experience, could cause the estimates
made by management to change.
Note 3 - Divestitures
Cash proceeds of $73.2 million from the December 1997 sale of certain
food service businesses were received in January 1998. In March
1998, the Company received $240.0 million from the recovery of income
taxes paid on previous capital gains related to divestitures. Cash
provided by investing activities for the three months ended March 31,
1998 (the current year) includes these amounts.
The Company reached a definitive agreement to sell the Snapple
beverages business on March 27, 1997, and, accordingly, classified
the business as an asset held for sale. On that date, the Company
recorded a $1.40 billion noncash impairment loss to reduce the
carrying value of Snapple net assets to fair market value. On May
22, 1997, the Company completed the sale of 100 percent of its shares
of Snapple Beverage Corp. to Triarc Companies, Inc. for $300.0
million, and realized a loss on sale of $10.6 million.
7
Note 4 - Restructuring Charges
During the current year, the Company recorded pretax restructuring
charges of $9.1 million related to the organizational changes
announced on March 12, 1998. The changes included removing a layer
of executive management and resulted in the elimination of
approximately 20 positions. The restructuring charges are comprised
of severance benefits and are reflected in the operating results of
the business segments as follows: U.S. and Canadian Foods $3.3
million, U.S. and Canadian Beverages $3.3 million, International
Foods $1.3 million and International Beverages $1.2 million. Cash
savings from these actions will begin in 1998 and are estimated to be
about $6.5 million annually.
Note 5 - Estimates and Assumptions
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Note 6 - Marketable Securities
In January 1998, the Company purchased $103.3 million of marketable
securities. The marketable securities are available for sale and
consist of investments in a mutual fund that holds U.S. Treasury
instruments with maturities of less than twelve months. At March 31,
1998, the book value of the Company's investment in marketable
securities approximated fair value.
Note 7 - Current and Pending Accounting Changes
In July 1997, the Financial Accounting Standards Board (the FASB)
issued Statement #130, "Reporting Comprehensive Income." This
Statement establishes standards for reporting comprehensive income in
financial statements. The Company adopted Statement #130 in January
1998 and has elected to disclose comprehensive income in the notes to
the condensed consolidated financial statements. See Note 8 for
further discussion.
In July 1997, the FASB issued Statement #131, "Disclosures about
Segments of an Enterprise and Related Information." This Statement
expands certain reporting and disclosure requirements for segments
from current standards. In February 1998, the FASB issued Statement
#132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." This Statement revises employers' disclosures about
pension and other postretirement benefit plans. It does not change
the measurement or recognition of those plans. The Company is not
required to adopt these Statements until December 1998 and does not
expect the adoption of these standards to result in material changes
to previously reported amounts.
In January 1998, Statement of Position (SOP) #98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal
Use," was issued. This SOP provides guidance on the accounting for
computer software costs. In April 1998, SOP #98-5, "Reporting on the
8
Costs of Start-Up Activities," was issued. This SOP provides
guidance on accounting for the cost of start-up activities. The
Company is not required to adopt these Statements until January 1999
and does not expect the adoption of these standards to result in
material changes to previously reported amounts or disclosures.
Note 8 - Comprehensive Income (Loss)
Total comprehensive income (loss) for the three months ended March
31, 1998 and 1997, was $55.4 million and $(1,113.2) million,
respectively. Total comprehensive income (loss) for the Company
includes net income (loss) and foreign currency translation
adjustments.
Note 9 - Derivative Financial and Commodity Instruments
The Company actively monitors its exposure to commodity price,
foreign currency exchange rate and interest rate risks and uses
derivative financial and commodity instruments to manage the impact
of these risks. The Company uses derivatives only for purposes of
managing risk associated with underlying exposures. The Company does
not trade or use instruments with the objective of earning financial
gains on the commodity price, exchange rate or interest rate
fluctuations alone, nor does it use instruments where there are not
underlying exposures. Complex instruments involving leverage or
multipliers are not used. Management believes that its use of these
instruments to manage risk is in the Company's best interest.
Instruments used as hedges must be effective at reducing the risks
associated with the underlying exposure and must be designated as a
hedge at the inception of the contract. Accordingly, changes in the
market value of the instruments must have a high degree of inverse
correlation with changes in market values or cash flows of the
underlying hedged item.
Summarized below are the specific accounting policies by market risk
category.
Commodity Price Risk
The Company uses commodity futures and options to manage price
exposures on commodity inventories or anticipated purchases of
commodities. The deferral method is used to account for those
instruments which effectively hedge the Company's price exposures.
For hedges of anticipated transactions, the significant
characteristics and terms of the anticipated transaction must be
identified, and the transaction must be probable of occurring to
qualify for deferral method accounting.
Under the deferral method, gains and losses on derivative instruments
are deferred in the condensed consolidated balance sheets as a
component of other current assets (if a loss) or other current
liabilities (if a gain) until the underlying inventory being hedged
is sold. As the hedged inventory is sold, the deferred gains and
losses are recognized in the condensed consolidated statements of
income as a component of cost of goods sold. Derivative instruments
that do not meet the above criteria required for deferral treatment
are accounted for under the fair value method with gains and losses
recognized currently in the condensed consolidated statements of
income as a component of cost of goods sold.
Foreign Currency Exchange Rate Risk
The Company uses forward contracts, purchased options, and currency
swap agreements to manage foreign currency exchange rate risk related
to projected operating income from foreign operations and net
investments in foreign subsidiaries. The fair value method is used to
9
account for these instruments. Under the fair value method, the
instruments are carried at fair value on the condensed consolidated
balance sheets as a component of other current assets (deferred
charges) or other current liabilities (deferred revenue). Changes in
the fair value of derivative instruments which are used to manage
exchange rate risk in foreign-currency denominated operating income
and net investments in highly inflationary economies are recognized
in the condensed consolidated statements of income as foreign
exchange loss or gain. Changes in the fair value of such instruments
used to manage exchange rate risk on net investments in economies
that are not highly inflationary are recognized in the condensed
consolidated balance sheets as a component of the cumulative
translation adjustment in common shareholders' equity and are
included in comprehensive income. To the extent an instrument is no
longer effective as a hedge of a net investment due to a change in
the underlying exposure, gains and losses are recognized currently in
the condensed consolidated statements of income as foreign exchange
loss or gain.
Interest Rate Risk
The Company has used interest rate swap agreements to reduce its
exposure to changes in interest rates and to balance the mix of its
fixed and floating rate debt. Currently, there are no interest swap
agreements outstanding. The settlement costs of terminated swap
agreements are reported in the condensed consolidated balance sheets
as a component of other assets and are being amortized over the life
of the original swap agreements. The amortization of the settlement
amounts is reported in the condensed consolidated statements of
income as a component of interest expense.
Note 10 - Share Repurchases
During the current year, the Company repurchased 1.8 million
shares of its outstanding common stock for $99.5 million under the 10
million share repurchase program announced in August 1993. On March
12, 1998, the Company announced a plan to repurchase up to $1 billion
in shares of its outstanding common stock.
10
Note 11 - Earnings Per Share
Reconciliations of basic earnings per share (EPS) to diluted EPS were
as follows:
Dollars in Millions Three Months Ended March 31,
(Except Per Share Data) 1998 1997
Income Shares Income Shares
Net income (loss) $ 47.0 $(1,109.8)
Less: Preferred dividends 0.8 0.9
Net income (loss) available for common $ 46.2 138,625 $(1,110.7) 136,305
Net income (loss) per common share $ 0.33 $ (8.15)
Net income (loss) available for common $ 46.2 138,625 $(1,110.7) 136,305
Effect of dilutive securities:
Stock options -- 3,660 -- --
Non-vested awards -- 96 -- --
ESOP Convertible Preferred Stock 0.7 2,229 -- --
$ 46.9 144,610 $(1,110.7) 136,305
Net income (loss) per common share -
assuming dilution $ 0.32 $ (8.15)
The increase in common shares outstanding at March 31, 1998, compared
to March 31, 1997, reflects the exercise of a significant number of
employee stock options, partly offset by share repurchases.
As of March 31, 1998 and 1997, certain stock options were excluded
from the computation of diluted EPS because the exercise prices were
higher than the average market price. As the Company incurred a net
loss for the three months ended March 31, 1997, there were no
adjustments for potentially dilutive securities as the adjustments
would have been antidilutive. Adjustments to income and shares for
such potentially dilutive securities in the three months ended March
31, 1997, had the Company earned net income, would have resulted in a
$0.7 million increase to net income available for common and an
increase of 4.0 million shares. Historical adjustments for
potentially dilutive securities are not necessarily indicative of
future trends.
11
THE QUAKER OATS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared with
Three Months Ended March 31, 1997
Consolidated Operating Results
The following tables summarize the net sales and operating results of
the Company for the three months ended March 31, 1998 (current year)
and March 31, 1997 (prior year):
<TABLE>
<CAPTION>
NET SALES
for the
Three Months Ended March 31,
Dollars in Millions 1998 1997
U.S. and U.S. and
Canadian International Total Canadian International Total
<S> <C> <C> <C> <C> <C> <C>
Foods $ 636.2 $ 161.3 $ 797.5 $ 642.7 $ 155.2 $ 797.9
Beverages 205.7 89.1 294.8 213.6 71.0 284.6
Ongoing Businesses 841.9 250.4 1,092.3 856.3 226.2 1,082.5
Divested Businesses -- -- -- 114.9 4.3 119.2
Total Company $ 841.9 $ 250.4 $1,092.3 $ 971.2 $ 230.5 $1,201.7
<CAPTION>
OPERATING INCOME (LOSS)
for the
Three Months Ended March 31,
Dollars in Millions 1998 1997
U.S. and U.S. and
Canadian International Total Canadian International Total
<S> <C> <C> <C> <C> <C> <C>
Foods $ 82.4 $ 2.7 $ 85.1 $ 77.9 $ 0.8 $ 78.7
Beverages 13.7 5.0 18.7 34.7 (0.3) 34.4
Ongoing Businesses 96.1 7.7 103.8 112.6 0.5 113.1
Loss on divestiture -- -- -- (1,404.0) -- (1,404.0)
Divested Businesses -- -- -- (18.8) (2.0) (20.8)
-- -- -- (1,422.8) (2.0) (1,424.8)
Total Company $ 96.1 $ 7.7 $ 103.8 $(1,310.2) $ (1.5) $(1,311.7)
<FN>
Note: Operating results include certain allocations of overhead
expenses.
"Foods": includes all food lines as well as the food service business.
"Beverages": includes Gatorade thirst quencher sports beverages.
"Ongoing Businesses": includes the net sales and operating results of
all company businesses not reported as Divested Businesses (see below).
"Loss on divestiture": represents the noncash, pretax impairment loss
related to the sale of the Snapple beverages business.
"Divested Businesses": 1997 includes prior year net sales and
operating income (through the divestiture date) for the Snapple
beverages business (May 1997) and certain food service businesses
(December 1997).
</FN>
</TABLE>
12
Consolidated net sales decreased 9 percent primarily due to the
absence of divested businesses in the current year. Excluding
divested businesses, sales increased 1 percent from the prior year.
Price changes did not significantly affect the comparison of current
and prior year net sales.
Consolidated gross profit margin was 49.5 percent in the current year
compared to 47.8 percent in the prior year. The gross profit margin
improvement reflects the divestiture of the lower-margin Snapple
beverages business in May 1997.
Selling, general and administrative (SG&A) expenses decreased $56.5
million, or 12 percent, primarily due to the absence of divested
businesses. For ongoing businesses, SG&A expenses increased $8.8
million, or 2 percent. Total Company advertising and merchandising
(A&M) expenses were 25.8 percent of sales during the current year, up
from 25.4 percent in the prior year.
On March 12, 1998, the Company announced organizational changes
designed to capitalize on its competitive strengths in marketing,
selling and manufacturing and to facilitate the sharing of best
practices across its businesses. The changes included removing a
layer of executive management which resulted in the elimination of
approximately 20 positions and restructuring charges of $9.1 million
for severance benefits. These restructuring charges are reflected in
the operating results of the business segments as follows: U.S. and
Canadian Foods $3.3 million, U.S. and Canadian Beverages $3.3
million, International Foods $1.3 million and International Beverages
$1.2 million. Cash savings from these actions will begin in 1998 and
are estimated to be about $6.5 million annually. The Company expects
organizational alignment activities to continue during the current
year and to total approximately $15 million to $25 million in
restructuring charges. Additionally, the Company will continue to
pursue other cost-reduction activities, some of which could result in
future charges.
Consolidated operating income was $103.8 million in the current year
compared to a loss of $1.31 billion in the prior year which included
a $1.40 billion noncash, pretax impairment loss related to the sale
of the Snapple beverages business. Excluding the current year
restructuring charges and operating results from divested businesses
in 1997, operating income was $112.9 million compared to $113.1
million in the prior year.
Net financing costs (net interest expense and foreign exchange
losses) decreased $6.3 million in the current year, due to lower
interest expense. Debt levels declined over $500 million from a year
ago, as divestiture proceeds and cash flow from operations were used
to pay down debt.
Excluding the impact of restructuring charges and the prior year
impairment loss, the effective tax rate in the current year was 38.2
percent versus 39.0 percent in the prior year. The decrease was
primarily due to the absence of non-deductible amortization expense
related to Snapple intangibles.
13
Industry Segment Operating Results
Foods - U.S. and Canadian sales decreased 1 percent while volume was
flat. Sales increases in flavored rice and pasta and snacks were
offset by sales declines in hot cereals, partly driven by unusually
mild winter weather. While ready-to-eat cereals sales decreased
slightly, volumes were up 5 percent reflecting the continued growth
of bagged cereals. Excluding current year restructuring charges of
$3.3 million, U.S. and Canadian operating income increased 10 percent
from the prior year as improved gross margins, reduced overheads and
lower marketing costs offset the impact of the sales decline. Lower
A&M expenses reflect reduced spending on hot cereals compared to the
prior year.
International sales and volume increased 4 percent, driven by 9
percent sales growth in Latin America, reflecting increases in the
canned fish and chocolate beverage businesses, partly offset by
declines in Europe and Asia/Pacific Foods. Excluding current year
restructuring charges of $1.3 million, International Foods operating
income increased $3.2 million reflecting profitability growth in the
Latin American and European businesses.
Beverages - U.S. and Canadian sales and volume declined 4 percent and
1 percent, respectively. Cool, wet weather in key West Coast and
Southeastern markets contributed to the decline in the United States
compared to the prior year. Prior year sales increased 15 percent,
reflecting incremental sales from a new product, Gatorade Frost.
Excluding current year restructuring charges of $3.3 million,
operating income was $17.0 million, compared to $34.7 million in the
prior year. The decrease in operating income was due to: a 15
percent increase in marketing costs, including spending for a new
advertising campaign; the absorption of overhead costs previously
allocated to the Snapple beverages business; and the sales decline.
International sales increased 25 percent, primarily due to
significant sales and volume gains in Latin America. Latin American
sales increased 31 percent, reflecting strong execution of go-to-
market initiatives, including improved cold-channel distribution.
Sales in Europe increased 15 percent and sales in the Asia/Pacific
region were nearly flat. Excluding current year restructuring
charges of $1.2 million, operating income was $6.2 million compared
to a loss of $0.3 million in the prior year. Operating income
improved in the Latin American and European businesses, while
underwriting was reduced in the Asia/Pacific business.
Liquidity and Capital Resources
Net cash provided by operating activities was $34.4 million, an
increase of $6.2 million from the prior year, reflecting improved
operating profitability. Capital expenditures for the current and
prior year were $34.9 million and $40.9 million, respectively. The
rate of capital expenditures is expected to increase during the
remainder of the current year as the Company continues its expansion
of production capacity for U.S. and International Beverages and grain-
based products in the United States. The Company expects that
capital expenditures and cash dividends for the remainder of the year
will be financed through cash flow from operating activities and
liquidation of the investments in marketable securities.
14
Cash provided by investing activities includes the $240.0 million
recovery of income taxes paid on previous capital gains related to
divestitures, and cash proceeds of $73.2 million from the December
1997 sale of certain food service businesses. These cash flows were
partly offset by the Company's purchase of $103.3 million of
marketable securities.
Financing activities used cash of $110.2 million in the current year
to pay down debt and to repurchase shares. Financing activities
provided cash of $9.8 million in the prior year. During the current
year, the Company repurchased 1.8 million shares of its
outstanding common stock for $99.5 million under the 10 million share
repurchase program announced in August 1993. On March 12, 1998, the
Company announced a plan to repurchase up to $1 billion in shares of
its outstanding common stock. During the current year, over 1.5
million of employee stock options were exercised which provided cash
of $53.4 million.
Short-term and long-term debt (total debt) as of March 31, 1998 was
$1.02 billion, a decrease of $34.5 million from December 31, 1997.
In March 1998, the Fitch rating agency upgraded Quaker's long-term
debt rating from BBB to BBB+. The improved debt rating reflects the
significant reduction in debt levels compared to the prior year.
Other debt and commercial paper ratings were unchanged.
Derivative Financial and Commodity Instruments
The Company actively monitors its exposure to commodity price,
foreign currency exchange rate and interest rate risks and uses
derivative financial and commodity instruments to manage the impact
of these risks. The Company uses derivatives only for purposes of
managing risk associated with underlying exposures. The Company does
not trade or use instruments with the objective of earning financial
gains on the commodity price, exchange rate or interest rate
fluctuations alone, nor does it use instruments where there are not
underlying exposures. Complex instruments involving leverage or
multipliers are not used. Management believes that its use of these
instruments to manage risk is in the Company's best interest.
The Company has estimated its market risk exposures using sensitivity
analyses. Market risk exposure has been defined as the change in
fair value of a derivative commodity or financial instrument assuming
a hypothetical 10 percent adverse change in market prices or rates.
Fair value was determined using quoted market prices, if available.
The results of the sensitivity analyses as of March 31, 1998 did not
differ materially from the amounts reported as of December 31, 1997.
Actual changes in market prices or rates may differ from hypothetical
changes.
Current and Pending Accounting Changes and Other Matters
In July 1997, the FASB issued Statement #130, "Reporting
Comprehensive Income." This Statement establishes standards for
reporting comprehensive income in financial statements. The Company
adopted Statement #130 in January 1998 and has elected to disclose
comprehensive income, which for the Company includes net income and
foreign currency translation adjustments, in the notes to the
condensed consolidated financial statements. See Note 8 for further
discussion.
15
In July 1997, the FASB issued Statement #131, "Disclosures about
Segments of an Enterprise and Related Information." This Statement
expands certain reporting and disclosure requirements for segments
from current standards. In February 1998, the FASB issued Statement
#132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." This Statement revises employers' disclosures about
pension and other postretirement benefit plans. It does not change
the measurement or recognition of those plans. The Company is not
required to adopt these Statements until December 1998 and does not
expect the adoption of these standards to result in material changes
to previously reported amounts.
In January 1998, Statement of Position (SOP) #98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal
Use," was issued. This SOP provides guidance on the accounting for
computer software costs. In April 1998, SOP #98-5, "Reporting on the
Costs of Start-Up Activities," was issued. This SOP provides
guidance on accounting for the cost of start-up activities. The
Company is not required to adopt these Statements until January 1999
and does not expect the adoption of these standards to result in
material changes to previously reported amounts or disclosures.
The Company uses software and other related technologies throughout
its business that will be affected by the date change in the Year
2000. With senior management accountability and corporate staff
guidance, the affected operating units are in varying stages of
assessment and implementation of a plan to address the Company's Year
2000 issues. Overall, the Company has targeted Year 2000 compliance
primarily by the end of 1998, with certain operating units targeting
compliance by no later than mid-1999. While the Company's plans are
underway, and the Company does not anticipate such, the consequences
of non-compliance by the Company, its customers or its suppliers,
could have a material adverse impact on the Company's operations.
The Company will continue to incur expenses related to these efforts;
however, such expenses are not expected to have a material impact on
the Company's results of operations.
Cautionary Statement on Forward-Looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities and Exchange Act of 1934, are made throughout this
Management's Discussion and Analysis. The Company's results may
differ materially from those in the forward-looking statements.
Forward-looking statements are based on management's current views
and assumptions, and involve risks and uncertainties that could
significantly affect expected results. For example, operating
results may be affected by external factors such as: actions of
competitors; changes in laws and regulations, including changes in
governmental interpretations of regulations and changes in accounting
standards; customer demand; effectiveness of spending or programs;
fluctuations in the cost and availability of supply chain resources;
and foreign economic conditions, including currency rate
fluctuations.
The Company continues to review its business strategies, including
strategies related to its business portfolio, and may change its
priorities, which could result in future charges.
16
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Note 2 in Part I is incorporated by reference herein.
Item 6 Exhibits and Reports on Form 8-K
Item 6(a) See Exhibit Index.
All other items in Part II are either inapplicable to the
Company during the quarter ended March 31, 1998, the answer is
negative or a response has been previously reported and an
additional report of the information need not be made,
pursuant to the Instructions to Part II.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
The Quaker Oats Company
(Registrant)
Date May 1, 1998 /s/ Robert S. Thomason
Robert S. Thomason
Senior Vice President - Finance and
Chief Financial Officer
Date May 1, 1998 /s/ Thomas L. Gettings
Thomas L. Gettings
Vice President and
Corporate Controller
18
EXHIBIT INDEX
Exhibit Paper (P) or
Number Description Electronic (E)
10(a) Agreement Upon Separation of Employment
with Barbara R. Allen, effective as of April
1, 1998 E
10(b) Agreement Upon Separation of Employment
with James F. Doyle, effective as of April
1, 1998 E
10(c) Agreement Upon Separation of Employment
with Douglas W. Mills, effective as of April
1, 1998 E
10(d) Agreement Upon Separation of Employment
with Douglas J. Ralston, effective as of April
1, 1998 E
27 Financial Data Schedule E
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 188
<SECURITIES> 103
<RECEIVABLES> 351
<ALLOWANCES> 25
<INVENTORY> 286
<CURRENT-ASSETS> 1099
<PP&E> 1910
<DEPRECIATION> 763
<TOTAL-ASSETS> 2623
<CURRENT-LIABILITIES> 929
<BONDS> 868
0
100
<COMMON> 840
<OTHER-SE> (706)
<TOTAL-LIABILITY-AND-EQUITY> 2623
<SALES> 1092
<TOTAL-REVENUES> 1092
<CGS> 552
<TOTAL-COSTS> 552
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 76
<INCOME-TAX> 29
<INCOME-CONTINUING> 47
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47
<EPS-PRIMARY> .33
<EPS-DILUTED> .32
</TABLE>
Exhibit 10(a)
AGREEMENT UPON SEPARATION OF EMPLOYMENT
This Agreement Upon Separation Of Employment ("Agreement") is made and
entered into by and between Barbara R. Allen, her successors, heirs,
administrators, executors, personal representatives and assigns ("Allen") and
The Quaker Oats Company, its officers, directors, shareholders, employees,
agents, assigns, subsidiaries, divisions, parents, affiliates and successors
("Quaker"), collectively "the parties." The Agreement shall become effective
seven (7) days after it is executed by Allen.
1. Economic Consideration to Allen
Upon becoming effective, this Agreement shall satisfy the Quaker Officers
Severance Program's (the "Program") prerequisites that in order to qualify for
Program benefits, an officer must execute a valid waiver and release of all
potential claims and must enter into a non-competition agreement. In addition,
Allen shall receive the following consideration, to which she would not be
entitled in the absence of this Agreement:
A. Allen's active employment with Quaker is terminating on March 31,
1998. After severance payments under the Program have expired, and subject to
the provisions in Paragraph 5, Quaker shall pay Allen an amount equal to one
year of Program payments (i.e., final salary plus average bonus). This sum
shall be paid in twenty four (24) equal semi-monthly installments commencing as
soon as payments to her under the Program expire and terminating on March 31,
2000. Payments under this paragraph 1(A) are consideration for the covenants
in paragraph 5, not for anything else.
B. While Allen is scheduled to receive payments under paragraph 1(A)
(without regard to interruption of such payments pursuant to paragraph 5),
Quaker shall provide her with the same insurance coverage as is provided under
the Program. This benefit is part of the consideration for the Waiver and
Release in paragraph 3, and the Miscellaneous Agreements in paragraph 4.
2. Termination Of Employment
Allen understands and agrees that her active employment relationship with
Quaker, its parent companies, affiliates and successors, will be permanently
and irrevocably severed as of March 31, 1998. Allen agrees she shall not apply
or otherwise seek reinstatement or reemployment by Quaker at any time, and that
Quaker has no obligation, contractual or otherwise, to rehire, reemploy or
recall her in the future. Allen further stipulates that this agreement is
sufficient cause for Quaker to deny any request for rescission, rehire,
reemployment or recall.
Allen agrees that prior to the effective date of her termination from
active employment, she will return all Quaker property, including but not
limited to keys, office pass, credit cards, computers, office equipment, sales
records and data; provided, Quaker has agreed that Allen may retain her home
computer and fax machine, and the furniture in her home dedicated to supporting
those pieces of equipment, as set forth in a letter signed by Douglas Ralston
and dated March 19, 1998. Allen further agrees that within sixty (60) days
after her termination date, she will submit all outstanding expenses and clear
all advances and her personal advance account, if any.
3. Waiver & Release
A. Allen waives, releases and discharges Quaker from any and all claims
and liabilities, demands, actions and causes of action, including attorneys'
fees and costs and participation in a class action lawsuit, whether known or
unknown, fixed or contingent, that she may have or claim to have against Quaker
as of the date this Agreement becomes effective. Allen further covenants not
to file a lawsuit or participate in a class action lawsuit to assert such
claims. Without limitation, Allen specifically waives all claims for back pay,
future pay or any other form of compensation or income, except as provided
below. This waiver includes but is not limited to claims arising out of or in
any way related to Allen's employment or termination of employment with Quaker,
including age discrimination claims under the Age Discrimination In Employment
Act (as amended), discrimination claims under Title VII of the Civil Rights Act
of 1964 (as amended) or the Americans with Disabilities Act, claims for breach
of contract, and any other statutory or common law cause of action under state,
federal or local law.
However, Allen does not waive, release, discharge or covenant not to sue
for enforcement of any rights or claims that arise out of conduct or omissions
which occur entirely after the date this Agreement becomes effective. In
addition, she does not waive any rights she may have as an employee on inactive
status and/or as a former employee, as the case may be, under this Agreement or
any of Quaker's fringe benefit or incentive plans (e.g., its pension plan, the
Program, the Long Term Incentive Plan of 1990, etc.), nor does she waive her
right to payment for unused vacation, if any, pursuant to Quaker's vacation
policy. Notwithstanding anything to the contrary in Paragraph 8 of this
Agreement, such benefits shall continue to be governed by the ERISA plans,
contracts and/or Quaker policies that exist independent of this Agreement.
B. Quaker waives, releases and discharges Allen from any and all claims
and liabilities, demands, actions and causes of action, including attorneys'
fees and costs, that it may have or claim to have against Allen as of the date
this Agreement becomes effective; provided, this waiver, release and discharge
only apply to claims as to which Quaker's senior officers or its Board of
Directors were aware, on or before the effective date of this Agreement, of all
material facts necessary to establish Allen's liability; and further provided,
Quaker does not waive, release, discharge or covenant not to sue for
enforcement of any rights or claims that arise out of conduct or omissions
which occur entirely after the date this Agreement becomes effective.
C. The parties stipulate that nothing contained in this Agreement shall
be construed as an admission by either of them of any liability, wrongdoing or
unlawful conduct. It is understood that both Quaker and Allen deny any
liability, wrongdoing or unlawful conduct, and each is providing consideration
for this waiver and release solely in order to resolve any potential disputes
between them amicably and to avoid the expense of potential litigation.
4. Miscellaneous agreements
The covenants and agreements set forth in this paragraph shall remain in
effect until March 31, 2001. Covenants 4(A) and 4(B) are material parts of
this Agreement, so a material breach of either of them by Allen would entitle
Quaker, at its discretion, to rescind this Agreement, in addition to any other
legal or equitable remedies it might have for breach:
A. Allen shall provide accurate information or testimony or both in
connection with any legal matter if so requested by Quaker. She shall make
herself available upon request to provide such information and/or testimony, in
a formal and/or an informal setting in accordance with Quaker's request,
subject to reasonable accommodation of her schedule and reimbursement of
reasonable expenses, including reasonable and necessary attorney fees (if
independent legal counsel is reasonably necessary).
B. Allen shall cooperate with media requests for interviews regarding
her termination and/or Quaker, unless directed otherwise by Quaker in a
particular instance. She shall not disparage The Quaker Oats Company, its
products, or any of its directors, officers or employees in these interviews,
nor in any other private or public setting; provided, if Allen is compelled to
provide testimony under oath, she shall testify truthfully without regard to
whether her testimony is favorable or unfavorable to Quaker, and such testimony
shall be protected against claims under this Agreement by the same privilege
that would apply to a defamation claim.
C. The Quaker Oats Company, and any officer or director acting on its
behalf, shall answer all reference inquiries directed to The Quaker Oats
Company regarding Allen by stating only her positions held, compensation and
dates of employment. No additional information shall be provided unless
authorized in advance, in writing, by Allen. Allen agrees to direct all
requests for references from Quaker to the highest ranking Human Resources
officer within Quaker.
5. Prohibited Conduct
A. Allen covenants and agrees that during the periods specified below,
she shall not engage in any of the following activities anywhere in the world:
i. Non-competition. Allen shall not undertake any employment,
consulting position or ownership interest which involves her Participation in
the management of a business entity that markets, sells, distributes, licenses
or produces Covered Products, unless that business entity's sole involvement
with Covered Products is that it makes retail sales or consumes Covered
Products, without competing in any way against Quaker. This covenant shall
remain in effect through March 31, 2000.
a. "Participation" shall be construed broadly to include,
without limitation: (1) holding a position in which she directly manages such
a business entity; (2) holding a position in which anyone else who directly
manages such a business entity is in Allen's reporting chain or chain-of-
command (regardless of the number of reporting levels between them); (3)
providing input, advice, guidance, or suggestions regarding the management of
such a business entity to anyone responsible therefor; (4) providing a
testimonial on behalf of such an operation or the product it produces; or (5)
doing anything else which falls within a common sense definition of the term
"participation," as used in the present context.
b. "Covered Products" mean any product which falls into one or
more of the following categories, so long as Quaker is producing, marketing,
distributing, selling or licensing such product anywhere in the world: sports
beverages; thirst quenching beverages; hot cereals; ready-to-eat cereals;
pancake mixes; grain-based snacks; value-added rice products; pancake syrup;
value-added pasta products; dry pasta products; and items Quaker produces for
the food service market.
ii. Raiding Employees. Allen shall not in any way, directly or
indirectly (including through someone else acting on Allen's recommendation,
suggestion, identification or advice), facilitate or solicit any existing
Quaker employee to leave the employment of Quaker or to accept any position
with any other company or corporation. This covenant shall remain in effect
through March 31, 2001. For purposes of this provision, the following
definitions apply:
a. "Existing Quaker employee" means someone: (1) who is
employed by Quaker on or before the date when Allen's employment terminates;
(2) who is still employed by Quaker as of the date when the facilitating act or
solicitation takes place; and (3) who holds a manager, director or officer
level position at Quaker (or an equivalent position based on job duties and/or
Hay points, regardless of the employee's title).
b. The terms "solicit" and "facilitate" shall be given the
ordinary, common sense meaning appropriate in the present context.
iii. Non-disclosure. Allen shall not use or disclose to anyone any
confidential information regarding Quaker. For purposes of this provision, the
term "confidential information" shall be construed as broadly as Illinois law
permits and shall include all non-public information Allen acquired by virtue
of her positions with Quaker which might be of any value to a competitor or
which might cause any economic loss (directly or via loss of an opportunity) or
substantial embarrassment to Quaker or its customers, distributors or suppliers
if disclosed. Examples of such confidential information include, without
limitation, non-public information about Quaker's customers, suppliers,
distributors and potential acquisition targets; its business operations and
structure; its product lines, formulas and pricing; its processes, machines and
inventions; its research and know-how; its financial data; and its plans and
strategies. This covenant shall remain in effect through March 31, 2001.
B. In the event of a breach, threatened breach or situation that creates
an inevitable breach of any term of this paragraph by Allen, Quaker shall be
entitled to an injunction compelling specific performance, restraining any
future violations and/or requiring affirmative acts to undo or minimize the
harm to Quaker, in addition to damages for any actual breach that occurs. The
parties stipulate and represent that breach of any provision of this paragraph
would cause irreparable injury to Quaker, for which there would be no adequate
remedy at law, due among other reasons to the inherent difficulty of
determining the precise causation for loss of customers, confidential
information and/or employees and of determining the amount and ongoing effects
of such losses.
C. In the event Allen breaches any term of this Paragraph 5, Quaker
shall have the option of seeking injunctive relief or cancelling the payments
due under paragraph 1(A) of this Agreement. Quaker's right to terminate
Program benefits is spelled out in the Program, and is not affected by this
provision.
D. In the event Quaker elects to pursue injunctive relief, then the
following rules shall apply:
i. While litigation over the requested injunction is pending,
Quaker may, in its discretion, withhold payments otherwise due but not yet paid
to Allen under paragraph 1(A); provided, Quaker's right to terminate or suspend
Program benefits, which are separate from the benefits described in paragraph
1(A), is spelled out in the Program and is not affected by this provision.
ii. If, at the conclusion of the litigation, Quaker successfully
obtains full injunctive enforcement of all provisions in this paragraph 5 that
it attempts to enforce, then Quaker shall pay Allen all amounts otherwise due
under paragraph 1(A) that were withheld and shall resume making all payments
required under paragraph 1(A), and shall likewise pay all Program payments that
were withheld.
iii. If, at the conclusion of the litigation, Quaker obtains some,
but not all, of the injunctive relief it seeks under this paragraph, then
Quaker shall make an election. It may either accept the injunction and proceed
as specified in subparagraph (ii) above, or it may elect to voluntarily vacate
and/or not enforce the injunction, in which event it shall have no obligation
to resume paying Allen under paragraph 1(A), nor to pay withheld amounts.
iv. If a court entirely declines to enforce paragraph 5 of this
Agreement or holds it invalid or void, then Quaker shall have no further
obligation to pay Allen under paragraph 1(A), including sums withheld while
litigation was pending.
v. If a court holds that the provisions of paragraph 5 are
enforceable, but further finds that Allen did not breach any of them, then
Quaker shall pay Allen all amounts otherwise due under paragraph 1(A) that were
withheld, and shall resume making all payments required under paragraph 1(A).
vi. Allen shall have no claim for damages based on any delay in the
payments due under Paragraph 1(A) that results from a suspension of payments or
withholding in accordance with the preceding provisions; PROVIDED, if payment
of withheld amounts subsequently is required, then along with such payment
Quaker shall pay Allen interest at an annualized rate of 6.0%.
vii. For purposes of this paragraph, litigation shall not be deemed
to have concluded, and no payment shall be due, until all potential appeals by
all parties are waived or exhausted.
E. Recitals: Allen stipulates and represents that the following facts
are true, and further understands and agrees that they are material
representations upon which Quaker is relying in entering into this Agreement:
i. Allen has been President of Quaker's International Grocery
Products division for several years, and in that capacity has been a member of
Quaker's Senior Leadership Team. In these positions, she participated in
forming and/or was informed about the details of operational plans and
strategic long range plans for all of Quaker's businesses, in addition to
acquiring intimate knowledge of plans and strategies for the International
division she ran. Without limitation, she has detailed knowledge regarding
Quaker's International businesses, and had access to detailed information
regarding its domestic businesses, including business plans, new product
development, pricing structure, marketing plans, sales plans, distribution
plans, and supply chain plans for all of Quaker's products. This is: (1)
information Allen gained by virtue of her employment at Quaker; (2) highly
confidential and secret information from which Quaker derives economic value,
actual or potential, from its not being generally known to other persons
outside Quaker who might obtain economic value from its disclosure or use; (3)
information known within Quaker only to key employees and those who need to
know it to perform their jobs; (4) information regarding which Quaker has taken
reasonable measures to preserve its confidentiality; (5) information that could
not easily be duplicated by others, and which Quaker required considerable time
and effort to develop; and (6) information which is likely to remain valuable
and secret for at least two years.
ii. By virtue of her employment at Quaker, Allen has developed
personal and business relationships with existing Quaker employees, which she
otherwise would not have had. By virtue of her position, she also has acquired
knowledge as to which existing Quaker employees are critical to Quaker's
success and future plans, and which ones have skills or contacts that would be
valuable to a competitor.
6. Advance Determination Of Permitted/Prohibited Conduct
Allen may request an advance written determination from Quaker's Chief
Executive Officer as to whether taking a proposed action or job would, in
Quaker's opinion, constitute a breach of this Agreement. In that event, and
provided that Allen discloses in writing all material facts about the proposed
action or job, Quaker shall make a reasonable effort to respond to the request
for an advance written determination within ten (10) business days; PROVIDED,
that if circumstances materially change after the advance determination is made
(e.g., if the duties of a job change after Allen accepts it), the determination
may be reconsidered and revised or reversed upon thirty days advance written
notice to Allen. Quaker shall treat as confidential any non-public information
that Allen communicates as part of a request for an advance determination.
7. Choice Of Law And Forum; Attorney Fees
A. This Agreement shall be governed by and construed in accordance with
the laws of the State Of Illinois, without giving effect to choice of law
principles.
B. In the event of any litigation over this Agreement or an alleged
breach thereof, Allen consents to submit to the personal jurisdiction of any
court, state or federal, in the State of Illinois. The parties agree that the
Illinois courts, state or federal, shall be the exclusive jurisdiction for any
litigation over this Agreement or an alleged breach thereof.
C. In the event either party breaches this Agreement, in addition to any
damages, injunction, or other relief awarded by a court, the party in violation
of this Agreement shall reimburse the other party for its litigation costs and
expenses, including reasonable attorney fees.
8. Full Agreement
This written document contains the entire understanding and agreement of
the parties on the subject matter set forth herein, and supercedes any prior
agreement relating to these matters. No promises or inducements have been made
other than those reflected herein, and no party is relying on any statement or
representation by any person except those set forth herein, including without
limitation oral or written summaries of this Agreement.
This Agreement cannot be modified or altered except by a subsequent
written agreement signed by the parties; and only Quaker's highest ranking
Human Resources officer or his direct superior shall have authority to sign
such an amendment on behalf of Quaker.
Without limitation, nothing in this document shall eliminate or reduce
Allen's obligation to comply with the Quaker Code Of Ethics, to the extent that
certain provisions in the Code (such as non-disclosure rules) remain applicable
to employees after termination. Likewise, nothing in this document shall
eliminate or reduce Quaker's obligation to indemnify Allen in certain
situations, pursuant to Quaker's by-laws or applicable law.
9. Severability
Each term of this Agreement is deemed severable, in whole or in part, and
if any provision of this Agreement or its application in any circumstance is
found to be illegal, unlawful or unenforceable, the remaining terms and
provisions shall not be affected thereby and shall remain in full force and
effect, except as expressly provided below.
Unless Quaker consents, the provisions in paragraph 5 of this Agreement
are not severable from each other or from Paragraph 1(A). If any provision or
aspect of paragraph 5 is held invalid, illegal, unlawful or unenforceable, then
there is no consideration for payments under paragraph 1(A); PROVIDED, if any
provision in paragraph 5 is invalid or broader than the law allows, a court is
authorized to award the broadest injuntive relief permitted by law, and Quaker
shall thereafter make its election pursuant to paragraph 5(D)(iii) -- if Quaker
elects to accept the limited injunctive relief, then it shall consent to sever
the invalid provision(s). Quaker's consent to sever one or more provisions in
paragraph 5 may be given at any time: before, during, or after litigation, in
Quaker's sole discretion.
The Quaker Oats Company
/s/ Pamela S. Hewitt
By one of its officers
Allen has been advised in writing, via this notice, to consult with an attorney
before signing this Agreement. She acknowledges that she received the original
draft of this Agreement on March ___, 1998. Allen originally was given twenty
one (21) days from March ___, 1998 to consider and decide whether to sign the
Agreement, but at her request Quaker extended that period until April 14, 1998,
and subsequently extended it to noon on April 15, 1998; also, certain
provisions from the original draft were modified at her request. Allen
understands that she may revoke the Agreement within seven (7) days after
signing it. Allen further understands that she has the right to request a
different waiver, release and separation agreeement which contains shorter non-
compete, no raiding and non-disclosure periods. Execution of such a document
would satisfy the Program's prerequisites and entitle her to Program benefits,
but would not entitle her to the additional benefits provided under this
Agreement, nor entail the additional obligations. Allen affirms that she has
carefully read and fully understands all provisions of this Agreement, that the
consideration she is receiving is fair and adequate, and that she has not been
threatened or coerced into signing it.
April 15, 1998 /s/ Barbara R. Allen
Barbara R. Allen
Exhibit 10(b)
AGREEMENT UPON SEPARATION OF EMPLOYMENT
This Agreement Upon Separation Of Employment ("Agreement") is made and
entered into by and between James F. Doyle, his successors, heirs,
administrators, executors, personal representatives and assigns ("Doyle") and
The Quaker Oats Company, its officers, directors, shareholders, employees,
agents, assigns, subsidiaries, divisions, parents, affiliates and successors
("Quaker"), collectively "the parties." The Agreement shall become effective
seven (7) days after it is executed by Doyle.
1. Economic Consideration to Doyle
Upon becoming effective, this Agreement shall satisfy the Quaker Officers
Severance Program's (the "Program") prerequisites that in order to qualify for
Program benefits, an officer must execute a valid waiver and release of all
potential claims and must enter into a non-competition agreement. In addition,
Doyle shall receive the following consideration, to which he would not be
entitled in the absence of this Agreement:
A. Doyle's active employment with Quaker is terminating on March 31,
1998. After severance payments under the Program have expired, and subject to
the provisions in Paragraph 5, Quaker shall pay Doyle an amount equal to one
year of Program payments (i.e., final salary plus average bonus). This sum
shall be paid in twenty four (24) equal semi-monthly installments commencing as
soon as payments to him under the Program expire, and terminating on March 31,
2000. Payments under this paragraph 1(A) are consideration for the covenants
in paragraph 5, not for anything else.
B. While Doyle is scheduled to receive payments under paragraph 1(A)
(without regard to interruption of such payments pursuant to paragraph 5),
Quaker shall provide him with the same insurance coverage as is provided under
the Program. This benefit is part of the consideration for the Waiver and
Release in paragraph 3, and the Miscellaneous Agreements in paragraph 4.
2. Termination Of Employment
Doyle understands and agrees that his active employment relationship with
Quaker, its parent companies, affiliates and successors, will be permanently
and irrevocably severed as of March 31, 1998. Doyle agrees he shall not apply
or otherwise seek reinstatement or reemployment by Quaker at any time, and that
Quaker has no obligation, contractual or otherwise, to rehire, reemploy or
recall him in the future. Doyle further stipulates that this agreement is
sufficient cause for Quaker to deny any request for rescission, rehire,
reemployment or recall.
Doyle agrees that prior to the effective date of his termination from
active employment, he will return all Quaker property, including but not
limited to keys, office pass, credit cards, computers, office equipment, sales
records and data. Doyle further agrees that within sixty (60) days after his
termination date, he will submit all outstanding expenses and clear all
advances and his personal advance account, if any.
3. Waiver & Release
A. Doyle waives, releases and discharges Quaker from any and all claims
and liabilities, demands, actions and causes of action, including attorneys'
fees and costs and participation in a class action lawsuit, whether known or
unknown, fixed or contingent, that he may have or claim to have against Quaker
as of the date this Agreement becomes effective. Doyle further covenants not
to file a lawsuit or participate in a class action lawsuit to assert such
claims. Without limitation, Doyle specifically waives all claims for back pay,
future pay or any other form of compensation or income, except as provided
below. This waiver includes but is not limited to claims arising out of or in
any way related to Doyle's employment or termination of employment with Quaker,
including age discrimination claims under the Age Discrimination In Employment
Act (as amended), discrimination claims under Title VII of the Civil Rights Act
of 1964 (as amended) or the Americans with Disabilities Act, claims for breach
of contract, and any other statutory or common law cause of action under state,
federal or local law.
However, Doyle does not waive, release, discharge or covenant not to sue
for enforcement of any rights or claims that arise out of conduct or omissions
which occur entirely after the date this Agreement becomes effective. In
addition, he does not waive any rights he may have as an employee on inactive
status and/or as a former employee, as the case may be, under this Agreement or
any of Quaker's fringe benefit or incentive plans (e.g., its pension plan, the
Program, the Long Term Incentive Plan of 1990, etc.), nor does he waive his
right to payment for unused vacation, if any, pursuant to Quaker's vacation
policy. Notwithstanding anything to the contrary in Paragraph 8 of this
Agreement, such benefits shall continue to be governed by the ERISA plans,
contracts and/or Quaker policies that exist independent of this Agreement.
Finally, Doyle does not waive any right to indemnification he may have pursuant
to Quaker's by-laws, insurance coverage and/or applicable law, and Quaker
covenants to maintain directors and officers liability insurance coverage for
Doyle, for actions or omissions while he was an officer, on the same terms as
it maintains such coverage (if any) for active officers.
B. Quaker waives, releases and discharges Doyle from any and all claims
and liabilities, demands, actions and causes of action, including attorneys'
fees and costs, that it may have or claim to have against Doyle as of the date
this Agreement becomes effective; provided, this waiver, release and discharge
only apply to claims as to which Quaker's senior officers were aware, on or
before the effective date of this Agreement, of all material facts necessary to
establish Doyle's liability; and further provided, Quaker does not waive,
release, discharge or covenant not to sue for enforcement of any rights or
claims that arise out of conduct or omissions which occur entirely after the
date this Agreement becomes effective.
C. The parties stipulate that nothing contained in this Agreement shall
be construed as an admission by either of them of any liability, wrongdoing or
unlawful conduct. It is understood that both Quaker and Doyle deny any
liability, wrongdoing or unlawful conduct, and each is providing consideration
for this waiver and release solely in order to resolve any potential disputes
between them amicably and to avoid the expense of potential litigation.
4. Miscellaneous agreements
The covenants and agreements set forth in this paragraph shall remain in
effect until March 31, 2001. Covenants 4(A) and 4(B) are material parts of
this Agreement, so a material breach of either of them by Doyle would entitle
Quaker, at its discretion, to rescind this Agreement, in addition to any other
legal or equitable remedies it might have for breach:
A. Doyle shall provide accurate information or testimony or both in
connection with any legal matter if so requested by Quaker. He shall make
himself available upon request to provide such information and/or testimony, in
a formal and/or an informal setting in accordance with Quaker's request,
subject to reasonable accommodation of his schedule and reimbursement of
reasonable expenses, including reasonable and necessary attorney fees (if
independent legal counsel is reasonably necessary).
B. Doyle shall cooperate with media requests for interviews regarding
his termination and/or Quaker, unless directed otherwise by Quaker in a
particular instance. He shall not disparage The Quaker Oats Company, its
products, or any of its directors, officers or employees in these interviews,
nor in any other private or public setting; provided, if Doyle is compelled to
provide testimony under oath, he shall testify truthfully without regard to
whether his testimony is favorable or unfavorable to Quaker, and such testimony
shall be protected against claims under this Agreement by the same privilege
that would apply to a defamation claim.
C. The Quaker Oats Company, and any officer or director acting on its
behalf, shall answer all reference inquiries directed to The Quaker Oats
Company regarding Doyle by stating only his positions held, compensation and
dates of employment. No additional information shall be provided unless
authorized in advance, in writing, by Doyle. Doyle agrees to direct all
requests for references from Quaker to the highest ranking Human Resources
officer within Quaker.
5. Prohibited Conduct
A. Doyle covenants and agrees that through the dates specified below, he
shall not engage in any of the following activities anywhere in the world:
i. Non-competition. Doyle shall not undertake any employment,
consulting position or ownership interest which involves his Participation in
the management of a business entity that markets, sells, distributes, licenses
or produces Covered Products, unless that business entity's sole involvement
with Covered Products is that it makes retail sales or consumes Covered
Products, without competing in any way against Quaker. This covenant applies
through March 31, 2000.
a. "Participation" shall be construed broadly to include,
without limitation: (1) holding a position in which he directly manages such a
business entity; (2) holding a position in which anyone else who directly
manages such a business entity is in Doyle's reporting chain or chain-of-
command (regardless of the number of reporting levels between them); (3)
providing input, advice, guidance, or suggestions regarding the management of
such a business entity to anyone responsible therefor; (4) providing a
testimonial on behalf of such an operation or the product it produces; or (5)
doing anything else which falls within a common sense definition of the term
"participation," as used in the present context.
b. "Covered Products" mean any product which falls into one or
more of the following categories, so long as Quaker is producing, marketing,
distributing, selling or licensing such product anywhere in the world: sports
beverages; thirst quenching beverages, excluding beverages which, based on the
way they are marketed and/or consumed, do not compete at all against thirst
quenching beverages; hot cereals; ready-to-eat cereals; pancake mixes; grain-
based snacks, excluding grain-based foods which, based on how they are marketed
and/or consumed, do not compete at all against snacks; value-added rice
products; pancake syrup; value-added pasta products; dry pasta products; and
items Quaker produces for the food service market.
ii. Raiding Employees. Doyle shall not in any way, directly or
indirectly (including through someone else acting on Doyle's recommendation,
suggestion, identification or advice), facilitate or solicit any existing
Quaker employee to leave the employment of Quaker or to accept any position
with any other company or corporation. This covenant applies through March 31,
2001. For purposes of this provision, the following definitions apply:
a. "Existing Quaker employee" means someone: (1) who is
employed by Quaker on or before the date when Doyle's employment terminates;
(2) who is still employed by Quaker as of the date when the facilitating act or
solicitation takes place; and (3) who holds a manager, director or officer
level position at Quaker (or an equivalent position based on job duties and/or
Hay points, regardless of the employee's title).
b. The terms "solicit" and "facilitate" shall be given the
ordinary, common sense meaning appropriate in the present context.
iii. Non-disclosure. Doyle shall not use or disclose to anyone any
confidential information regarding Quaker. For purposes of this provision, the
term "confidential information" shall be construed as broadly as Illinois law
permits and shall include all non-public information Doyle acquired by virtue
of his positions with Quaker which might be of any value to a competitor or
which might cause any economic loss (directly or via loss of an opportunity) or
substantial embarrassment to Quaker or its customers, distributors or suppliers
if disclosed. Examples of such confidential information include, without
limitation, non-public information about Quaker's customers, suppliers,
distributors and potential acquisition targets; its business operations and
structure; its product lines, formulas and pricing; its processes, machines and
inventions; its research and know-how; its financial data; and its plans and
strategies. This covenant applies through March 31, 2001.
B. In the event of a breach, threatened breach, or situation that
creates an inevitable breach of any term of this paragraph by Doyle, Quaker
shall be entitled to an injunction compelling specific performance, restraining
any future violations and/or requiring affirmative acts to undo or minimize the
harm to Quaker, in addition to damages for any actual breach that occurs. The
parties stipulate and represent that breach of any provision of this paragraph
would cause irreparable injury to Quaker, for which there would be no adequate
remedy at law, due among other reasons to the inherent difficulty of
determining the precise causation for loss of customers, confidential
information and/or employees and of determining the amount and ongoing effects
of such losses.
C. In the event Doyle breaches any term of this Paragraph 5, Quaker
shall have the option of seeking injunctive relief or cancelling the payments
due under paragraph 1(A) of this Agreement. Quaker's right to terminate
Program benefits is spelled out in the Program, and is not affected by this
provision.
D. In the event Quaker elects to pursue injunctive relief, then the
following rules shall apply:
i. While litigation over the requested injunction is pending,
Quaker may, in its discretion, withhold payments otherwise due to Doyle under
paragraph 1(A); provided, Quaker's right to terminate or suspend Program
benefits, which are separate from the benefits described in paragraph 1(A), is
spelled out in the Program and is not affected by this provision.
ii. If, at the conclusion of the litigation, Quaker successfully
obtains full injunctive enforcement of all provisions in this paragraph 5 that
it attempts to enforce, then Quaker shall pay Doyle all amounts otherwise due
under paragraph 1(A) that were withheld and shall resume making all payments
required under paragraph 1(A), and shall likewise pay all Program payments that
were withheld.
iii. If, at the conclusion of the litigation, Quaker obtains some,
but not all, of the injunctive relief it seeks under this paragraph, then
Quaker shall make an election. It may either accept the injunction and proceed
as specified in subparagraph (ii) above, or it may elect to voluntarily vacate
and/or not enforce the injunction, in which event it shall have no obligation
to resume paying Doyle under paragraph 1(A), nor to pay withheld amounts.
iv. If a court entirely declines to enforce paragraph 5 of this
Agreement or holds it invalid or void, then Quaker shall have no further
obligation to pay Doyle under paragraph 1(A), including sums withheld while
litigation was pending.
v. If a court holds that the provisions of paragraph 5 are
enforceable, but further finds that Doyle did not breach any of them, then
Quaker shall pay Doyle all amounts otherwise due under paragraph 1(A) that were
withheld, and shall resume making all payments required under paragraph 1(A).
vi. Doyle shall have no claim for damages based on any delay in the
payments due under Paragraph 1(A) that results from a suspension of payments or
withholding in accordance with the preceding provisions; PROVIDED, if payment
of withheld amounts subsequently is required, then along with such payment
Quaker shall pay Doyle interest at an annualized rate of 6.0%.
vii. For purposes of this paragraph, litigation shall not be deemed
to have concluded, and no payment shall be due, until all potential appeals by
all parties are waived or exhausted.
E. Recitals: Doyle stipulates and represents that the following facts
are true, and further understands and agrees that they are material
representations upon which Quaker is relying in entering into this Agreement:
i. Doyle has been President of Quaker's Worldwide Beverages
division for several years, and in that capacity has been a member of Quaker's
Senior Leadership Team. In these positions, he participated in forming and/or
was informed about the details of operational plans and strategic long range
plans for all of Quaker's businesses, in addition to acquiring intimate
knowledge of plans and strategies for the Beverages division he ran. Without
limitation, he has detailed knowledge regarding Quaker's Worldwide Beverages
business, and had access to detailed information regarding Quaker's other
businesses, including without limitation business plans, new product
development, pricing structure, marketing plans, sales plans, distribution
plans, and supply chain plans for all of Quaker's products. This is: (1)
information Doyle gained by virtue of his employment at Quaker; (2) highly
confidential and secret information from which Quaker derives economic value,
actual or potential, from its not being generally known to other persons
outside Quaker who might obtain economic value from its disclosure or use; (3)
information known within Quaker only to key employees and those who need to
know it to perform their jobs; (4) information regarding which Quaker has taken
reasonable measures to preserve its confidentiality; (5) information that could
not easily be duplicated by others, and which Quaker required considerable time
and effort to develop; and (6) information which is likely to remain valuable
and secret for at least three years.
ii. By virtue of his employment at Quaker, Doyle has developed
personal and business relationships with existing Quaker employees, which he
otherwise would not have had. By virtue of his position, he also has acquired
knowledge as to which existing Quaker employees are critical to Quaker's
success and future plans, and which ones have skills or contacts that would be
valuable to a competitor.
6. Advance Determination Of Permitted/Prohibited Conduct
Doyle may request an advance written determination from Quaker's Chief
Executive Officer as to whether taking a proposed action or job would, in
Quaker's opinion, constitute a breach of this Agreement. In that event, and
provided that Doyle discloses in writing all material facts about the proposed
action or job, Quaker shall make a reasonable effort to respond to Doyle's
request for an advance written determination within ten (10) business days
after receiving it; PROVIDED, that if circumstances materially change after the
advance determination is made (e.g., if the duties of a job change after Doyle
accepts it), the determination may be reconsidered and revised or reversed upon
thirty days advance written notice to Doyle. Quaker shall treat as
confidential any non-public information Doyle communicates as part of a request
for an advance determination.
7. Choice Of Law And Forum; Attorney Fees
A. This Agreement shall be governed by and construed in accordance with
the laws of the State Of Illinois, without giving effect to choice of law
principles.
B. In the event of litigation over this Agreement or an alleged breach
thereof, Doyle consents to the personal jurisdiction of any court, state or
federal, in the State of Illinois. The parties agree that Illinois courts,
state or federal, shall be the exclusive jurisdiction for any litigation over
this Agreement or an alleged breach thereof.
C. In the event of litigation between Doyle and Quaker regarding any
provision of this Agreement, the party which prevails in such contest shall be
entitled to receive from the other party, in addition to any damages,
injunction, or other relief awarded by a court, reimbursement of all litigation
costs and expenses, including reasonable attorney fees, which the prevailing
party reasonably incurred as a result of such litigation, plus interest at the
applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended. If, in a particular contest, each party
prevails on one or more issues, the court shall exercise its equitable judgment
to determine which, if either, should be considered the prevailing party and
the percentage of that party's expenses which should be reimbursed, taking into
account inter alia the significance of the issue(s) on which each party
prevailed and the reasonableness of each party's position(s).
8. Full Agreement
This written document contains the entire understanding and agreement of
the parties on the subject matter set forth herein, and supercedes any prior
agreement relating to these matters. No promises or inducements have been made
other than those reflected herein, and no party is relying on any statement or
representation by any person except those set forth herein, including without
limitation oral or written summaries of this Agreement.
This Agreement cannot be modified or altered except by a subsequent
written agreement signed by the parties; and only Quaker's highest ranking
Human Resources officer or his direct superior shall have authority to sign
such an amendment on behalf of Quaker.
Without limitation, nothing in this document shall eliminate or reduce
Doyle's obligation to comply with the Quaker Code Of Ethics, to the extent that
certain provisions in the Code (such as non-disclosure rules) remain applicable
to employees after termination. Likewise, nothing in this document shall
eliminate or reduce Quaker's obligation to indemnify Doyle in certain
situations, pursuant to Quaker's by-laws or applicable law.
9. Severability
Each term of this Agreement is deemed severable, in whole or in part, and
if any provision of this Agreement or its application in any circumstance is
found to be illegal, unlawful or unenforceable, the remaining terms and
provisions shall not be affected thereby and shall remain in full force and
effect, except as expressly provided below.
Unless Quaker consents, the provisions in paragraph 5 of this Agreement
are not severable from each other or from Paragraph 1(A). If any provision or
aspect of paragraph 5 is held invalid, illegal, unlawful or unenforceable, then
there is no consideration for payments under paragraph 1(A); PROVIDED, if any
provision in paragraph 5 is invalid or broader than the law allows, a court is
authorized to award the broadest injunctive relief permitted by law, and Quaker
shall thereafter make its election pursuant to paragraph 5(D)(iii) -- if Quaker
elects to accept the limited injunctive relief, then it shall consent to sever
the invalid provision(s). Quaker's consent to sever one or more provisions in
paragraph 5 may be given at any time: before, during, or after litigation, in
Quaker's sole discretion.
The Quaker Oats Company
/s/ Pamela S. Hewitt
By one of its officers
Doyle has been advised in writing, via this notice, to consult with an attorney
before signing this Agreement. He acknowledges that he received the original
draft of this Agreement on March ___, 1998. Doyle originally was given twenty
one (21) days from March ___, 1998 to consider and decide whether to sign the
Agreement, but at his request Quaker agreed to extend that period to April 14,
1998; also, certain provisions from the original draft were revised at Doyle's
request. Doyle understands that he may revoke the Agreement within seven (7)
days after signing it. Doyle further understands that he has the right to
request a different waiver, release and separation agreeement which contains
shorter non-compete, no raiding and non-disclosure periods. Execution of such
a document would satisfy the Program's prerequisites and entitle him to Program
benefits, but would not entitle him to the additional benefits provided under
this Agreement, nor entail the additional obligations. Doyle affirms that he
has carefully read and fully understands all provisions of this Agreement, that
the consideration he is receiving is fair and adequate, and that he has not
been threatened or coerced into signing it.
April 14, 1998 /s/ James F. Doyle
James F. Doyle
Exhibit 10(c)
AGREEMENT UPON SEPARATION OF EMPLOYMENT
This Agreement Upon Separation Of Employment ("Agreement") is made and
entered into by and between Douglas W. Mills, his successors, heirs,
administrators, executors, personal representatives and assigns ("Mills") and
The Quaker Oats Company, its officers, directors, shareholders, employees,
agents, assigns, subsidiaries, divisions, parents, affiliates and successors
("Quaker"), collectively "the parties." The Agreement shall become effective
seven (7) days after it is executed by Mills.
1. Economic Consideration to Mills
Upon becoming effective, this Agreement shall satisfy the Quaker Officers
Severance Program's (the "Program") prerequisites that in order to qualify for
Program benefits, an officer must execute a valid waiver and release of all
potential claims and must enter into a non-competition agreement. In addition,
Mills shall receive the following consideration, to which he would not be
entitled in the absence of this Agreement:
A. Mills' active employment with Quaker is terminating on March 31,
1998. After severance payments under the Program have expired, and subject to
the provisions in Paragraph 5, Quaker shall pay Mills an amount equal to one
year of Program payments (i.e., final salary plus average bonus). This sum
shall be paid in equal semi-monthly installments commencing as soon as payments
to him under the Program expire, and terminating on January 31, 2001 (i.e.,
each individual semi-monthly payment will be smaller than semi-monthly payments
under the Program, but there will be more than 24 such payments, and the total
of all such payments will equal one year's worth of Program payments).
Payments under this paragraph 1(A) are consideration for the covenants in
paragraph 5, not for anything else.
B. As soon as Program benefits end and continuing through January 31,
2001, Quaker shall provide Mills with the same insurance coverage as is
provided under the Program. This benefit is part of the consideration for the
Waiver and Release in paragraph 3, and the Miscellaneous Agreements in
paragraph 4.
2. Termination Of Employment
Mills understands and agrees that his active employment relationship with
Quaker, its parent companies, affiliates and successors, will be permanently
and irrevocably severed as of March 31, 1998. Mills agrees he shall not apply
or otherwise seek reinstatement or reemployment by Quaker at any time, and that
Quaker has no obligation, contractual or otherwise, to rehire, reemploy or
recall him in the future. Mills further stipulates that this agreement is
sufficient cause for Quaker to deny any request for rescission, rehire,
reemployment or recall.
Mills agrees that prior to the effective date of his termination from
active employment, he will return all Quaker property, including but not
limited to keys, office pass, credit cards, computers, office equipment, sales
records and data. Mills further agrees that within sixty (60) days after his
termination date, he will submit all outstanding expenses and clear all
advances and his personal advance account, if any.
3. Waiver & Release
A. Mills waives, releases and discharges Quaker from any and all claims
and liabilities, demands, actions and causes of action, including attorneys'
fees and costs and participation in a class action lawsuit, whether known or
unknown, fixed or contingent, that he may have or claim to have against Quaker
as of the date this Agreement becomes effective. Mills further covenants not
to file a lawsuit or participate in a class action lawsuit to assert such
claims. Without limitation, Mills specifically waives all claims for back pay,
future pay or any other form of compensation or income, except as provided
below. This waiver includes but is not limited to claims arising out of or in
any way related to Mills' employment or termination of employment with Quaker,
including age discrimination claims under the Age Discrimination In Employment
Act (as amended), discrimination claims under Title VII of the Civil Rights Act
of 1964 (as amended) or the Americans with Disabilities Act, claims for breach
of contract, and any other statutory or common law cause of action under state,
federal or local law.
However, Mills does not waive, release, discharge or covenant not to sue
for enforcement of any rights or claims that arise out of conduct or omissions
which occur entirely after the date this Agreement becomes effective. In
addition, he does not waive any rights he may have as an employee on inactive
status and/or as a former employee, as the case may be, under this Agreement or
any of Quaker's fringe benefit or incentive plans (e.g., its pension plan, the
Program, the Long Term Incentive Plan of 1990, etc.), nor does he waive his
right to payment for unused vacation, if any, pursuant to Quaker's vacation
policy. Notwithstanding anything to the contrary in Paragraph 8 of this
Agreement, such benefits shall continue to be governed by the ERISA plans,
contracts and/or Quaker policies that exist independent of this Agreement.
Finally, Mills does not waive any right to indemnification he may have pursuant
to Quaker's by-laws, insurance coverage and/or applicable law, and Quaker
covenants to maintain directors and officers liability insurance coverage for
Mills, for actions or omissions while he was an officer, on the same terms as
it maintains such coverage for active officers.
B. Quaker waives, releases and discharges Mills from any and all claims
and liabilities, demands, actions and causes of action, including attorneys'
fees and costs, that it may have or claim to have against Mills as of the date
this Agreement becomes effective; provided, this waiver, release and discharge
only apply to claims as to which Quaker's senior officers were aware, on or
before the effective date of this Agreement, of all material facts necessary to
establish Mills' liability; and further provided, Quaker does not waive,
release, discharge or covenant not to sue for enforcement of any rights or
claims that arise out of conduct or omissions which occur entirely after the
date this Agreement becomes effective.
C. The parties stipulate that nothing contained in this Agreement shall
be construed as an admission by either of them of any liability, wrongdoing or
unlawful conduct. It is understood that both Quaker and Mills deny any
liability, wrongdoing or unlawful conduct, and each is providing consideration
for this waiver and release solely in order to resolve any potential disputes
between them amicably and to avoid the expense of potential litigation.
4. Miscellaneous agreements
The covenants and agreements set forth in this paragraph shall remain in
effect until January 31, 2001. Covenants 4(A) and 4(B) are material parts of
this Agreement, so a material breach of either of them by Mills would entitle
Quaker, at its discretion, to rescind this Agreement, in addition to any other
legal or equitable remedies it might have for breach:
A. Mills shall provide accurate information or testimony or both in
connection with any legal matter if so requested by Quaker. He shall make
himself available upon request to provide such information and/or testimony, in
a formal and/or an informal setting in accordance with Quaker's request,
subject to reasonable accommodation of his schedule and reimbursement of
reasonable expenses, including reasonable and necessary attorney fees (if
independent legal counsel is reasonably necessary).
B. Mills shall cooperate with media requests for interviews regarding
his termination and/or Quaker, unless directed otherwise by Quaker in a
particular instance. He shall not disparage The Quaker Oats Company, its
products, or any of its directors, officers or employees in these interviews,
nor in any other private or public setting; provided, if Mills is compelled to
provide testimony under oath, he shall testify truthfully without regard to
whether his testimony is favorable or unfavorable to Quaker, and such testimony
shall be protected against claims under this Agreement by the same privilege
that would apply to a defamation claim.
C. The Quaker Oats Company, and any officer or director acting on its
behalf, shall answer all reference inquiries directed to The Quaker Oats
Company regarding Mills by stating only his positions held, compensation and
dates of employment. No additional information shall be provided unless
authorized in advance, in writing, by Mills. Mills agrees to direct all
requests for references from Quaker to the highest ranking Human Resources
officer within Quaker.
5. Prohibited Conduct
A. Mills covenants and agrees that through January 31, 2001, he shall
not engage in any of the following activities anywhere in the world:
i. Non-competition. Mills shall not undertake any employment,
consulting position or ownership interest which involves his Participation in
the management of a business entity that markets, sells, distributes, licenses
or produces Covered Products, unless that business entity's sole involvement
with Covered Products is that it makes retail sales or consumes Covered
Products, without competing in any way against Quaker.
a. "Participation" shall be construed broadly to include,
without limitation: (1) holding a position in which he directly manages such a
business entity; (2) holding a position in which anyone else who directly
manages such a business entity is in Mills' reporting chain or chain-of-command
(regardless of the number of reporting levels between them); (3) providing
input, advice, guidance, or suggestions regarding the management of such a
business entity to anyone responsible therefor; (4) providing a testimonial on
behalf of such an operation or the product it produces; or (5) doing anything
else which falls within a common sense definition of the term "participation,"
as used in the present context.
b. "Covered Products" mean any product which falls into one or
more of the following categories, so long as Quaker is producing, marketing,
distributing, selling or licensing such product anywhere in the world: sports
beverages; thirst quenching beverages, excluding beverages which, based on how
they are marketed and/or consumed, do not compete at all against thirst
quenching beverages; hot cereals; ready-to-eat cereals; pancake mixes; grain-
based snacks, excluding grain-based foods which, based on how they are marketed
and/or consumed, do not compete at all against snacks; value-added rice
products; pancake syrup; value-added pasta products; dry pasta products; and
items Quaker produces for the food service market.
ii. Raiding Employees. Mills shall not in any way, directly or
indirectly (including through someone else acting on Mills' recommendation,
suggestion, identification or advice), facilitate or solicit any existing
Quaker employee to leave the employment of Quaker or to accept any position
with any other company or corporation. For purposes of this provision, the
following definitions apply:
a. "Existing Quaker employee" means someone: (1) who is
employed by Quaker on or before the date when Mills' employment terminates; (2)
who is still employed by Quaker as of the date when the facilitating act or
solicitation takes place; and (3) who holds a manager, director or officer
level position at Quaker (or an equivalent position based on job duties and/or
Hay points, regardless of the employee's title).
b. The terms "solicit" and "facilitate" shall be given the
ordinary, common sense meaning appropriate in the present context.
iii. Non-disclosure. Mills shall not use or disclose to anyone any
confidential information regarding Quaker. For purposes of this provision, the
term "confidential information" shall be construed as broadly as Illinois law
permits and shall include all non-public information Mills acquired by virtue
of his positions with Quaker which might be of any value to a competitor or
which might cause any economic loss (directly or via loss of an opportunity) or
substantial embarrassment to Quaker or its customers, distributors or suppliers
if disclosed. Examples of such confidential information include, without
limitation, non-public information about Quaker's customers, suppliers,
distributors and potential acquisition targets; its business operations and
structure; its product lines, formulas and pricing; its processes, machines and
inventions; its research and know-how; its financial data; and its plans and
strategies.
B. In the event of a breach, threatened breach, or situation that
creates an inevitable breach of any term of this paragraph by Mills, Quaker
shall be entitled to an injunction compelling specific performance, restraining
any future violations and/or requiring affirmative acts to undo or minimize the
harm to Quaker, in addition to damages for any actual breach that occurs. The
parties stipulate and represent that breach of any provision of this paragraph
would cause irreparable injury to Quaker, for which there would be no adequate
remedy at law, due among other reasons to the inherent difficulty of
determining the precise causation for loss of customers, confidential
information and/or employees and of determining the amount and ongoing effects
of such losses.
C. In the event Mills breaches any term of this Paragraph 5, Quaker
shall have the option of seeking injunctive relief or cancelling the payments
due under paragraph 1(A) of this Agreement. Quaker's right to terminate
Program benefits is spelled out in the Program, and is not affected by this
provision.
D. In the event Quaker elects to pursue injunctive relief, then the
following rules shall apply:
i. While litigation over the requested injunction is pending,
Quaker may, in its discretion, withhold payments otherwise due to Mills under
paragraph 1(A); provided, Quaker's right to terminate or suspend Program
benefits, which are separate from the benefits described in paragraph 1(A), is
spelled out in the Program and is not affected by this provision.
ii. If, at the conclusion of the litigation, Quaker successfully
obtains full injunctive enforcement of all provisions in this paragraph 5 that
it attempts to enforce, then Quaker shall pay Mills all amounts otherwise due
under paragraph 1(A) that were withheld and shall resume making all payments
required under paragraph 1(A), and shall likewise pay all Program payments that
were withheld.
iii. If, at the conclusion of the litigation, Quaker obtains some,
but not all, of the injunctive relief it seeks under this paragraph, then
Quaker shall make an election. It may either accept the injunction and proceed
as specified in subparagraph (ii) above, or it may elect to voluntarily vacate
and/or not enforce the injunction, in which event it shall have no obligation
to resume paying Mills under paragraph 1(A), nor to pay withheld amounts.
iv. If a court entirely declines to enforce paragraph 5 of this
Agreement or holds it invalid or void, then Quaker shall have no further
obligation to pay Mills under paragraph 1(A), including sums withheld while
litigation was pending.
v. If a court holds that the provisions of paragraph 5 are
enforceable, but further finds that Mills did not breach any of them, then
Quaker shall pay Mills all amounts otherwise due under paragraph 1(A) that were
withheld, and shall resume making all payments required under paragraph 1(A).
vi. Mills shall have no claim for damages based on any delay in the
payments due under Paragraph 1(A) that results from a suspension of payments or
withholding in accordance with the preceding provisions; PROVIDED, if payment
of withheld amounts subsequently is required, then along with such payment
Quaker shall pay Mills interest at an annualized rated of 6.0%.
vii. For purposes of this paragraph, litigation shall not be deemed
to have concluded, and no payment shall be due, until all potential appeals by
all parties are waived or exhausted.
E. Recitals: Mills stipulates and represents that the following facts
are true, and further understands and agrees that they are material
representations upon which Quaker is relying in entering into this Agreement:
i. Mills has been President of Quaker's United States Grocery
Products ("USGP") division for several years, and in that capacity has been a
member of Quaker's Senior Leadership Team. In these positions, he participated
in forming and/or was informed about the details of operational plans and
strategic long range plans for all of Quaker's businesses, in addition to
acquiring intimate knowledge of plans and strategies for the USGP division he
ran. Without limitation, he has detailed knowledge regarding Quaker's U.S. and
Canadian businesses (foods and beverages), and had access to detailed
information regarding Quaker's international businesses, including without
limitation business plans, new product development, pricing structure,
marketing plans, sales plans, distribution plans, and supply chain plans for
all of Quaker's products. This is: (1) information Mills gained by virtue of
his employment at Quaker; (2) highly confidential and secret information from
which Quaker derives economic value, actual or potential, from its not being
generally known to other persons outside Quaker who might obtain economic value
from its disclosure or use; (3) information known within Quaker only to key
employees and those who need to know it to perform their jobs; (4) information
regarding which Quaker has taken reasonable measures to preserve its
confidentiality; (5) information that could not easily be duplicated by others,
and which Quaker required considerable time and effort to develop; and (6)
information which is likely to remain valuable and secret for at least three
years.
ii. By virtue of his employment at Quaker, Mills has developed
personal and business relationships with existing Quaker employees, which he
otherwise would not have had. By virtue of his position, he also has acquired
knowledge as to which existing Quaker employees are critical to Quaker's
success and future plans, and which ones have skills or contacts that would be
valuable to a competitor.
6. Advance Determination Of Permitted/Prohibited Conduct
Mills may request an advance written determination from Quaker's Chief
Executive Officer as to whether taking a proposed action or job would, in
Quaker's opinion, constitute a breach of this Agreement. In that event, and
provided that Mills discloses in writing all material facts about the proposed
action or job, Quaker shall make a reasonable effort to respond to Mills'
request for an advance written determination within ten (10) business days
after receiving it; PROVIDED, that if circumstances materially change after the
advance determination is made (e.g., if the duties of a job change after Mills
accepts it), the determination may be reconsidered and revised or reversed upon
thirty days advance written notice to Mills. Quaker shall treat as
confidential any non-public information Mills communicates as part of a request
for an advance determination.
7. Choice Of Law And Forum; Attorney Fees
A. This Agreement shall be governed by and construed in accordance with
the laws of the State Of Illinois, without giving effect to choice of law
principles.
B. In the event of any litigation over this Agreement or an alleged
breach thereof, Mills consents to submit to the personal jurisdiction of any
court, state or federal, in the State of Illinois. The parties agree that the
Illinois courts, state or federal, shall be the exclusive jurisdiction for any
litigation over this Agreement or an alleged breach thereof.
C. In the event of litigation between Mills and Quaker regarding any
provision of this Agreement, the party which prevails in such contest shall be
entitled to receive from the other party, in addition to any damages,
injunction, or other relief awarded by a court, reimbursement of all litigation
costs and expenses, including reasonable attorney fees, which the prevailing
party reasonably incurred as a result of such litigation, plus interest at the
applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended. If, in a particular contest, each party
prevails on one or more issues, the court shall exercise its equitable judgment
to determine which, if either, should be considered the prevailing party and
the percentage of that party's expenses which should be reimbursed, taking into
account inter alia the significance of the issue(s) on which each party
prevailed and the reasonableness of each party's position(s).
8. Full Agreement
This written document contains the entire understanding and agreement of
the parties on the subject matter set forth herein, and supercedes any prior
agreement relating to these matters. No promises or inducements have been made
other than those reflected herein, and no party is relying on any statement or
representation by any person except those set forth herein, including without
limitation oral or written summaries of this Agreement.
This Agreement cannot be modified or altered except by a subsequent
written agreement signed by the parties; and only Quaker's highest ranking
Human Resources officer or his direct superior shall have authority to sign
such an amendment on behalf of Quaker.
Without limitation, nothing in this document shall eliminate or reduce
Mills' obligation to comply with the Quaker Code Of Ethics, to the extent that
certain provisions in the Code (such as non-disclosure rules) remain applicable
to employees after termination. Likewise, nothing in this document shall
eliminate or reduce Quaker's obligation to indemnify Mills in certain
situations, pursuant to Quaker's by-laws or applicable law.
9. Severability
Each term of this Agreement is deemed severable, in whole or in part, and
if any provision of this Agreement or its application in any circumstance is
found to be illegal, unlawful or unenforceable, the remaining terms and
provisions shall not be affected thereby and shall remain in full force and
effect, except as expressly provided below.
Unless Quaker consents, the provisions in paragraph 5 of this Agreement
are not severable from each other or from Paragraph 1(A). If any provision or
aspect of paragraph 5 is held invalid, illegal, unlawful or unenforceable, then
there is no consideration for payments under paragraph 1(A); PROVIDED, if any
provision in paragraph 5 is invalid or broader than the law allows, a court is
authorized to award the broadest injunctive relief permitted by law, and Quaker
shall thereafter make its election pursuant to paragraph 5(D)(iii) -- if Quaker
elects to accept the limited injunctive relief, then it shall consent to sever
the invalid provision(s). Quaker's consent to sever one or more provisions in
paragraph 5 may be given at any time: before, during, or after litigation, in
Quaker's sole discretion.
The Quaker Oats Company
/s/ Pamela S. Hewitt
By one of its officers
Mills has been advised in writing, via this notice, to consult with an attorney
before signing this Agreement. He acknowledges that he received the original
draft of this Agreement on March ___, 1998. Mills originally was given twenty
one (21) days from March ___, 1998 to consider and decide whether to sign the
Agreement, but at his request Quaker agreed to extend that period to April 14,
1998; also, certain provisions from the original draft were revised at Mills'
request. Mills understands that he may revoke the Agreement within seven (7)
days after signing it. Mills further understands that he has the right to
request a different waiver, release and separation agreeement which contains
shorter non-compete, no raiding and non-disclosure periods. Execution of such
a document would satisfy the Program's prerequisites and entitle him to Program
benefits, but would not entitle him to the additional benefits provided under
this Agreement, nor entail the additional obligations. Mills affirms that he
has carefully read and fully understands all provisions of this Agreement, that
the consideration he is receiving is fair and adequate, and that he has not
been threatened or coerced into signing it.
April 9, 1998 /s/ Douglas W. Mills
Douglas W. Mills
Exhibit 10(d)
AGREEMENT UPON SEPARATION OF EMPLOYMENT
This Agreement Upon Separation Of Employment ("Agreement") is made and
entered into by and between Douglas J. Ralston, his successors, heirs,
administrators, executors, personal representatives and assigns ("Ralston") and
The Quaker Oats Company, its officers, directors, shareholders, employees,
agents, assigns, subsidiaries, divisions, parents, affiliates and successors
("Quaker"), collectively "the parties." The Agreement shall become effective
seven (7) days after it is executed by Ralston.
1. Economic Consideration to Ralston
Upon becoming effective, this Agreement shall satisfy the Quaker Officers
Severance Program's (the "Program") prerequisites that in order to qualify for
Program benefits, an officer must execute a valid waiver and release of all
potential claims and sign an agreement containing several covenants, including
a non-competition provision. In addition, Ralston shall receive the following
consideration, to which he would not be entitled in the absence of this
Agreement:
A. Ralston's active employment with Quaker is terminating on March 31,
1998. After severance payments under the Program have expired, and subject to
the provisions in Paragraph 5, Quaker shall pay Ralston an amount equal to one
year of Program payments (i.e., final salary plus average bonus). This sum
shall be paid in equal semi-monthly installments commencing as soon as payments
to him under the Program expire, and terminating on September 30, 2000 (i.e.,
each individual semi-monthly payment will be smaller than semi-monthly payments
under the Program, but there will be more than 24 such payments, and the total
of all such payments will equal one year's worth of Program payments).
Payments under this paragraph 1(A) are consideration for the covenants in
paragraph 5, not for anything else.
B. As soon as Program benefits end and continuing through September 30,
2000, Quaker shall provide Ralston with the same insurance coverage as is
provided under the Program. This benefit is part of the consideration for the
Waiver and Release in paragraph 3, and the Miscellaneous Agreements in
paragraph 4.
2. Termination Of Employment
Ralston understands and agrees that his active employment relationship
with Quaker, its parent companies, affiliates and successors, will be
permanently and irrevocably severed as of March 31, 1998. Ralston agrees he
shall not apply or otherwise seek reinstatement or reemployment by Quaker at
any time, and that Quaker has no obligation, contractual or otherwise, to
rehire, reemploy or recall him in the future. Ralston further stipulates that
this agreement is sufficient cause for Quaker to deny any request for
rescission, rehire, reemployment or recall.
Ralston agrees that prior to the effective date of his termination from
active employment, he will return all Quaker property, including but not
limited to keys, office pass, credit cards, computers, office equipment, sales
records and data. Ralston further agrees that within sixty (60) days after his
termination date, he will submit all outstanding expenses and clear all
advances and his personal advance account, if any.
3. Waiver & Release
A. Ralston waives, releases and discharges Quaker from any and all
claims and liabilities, demands, actions and causes of action, including
attorneys' fees and costs and participation in a class action lawsuit, whether
known or unknown, fixed or contingent, that he may have or claim to have
against Quaker as of the date this Agreement becomes effective. Ralston
further covenants not to file a lawsuit or participate in a class action
lawsuit to assert such claims. Without limitation, Ralston specifically waives
all claims for back pay, future pay or any other form of compensation or
income, except as provided below. This waiver includes but is not limited to
claims arising out of or in any way related to Ralston's employment or
termination of employment with Quaker, including age discrimination claims
under the Age Discrimination In Employment Act (as amended), discrimination
claims under Title VII of the Civil Rights Act of 1964 (as amended) or the
Americans with Disabilities Act, claims for breach of contract, and any other
statutory or common law cause of action under state, federal or local law.
However, Ralston does not waive, release, discharge or covenant not to sue
for enforcement of any rights or claims that arise out of conduct or omissions
which occur entirely after the date this Agreement becomes effective. In
addition, he does not waive any rights he may have as an employee on inactive
status and/or as a former employee, as the case may be, under any of Quaker's
fringe benefit or incentive plans (e.g., its pension plan, the Program, the
Long Term Incentive Plan of 1990, etc.), nor does he waive his right to payment
for unused vacation, if any, pursuant to Quaker's vacation policy.
Notwithstanding anything to the contrary in Paragraph 8 of this Agreement, such
benefits shall continue to be governed by the ERISA plans, contracts and/or
Quaker policies that exist independent of this Agreement.
B. Quaker waives, releases and discharges Ralston from any and all
claims and liabilities, demands, actions and causes of action, including
attorneys' fees and costs, that it may have or claim to have against Ralston as
of the date this Agreement becomes effective; provided, this waiver, release
and discharge only apply to claims as to which Quaker's senior officers were
aware, on or before the effective date of this Agreement, of all material facts
necessary to establish Ralston's liability; and further provided, Quaker does
not waive, release, discharge or covenant not to sue for enforcement of any
rights or claims that arise out of conduct or omissions which occur entirely
after the date this Agreement becomes effective.
C. The parties stipulate that nothing contained in this Agreement shall
be construed as an admission by either of them of any liability, wrongdoing or
unlawful conduct. It is understood that both Quaker and Ralston deny any
liability, wrongdoing or unlawful conduct, and each is providing consideration
for this waiver and release solely in order to resolve any potential disputes
between them amicably and to avoid the expense of potential litigation.
4. Miscellaneous agreements
The covenants and agreements set forth in this paragraph shall remain in
effect until March 31, 2001. Covenants 4(A) and 4(B) are material parts of
this Agreement, so a material breach of either of them by Ralston would entitle
Quaker, at its discretion, to rescind this Agreement, in addition to any other
legal or equitable remedies it might have for breach:
A. Ralston shall provide accurate information or testimony or both in
connection with any legal matter if so requested by Quaker. He shall make
himself available upon request to provide such information and/or testimony, in
a formal and/or an informal setting in accordance with Quaker's request,
subject to reasonable accommodation of his schedule and reimbursement of
reasonable expenses, including reasonable and necessary attorney fees (if
independent legal counsel is reasonably necessary).
B. Ralston shall cooperate with media requests for interviews regarding
his termination and/or Quaker, unless directed otherwise by Quaker in a
particular instance. He shall not disparage The Quaker Oats Company, its
products, or any of its directors, officers or employees in these interviews,
nor in any other private or public setting; provided, if Ralston is compelled
to provide testimony under oath, he shall testify truthfully without regard to
whether his testimony is favorable or unfavorable to Quaker, and such testimony
shall be protected against claims under this Agreement by the same privilege
that would apply to a defamation claim.
C. The Quaker Oats Company, and any officer or director acting on its
behalf, shall answer all reference inquiries directed to The Quaker Oats
Company regarding Ralston by stating only his positions held, compensation and
dates of employment. No additional information shall be provided unless
authorized in advance, in writing, by Ralston. Ralston agrees to direct all
requests for references from Quaker to the highest ranking Human Resources
officer within Quaker.
5. Prohibited Conduct
A. Ralston covenants and agrees that through the dates set forth below,
he shall not engage in any of the following activities anywhere in the world:
i. Non-competition. Ralston shall not undertake any employment,
consulting position or ownership interest which involves his Participation in
the management of a business entity that markets, sells, distributes, licenses
or produces Covered Products, unless that business entity's sole involvement
with Covered Products is that it makes retail sales or consumes Covered
Products, without competing in any way against Quaker. This covenant shall
remain in effect until September 30, 2000.
a. "Participation" shall be construed broadly to include,
without limitation: (1) holding a position in which he directly manages such a
business entity; (2) holding a position in which anyone else who directly
manages such a business entity is in Ralston's reporting chain or chain-of-
command (regardless of the number of reporting levels between them); (3)
providing input, advice, guidance, or suggestions regarding the management of
such a business entity to anyone responsible therefor; (4) providing a
testimonial on behalf of such an operation or the product it produces; or (5)
doing anything else which falls within a common sense definition of the term
"participation," as used in the present context.
b. "Covered Products" mean any product which falls into one or
more of the following categories, so long as Quaker is producing, marketing,
distributing, selling or licensing such product anywhere in the world: sports
beverages; thirst quenching beverages; hot cereals; ready-to-eat cereals;
pancake mixes; grain-based snacks; value-added rice products; pancake syrup;
value-added pasta products; dry pasta products; and items Quaker produces for
the food service market.
ii. Raiding Employees. Ralston shall not in any way, directly or
indirectly (including through someone else acting on Ralston's recommendation,
suggestion, identification or advice), facilitate or solicit any existing
Quaker employee to leave the employment of Quaker or to accept any position
with any other company or corporation. This covenant shall remain in effect
until March 31, 2001. For purposes of this provision, the following
definitions apply:
a. "Existing Quaker employee" means someone: (1) who is
employed by Quaker on or before the date when Ralston's employment terminates;
(2) who is still employed by Quaker as of the date when the facilitating act or
solicitation takes place; and (3) who holds a manager, director or officer
level position at Quaker (or an equivalent position based on job duties and/or
Hay points, regardless of the employee's title).
b. The terms "solicit" and "facilitate" shall be given the
ordinary, common sense meaning appropriate in the present context.
iii. Non-disclosure. Ralston shall not use or disclose to anyone any
confidential information regarding Quaker. For purposes of this provision, the
term "confidential information" shall be construed as broadly as Illinois law
permits and shall include all non-public information Ralston acquired by virtue
of his positions with Quaker which might be of any value to a competitor or
which might cause any economic loss (directly or via loss of an opportunity) or
substantial embarrassment to Quaker or its customers, distributors or suppliers
if disclosed. Examples of such confidential information include, without
limitation, non-public information about Quaker's customers, suppliers,
distributors and potential acquisition targets; its business operations and
structure; its product lines, formulas and pricing; its processes, machines and
inventions; its research and know-how; its financial data; and its plans and
strategies. This covenant shall remain in effect until March 31, 2001.
B. In the event of a breach, threatened breach or situation that creates
an inevitable breach of any term of this paragraph by Ralston, Quaker shall be
entitled to an injunction compelling specific performance, restraining any
future violations and/or requiring affirmative acts to undo or minimize the
harm to Quaker, in addition to damages for any actual breach that occurs. The
parties stipulate and represent that breach of any provision of this paragraph
would cause irreparable injury to Quaker, for which there would be no adequate
remedy at law, due among other reasons to the inherent difficulty of
determining the precise causation for loss of customers, confidential
information and/or employees and of determining the amount and ongoing effects
of such losses.
C. In the event Ralston breaches any term of this Paragraph 5, Quaker
shall have the option of seeking injunctive relief or cancelling the payments
due under paragraph 1(A) of this Agreement. Quaker's right to terminate
Program benefits is spelled out in the Program, and is not affected by this
provision.
D. In the event Quaker elects to pursue injunctive relief, then the
following rules shall apply:
i. While litigation over the requested injunction is pending,
Quaker may, in its discretion, withhold payments otherwise due to Ralston under
paragraph 1(A); provided, Quaker's right to terminate or suspend Program
benefits, which are separate from the benefits described in paragraph 1(A), is
spelled out in the Program and is not affected by this provision.
ii. If, at the conclusion of the litigation, Quaker successfully
obtains full injunctive enforcement of all provisions in this paragraph 5 that
it attempts to enforce, then Quaker shall pay Ralston all amounts otherwise due
under paragraph 1(A) that were withheld and shall resume making all payments
required under paragraph 1(A), and shall likewise pay all Program payments that
were withheld.
iii. If, at the conclusion of the litigation, Quaker obtains some,
but not all, of the injunctive relief it seeks under this paragraph, then
Quaker shall make an election. It may either accept the injunction and proceed
as specified in subparagraph (ii) above, or it may elect to voluntarily vacate
and/or not enforce the injunction, in which event it shall have no obligation
to resume paying Ralston under paragraph 1(A), nor to pay withheld amounts.
iv. If a court entirely declines to enforce paragraph 5 of this
Agreement or holds it invalid or void, then Quaker shall have no further
obligation to pay Ralston under paragraph 1(A), including sums withheld while
litigation was pending.
v. If a court holds that the provisions of paragraph 5 are
enforceable, but further finds that Ralston did not breach any of them, then
Quaker shall pay Ralston all amounts otherwise due under paragraph 1(A) that
were withheld, and shall resume making all payments required under paragraph
1(A).
vi. Ralston shall have no claim for damages based on any delay in
the payments due under Paragraph 1(A) that results from a suspension of
payments or withholding in accordance with the preceding provisions; PROVIDED,
if payment of withheld amounts subsequently is required, then along with such
payment Quaker shall pay Ralston interest at an annualized rate of 6.0%.
vii. For purposes of this paragraph, litigation shall not be deemed
to have concluded, and no payment shall be due, until all potential appeals by
all parties are waived or exhausted.
E. Recitals: Ralston stipulates and represents that the following facts
are true, and further understands and agrees that they are material
representations upon which Quaker is relying in entering into this Agreement:
i. Ralston has been Senior Vice President of Human Resources for
several years, and in that capacity has been a member of Quaker's Senior
Leadership Team. In these positions, he participated in forming and/or was
informed about the details of operational plans and strategic long range plans
for all of Quaker's businesses. Without limitation, he has detailed knowledge
regarding business plans, new product development, pricing structure, marketing
plans, sales plans, distribution plans, and supply chain plans for all of
Quaker's products. This is: (1) information Ralston gained by virtue of his
employment at Quaker; (2) highly confidential and secret information from which
Quaker derives economic value, actual or potential, from its not being
generally known to other persons outside Quaker who might obtain economic value
from its disclosure or use; (3) information known within Quaker only to key
employees and those who need to know it to perform their jobs; (4) information
regarding which Quaker has taken reasonable measures to preserve its
confidentiality; (5) information that could not easily be duplicated by others,
and which Quaker required considerable time and effort to develop; and (6)
information which is likely to remain valuable and secret for at least three
years.
ii. By virtue of his employment at Quaker, Ralston has developed
personal and business relationships with existing Quaker employees, which he
otherwise would not have had. By virtue of his position as Quaker's most
senior Human Resources officer, he also has acquired detailed knowledge as to
which existing Quaker employees are critical to Quaker's success and future
plans, and which ones have skills or contacts that would be valuable to a
competitor.
6. Advance Determination Of Permitted/Prohibited Conduct
Ralston may request an advance written determination from Quaker's Chief
Executive Officer as to whether taking a proposed action or job would, in
Quaker's opinion, constitute a breach of this Agreement. In that event, and
provided that Ralston discloses in writing all material facts about the
proposed action or job, Quaker shall make a reasonable effort to respond to
Ralston's request for an advance written determination within ten (10) business
days after receiving it; PROVIDED, that if circumstances materially change
after the advance determination is made (e.g., if the duties of a job change
after Ralston accepts it), the determination may be reconsidered and revised or
reversed upon thirty days advance written notice to Ralston. Quaker shall
treat as confidential any non-public information Ralston communicates as part
of a request for an advance determination.
7. Choice Of Law And Forum; Attorney Fees
A. This Agreement shall be governed by and construed in accordance with
the laws of the State Of Illinois, without giving effect to choice of law
principles.
B. In the event of any litigation over this Agreement or an alleged
breach thereof, Ralston consents to submit to the personal jurisdiction of any
court, state or federal, in the State of Illinois. The parties agree that the
Illinois courts, state or federal, shall be the exclusive jurisdiction for any
litigation over this Agreement or an alleged breach thereof.
C. In the event of litigation between Ralston and Quaker regarding any
provision of this Agreement, the party which prevails in such contest shall be
entitled to receive from the other party, in addition to any damages,
injunction, or other relief awarded by a court, reimbursement of all litigation
costs and expenses, including reasonable attorney fees, which the prevailing
party reasonably incurred as a result of such litigation, plus interest at the
applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended. If, in a particular contest, each party
prevails on one or more issues, the court shall exercise its equitable judgment
to determine which, if either, should be considered the prevailing party and
the percentage of that party's expenses which should be reimbursed, taking into
account inter alia the significance of the issue(s) on which each party
prevailed and the reasonableness of each party's position(s).
8. Full Agreement
This written document contains the entire understanding and agreement of
the parties on the subject matter set forth herein, and supercedes any prior
agreement relating to these matters. No promises or inducements have been made
other than those reflected herein, and no party is relying on any statement or
representation by any person except those set forth herein, including without
limitation oral or written summaries of this Agreement.
This Agreement cannot be modified or altered except by a subsequent
written agreement signed by the parties; and only Quaker's highest ranking
Human Resources officer (other than Ralston) or his direct superior shall have
authority to sign such an amendment on behalf of Quaker.
Without limitation, nothing in this document shall eliminate or reduce
Ralston's obligation to comply with the Quaker Code Of Ethics, to the extent
that certain provisions in the Code (such as non-disclosure rules) remain
applicable to employees after termination. Likewise, nothing in this document
shall eliminate or reduce Quaker's obligation to indemnify Ralston in certain
situations, pursuant to Quaker's by-laws or applicable law.
9. Severability
Each term of this Agreement is deemed severable, in whole or in part, and
if any provision of this Agreement or its application in any circumstance is
found to be illegal, unlawful or unenforceable, the remaining terms and
provisions shall not be affected thereby and shall remain in full force and
effect, except as expressly provided below.
Unless Quaker consents, the provisions in paragraph 5 of this Agreement
are not severable from each other or from Paragraph 1(A). If any provision or
aspect of paragraph 5 is held invalid, illegal, unlawful or unenforceable, then
there is no consideration for payments under paragraph 1(A); PROVIDED, if any
provision in paragraph 5 is invalid or broader than the law allows, a court is
authorized to award the broadest injunctive relief permitted by law, and Quaker
shall thereafter make its election pursuant to paragraph 5(D)(iii) -- if Quaker
elects to accept the limited injunctive relief, then it shall consent to sever
the invalid provision(s). Quaker's consent to sever one or more provisions in
paragraph 5 may be given at any time: before, during, or after litigation, in
Quaker's sole discretion.
The Quaker Oats Company
/s/ Pamela S. Hewitt
By one of its officers
Ralston has been advised in writing, via this notice, to consult with an
attorney before signing this Agreement. He acknowledges that he received the
original draft of this Agreement on or about March 13, 1998. Ralston
originally was given twenty one (21) days from March 13, 1998 to consider and
decide whether to sign the Agreement, but at his request Quaker agreed to
extend that period to noon on April 15, 1998; also, certain provisions from the
original draft were revised at Ralston's request. Ralston understands that he
may revoke the Agreement within seven (7) days after signing it. Ralston
further understands that he has the right to request a different waiver,
release and separation agreeement which contains shorter non-compete, no
raiding and non-disclosure periods. Execution of such a document would satisfy
the Program's prerequisites and entitle him to Program benefits, but would not
entitle him to the additional benefits provided under this Agreement, nor
entail the additional obligations. Ralston affirms that he has carefully read
and fully understands all provisions of this Agreement, that the consideration
he is receiving is fair and adequate, and that he has not been threatened or
coerced into signing it.
April 15, 1998 /s/ Douglas J. Ralston
Douglas J. Ralston
