SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14 (a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than Registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additonal materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
THE QUAKER OATS COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
[Quaker Logo]
The Quaker Oats
Company
Notice of
Annual Meeting
and
Proxy Statement
Fiscal Year Ended December 31, 1999
April 3, 2000
Dear Shareholder:
You are cordially invited to attend the 2000 Annual Meeting of Shareholders of
The Quaker Oats Company on Wednesday, May 10, 2000, at 9:30 a.m. (CDT) at the
Civic Opera House, 20 North Wacker Drive, Chicago, Illinois.
The items of business to be acted on during the Meeting include: the election
of directors; the ratification of the appointment of Arthur Andersen LLP as
independent public accountants for the year ending December 31, 2000; and such
other business as may properly come before the Meeting or any adjournment
thereof, including three shareholder proposals. The accompanying proxy
statement contains complete details on the proposals and other matters.
Your participation in the affairs of the Company is important, regardless of the
number of shares you hold. To insure your representation at the Meeting, whether
or not you are able to attend, you may vote over the telephone or the Internet
as instructed on the enclosed proxy card or complete and return the enclosed
card as soon as possible. If you do attend the Meeting, you may then revoke
your proxy and vote in person if you so desire.
I look forward to seeing you on May 10. Refreshments will be served after the
Meeting, when the members of the Board of Directors hope to visit with you.
Cordially,
/s/Robert S. Morrison
Robert S. Morrison
Chairman, President and Chief Executive Officer
<PAGE>
THE QUAKER OATS COMPANY
321 North Clark Street
Chicago, Illinois 60610
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
AND
PROXY STATEMENT
FISCAL YEAR ENDED DECEMBER 31, 1999
T A B L E O F C O N T E N T S
PAGE
Notice of Annual Meeting of Shareholders 3
Proxy Statement 4
General Information 4
Election of Directors 5
Corporate Governance 8
Ownership of Company's Securities 11
Executive Compensation 13
Compensation Committee Report 19
Performance Graph 21
Directors' Proposal 22
Shareholders' Proposals 22
Shareholder Proposals for 2001 Annual Meeting 26
Other Business 27
<PAGE>
THE QUAKER OATS COMPANY
321 North Clark Street
Chicago, Illinois 60610
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 10, 2000
April 3, 2000
To the Shareholders of The Quaker Oats Company:
Notice is hereby given that the Annual Meeting of Shareholders of The Quaker
Oats Company will be held at 9:30 a.m. (CDT), on Wednesday, May 10, 2000, at the
Civic Opera House, 20 North Wacker Drive, Chicago, Illinois, for the following
purposes:
To elect one director in Class I to serve for a two-year term expiring in
May, 2002, and three directors in Class II for three-year terms expiring in
May, 2003, or until their successors are elected and qualified;
To ratify the Board of Directors' appointment of Arthur Andersen LLP as
independent public accountants for the Company for 2000; and
To transact such other business as may properly come before the Meeting or
any adjournment thereof, including consideration of shareholder proposals
concerning: 1) annual election of directors; 2) shareholder rights plans;
and 3) genetically engineered foods.
By Board of Directors' resolution, only shareholders of record as of the close
of business on March 15, 2000 are entitled to notice of and to vote at the
Meeting. To insure your representation at the Meeting, whether or not you are
able to attend, you may vote over the telephone or the Internet as instructed on
the enclosed proxy card or complete and return the enclosed card as soon as
possible. If you do attend the Meeting, you may then revoke your proxy and vote
in person if you so desire.
An admittance card is required to attend the Meeting. Please retain the bottom
portion of your proxy card for this purpose. Also, please indicate your
intention to attend the Meeting by checking the appropriate box on the proxy
card, or, if voting by the Internet or by telephone, when prompted. If your
shares are held by a bank or broker, your admittance card should be included
with your proxy card. If you do not have an admittance card prior to the
Meeting, you may obtain one by sending a written request, accompanied by proof
of share ownership (such as a copy of your brokerage statement) to Shareholder
Services, The Quaker Oats Company, P.O. Box 049001, Suite 25-9, Chicago,
Illinois 60604-9001. For your convenience, we recommend that you bring your
admittance card to the Meeting so you can avoid the registration lines and
proceed directly to the Meeting. However, if you do not have an admittance card
by the time of the Meeting, please bring proof of share ownership to the
registration area where our staff will assist you.
By order of the Board of Directors,
/s/John G. Jartz
John G. Jartz
Corporate Secretary
<Page 3>
THE QUAKER OATS COMPANY
321 North Clark Street
Chicago, Illinois 60610
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 10, 2000
April 3, 2000
GENERAL INFORMATION
This proxy statement is being mailed to shareholders on or about April 3, 2000
and is furnished in connection with the solicitation of proxies by the Board of
Directors of The Quaker Oats Company (Board and Company) for use at the Annual
Meeting of Shareholders to be held on May 10, 2000, including any adjournment
thereof (Annual Meeting or Meeting).
The Meeting is called for the purposes stated in the accompanying Notice of
Annual Meeting. All holders of the Company's $5.00 par value common stock and
Series B ESOP Convertible Preferred Stock (ESOP Preferred Stock) as of the close
of business on March 15, 2000, are entitled to vote at the Meeting. As of that
date, there were 130,757,273 outstanding shares of common stock and 908,682
outstanding shares of ESOP Preferred Stock. Treasury shares are not included
in the totals. On each matter coming before the Meeting, a common stock
shareholder is entitled to one vote for each share of stock held as of the
record date and an ESOP Preferred Stock shareholder is entitled to 2.2 votes for
each share held as of the record date.
Shares representing a majority of the eligible votes must be represented in
person or by proxy at the Meeting in order to constitute a quorum for the
transaction of business. A properly executed proxy marked "Withheld" with
respect to the election of one or more directors will not be voted with respect
to the director or directors indicated, although it will be counted for purposes
of determining whether there is a quorum. A properly executed proxy marked
"Abstain" on a matter will similarly not be voted with respect to such matter,
but will be counted for purposes of determining whether there is a quorum.
Shares registered in the names of brokers or other "street name" nominees will
be considered to be voted only as to those matters with respect to which a
beneficial holder has provided voting instructions, and will not be considered
voted for any purpose as to the matters with respect to which a beneficial
holder has not provided voting instructions (commonly referred to as "broker
non-votes"). Broker non-votes will be counted for purposes of determining
whether there is a quorum.
If a proxy is properly signed and is not revoked by the shareholder, the shares
it represents will be voted at the Meeting in accordance with the instructions
of the shareholder. If no specific instructions are designated, the shares will
be voted as recommended by the Board.
A proxy may be revoked at any time before it is voted at the Meeting. Any
shareholder who attends the Meeting and wishes to vote in person may revoke his
or her proxy at that time. Otherwise, revocation of a proxy must be
communicated in writing to the Company's Corporate Secretary, P.O. Box 049001,
Suite 27-9, Chicago, Illinois 60604-9001.
If a shareholder is a participant in the Company's Salaried Employees' 401(k)
Plan, Hourly Employees' 401(k) Plan, or the Harris DOCS (Direct Ownership of
Corporate Shares) Program, the proxy card will represent the number of shares
registered in the participant's name and the number of whole and fractional
shares credited or allocated to the participant's account under the plans,
except that fractional shares will not be voted under the Harris DOCS Program.
For those shares held in the plans, the proxy card will serve as a direction to
the trustee or voting agent under each plan as to how the shares in the relevant
account are to be voted.
<Page 4>
Under the Company's Bylaws, all proxies, ballots and voting tabulations that
identify how shareholders voted will be kept confidential and not be disclosed
to any of the Company's directors, officers or employees, except when disclosure
is mandated by law, when disclosure is expressly requested by a shareholder or
during a contested election for the Board.
The Company will bear the cost of the solicitation of proxies, including the
charges and expenses of brokerage firms and other custodians, nominees and
fiduciaries for forwarding proxy materials to the beneficial owners of shares of
stock. Solicitations will be made primarily by mail, but certain directors,
officers or regular employees of the Company may solicit proxies in person or by
telephone or other means without special compensation. In addition, the Company
has retained Georgeson Shareholder Communications, Inc. to assist in soliciting
proxies from brokers, dealers, voting trustees, banks and other nominees, and
institutional and individual holders for a fee not to exceed $18,000, plus
reimbursement of reasonable out-of-pocket expenses.
ELECTION OF DIRECTORS
The Restated Certificate of Incorporation of the Company provides that the
members of the Board shall be divided into three classes with staggered terms.
The terms of directors to be elected in Class I and Class II expire this year.
The Board has nominated one person for election as a director in Class I to
serve for a two-year term expiring in May, 2002, and three persons for election
as directors in Class II to serve for three-year terms expiring in May, 2003, or
until their successors are elected and qualified. All nominees have consented
to serve for the new term. Biographical information (including principal
occupations for the past five years and ages as of April 3, 2000) follows for
each person nominated and each director whose term in office will continue after
the Meeting.
It is the intention of those persons named in the accompanying proxy to vote in
favor of the nominees. Should any one or more of these nominees become
unavailable for election, the proxy will be voted for such other persons, if
any, as the Board may recommend.
The election of directors requires a plurality of the votes cast at the Meeting.
If all nominees are elected, the Board will consist of nine members, including
eight nonemployee directors and one director who is an officer of the Company.
Nominees for Director - Terms Expiring in 2003
W. James Farrell
Director since 1998
Age 57
Chairman and Chief Executive Officer, Illinois Tool
Works Inc. (engineering and industrial components)
since 1996; formerly President and Chief Executive
Officer (1995-1996); and Executive Vice President
(1983-1994). Also a director of The Allstate
Corporation; and Sears, Roebuck and Co.
Judy C. Lewent
Director since 1994
Age 51
Senior Vice President and Chief Financial Officer,
Merck & Co., Inc. (pharmaceuticals). Also a
director of Johnson & Johnson Merck Consumer
Pharmaceuticals Company; Merial Limited; and
Motorola, Inc.
<Page 5>
Linda Johnson Rice
Director since March, 2000
Age 42
President and Chief Operating Officer, Johnson
Publishing Company, Inc. (publishing). Also a
director of Bausch & Lomb Incorporated; Kimberly-
Clark Corporation; Northwestern Memorial
Corporation; and Viad Corp.
Nominee for Director - Term Expiring in 2002
Armando M. Codina
Director since July, 1999
Age 53
Chairman and Chief Executive Officer, Codina Group,
Inc. (real estate). Also a director of AMR
Corporation; BellSouth Corporation; FPL Group,
Inc.; and Winn-Dixie Stores, Inc.
Directors Continuing in Office - Terms Expiring in 2002
J. Michael Losh
Director since 1998
Age 53
Executive Vice President and Chief Financial
Officer, General Motors Corporation (automotive
manufacturing) since 1994; formerly Vice President
and Group Executive of North American Vehicle
Sales, Service and Marketing (1992-1994). Also a
director of Cardinal Health, Inc.
Walter J. Salmon
Director since 1971
Age 69
Stanley Roth, Sr. Professor of Retailing, Emeritus,
Harvard Business School since 1997; formerly
Stanley Roth, Sr. Professor of Retailing (1980-
1997) and Senior Associate Dean, External Relations
(1989-1994). Also a director of Circuit City
Stores, Inc.; Cole National Corporation; Hannaford
Bros. Co.; Harrah's Entertainment, Inc.; Luby's,
Inc.; The Neiman Marcus Group, Inc.; and PETsMART
Inc.
<Page 6>
Directors Continuing in Office - Terms Expiring in 2001
Frank C. Carlucci
Director 1983-1987 and then since 1989
Age 69
Chairman, The Carlyle Group (merchant banking).
Also a director of Ashland Inc.; IRI International
Corporation; Kaman Corporation; Neurogen
Corporation; Nortel Networks Corporation; Pharmacia
& Upjohn, Inc.; Sun Resorts Ltd. N.V.; and Texas
Biotechnology Corporation.
Vernon R. Loucks, Jr.
Director since 1981
Age 65
Chairman, InLight, Inc. (health care services)
since January, 2000; formerly Chairman (1999) and
Chairman and Chief Executive Officer (1980-1998) of
Baxter International Inc. Also a director of
Affymetrix, Inc.; Anheuser-Busch Companies, Inc.;
Emerson Electric Co.; and GeneSoft, Inc.
Robert S. Morrison
Director since 1997
Age 57
Chairman, President and Chief Executive Officer of
the Company since 1997; formerly Chairman and Chief
Executive Officer of Kraft Foods, Inc., a
division of Philip Morris Companies Inc. (1994-
1997); and President of General Foods U.S.A. of
Philip Morris Companies Inc. (1991-1994).
<Page 7>
CORPORATE GOVERNANCE
Board Affairs Guidelines and Policies
The Board has adopted comprehensive Board Affairs Guidelines which are
summarized as follows:
1. The Board shall be comprised of a majority of "independent
directors" and not more than three directors shall be Company
employees. The term "independent director" is defined as a
director who: (i) is not and has not been employed by the Company
or its subsidiaries in an executive capacity within the last five
years; (ii) is not affiliated with a customer or supplier of goods
or services that has a material relationship with the Company or
its subsidiaries (material either to the Company or to such
customer or supplier); (iii) does not have a financially
significant personal services contract with the Company or its
subsidiaries; (iv) is not affiliated with a tax-exempt entity that
receives more than 5% of its annual contributions from the Company
or its subsidiaries or employees; (v) does not have a material
business relationship with any senior executives of the Company;
and (vi) is not a spouse, parent, sibling or child of any person
described by (i) through (v).
2. The Board Affairs, Audit and Compensation Committees of the
Board shall consist entirely of independent directors.
3. Nonemployee directors are expected to retire at the first
Annual Meeting of Shareholders after attaining age 70. Employee
directors shall retire at the first Annual Meeting of Shareholders
after attaining age 65 or upon their earlier retirement,
resignation or termination of employment.
4. Directors are expected to offer their resignation in the event
of a change in their primary employment responsibilities. Former
Chairmen who have been full-time employees and/or Chief Executive
Officers of the Company are expected to resign from the Board upon
vacating those positions.
5. The Board Affairs Committee and the entire Board are responsible for
screening and selecting director candidates, typically with assistance from
an independent executive search firm.
6. In lieu of term limits, each director's continuation on the Board
should be reviewed by the Board Affairs Committee before re-nominating
such director for an additional term.
7. The Chairman and Chief Executive Officer should receive the approval
of the Board before accepting any outside directorships. As a general
rule, the Chairman and Chief Executive Officer and other employee directors
should serve on no more than three additional boards.
8. The Board shall periodically review its own structure, governance
principles and composition to consider whether it is functioning well in
view of its responsibilities and the evolving situation of the Company.
In furtherance of this objective, the Board shall conduct an annual
performance evaluation to solicit candid feedback from individual
directors. The collective results of such evaluation will be shared with
the entire Board.
9. The Chairman and Chief Executive Officer shall establish the
agenda for Board meetings. Nonemployee directors can suggest
additional agenda items, and the Board shall set aside time at
every other Board meeting to evaluate possible topics for future
discussion. At least one Board meeting per year shall include both
a thorough review of the Company's strategic long-range plan and the
most important issues expected to affect the Company in the future.
10. The nonemployee directors shall meet in executive session
without the Chairman and Chief Executive Officer at the end of
every other regularly scheduled Board meeting and at such other
times as they deem appropriate. The Chairman of the Board Affairs
Committee will preside over such executive sessions.
11. At the beginning of each fiscal year, the Chairman and Chief Executive
Officer must develop performance objectives for Board review and approval.
Such objectives should be based upon the specific position and needs
<Page 8>
of the Company and should include criteria such as business performance,
accomplishment of long term strategies and development of the management
team.
12. Following the end of each fiscal year, the Board shall
formally evaluate the Chairman and Chief Executive Officer's
performance at a meeting of nonemployee directors without the
Chairman and Chief Executive Officer being present. Such
evaluation shall be based upon the objectives established by the
Board at the beginning of the fiscal year and such other factors as
the nonemployee directors deem appropriate. The results of the
evaluation shall be communicated to the Chairman and Chief
Executive Officer by the Chairman of the Compensation Committee.
The performance evaluation will also be used by the Compensation
Committee and the nonemployee directors when considering the
Chairman and Chief Executive Officer's compensation.
13. The Chairman and Chief Executive Officer shall provide an
annual report to the full Board on succession planning and the
development and performance of the Company's management team. This
report will include an emergency operating plan that could be
implemented in the event the Chairman and Chief Executive Officer
unexpectedly resigns, retires or becomes incapacitated.
14. Directors are expected to own and retain shares of the
Company's common stock and to increase their ownership of those
shares over time. Individual directors are expected to own at
least 1,500 shares within one year of election and 4,500 shares
within three years of election. These ownership targets have been
adopted in the form of "guidelines" rather than "minimum
requirements" in order to recognize that the individual
circumstances of Board members and potential candidates may impact
what is reasonable to expect.
The foregoing summary is subject to and qualified in its entirety by the full
text of the Board Affairs Guidelines, which are available upon written request
to the Company's Corporate Secretary, P.O. Box 049001, Suite 27-9, Chicago,
Illinois 60604-9001.
Nonemployee Directors' Compensation and Benefits
The nonemployee directors' compensation and benefits program is intended to
closely align the interests of directors and shareholders. The annual cash
retainer for nonemployee directors is $35,000. Nonemployee directors also
receive annual stock option grants with an estimated value of $35,000 under The
Quaker Oats Company Stock Option Plan for Outside Directors (Stock Option Plan)
(see description below) and annual Common Stock Unit awards valued at $35,000
under The Quaker Oats Company Stock Compensation Plan for Outside Directors
(Stock Compensation Plan) (see description below). Each Committee chairperson
receives an additional $5,000 award which, at the director's option, is credited
under the Stock Option Plan or the Stock Compensation Plan. Nonemployee
directors may elect to convert all or a portion of their cash retainers and/or
Common Stock Units received under the Stock Compensation Plan into stock options
under the Stock Option Plan. In addition to the compensation and benefits
described above, nonemployee directors are reimbursed for appropriate travel and
lodging expenses. Directors who are employees receive no additional
compensation or benefits for Board or Committee service.
Under the Deferred Compensation Plan for Directors of The Quaker Oats Company
(Deferred Compensation Plan), each nonemployee director may elect to defer the
receipt of all or a portion of his/her annual retainer until ceasing to be a
director. Prior to 1999, directors could elect to carry such deferred amounts
as Cash Units or Common Stock Units. Deferred amounts credited on or after
January 1, 1999 must be carried as Common Stock Units. Existing Cash Units are
credited with interest on a monthly basis, at the new issue 10-year "A" rated
industrial bond rate. Amounts deferred as stock units under the Deferred
Compensation Plan are converted quarterly into Common Stock Units by dividing
the deferred amount by the fair market value of the Company's common stock.
Common Stock Units are also credited with dividend equivalents which are
converted into additional Common Stock Units. After a director leaves the
Board, deferred amounts may be distributed in a lump-sum or in annual
installments (not exceeding 15), as elected by the director. The accumulated
deferred amounts will be distributed in kind if held as Common Stock Units or
cash if held as Cash Units. If a director has not attained age 55 prior to
leaving the Board, the distribution of deferred amounts will begin following the
director's attainment of age 55. Payment of deferred amounts may be accelerated
by the Compensation Committee for any reason following a change in control.
Each nonemployee director receives an annual grant valued at $35,000 under the
Stock Option Plan, based on the fair market value of the Company's common stock
on the date of grant. Committee chairpersons may also elect to receive
<Page 9>
their annual $5,000 award as stock options under the Stock Option Plan.
Furthermore, nonemployee directors may elect to receive stock options in lieu of
cash retainers and/or Common Stock Unit awards under the Stock Compensation
Plan. All nonemployee director stock options are granted at an exercise price
equal to the fair market value of the Company's common stock on the date of
grant. The options vest when granted, but they may not be exercised for at least
one year. They remain exercisable until the earlier of ten years from the date
of grant or five years after a director leaves the Board. Upon the occurrence of
a change in control, outstanding options are cancelled and an immediate lump sum
payment will be paid to the director, equal to the product of: (1) the amount by
which the higher of (a) the closing price of the Company's common stock as
reported on the New York Stock Exchange ("NYSE") Composite Index on or nearest
the date of payment (or, if not listed on such exchange, on a nationally
recognized exchange or quotation system on which trading volume in the common
stock is highest), or (b) the highest per share price for the Company's common
stock actually paid in connection with the change in control, exceeds the
purchase price of each such option held, times (2) the number of shares covered
by each such option (whether or not then fully exercisable).
Under the Stock Compensation Plan, each nonemployee director receives annual
Common Stock Unit awards valued at $35,000, based on the fair market value of
the Company's common stock on the date of grant. Committee chairpersons may
also elect to receive their annual $5,000 award as Common Stock Units under the
Stock Compensation Plan. All such Common Stock Units are credited with dividend
equivalents which are converted into additional Common Stock Units. After a
director leaves the Board, Common Stock Units held under the Stock Compensation
Plan will be distributed in kind in a lump-sum or in annual installments (not
exceeding 15), as elected by the director. The Compensation Committee may
accelerate the distribution of Common Stock Units for any reason following a
change in control.
Committees
The Board has appointed five standing committees from among its members to
assist it in carrying out its obligations. Committee assignments and chairs are
reviewed by the Board annually. The principal responsibilities of each
committee are reviewed biannually and are described in the following paragraphs.
The Audit Committee consists entirely of nonemployee directors and is primarily
concerned with the effectiveness of the Company's accounting policies and
practices, financial reporting and internal controls. Specifically, the
Committee reviews and recommends annually to the Board the firm to be appointed
as the Company's independent public accountants; reviews all relationships
between the Company and its independent public accountants to satisfy itself as
to their independence; reviews the Company's annual financial statements;
reviews and approves the scope of the annual examination of the books and
records of the Company and its subsidiaries; reviews the audit findings and
recommendations of the independent public accountants; considers the
organization, scope and adequacy of the Company's internal auditing function;
monitors the extent to which the Company has implemented changes recommended by
the independent public accountants, the internal audit staff or the Committee;
reviews and monitors compliance with the Company's written code of conduct and
ethical practices; reviews and monitors the Company's Compliance Program with
regard to the areas of Law, Quality, Health and Safety, and Environmental
Programs; provides oversight with respect to accounting principles to be
employed in the Company's financial reporting; and reviews the adequacy of the
Committee's charter at least annually. The Committee met three times during
1999 and its members are Mr. Carlucci - Chairman, Mr. Codina, Mr. Farrell, Ms.
Lewent and Mr. Losh.
The Board Affairs Committee consists entirely of nonemployee directors and
develops and recommends to the Board guidelines with respect to the size and
composition of the Board and criteria for the selection of director candidates.
It recommends the slate of nominees to be considered at each annual meeting of
shareholders and recommends candidates to fill any vacancies that may occur,
including any vacancy created by an increase in the total number of directors.
It also administers and periodically reviews the programs and procedures set
forth in the Board Affairs Guidelines. The Committee met three times during
1999 and its members are Dr. Salmon - Chairman, Mr. Losh, Mr. Loucks, Ms. Rice
and Mr. Weiss. Mr. Morrison is an ex-officio member of the Committee.
The Committee will entertain nominees for directorships recommended
by shareholders. A shareholder recommendation should be sent to the
Committee in care of the Company's Corporate Secretary, accompanied
by a statement of the nominee indicating willingness to serve
if elected. The nomination should also state the shareholder's
<Page 10>
reasons for the recommendation, the principal occupations the nominee has
held over the past five years and a list of all publicly held companies for
which the nominee serves as a director.
The Compensation Committee consists entirely of nonemployee directors and
oversees the Company's compensation and benefit policies and programs, including
administration of the Executive and Management Incentive Bonus Plans, The Quaker
Long Term Incentive Plan of 1999 (1999 LTIP) and The Quaker Long Term Incentive
Plan of 1990 (1990 LTIP). It also recommends to the Board annual salaries for
elected officers. The Committee met six times during 1999 and its members are
Mr. Loucks - Chairman, Mr. Carlucci, Mr. Farrell, Ms. Lewent and Mr. Weiss.
The Executive Committee consists of three nonemployee directors and Mr. Morrison
and exercises all the powers and authority of the Board in the management of the
business and affairs of the Company during the intervals between meetings of the
Board, subject to the restrictions set forth in the Bylaws. The Committee acted
by unanimous written consent three times during 1999 and its members are Mr.
Carlucci, Mr. Farrell, Mr. Morrison and Mr. Weiss.
The Finance Committee consists entirely of nonemployee directors and reviews the
Company's annual financing plan, including its projected financial condition and
requirements for funds; approves certain long term debt borrowing arrangements;
advises the Board on all financial recommendations requiring Board approval,
including dividend payments; and monitors the investment performance of the
Company's pension funds and participant-directed investment accounts. The
Committee met two times during 1999 and its members are Mr. Weiss - Chairman,
Mr. Codina, Ms. Lewent, Mr. Losh, Mr. Loucks, Ms. Rice and Dr. Salmon.
Attendance
During 1999, the Board held six regular meetings. In addition to Board
membership, each nonemployee director serves on one or more standing Board
committees. Each director attended 75% or more of the meetings of the Board and
Board committees on which he or she served.
OWNERSHIP OF COMPANY'S SECURITIES
Beneficial Owners of More Than 5 Percent
The following table sets forth information as of March 10, 2000 with respect to
each person or entity known to have beneficial ownership of more than 5% of the
Company's outstanding common stock based upon information furnished to the
Company.
<TABLE>
<CAPTION>
Name and address of Amount and nature Percent of
beneficial owner of beneficial ownership class
<S> <C> <C>
Fidelity Management 10,815,474 (2) 8.15%
Trust Co.
82 Devonshire Ct.
Boston, MA 02109 (1)
FMR Corp. 14,495,965 10.83%
82 Devonshire Ct.
Boston, MA 02109
</TABLE>
(1) In accordance with applicable rules of the Securities and Exchange
Commission ("SEC"), all shares beneficially owned by Fidelity Management
Trust Co., including those beneficially owned as Trustee of The Quaker Oats
Company 401(k) Plans Master Trust, are required to be disclosed.
(2) This amount includes 8,854,902 shares of common stock and 908,682 shares of
ESOP Preferred Stock (at the convertible rate of 2.16 shares of common
stock for each share of ESOP Preferred Stock and representing 100% of the
issued and outstanding stock of that class), which ESOP Preferred Stock is
included in determining the percent of class owned.
<Page 11>
Directors and Management
As of March 10, 2000, each director, each nominee, each Named Executive (see
page 13) and all directors and executive officers of the Company as a group
beneficially owned the number of shares of the Company's common stock set forth
in the following table. Shares subject to acquisition within 60 days through
the exercise of stock options are included in the first column and are shown
separately in the second column.
<TABLE>
<CAPTION>
Name of individual Amount and nature Shares subject to acquisition
or persons in group of beneficial ownership(a) within 60 days (a)
<S> <C> <C>
Frank C. Carlucci 32,608 (b)(c)(d) 1,752
Armando M. Codina 4,500 (e) -0-
W. James Farrell 4,535 (c) 1,752
John G. Jartz 154,848 (f)(g) 132,498
Judy C. Lewent 7,443 (c) 3,504
J. Michael Losh 3,890 (c) 1,752
Vernon R. Loucks, Jr. 17,949 (c) 1,752
Linda Johnson Rice 591 (c) -0-
Terence D. Martin 78,428 (f)(g) 66,500
Robert S. Morrison 1,145,261 (f)(g) 980,200
Walter J. Salmon 24,532 (c) 1,752
William L. Weiss 18,859 (c)(d) 5,505
Susan D. Wellington 87,107 (f)(g) 74,310
Russell A. Young 226,651 (f)(g) 200,620
All directors and executive
officers as a group 2,837,274 (f)(g) 2,345,067
</TABLE>
(a) Unless otherwise indicated, each named individual and each person in the
group has sole voting and investment power with respect to the shares
shown. Of the total shares outstanding (including shares subject to
acquisition within 60 days after March 10, 2000), each person beneficially
owns less than 1% of the total shares and the group in total beneficially
owns approximately 2% of the total shares.
(b) Of these shares, 300 are held in a custodial account for Mr. Carlucci's
daughter, through which he shares voting and investment power with his
wife.
(c) The figures shown for all directors include an aggregate of 60,979 common
stock units credited to them under The Quaker Oats Company Stock
Compensation Plan for Outside Directors.
(d) The figures shown for all directors include an aggregate of 20,431 common
stock units credited to them under the Deferred Compensation Plan for
Directors of The Quaker Oats Company.
(e) These 4,500 shares are owned by Codina Investments, Inc., which is wholly-
owned by Mr. Codina.
(f) The figures shown for all executive officers include an aggregate of 92,828
shares allocated to them under The Quaker 401(k) Plan for Salaried
Employees, which includes 16,912 shares on the basis of the conversion of
shares of ESOP Preferred Stock at the conversion rate of 2.16. The Named
Executives hold the following numbers of shares under this Plan: Mr.
Morrison, 1,133; Mr. Martin, 902; Mr. Young, 9,414; Ms. Wellington, 6,641;
and Mr. Jartz, 9,246.
(g) The figures shown for all executive officers include an aggregate of 74,773
shares and stock units granted to them under the 1990 LTIP and 1999 LTIP
for which the restricted period has not lapsed. The Named Executives hold
the following numbers of shares or stock units under this Plan: Mr.
Morrison, 44,561; Mr. Martin, 342; Mr. Young, 957; Ms. Wellington, 5,000;
and Mr. Jartz, 2,194.
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who beneficially own more than 10% of
a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the SEC and the NYSE. To the best of
the Company's knowledge, all such required reports were timely filed.
<Page 12>
EXECUTIVE COMPENSATION
The following table details annual and long-term compensation paid to the
Company's Chairman, President and Chief Executive Officer for 1999 and the
Company's four other most highly compensated executive officers for 1999 (Named
Executives). Information is provided for each fiscal year the Named Executive
served as an executive officer of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------------------------- ---------------------------
Securities
Other Annual Restricted Underlying All Other
Name and Fiscal Salary Bonus Compensation Stock Awards Options Compensation
Principal Position Year ($) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5)
<S> <C> <C> <C> <C> <C> <C> <C>
Robert S. Morrison- 1999 $ 995,674 $ 1,700,000 $ 27,251 $ 349,989 340,000 $ 593,000
Chairman, President 1998 $ 952,004 $ 1,400,000 $ 25,959 $ -0- 300,000 $ 118,131
and Chief Executive 1997 $ 183,667 $ -0- $ -0- $ 5,715,570 1,000,000 $ -0-
Officer
Terence D. Martin- 1999 $ 479,008 $ 493,800 $ 89,006 $ 18,244 50,000 $ 94,051
Senior Vice President- 1998 $ 64,857 $ 73,000 $ -0- $ -0- 250,000 $ -0-
Finance and Chief 1997 N/A N/A N/A N/A N/A N/A
Financial Officer
Russell A. Young- 1999 $ 328,168 $ 440,300 $ 277 $ -0- 38,000 $ 160,128
Senior Vice President- 1998 $ 306,762 $ 323,400 $ -0- $ -0- 38,000 $ 188,905
Supply Chain 1997 N/A N/A N/A N/A N/A N/A
Susan D. Wellington- 1999 $ 264,000 $ 397,700 $ 1,007 $ 49,716 25,000 $ 148,058
Vice President and 1998 $ 234,014 $ 342,900 $ -0- $ 287,656 21,000 $ 65,276
President- 1997 N/A N/A N/A N/A N/A N/A
U.S. Beverages
John G. Jartz- 1999 $ 285,720 $ 357,900 $ 1,374 $ 52,917 32,000 $ 148,400
Senior Vice President- 1998 $ 269,750 $ 317,400 $ -0- $ 43,835 32,000 $ 93,783
General Counsel, 1997 $ 235,476 $ 263,000 $ -0- $ 12,740 19,000 $ 352,987
Business Development
and Corporate Secretary
</TABLE>
(1) Amounts include the cash awards that have been paid under the Executive or
Management Incentive Bonus Plan based on the Company's financial
performance and the Named Executive's personal performance for each Fiscal
Year.
(2) Of the amount shown for Mr. Martin, $50,203 is attributable to relocation
expenses.
(3) Restricted stock and unit award values reflect the fair market value of the
Company's common stock on the date of each grant. Mr. Morrison was granted
119,000 restricted stock units effective October 22, 1997. Of this award,
43,000 and 38,000 such restricted units vested on October 22, 1998 and
October 22, 1999, respectively, and the remaining 38,000 restricted units
will vest on October 22, 2000. Dividends on restricted shares and units are
paid on an ongoing basis at the same rate as paid to all shareholders of
common stock. The number and value of currently restricted shares or units
held by the Named Executives as of December 31, 1999 were as follows: Mr.
Morrison, 44,561 and $2,924,316; Mr. Martin, 342 and $22,444; Mr. Young,
957 and $62,803; Ms. Wellington, 5,000 and $328,125; and Mr. Jartz, 2,194
and $143,981.
(4) All stock option awards were granted with an exercise price equal to the
fair market value of the Company's common stock on the date of grant.
<Page 13>
(5) Amounts shown are the total of the value of the stock allocations to the
Named Executives' employee stock ownership accounts and cash awards to the
Named Executives based on earnings in excess of the Internal Revenue Code
limits on the amount of earnings deemed eligible for purposes of the annual
stock allocations made directly under The Quaker 401(k) Plan for Salaried
Employees. Of the amounts shown for Mr. Young for 1998 and Mr. Jartz for
1997, $80,345 and $315,000, respectively, are attributable to special
incentive awards.
The following table contains information covering the grant of stock options to
the Named Executives during Fiscal Year 1999. The exercise price for all
options granted is equal to the fair market value of the Company's common stock
on the date of grant.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
at Assumed Annual Rates
Individual Grants (1) of Stock Price Appreciation
for Option Term (2)
----------------------------------------------------- ---------------------------
% of Total
Number of Options
Securities Granted to
Underlying Employees
Options in Fiscal Exercise Expiration
Name Granted(#) Year Price ($/Sh) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Robert S. Morrison 340,000 16.7% $ 53.34 3/09/09 $ 11,406,194 $ 28,905,535
Terence D. Martin 50,000 2.4% $ 53.34 3/09/09 $ 1,677,381 $ 4,250,814
Russell A. Young 38,000 1.9% $ 53.34 3/09/09 $ 1,274,810 $ 3,230,619
Susan D. Wellington 25,000 1.2% $ 53.34 3/09/09 $ 838,691 $ 2,125,407
John G. Jartz 32,000 1.6% $ 53.34 3/09/09 $ 1,073,524 $ 2,720,521
</TABLE>
(1) All options were granted on March 10, 1999. One-third of the options
granted on March 10, 1999 will vest on each of the three anniversaries
following the date of grant. Upon the occurrence of a change in control,
all options would be cancelled and a lump sum cash payment paid for
realizable value.
(2) Based on fair market value on the date of grant and an annual appreciation
at the rate stated (compounded annually) of such fair market value through
the expiration date of such options. The dollar amounts under these
columns are the result of calculations at the 5% and 10% stock price
appreciation rates set by the SEC and therefore do not forecast possible
future appreciation, if any, of the Company's stock price. However, the
total of the "Potential Realizable Value" for the Named Executives would
represent less than 0.4% of the incremental increase of approximately
$4 billion and $11 billion respectively, in the Potential Realizable Value
that shareholders would realize under the prescribed 5% and 10% stock price
appreciation rates.
<Page 14>
The following table contains information covering the exercise of options by the
Named Executives during Fiscal Year 1999 and unexercised options held as of the
end of 1999.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of Value of Securities Underlying
Securities Underlying Unexercised, In-the-Money
Unexercised Options Options at Fiscal Year
at Fiscal Year End (#) End ($)(2)
Shares
Acquired On Value
Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Robert S. Morrison -0- $ -0- 769,000 871,000 $ 12,664,186 $ 11,759,562
Terence D. Martin -0- $ -0- 50,000 250,000 $ 260,950 $ 1,657,860
Russell A. Young 30,660 $ 1,071,111 163,300 75,700 $ 4,603,749 $ 1,039,159
Susan D. Wellington -0- $ -0- 54,540 43,660 $ 1,408,369 $ 561,704
John G. Jartz -0- $ -0- 104,918 59,900 $ 2,893,767 $ 765,912
</TABLE>
(1) Represents the difference between the option exercise price and the fair
market value of the Company's common stock on the date of exercise,
multiplied by the number of shares covered by each such option exercised.
(2) Represents the difference between the option exercise price and the fair
market value of the Company's common stock on December 31, 1999, multiplied
by the number of shares covered by each such option held on that date.
Pension Plans
The Company and its subsidiaries maintain several pension plans. The Quaker
Retirement Plan (Retirement Plan), which is the principal pension plan, is a
noncontributory, defined benefit plan covering eligible salaried and hourly
employees of the Company who have completed one year of service as defined by
the Retirement Plan.
Under the Retirement Plan, the participant accrues a benefit based upon the
greater of a Years-of-Service Formula and an Earnings/Service Formula. Under
the Years-of-Service Formula, participants accrue annual benefits equivalent to
credited years of service times $216. Under the Earnings/Service Formula, a
participant's benefit is the sum of two parts:
1. Past Service Accrual -- Benefits accrued through December 31, 1993,
are set at the greater of (a) those accrued under the Retirement
Plan prior to December 31, 1993; or (b) 1% of average annual earnings
for the five years through December 31, 1993 up to $22,700 plus
1.65% of such average annual earnings above $22,700, times credited
years of service; and
2. Future Service Accrual -- For each year beginning January 1, 1994,
and after, participants accrue benefits of 1.75% of annual earnings
to 80% of the Social Security wage base plus 2.5% of annual
earnings above 80% of the Social Security wage base.
Eligible earnings used to calculate retirement benefits include wages, salaries,
bonuses, contributions to The Quaker 401(k) Plan for Salaried Employees and
allocations to the employee stock ownership accounts. Normal retirement age
under the Retirement Plan is age 65. The Retirement Plan provides for early
retirement benefits.
Benefit amounts payable under the Retirement Plan are limited to the
extent required by the Employee Retirement Income Security Act of 1974
("ERISA"), as amended, and the Internal Revenue Code of 1986, as amended.
If the benefit formula produces an amount in excess of those
limitations, the excess will be paid out of general corporate
<Page 15>
funds in accordance with the terms of The Quaker 415 Excess Benefit Plan and
The Quaker Eligible Earnings Adjustment Plan. The Quaker Eligible Earnings
Adjustment Plan also provides for payment out of general corporate funds,
based upon benefit amounts which would otherwise have been payable under the
Retirement Plan and The Quaker 415 Excess Benefit Plan if the executive had
not previously elected to defer compensation under the Executive Deferred
Compensation Plan.
The total estimated annual retirement benefits under the above-described plans
that the Named Executives would receive are as follows: Russell A. Young,
$451,678; Susan D. Wellington, $528,029; and John G. Jartz, $434,934. The
amounts assume that the Named Executives will continue to work for the Company
until their normal retirement dates, that their earnings will remain the same as
in calendar 1999 and that each will elect a straight-lifetime benefit without
survivor benefits. (Payment options such as a lump sum or other annuities are
available.) Mr. Morrison and Mr. Martin will be provided retirement benefits in
accordance with their Employment Agreements as described on page 18 of this
proxy statement.
The Retirement Plan currently provides that, to the extent of sufficient plan
assets, it will continue in effect for a reasonable period following a change in
control of the Company without a reduction of anticipated benefits. For a two-
year period following a change in control, the accrued benefits of members, who
meet specified age and service requirements and who are terminated, will be
increased and no employees of the purchaser may become members. For a five-year
period following such a change in control of the Company, the accrual of
benefits for service during such period cannot be decreased while there are
excess assets (as defined in the Retirement Plan). For so long as there are
excess assets during that five-year period, if the Retirement Plan is merged
with any other plan, the accrued benefit of each member and the amount payable
to retired or deceased members shall be increased until there are no excess
assets. If during that five-year period the Retirement Plan is terminated, to
the extent that assets remain after satisfaction of liabilities, the accrued
benefits shall be increased such that no assets of the Retirement Plan will
directly or indirectly revert to the Company.
The Quaker Supplemental Executive Retirement Program (Supplemental Executive
Retirement Program) may also provide retirement benefits for officers of the
Company designated as participants by the Compensation Committee. Benefit
amounts payable under the Supplemental Executive Retirement Program are intended
to provide a minimum base retirement benefit and are therefore offset by the
total of amounts payable under the Retirement Plan, The Quaker 415 Excess
Benefit Plan and The Quaker Eligible Earnings Adjustment Plan. The Supplemental
Executive Retirement Program benefit is based upon a participant's average
annual earnings for the five consecutive calendar years during which earnings
were highest within the last ten years of service multiplied by a percentage
based upon the participant's age at his termination date. This percentage
ranges from 35% to 50% (based upon the participant's age at termination).
Employment Agreements and Termination and Change in Control Benefits
The Company has entered into change in control agreements, known as Executive
Separation Agreements (Separation Agreements) with the Named Executives and
certain other officers. The Separation Agreements provide for separation pay
should a change in control of the Company occur. The Separation Agreements were
unanimously approved by the nonemployee directors.
For separation pay to be available under the Separation Agreements, the
executive's employment must be terminated involuntarily, without cause, whether
actual or "constructive" (demotion, relocation, loss of benefits, or other
changes in the executive's terms of employment short of actual termination),
following a change in control. Under the Separation Agreements for Mr. Morrison
and Mr. Martin, separation pay is also available upon voluntary termination
occurring during the thirteenth month following a change in control.
Under the Separation Agreements, separation pay equals two years' annualized
base salary, bonuses under the Executive or Management Incentive Bonus Plan and
the value of life and health insurance coverage and pension credited service
extended for each executive for a period of two years. The Separation
Agreements provide that the amount of tax penalties paid under the Internal
Revenue Code shall be reimbursed to the executive officer by the Company,
including the income tax on such reimbursements. The Separation Agreements
terminate three years from their date of execution and are subject to renewal by
the Board.
The officers of the Company also participate in The Quaker
Salaried Employees Compensation and Benefits Protection Plan
(Protection Plan). Under the Protection Plan, severance pay
and benefits are provided should a change in control
<Page 16>
occur and an employee's employment is terminated within two years
thereafter for any reason other than death, physical or mental incapacity,
voluntary resignation, retirement or gross misconduct. Severance payments may
be paid in a lump sum or monthly installments (as determined by the Protection
Plan's Administrative Committee). Severance payments are equal to nine months
of pay, plus two weeks of pay for each year of service over 20 years. Pay is to
be based on an employee's current salary plus bonus, if any. Severance benefits
are to be continued for a minimum of nine months, plus two weeks for each year
of service over 20 years, and include all medical and life insurance coverage at
the time of termination.
The Board believes that the Separation Agreements and the Protection Plan insure
fair treatment of the covered employees following a change in control.
Furthermore, by assuring the executive of some financial security, the
Separation Agreements and the Protection Plan are intended to protect the
shareholders by neutralizing any bias of these employees in considering
proposals to acquire the Company. The Board believes that these advantages
outweigh the disadvantage of the cost of the benefits.
The officers of the Company also participate in the Quaker Officers Severance
Program (Program). Under the Program, severance benefits are payable if an
officer's employment is terminated for any reason other than death, physical or
mental incapacity, voluntary resignation, retirement or gross misconduct, and
the officer signs a waiver and release of claims against the Company and agrees
to non-compete, non-raiding and non-disclosure restrictions. Severance benefits
will continue for one year. Severance benefits to be continued are the
executive's base salary at the time of termination, the average bonus for the
past two years under the Executive or Management Incentive Bonus Plan, and
medical and life insurance coverage as in effect at the time of severance.
Only the greater of the severance payment and benefits to be provided under the
Program or the Protection Plan will be provided to an officer eligible under
both, following a change in control. Severance payments and benefits under the
Separation Agreements are in addition to those provided under either the Program
or the Protection Plan following a change in control.
Under the 1990 LTIP and 1999 LTIP, upon the occurrence of a change in control,
options and restricted stock outstanding on the date on which the change in
control occurs shall be cancelled, and an immediate lump sum cash payment shall
be paid to the participant equal to the product of: (1) the higher of (a) the
closing price of the Company's common stock as reported on the NYSE Composite
Index on or nearest the date of payment (or, if not listed on such exchange, on
a nationally recognized exchange or quotation system on which trading volume in
the Company's common stock is highest), or (b) the highest per share price for
the Company's common stock actually paid in connection with the change in
control (and with respect to options, reduced by the per share option price of
each such option held, whether or not then fully exercisable); and (2) the
number of shares covered by each such option or shares of restricted stock.
Upon the occurrence of a change in control, performance shares and other stock-
based awards provided for under the 1990 LTIP and 1999 LTIP Plan, and still
outstanding, shall also be cancelled, and any profit and/or performance
objective with respect to performance shares shall be deemed to have been
attained to the full and maximum extent. An immediate lump sum cash payment
relating thereto shall be paid to the participant in an amount determined in
accordance with the terms and conditions set forth in the applicable agreement.
If making of payments pursuant to a change in control would subject the
participant to an excise tax under Section 4999 of the Internal Revenue Code or
would result in the Company's loss of a federal income tax deduction for those
payments (either of these consequences is referred to individually as a Tax
Penalty), then the Company shall reduce the number of benefits to be cancelled
to the extent necessary to avoid the imposition of such Tax Penalty. In
addition, the Company shall establish procedures necessary to maintain for the
participants a form of benefit which may be provided under the 1999 LTIP and
1990 LTIP so that such participant will be in the same financial position with
respect to those benefits not cancelled as he or she would have been in the
ordinary course, absent a change in control and assuming his or her continued
employment. The foregoing with respect to the cancellation of benefits shall
not apply if such participant (a) is entitled to a tax reimbursement for such
Tax Penalty under any other agreement, plan or program of the Company, or (b)
disclaims any portion of, or all, payments to be made pursuant to, or under, any
other agreement, plan or program of the Company in order to avoid such Tax
Penalty. Disagreements as to whether such payments would result in the
imposition of a Tax Penalty shall be resolved by an opinion of counsel chosen by
the participant and reasonably satisfactory to the Company.
<Page 17>
The Company is party to a trust agreement, known as The Quaker Oats Company
Benefits Protection Trust (Trust or Trust Agreement). The Trust is to be used
to set aside funds necessary to satisfy the Company's obligations to present and
former executives and directors under deferred compensation programs and
agreements, and with respect to certain retirement and termination benefits, in
the event of a change in control. Following a change in control, the Trust
Agreement becomes irrevocable, and the Trust shall be funded to provide for the
payment of such obligations accrued at the time of a change in control. The
Trust may also be funded for the purpose of paying legal expenses incurred by
executives in pursuing benefit claims under such programs and agreements
following a change in control. The Trust is currently funded only to a nominal
extent. The Trust assets relating to Company contributions are always subject
to the claims of the general creditors of the Company. No executive with any
right to, or interest in, any benefit or future payment under the Trust
Agreement shall have any right or security interest in any specific asset of the
Trust, nor shall he or she have any right to alienate, anticipate, commute,
pledge, encumber or assign any of the benefits or rights which he or she may
expect to receive from the Trust or otherwise.
The Company entered into an Employment Agreement with Mr. Morrison in 1997 that
provides that his initial employment term will continue through December 31,
2000. His Agreement also provides for aggregate annual retirement benefits on a
straight-lifetime annuity equal to the greater of: (i) 50% of his average cash
compensation for the highest five consecutive calendar years; or (ii) $950,000.
These retirement benefits are subject to reduction in certain cases of
termination of employment before reaching age 60. Mr. Morrison's Agreement also
provides him with restricted stock units and options as described in the Tables
on pages 13 through 15 of this proxy statement. His Employment Agreement also
provides for severance benefits in the event of specified terminations which
shall consist of the compensation and benefits remaining under the term of his
Agreement and full vesting of all options and restricted stock units on his last
day of active service. Mr. Morrison's Agreement also provides for his waiver
and release of claims against the Company and non-compete, non-raiding and non-
disclosure restrictions upon him in order to be qualified for these severance
benefits.
The Company also entered into an Employment Agreement with Mr. Martin in 1998
that provided him with salary for 1999, and options as described in the Tables
on pages 13 through 15 of this proxy statement. Mr. Martin's Agreement also
provides for annual retirement benefits on a straight-lifetime annuity equal to
the greater of: (i) the amount Mr. Martin would receive under the Supplemental
Executive Retirement Program; or (ii) $300,000. These retirement benefits are
subject to reduction in certain cases of termination of employment before
reaching age 60, and are reduced by all other retirement benefits to which Mr.
Martin is entitled from all other employers. His Employment Agreement also
provides for severance benefits to be paid in a lump sum in the event of
specified terminations, which shall consist of an additional amount equal to one
year's payments under the Officers Severance Program. Mr. Martin's Agreement
also provides for his waiver and release of claims against the Company and non-
compete, non-raiding and non-disclosure restrictions upon him in order to be
qualified for these benefits.
<Page 18>
COMPENSATION COMMITTEE REPORT
The Company's executive compensation programs are administered by the
Compensation Committee of the Board (Committee). The Committee reviews and
considers the recommendations of management and compensation consultants, and
then determines the compensation of all executive officers, including the Named
Executives. The Committee's determinations are reviewed with all nonemployee
directors, who constitute a majority of the Board.
Overall Policy
The Company's compensation programs have long been tied to Company and business
unit performance. The Company's compensation programs are therefore aimed at
enabling it to attract and retain strong executive talent. By linking
executive compensation to Company stock, management's interests are directly
linked to that of shareholders.
At least once each year, the Committee conducts a comprehensive review of the
Company's executive compensation programs. The purpose of the review is to
ensure that the programs are meeting their objectives and that the Company's
executive compensation programs remain consistent with competitive practice. In
its review, the Committee considers data provided by management, and also by
leading compensation consultants.
The Company's policy with respect to qualifying compensation in excess of
$1 million to its Named Executives for tax deductibility under Section 162(m) of
the Internal Revenue Code, is first to be competitive. However, it is the
Committee's intention to maximize the benefit of tax laws for the Company's
shareholders by seeking performance-based exemptions and the related shareholder
approval where consistent with the Company's compensation policies and
practices.
The Company's compensation programs consist of base salary, short term cash
incentive plans, and a long term incentive program consisting primarily of a
broad-based stock option program and selective use of restricted stock. For
executive officers, the mix of compensation is weighted more toward the
performance-based, and therefore variable, elements of compensation (short term
and long term incentive programs) rather than the more fixed elements of
compensation (salary and benefits).
Base Salary
Salaries for executive officers are initially established by comparing the
responsibilities of the individual's position to similar positions within the
Company and in other comparable companies. Salary increases are determined by
comparing the person's actual performance to personal performance objectives, as
well as the Company's and/or business unit's performance versus its objectives.
Annual Incentive
The Company's key managers, including the executive officers, are eligible to
receive an annual award under the Executive Incentive Bonus Plan, if subject to
the Section 162 limit described above, or the Management Incentive Bonus Plan.
Under these Plans, individual targets are established based on position level.
Participants may receive more, or less, than the targets depending upon their
performance.
The annual incentive award is based on a combination of business unit and
Company performance compared to financial and nonfinancial objectives, with
business unit performance weighted more than Company performance. Personal
objectives are also considered in judging total compensation.
The primary Company and business unit performance measure is Controllable
Earnings, which is calculated as operating income (adjusted for certain
financial costs) less a capital usage charge based on each business unit's
invested capital. With incentives tied to maximizing Controllable Earnings,
managers focus on generating greater profitable growth, investing in projects
where returns exceed our cost of capital and efficiently utilizing assets.
These are the drivers of long term cash flow - ultimately the keys to building
shareholder value.
<Page 19>
The Committee also considers performance against other key financial measures
such as market shares, revenues, earnings per share, return on assets, return on
invested capital, debt coverage ratios, generation of cash flow and operating
income. In order for the full financial portion of the target bonuses to be
paid, the Company must meet its internal financial targets, and the Committee
also considers how that performance relates to other comparable companies.
Long Term Incentive
The Company has long believed in the importance of stock ownership by all
employees. Consequently, its long term incentive plans are focused on stock-
based vehicles. The Company has adopted share ownership guidelines for all vice
presidents and above. Each is expected to hold Company stock commensurate with
his or her level in the organization within a reasonable time period from date
of election or appointment.
The primary long term incentive vehicle is a broad-based stock option program
for key managers, including the executive officers. Participants are considered
for annual awards of stock options, based upon an assessment of each person's
job level, performance, potential, past award history and competitive practice.
Most stock options currently become exercisable one-third per year over three
years, and all have a ten-year term, and are priced at or above the stock's fair
market value on the grant date.
A second broad-based long term incentive program applying to the same group of
key managers is the Incentive Investment Program. Under the Incentive
Investment Program, participants may invest an elected percentage of their
Executive Incentive Bonus or Management Incentive Bonus awards in Company stock.
Amounts invested are matched with either one or two shares of restricted stock
for each three shares of stock purchased by the participant, depending on the
percent of his or her award invested. The vesting of the restricted stock
occurs over a five-year period, contingent upon the participant's continued
employment and retaining the purchased shares.
Restricted stock and restricted stock units are also periodically used to
motivate and retain selected key employees.
Chief Executive Officer Compensation
In determining Chief Executive Officer compensation, the Committee considers the
Company's financial and nonfinancial performance, as well as an analysis of
total compensation in relation to that of Chief Executive Officers in comparable
companies. On this basis, the Committee made the following decisions regarding
Mr. Morrison's 1999 compensation:
Mr. Morrison's base salary was increased from $950,000 to
$1,000,000 effective March 1, 1999. This was the first increase in
Mr. Morrison's salary since he joined the Company on October 22, 1997.
Mr. Morrison participated in the Company's Executive Incentive
Bonus Plan (EIB) which was approved by shareholders in 1999. Under
the EIB, bonuses are earned according to achievement of a pre-
established Controllable Earnings goal. Based on the Company's
1999 Controllable Earnings performance, the Committee awarded Mr.
Morrison a 1999 bonus of $1,700,000.
The Committee approved a grant of 340,000 stock options to Mr.
Morrison after reviewing the number of options previously granted
to him in comparison with long term incentive grants made to CEO's
of comparable companies.
The Committee also considered the following achievements in reviewing Mr.
Morrison's 1999 performance and compensation:
Controllable Earnings (the Company's key internal measure of economic
value created) increased 29 percent, reflecting 13 percent operating
income growth and better asset utilization rates, as represented
by a 14 percent reduction in the Company's invested capital base.
<Page 20>
Total Company sales from ongoing businesses increased nearly 4 percent.
In the United States and Canada, where the Company produced 82 percent of
its sales and 92 percent of its operating profits, sales increased
by 7 percent, representing growth across every major line of business.
As a result of strong sales growth and aggressive cost management, diluted
earnings per share increased 21 percent, excluding unusual items.
Additionally, Mr. Morrison took a number of actions to align Company resources
to more aggressively pursue future profitable growth.
MEMBERS OF THE COMMITTEE
Vernon R. Loucks, Jr., Chairman
Frank C. Carlucci
W. James Farrell
Judy C. Lewent
William L. Weiss
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's common stock against the cumulative total return of the
Standard & Poor's (S&P) Foods Index and the S&P 500 Stock Index for the period
of five and one-half years commencing June 30, 1994, and ending
December 31, 1999.
<TABLE>
<CAPTION>
Comparison of Cumulative Total Return*
Quaker, S&P Foods, S&P 500
Transition
Period
Fiscal Year Ending Ending Calendar Year Ending
June 1994 June 1995 December 1995 December 1996 December 1997 December 1998 December 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Quaker $ 100 $ 97 $ 104 $ 119 $ 168 $ 194 $ 218
S&P 500 $ 100 $ 126 $ 144 $ 177 $ 236 $ 303 $ 367
S&P Foods $ 100 $ 129 $ 146 $ 173 $ 248 $ 268 $ 211
</TABLE>
*Assumes $100 invested on June 30, 1994 with reinvestment of dividends.
<Page 21>
DIRECTORS' PROPOSAL
Ratification of Appointment of Independent Public Accountants
Upon the recommendation of the Audit Committee, the Board has appointed Arthur
Andersen LLP as independent public accountants for 2000 and is requesting
ratification by the shareholders. Arthur Andersen LLP has examined the
financial statements of the Company each fiscal year since 1970.
In the event the resolution is defeated, the adverse vote will be considered as
a direction to the Board to select other independent public accountants for the
next fiscal year. However, because of the difficulty and expense of making any
substitution of independent public accountants after the beginning of a fiscal
period, it is contemplated that the appointment for 2000 will be permitted to
stand unless the Board finds other reasons for making a change.
Representatives of Arthur Andersen LLP will attend the Annual Meeting and will
have an opportunity to make a statement, if they desire to do so, and to respond
to appropriate questions.
Ratification of the appointment of Arthur Andersen LLP as independent public
accountants requires the affirmative vote of a majority of votes cast thereon.
The Board unanimously recommends a vote FOR this proposal.
SHAREHOLDERS' PROPOSALS
Annual Election of Directors
Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Avenue, N.W.
Suite 215, Washington, D.C. 20037, record holder of 200 shares of common stock
of the Company, has given notice that she will introduce the following
resolution and supporting statement at the Meeting:
RESOLVED: "That the stockholders of Quaker Oats recommend that the Board of
Directors take the necessary steps to reinstate the election of directors
ANNUALLY, instead of the stagger system which was recently adopted."
REASONS: "Until recently, directors of Quaker Oats were elected annually by all
shareholders."
"The great majority of New York Stock Exchange listed corporations elect all
their directors each year."
"This insures that ALL directors will be more accountable to ALL shareholders
each year and to a certain extent prevents the self-perpetuation of the Board."
"Last year the owners of 56,688,122 shares, representing approximately 51.4% of
shares voting, voted for this proposal."
"If you AGREE, please mark your proxy FOR this resolution."
The Board unanimously recommends a vote AGAINST the proposal for the following
reasons:
At the 1983 Annual Meeting, shareholders voted to amend the Certificate of
Incorporation to provide for the current classified Board with staggered
three-year terms. The proxy statement for that meeting contained a detailed
discussion recommending the classified Board. A portion of that discussion
follows:
<Page 22>
"The Board of Directors believes that the adoption of this proposal is
advantageous to the Company and its shareholders because, by providing that
directors will serve three-year terms rather than one-year terms, it will
enhance the likelihood of continuity and stability in the composition of
the Company's Board of Directors and in the policies formulated by the
Board. The Board believes that this, in turn, will permit it more
effectively to represent the interests of all shareholders, including
responding to circumstances created by demands or actions by a minority
shareholder or group."
"..., there has been an increasing number of attempts by various
individuals and entities to acquire significant minority positions in
certain companies with the intent of obtaining control of the companies by
electing their own slate of directors, or by achieving some other goal,
such as the repurchase of their shares at a premium, by threatening to
obtain such control."
Under New Jersey law, the amendment contemplated by the shareholder proposal
must first be approved by the Board and then submitted to the shareholders for a
vote. The Board has not approved the shareholder proposal. Thus, a vote in
favor of the shareholder proposal is only an advisory recommendation to the
Board that it take steps consistent with such shareholder proposal.
In light of the shareholder vote at the Company's 1999 Annual Meeting, the Board
reviewed the issue at its November 1999 meeting with its financial advisor and
outside counsel. After careful consideration, the Board determined that it is
in the best interest of shareholders to retain the classified board.
Approval of the foregoing precatory shareholder resolution requires the
affirmative vote of a majority of the shares present in person or by proxy at
the meeting and entitled to vote thereon.
For the reasons set forth above, the Board recommends a vote AGAINST the
proposal.
Shareholder Rights Plans
The Amalgamated Bank of New York LongView Collective Investment Fund,
11-15 Union Square, New York, NY 10003, record holder of 41,299 shares of common
stock of the Company, has given notice that it will introduce the following
resolution and supporting statement at the Meeting:
Shareholder Resolution
RESOLVED, that pursuant to section 2-9 of the New Jersey Business Corporation
Act, the shareholders of The Quaker Oats Company (the "Company") hereby amend
the Company's Bylaws to add the following Bylaw 40, which shall take effect
immediately upon approval by the shareholders, either in person or by proxy, at
the meeting of shareholders at which such resolution is proposed:
"SHAREHOLDER RIGHTS PLANS.
"Bylaw 40. The Company shall not adopt any shareholder rights plan, share
purchase rights plan or similar agreement, commonly referred to as a "poison
pill," which is designed to impede, or has the effect of impeding, the
acquisition of a block of stock in excess of a specified threshold and/or merger
or other transaction between a significant shareholder and the Company, unless
such plan or agreement has previously been approved by holders of a majority of
the outstanding shares of stock at a general or special meeting of shareholders,
and the Company shall redeem any such plan or agreement in effect as of the date
of adoption of this Bylaw, including without limitation the shareholder rights
plan that was adopted by the Company in 1996. Notwithstanding any other
provision of these Bylaws, this Bylaw may not be amended, modified or repealed,
except by holders of a majority of the outstanding shares of stock."
Supporting Statement
At last year's meeting this proposed bylaw received 53% of the shares voted,
which was equivalent to 43% of the total outstanding shares. The bylaw was not
adopted, however, because the Company's Certificate of Incorporation and Bylaws
require that two-thirds of the outstanding shares be voted in favor of any bylaw
amendment.
<Page 23>
We are resubmitting this proposal because we believe that it embodies an
important principle of corporate governance, namely, the right of shareholders
to have a say when a company contemplates adopting a "poison pill" anti-takeover
defense.
In our view, a poison pill can insulate management at the expense of
shareholders. We do not dispute that management and the board should have
appropriate tools to ensure that all shareholders benefit from a takeover
proposal, but a "poison pill" is such a powerful tool that shareholders should
be able to vote on whether it is appropriate. The board of directors adopted
the current rights plan in 1996 without seeking shareholder input, and that plan
will continue in effect until 2006.
Rights agreements are often defended as a way to protect the interests of
shareholders. In our view, that rationale argues in favor of letting
shareholders decide for themselves if a poison pill is the sort of protection
they believe should be in place.
WE URGE YOU TO VOTE FOR THIS PROPOSAL.
The Board unanimously recommends a vote AGAINST the proposal for the following
reasons:
The Board is firmly committed to maximizing shareholder value. The Shareholder
Rights Plan (Rights Plan) adopted in May 1996 replaced an expiring plan
originally adopted in 1986 and was put in place to protect shareholders against
abusive takeover tactics and ensure that each shareholder would be treated
fairly. In light of the shareholder vote at the Company's 1999 Annual Meeting,
which constituted a majority of votes cast at the Meeting, but less than a
majority of the outstanding shares entitled to vote and substantially less than
the required number of votes needed to pass such a proposal, the Board reviewed
the issue at its November 1999 meeting with its financial advisor and outside
counsel. After careful consideration, the Board determined that it is in the
best interest of shareholders to retain the Rights Plan.
The Rights Plan is designed to provide the Board with the ability to take what
the Board believes are the most effective steps to protect and maximize the
value of shareholders' investment in the Company. It is designed to encourage
potential acquirors to negotiate directly with the Board, which the Company
believes is in the best position to negotiate on behalf of all shareholders,
evaluate the adequacy of any potential offer, and protect shareholders against
potential abuses during the takeover process. The rights do not affect any
takeover proposal which the Board believes is in the best interests of the
Company's shareholders.
The Board also believes that the proposed Bylaw amendment is legally invalid.
The Company has received the opinion of its New Jersey counsel to the effect
that under the Delaware case law that counsel believes would be followed, the
proposed Bylaw is an impermissible restriction on the fiduciary and statutory
responsibilities imposed upon Boards of Directors. Consequently, the proposed
Bylaw would not be valid under New Jersey law if it were adopted by the
shareholders.
Finally, the Board believes there is strong empirical evidence that the Rights
Plan better positions the Board to negotiate the most attractive fair price for
all shareholders in the event there is a bid for the Company. Many companies
with rights plans have received unsolicited offers and have redeemed rights
after directors were satisfied that the offer, as negotiated by the target
company's board of directors, adequately reflected the underlying value of the
company and was fair and equitable to all shareholders. In fact, premiums paid
to acquire target companies with rights plans were on average eight percentage
points higher than premiums paid for target companies that did not have such
plans, according to a 1997 study by Georgeson & Company Inc. (Georgeson also
estimated that rights plans contributed an additional $13 billion in shareholder
value during the prior five years, and that the shareholders of acquired
companies without rights plans gave up $14.5 billion in potential premiums.)
The Rights Plan is an important tool that the Board should have in the event of
an unfair or coercive takeover attempt. Any action to redeem the Rights Plan
should only be made in the context of a specific acquisition proposal.
If legally valid, approval of the foregoing proposed amendment to the Company's
Bylaws requires the affirmative vote of not less than two-thirds of the
outstanding shares entitled to vote thereon.
Because the Board believes the proposal is legally invalid and against the best
interest of shareholders, the Board recommends a vote AGAINST the proposal.
<Page 24>
Genetically Engineered Foods
The Sheilah Dorcy Trust, c/o Harrington Investments, 1001 Second Street,
Suite 325, Napa, California 94559, beneficial owner of 1,200 shares of common
stock of the Company, the Convent Academy of the Incarnate Word, 2930 South
Alameda, Corpus Christi, Texas 78404, beneficial owner of 500 shares of common
stock of the Company and Jessie Smith Noyes Foundation, 6 East 39th Street, 12th
Floor, New York, New York 10016, beneficial owner of 12,329.64 shares of common
stock of the Company, have each given notice that they will introduce the
following resolution and supporting statement at the meeting:
"WHEREAS:
International markets for genetically engineered (GE) foods are threatened by
extensive resistance to gene protection technology, transgenic technology and
genetically altered foods;
Several of Europe's largest food retailers, including Tesco, Sainsbury
Group, Carrefour, and Rewe, have committed to removing GE ingredients from
their store-brand products;
In the UK, three fast-food giants-McDonald's, Burger King, and Kentucky
Fried Chicken-are eliminating GE soya and corn ingredients from their
menus;
Gerber Products Co. announced in July 1999 that they would not allow GE
corn or soybeans in any of their baby foods;
Archer Daniels Midland asked its grain suppliers in August 1999 to
segregate their genetically engineered crops from conventional crops;
There is increasing scientific concern that genetically engineered agricultural
products may be harmful to humans, animals, or the environment;
The U.S. Department of Agriculture has acknowledged (July 13, 1999) the
need to develop a comprehensive approach to evaluating long-term and
secondary effects of GE products;
Some GE crops have been engineered to have higher levels of toxins, such as
Bacillus thuringiensis (Bt), to make them insect-resistant;
In 1998, research showed that Bt crops are building up Bt toxins in the
soil;
In 1999, the European Union suspended approval of new genetically
engineered organisms until a new safety law for genetically engineered
organisms is implemented in 2002. This followed a new study that showed Bt
corn pollen may harm monarch butterflies;
In the U.S., we have a long tradition of citizens' "Right to Know"; an
expression of this includes the current laws requiring nutritional labeling
of foods;
A January 1999 Time/CNN poll indicated that 81% of Americans said that GE
food should be labeled as such;
GE crops may incorporate genes that are allergens or from animal species.
Individuals can not avoid them for health or religious reasons unless they
are labeled;
The European Union requires labeling of GE foods, as will Japan, New
Zealand, and Australia.
<Page 25>
RESOLVED
Resolved: Shareholders request the Board of Directors to adopt a policy of
removing genetically engineered crops, organisms, or products thereof from all
products sold or manufactured by the company, where feasible, until long-term
safety testing has shown that they are not harmful to humans, animals, and the
environment; with the interim step of labeling and identifying these products
that may contain these ingredients, and reporting to the shareholders by August
2000.
SUPPORTING STATEMENT
We believe that this technology involves significant social, economic, and
environmental risks. Our company should take a leadership position in delaying
market adoption of genetically engineered crops and foods. Failure to do so
could leave our company financially liable, should detrimental effects to public
health or the environment appear in the future."
The Board unanimously recommends a vote AGAINST the proposal for the following
reasons:
In the United States, the Company uses only ingredients that have been declared
safe by the U.S. Food and Drug Administration (FDA), including those developed
through biotechnology. The FDA has concluded that these ingredients are the
same - and therefore, as safe - as other ingredients with respect to their
nutritional characteristics, composition and ability to be used in foods. This
finding is supported by significant scientific consensus.
The Company places food safety at the top of its priority list and only uses
ingredients that have been deemed safe by significant scientific and regulatory
review.
FDA has concluded that no special labeling of foods derived through
biotechnology is necessary. The Company agrees with this position and believes
such labeling, in fact, could be confusing or misleading to consumers.
Consistent with FDA policy, the Company supports limited labeling of foods
developed through biotechnology only for those foods that contain a potential
new allergen or have substantially altered compositions. The Company supports
regulatory policies throughout the world that are based on sound science and
allow the safe use of biotechnology without burdensome labeling requirements.
The Company will comply with all local labeling laws and, as always, will
continue to sell only products it believes to be safe.
The Company believes that its current policy is in accordance with scientific
consensus, regulatory requirements and sound business practices, and that
adoption of this proposal is therefore not appropriate.
Under New Jersey law, a vote in favor of the shareholder proposal is only an
advisory recommendation to the Board that it take steps consistent with such
shareholder proposal. Approval of the foregoing precatory shareholder
resolution requires the affirmative vote of a majority of the shares present in
person or by proxy at the meeting entitled to vote thereon.
For the reasons set forth above, the Board recommends a vote AGAINST the
proposal.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Shareholders may submit proposals appropriate for shareholder action at the
Company's annual meetings consistent with regulations adopted by the SEC. To be
considered for inclusion in the Company's proxy statement and proxy for the 2001
Annual Meeting a proposal must be received by the Company no later than
December 4, 2000. Proposals should be directed to John G. Jartz, Corporate
Secretary, The Quaker Oats Company, P.O. Box 049001, Suite 27-9, Chicago,
Illinois 60604-9001.
<Page 26>
OTHER BUSINESS
The Board is not aware of any matters requiring shareholder action to be
presented at the Meeting other than those stated in the Notice of Annual
Meeting. Should other proper matters be introduced at the Meeting, those
persons named in the enclosed proxy have discretionary authority to act on such
matters and will vote the proxy in accordance with their best judgment.
The Company's annual report on Form 10-K, consisting of its Annual Report, Proxy
Statement and certain additional 10-K information, is available without charge
upon written request to Investor Relations, The Quaker Oats Company, P.O. Box
049001, Suite 27-7, Chicago, Illinois 60604-9001, by visiting the Company's
Internet website at www.quakeroats.com, or by calling 1-800-685-6566.
By order of the Board of Directors,
/s/John G. Jartz
John G. Jartz
Corporate Secretary
<Page 27>
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<Page 28>
FORM OF PROXY CARD:
[Front Part]
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATIONS MADE, OR IF NO
CHOICES ARE INDICATED, FOR ITEMS 1 AND 2 AND AGAINST ITEM 3, 4 AND 5.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
[Quaker logo and "2000 PROXY" appear down the left margin]
A vote FOR items 1 and 2 is recommended
by the Board of Directors.
1. Election of Directors-Nominees:
01 - Armando M. Codina, 02 - W. James Farrell,
03 - Judy C. Lewent, 04 - Linda Johnson Rice
For All [ ] Withheld All [ ] For All Except as Named Below [ ]
2. Ratification of Appointment of Independent Public Accountants
For [ ] Against [ ] Abstain [ ]
A vote AGAINST items 3, 4 and 5 is recommended by the
Board of Directors.
3. Shareholder Proposal-Annual Election of Directors
For [ ] Against [ ] Abstain [ ]
4. Shareholder Proposal-Shareholder Rights Plans
For [ ] Against [ ] Abstain [ ]
5. Shareholder Proposal-Genetically Engineered Foods
For [ ] Against [ ] Abstain [ ]
Check here if you will attend the meeting [ ]
Dated_______________, 2000
x_________________________
Signature
x_________________________
Signature
NOTE: Please sign exactly as name appears hereon. For joint accounts, both
owners should sign. When signing as executor, administrator, attorney,
trustee or guardian, etc., please sign your full title.
[Back Part]
THE QUAKER OATS COMPANY
Proxy for Annual Meeting of May 10, 2000
This proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Frank C. Carlucci, J. Michael Losh and Walter J.
Salmon proxies each with power to appoint his substitute to represent and to
vote all shares of stock of The Quaker Oats Company which the undersigned is
entitled to vote at the Annual Meeting of Shareholders of the Company to be
held at the Civic Opera House, 20 North Wacker Drive, Chicago, Illinois, on
Wednesday, May 10, 2000 at 9:30 a.m. (CDT), and any adjournment thereof, as
indicated on the proposals described in the proxy statement and all other
matters properly coming before the Meeting.
IMPORTANT-This proxy must be signed and dated on the reverse side.
