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 1-2944
STOKELY-VAN CAMP, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-0690290
(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 registrant had 2,989,371 shares of Common Stock outstanding on April 30,
1998, all of which were held by The Quaker Oats Company.
STOKELY-VAN CAMP, INC. 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
Notes to the Condensed Consolidated Financial
Statements 6-8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS
(UNAUDITED)
Three Months Ended
Dollars in Millions March 31,
1998 1997
Net sales $ 212.9 $ 215.9
Cost of goods sold 106.9 107.2
Gross profit 106.0 108.7
Selling, general and administrative expenses 87.7 76.0
Interest income - net (11.6) (11.7)
Income before income taxes 29.9 44.4
Provision for income taxes 12.3 18.2
Net income 17.6 26.2
Dividends on preference and preferred stock (0.2) (0.2)
Reinvested Earnings - Beginning Balance 942.1 811.8
Reinvested Earnings - Ending Balance $ 959.5 $ 837.8
See accompanying notes to the condensed consolidated financial statements.
3
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
Dollars in Millions 1998 1997
ASSETS
Current Assets:
Cash and cash equivalents $ 2.6 $ 7.3
Due from The Quaker Oats Company 767.2 778.7
Trade accounts receivable - net of allowances 63.4 28.7
Inventories:
Finished goods 54.6 27.1
Materials and supplies 11.6 7.6
Total inventories 66.2 34.7
Other current assets 60.8 55.6
Total Current Assets 960.2 905.0
Other assets 4.9 1.4
Property, plant and equipment 333.8 329.0
Less: accumulated depreciation 91.6 86.8
Property - net 242.2 242.2
Total Assets $ 1,207.3 $ 1,148.6
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 35.2 $ 18.4
Accrued payroll, benefits and bonus 8.9 10.9
Accrued advertising and merchandising 23.6 16.4
Income taxes payable 33.6 20.6
Other current liabilities 24.5 18.2
Total Current Liabilities 125.8 84.5
Long-term debt 1.5 1.5
Other liabilities 46.6 46.6
Deferred income taxes 7.2 7.2
Redeemable Preference and Preferred Stock 15.3 15.3
Common Shareholders' Equity:
Common stock, $1 par value, authorized 10
million shares; issued 3,591,381 shares 3.6 3.6
Additional paid-in capital 68.7 68.7
Reinvested earnings 959.5 942.1
Treasury common stock, at cost, 602,010 shares (20.9) (20.9)
Total Common Shareholders' Equity 1,010.9 993.5
Total Liabilities and Shareholders' Equity $ 1,207.3 $ 1,148.6
See accompanying notes to the condensed consolidated financial statements.
4
STOKELY-VAN CAMP, INC. 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 $ 17.6 $ 26.2
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5.7 4.4
Loss on disposition of property and equipment 0.5 1.6
Increase in trade accounts receivable (34.7) (45.5)
Increase in inventories (31.5) (34.6)
(Increase) decrease in other current assets (5.2) 3.8
Increase in trade accounts payable 16.8 17.1
Increase in income taxes payable 13.0 22.4
Increase in other current liabilities 11.5 2.4
Other items (3.5) 2.2
Net Cash Used in Operating Activities (9.8) --
Cash Flows from Investing Activities:
Additions to property, plant and equipment (6.7) (9.2)
Proceeds on the sale of property, plant and equipment 0.5 --
Net Cash Used in Investing Activities (6.2) (9.2)
Cash Flows from Financing Activities:
Change in amount due from The Quaker Oats Company 11.5 18.2
Cash dividends (0.2) (0.2)
Net Cash Provided by Financing Activities 11.3 18.0
Net (Decrease) Increase in Cash and Cash Equivalents (4.7) 8.8
Cash and Cash Equivalents - Beginning of Year 7.3 5.3
Cash and Cash Equivalents - End of Quarter $ 2.6 $ 14.1
See accompanying notes to the condensed consolidated financial statements.
5
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
Note 1 - Basis of Presentation
The condensed consolidated financial statements include Stokely-Van Camp, Inc.
(a wholly-owned subsidiary of The Quaker Oats Company, or Quaker) and its
subsidiaries (the Company or Stokely). 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 Form 10-K for the
year ended December 31, 1997.
Note 2 - Redeemable Preference and Preferred Stock
5% Cumulative Convertible Second Preferred Stock
As of March 31, 1998, authorized shares were 500,000 and issued and outstanding
shares were 10,400. The voting 5% Cumulative Convertible Second Preferred
Stock ($20 par value) is convertible at the holder's option, on a share-for-
share basis, into non-voting 5% Cumulative Prior Preference Stock ($20 par
value).
5% Cumulative Prior Preference Stock
As of March 31, 1998, authorized shares were 1,500,000, issued shares were
753,744 and outstanding shares were 753,411.
Both issues are redeemable at the Company's option for $21 per share.
6
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
Note 3 - 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 4 - 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 this new standard in January 1998 and is not required to report
comprehensive income because there were no components of other comprehensive
income in the periods presented. The Company's adoption of this standard did
not result in changes to previously reported amounts or disclosures.
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.
7
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
Note 5 - Derivative Commodity Instruments
The Company actively monitors its exposure to risk from changes in commodity
prices and occasionally uses futures and options to manage price exposure on
purchased or anticipated purchases of corn sweetener. 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 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 does not use derivative foreign exchange or interest rate instruments
because underlying exposures are not material.
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. 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.
8
STOKELY-VAN CAMP, INC. 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
Operating Results
Consolidated net sales for the three months ended March 31, 1998 (the current
year), were $212.9 million, down 1 percent from the three months ended March
31, 1997 (the prior year). This decrease is primarily due to lower Gatorade
thirst quencher sales in the United States, where sales and volume decreased 4
percent and 1 percent, respectively. Cool, wet weather in key West Coast and
Southeastern markets contributed to this decline compared to the prior year.
In the prior year, sales increased 15 percent, reflecting incremental sales
from a new product, Gatorade Frost. Price changes did not significantly affect
sales.
Gross profit margin was 49.8 percent compared to 50.3 percent in the prior
year. Selling, general and administrative (SG&A) expenses increased 15 percent
primarily due to a 14 percent increase in advertising and merchandising (A&M)
expenses and the absorption of overhead costs previously allocated to the
Snapple beverages business. A&M in the current year included spending to
support a new advertising campaign and was 24.2 percent of sales, up from 20.9
percent of sales in the prior year.
Interest and Income Taxes
Net interest income was $11.6 million in the current year, compared to $11.7
million in the prior year. The effective tax rate for the three months ended
March 31, 1998 and 1997, was 41.0 percent.
Liquidity and Capital Resources
Net cash used in operating activities was $9.8 million for the three months
ended March 31, 1998, and was zero for the three months ended March 31, 1997.
The decrease in cash flow from operating activities was primarily due to lower
net income in the current year. Capital expenditures for the three months
ended March 31, 1998 and 1997, were $6.7 million and $9.2 million,
respectively. Capital expenditures are expected to continue at or above the
current rate as the Company continues to expand its production capacity. The
Company expects that its future capital expenditures and cash dividends will be
financed through cash flow from operating activities.
9
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Derivative Commodity and Financial Instruments
The Company actively monitors its exposure to risk from changes in commodity
prices and occasionally uses futures and options to manage price exposure on
purchased or anticipated purchases of corn sweetener. 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 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 does not use derivative foreign exchange or interest rate instruments
because underlying exposures are not material.
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 instrument assuming a hypothetical 10 percent adverse
change in market prices or rates. Fair value was determined using quoted
market prices. Based on the results of the sensitivity analyses, the estimated
market risk exposure in the current year was immaterial. Actual changes in
market prices or rates may differ from hypothetical changes.
Current and Pending Accounting Changes and Other Matter
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 this new standard in January 1998
and is not required to report comprehensive income because there were no
components of other comprehensive income in the periods presented. The
Company's adoption of this standard did not result in changes to previously
reported amounts or disclosures.
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.
10
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
Stokely, through its parent company, Quaker, conducts the majority of its
operations as an integrated component of Quaker's businesses. As such,
Stokely, throughout its business, uses Quaker's software and other related
technologies that will be affected by the date change in the Year 2000. With
Quaker senior management accountability and corporate staff guidance, the
affected Quaker operating units are in varying stages of assessment and
implementation of a plan to address Quaker's Year 2000 issues. Overall, Quaker
has targeted Year 2000 compliance primarily by the end of 1998, with certain
Quaker operating units targeting compliance by no later than mid-1999. While
Quaker's plans are underway, and Quaker does not anticipate such, the
consequences of non-compliance by Quaker, its customers or its suppliers, could
have a material adverse impact on Stokely's operations. Stokely will continue
to incur expenses related to these efforts; however, such expenses are not
expected to have a material impact on Stokely'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; and fluctuations in the cost and
availability of supply chain resources.
Continued growth in sales, earnings and cash flows from the Gatorade thirst
quencher operations is dependent on, among other things: the level of
competition from its two key competitors, The Coca-Cola Co. and PepsiCo Inc.;
the ability to obtain increasing points of availability; the projected outcome
of supply chain management programs; capital spending plans; markets for key
commodities, especially PET resins and cardboard; and the efficiency and
effectiveness of A&M programs.
11
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
Item 6(a) Exhibit Index:
Exhibit Paper (P) or
Number Description Electronic (E)
10 Agreement Upon Separation of Employment
with James F. Doyle, effective as of April
1, 1998 E
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.
12
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 as an officer and as chief accounting
officer.
Stokely-Van Camp, Inc.
(Registrant)
Date: May 8, 1998 /s/ Thomas L. Gettings
Thomas L. Gettings
Vice President and Corporate Controller
13
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 71
<ALLOWANCES> 8
<INVENTORY> 66
<CURRENT-ASSETS> 960
<PP&E> 334
<DEPRECIATION> 92
<TOTAL-ASSETS> 1207
<CURRENT-LIABILITIES> 126
<BONDS> 2
0
15
<COMMON> 4
<OTHER-SE> 1007
<TOTAL-LIABILITY-AND-EQUITY> 1207
<SALES> 213
<TOTAL-REVENUES> 213
<CGS> 107
<TOTAL-COSTS> 107
<OTHER-EXPENSES> 0
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<INCOME-TAX> 12
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Exhibit 10
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
