-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JmWx+QONtNhwVAffxyxkpplbKyzrHo8CS5+bsTuiOjb7v+9NUKs7GZ/KO+8uiNFx yzExdKnAEexhKyFi+xJdQw== 0000081371-95-000043.txt : 19951010 0000081371-95-000043.hdr.sgml : 19951010 ACCESSION NUMBER: 0000081371-95-000043 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951108 FILED AS OF DATE: 19950926 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUAKER OATS CO CENTRAL INDEX KEY: 0000081371 STANDARD INDUSTRIAL CLASSIFICATION: 2000 IRS NUMBER: 361655315 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-00012 FILM NUMBER: 95576083 BUSINESS ADDRESS: STREET 1: QUAKER TOWER STREET 2: PO BOX 049001 CITY: CHICAGO STATE: IL ZIP: 60604-9001 BUSINESS PHONE: 3122228503 DEF 14A 1 1995 Notice of Annual Meeting and Proxy Statement [Picture of Quaker logo goes here] Annual Meeting of Shareholders 9:30 a.m., Wednesday, November 8, 1995 Hotel Nikko Chicago 320 North Dearborn Street Chicago, Illinois 60610 THE QUAKER OATS COMPANY 321 N. Clark Street Chicago, Illinois 60610 October 2, 1995 Dear Shareholder: You are cordially invited to attend the 1995 Annual Meeting of Shareholders of The Quaker Oats Company on Wednesday, November 8, 1995, at 9:30 a.m. (CST) at the Hotel Nikko Chicago, 320 North Dearborn Street, Chicago, Illinois. The items of business to be acted on during the Meeting include: the election of five directors to serve three-year terms expiring in 1998; the ratification of the appointment of Arthur Andersen LLP as independent public accountants for the six-month fiscal transition period ending December 31, 1995; and such other business as may properly come before the Meeting or any adjournment thereof, including a shareholder proposal. The accompanying Proxy Statement contains complete details on the proposals and other matters. If you plan to attend this year's Meeting, you may obtain an admittance card by completing the enclosed reservation form and returning it with your proxy card. If your shares are held by a bank or broker, you may obtain an admittance card by returning the reservation form they forwarded to you. If, however, you do not receive a reservation form directly from the Company, or the bank or broker holding your shares, you may still obtain an admittance card by sending a written request, accompanied by proof of ownership (such as your brokerage statement), to Shareholder Services, The Quaker Oats Company, P.O. Box 049001, Suite 25-9, Chicago, Illinois 60604-9001. For your convenience, we highly recommend that you bring your admittance card to the Meeting so you can avoid the lines in the registration area and proceed directly to the Hotel Nikko Ballroom. However, if you do not have an admittance card by the time of the Meeting, please bring proof of share ownership to the registration area located in the front of the Ballroom where our personnel will assist you. Your participation in the affairs of the Company is important, regardless of the number of shares you hold. To ensure your representation at the Meeting, whether or not you are able to be present, please complete and return the enclosed proxy card as soon as possible. If you do attend the Meeting, you may then revoke your proxy and vote in person if you so desire. I look forward to seeing you on November 8. Coffee will be served after the Meeting, when the members of the Board of Directors hope to visit with you. Cordially, /s/ William D. Smithburg William D. Smithburg Chairman and Chief Executive Officer TABLE OF CONTENTS Page Notice of Annual Meeting of Shareholders 3 Proxy Statement 4 Election of Directors 5 The Board of Directors 9 Attendance 9 Compensation and Benefits 9 Committees 10 Ownership of the Company's Securities 11 Beneficial Owners of More Than 5 Percent 11 Directors and Management 11 Compliance with Section 16(a) 12 Executive Compensation 13 Summary Compensation Table 13 Option Grants Table 15 Option Exercises Table 16 Pension Plans 16 Termination and Change in Control Benefits 17 Compensation Committee Report 19 Performance Graph 21 Directors' Proposal 22 Ratification of Appointment of Independent Public Accountants 22 Shareholder Proposal 22 Compensation Disclosure 22 For 1996 Annual Meeting 23 Other Business 23 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS October 2, 1995 To the Shareholders of The Quaker Oats Company: Notice is hereby given that the Annual Meeting of Shareholders of The Quaker Oats Company will be held on Wednesday, November 8, 1995 at the Hotel Nikko Chicago, 320 North Dearborn Street, Chicago, Illinois at 9:30 a.m. (CST), for the following purposes: To elect five directors in Class III to serve for three- year terms expiring in 1998 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 the six-month fiscal transition period ending December 31, 1995; and To transact such other business as may properly come before the Meeting or any adjournment thereof, including a shareholder proposal concerning compensation disclosure of certain employees. By resolution of the Board of Directors, only shareholders of record as of the close of business on September 20, 1995 are entitled to notice of, and to vote at, the Annual Meeting. The Annual Report of the Company, including financial statements for the year ended June 30, 1995, has been mailed to all shareholders. By order of the Board of Directors, /s/ R. Thomas Howell, Jr. R. Thomas Howell, Jr. Corporate Secretary PROXY STATEMENT This proxy statement is being mailed to shareholders on or about October 2, 1995 and is furnished in connection with the solicitation of proxies by the Board of Directors of The Quaker Oats Company (the "Board" and the "Company") for use at the Annual Meeting of Shareholders to be held on November 8, 1995, including any adjournment thereof (the "Annual Meeting" or the "Meeting"). The Annual Meeting is called for the purposes stated in the accompanying notice of the Meeting. All shareholders of the Company's $5.00 par value common stock and Quaker Series B ESOP Convertible Preferred Stock (ESOP Preferred Stock) as of the close of business on September 20, 1995 are entitled to vote at the Meeting. As of that date, there were 134,290,280 outstanding shares of common stock and 1,182,118 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 a preferred stock shareholder is entitled to 2.2 votes for each share held as of the record date. A majority of the outstanding shares entitled to vote must be represented in person or by proxy at the Meeting in order to constitute a quorum for the transaction of business. A proxy marked "abstain" on a matter will be considered to be represented at the Meeting, but not voted for purposes of the election of directors and other matters put to a shareholder vote at the Meeting, and therefore will have no effect on the vote. Shares registered in the names of brokers or other "street name" nominees for which proxies are voted on some, but not all matters, will be considered to be voted only as to those matters actually voted, and will not be considered for any purpose as to the matters with respect to which a beneficial holder has not provided voting instructions (commonly referred to as "broker non-votes"). If a proxy is properly signed and is not revoked by the shareholder, the shares it represents will be voted at the Meeting by the Proxy Committee in accordance with the instructions of the shareholder. If no specific instructions are designated, the shares will be voted as recommended by the Board. A proxy may be revoked at any time before it is voted at the Meeting. Any shareholder who attends the Meeting and wishes to vote in person may revoke his or her proxy at that time. Otherwise, revocation of a proxy must be communicated in writing to the Corporate Secretary of the Company at its principal office, P.O. Box 049001, Suite 25-6, Chicago, Illinois 60604-9001. If a shareholder is a participant in the Company's Dividend Reinvestment and Stock Purchase Plan, Investment Plan, Stock Bonus Savings Plan, or Employee Stock Ownership Plan, the proxy card will represent the number of shares registered in the participant's name and the number of whole and fractional shares credited or allocated to the participant's account under the plans. For those shares held in the plans, the proxy card will serve as a direction to the trustee or voting agent under the various plans as to how the shares in the accounts are to be voted. Fractional shares will not be voted in the Dividend Reinvestment and Stock Purchase Plan. Under the Company's Bylaws, for all matters submitted to the shareholders for a vote, all proxies, ballots and voting tabulations that identify how shareholders voted will be kept confidential and not be disclosed to any of the Company's directors, officers or employees except when disclosure is mandated by law, 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 telegram without special compensation. In addition, the Company has retained Kissel-Blake Inc. to assist in soliciting proxies from brokers, dealers, voting trustees, banks and other nominees and institutional holders for a fee not to exceed $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 three-year terms. The Certificate requires that successors to directors whose terms expire at each Annual Meeting shall be elected at that meeting. The terms of the directors in Class lII expire with this Annual Meeting. The Board has nominated five persons for election as directors in Class III to serve for three-year terms expiring in 1998 or until their successors are elected and qualified. All nominees are currently serving as directors and have consented to serve for the new term. Biographical information (including principal occupations for the past five years and ages as of October 2, 1995) 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 five nominees listed below. 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 be comprised of eleven members, eight nonemployee directors and three directors who are officers of the Company. NOMINEES FOR DIRECTOR Terms Expiring in 1998 [Photos of each director are to the left of each biography] FRANK C. CARLUCCI Director Chairman, The Carlyle Group 1983 - 1987 (merchant banking). and then Also a director of Ashland since 1989 Oil, Inc.; BDM International, Inc.; Bell Age 64 Atlantic Corporation; C.B. Commercial Real Estate Group; General Dynamics Corp.; Kaman Corporation; Neurogen Corp.; Northern Telecom Limited; Texas Biotechnology Corporation; Upjohn Co.; and Westinghouse Electric Corporation. Chairman of the Company's Audit Committee and Member of the Nominating and Public Responsibility Committees. SILAS S. CATHCART Director Retired Chairman of Illinois 1964 - 1987 Tool Works Incorporated and then (fasteners, components, since 1989 assemblies and systems). Also a director of Baxter Age 69 International Inc.; General Electric Company; Illinois Tool Works Incorporated; and Montgomery Ward and Co.; Chairman, Board of Trustees, Northern Funds Mutual Funds; and a trustee of the Bradley Trust, Milwaukee and the Buffalo Bill Memorial Association. Chairman of the Company's Compensation Committee and Member of the Nominating Committee. NOMINEES FOR DIRECTOR Terms Expiring in 1998 VERNON R. LOUCKS, JR. Director Chairman and Chief Executive since 1981 Officer, Baxter International Inc. (health care products). Age 60 Also a director of Anheuser-Busch Companies, Inc.; Dun & Bradstreet Corporation; and Emerson Electric Co. Chairman of the Company's Nominating Committee and Member of the Compensation and Executive Committees. WILLIAM D. SMITHBURG Director Chairman and Chief Executive since 1978 Officer of the Company; also served as President (1990 - Age 57 1993). Also a director of Abbott Laboratories; Corning Incorporated; Northern Trust Corporation; and Prime Capital Corp. Member of the Company's Executive Committee and ex-officio member of the Nominating Committee. WILLIAM L. WEISS Director Chairman Emeritus, Ameritech since 1985 Corporation (telecommunications) since 1994; formerly Chairman and Age 66 Chief Executive Officer (1984 - 1994). Also a director of Abbott Laboratories; Merrill Lynch & Co.; and Tenneco Inc. Chairman of the Company's Finance Committee and Member of the Compensation, Executive and Nominating Committees. DIRECTORS CONTINUING IN OFFICE Terms Expiring in 1997 JUDY C. LEWENT Director Senior Vice President and Chief since 1994 Financial Officer, Merck & Co., Inc. (pharmaceuticals) since Age 46 1992; formerly Vice President for Finance and Chief Financial Officer (1990 -1992); and Vice President and Treasurer (1987- 1990). Also a director of Astra Merck, Inc.; The DuPont Merck Pharmaceutical Company; Johnson & Johnson Merck Consumer Pharmaceuticals Company; Motorola, Inc.; and Rockefeller Financial Services, Inc. Member of the Company's Audit, Finance, Nominating and Public Responsibility Committees. PHILIP A. MARINEAU Director President and Chief Operating since 1990 Officer of the Company since 1993; formerly Executive Vice Age 48 President and Chief Operating Officer (1992-1993); Executive Vice President - Grocery Products, North and South America (1991-1992); Executive Vice President - U.S. Grocery Products (1989-1991). Also a director of Arthur J. Gallagher & Co. Member of the Company's Executive Committee. LUTHER C. McKINNEY Director Senior Vice President - Law and since 1978 Corporate Affairs of the Company since November 1994; formerly Age 64 Senior Vice President - Law and Corporate Affairs and Corporate Secretary (1982 - 1994). Member of the Company's Executive Committee. DIRECTORS CONTINUING IN OFFICE Terms Expiring in 1996 KENNETH I. CHENAULT Director Vice Chairman, American Express since 1992 Company (financial and travel services) since February 1995; Age 44 formerly President - USA American Express Travel Related Services Company, Inc. (1993 - February 1995); President - Travel Related Services, USA American Express Travel Related Services Company, Inc. (1993); and President - Consumer Card Group, USA American Express Travel Related Services Company, Inc.(1989 -1993). Also a director of Brooklyn Union Gas Co. Member of the Company's Audit, Finance, Nominating and Public Responsibility Committees. THOMAS C. MacAVOY Director Paul M. Hammaker Professor of since 1975 Business Administration, Darden Graduate School of Business Age 67 Administration, University of Virginia. Also a director of The Chubb Corporation and The Lubrizol Corporation. Member of the Company's Audit, Nominating and Public Responsibility Committees. WALTER J. SALMON Director Stanley Roth Sr., Professor of since 1971 Retailing, Harvard Business School. Also a director of Age 64 Circuit City Stores, Inc.; Hannaford Bros. Co.; Harrah's Entertainment, Inc.; Luby's Cafeterias, Inc.; and Neiman- Marcus Group, Inc. Member of the Company's Finance and Nominating Committees. THE BOARD OF DIRECTORS Attendance During the fiscal year ended June 30, 1995, the Board held six regular and three special meetings, and executed three actions by unanimous written consent. The attendance of directors at all regular and special meetings of the Board was 98%. In addition to membership on the Board, each nonemployee director serves on one or more standing committees of the Board. The attendance of directors at all meetings of the Board and committees was 97%. Compensation and Benefits Directors who are full-time salaried employees of the Company are not compensated for their service on the Board or any committee. Directors who are not employees of the Company receive an annual retainer of $45,000. They are also paid a fee of $1,000 per day for each Board meeting attended, $1,000 for each committee meeting attended and $1,000 for each action taken by written consent, plus travel and lodging expenses where appropriate. A committee chairman receives an additional annual retainer of $5,000. Under the Deferred Compensation Plan for Directors of The Quaker Oats Company each nonemployee director may elect to defer receipt of all or a portion of his or her compensation until the individual ceases to be a director. The deferred amounts may be carried at the option of the director as Cash Units, and credited with interest; Common Stock Units, which are deferred amounts converted into whole units on a quarterly basis by dividing the deferred amount by the fair market value of the Company's common stock, and credited with amounts equivalent to dividends as paid on the Company's common stock, which are converted into additional Common Stock Units; or a combination of Cash Units and Common Stock Units. The accumulated deferred amounts will be distributed in cash as of the next January 1 after the director leaves the Board, or in equal annual installments (not exceeding 15) commencing as of the next January 1 after the director leaves the Board pursuant to the director's election, with Common Stock Units valued at the fair market value of the Company's common stock immediately prior to the payment date. If the director has not attained age 55 at the time of leaving the Board, payments in accordance with the foregoing will be made or commence on the January 1 next following the director's attainment of age 55. Under The Quaker Oats Company Stock Retirement Plan for Outside Directors separate accounts are opened by the Company for each nonemployee director. On July 1 of each year, each account is credited with Common Stock Units representing 800 shares of the Company's common stock. In addition, the account is credited with Common Stock Units with a value equivalent to cash dividends payable on the shares represented by Units in the account. All accrued common stock represented by Units in a director's account will be distributed in kind as of the next January 1 after the director leaves the Board, or in equal annual installments (not exceeding 15) commencing as of the next January 1 after the director leaves the Board, pursuant to the director's election. Committees The Board has appointed six standing committees from among its members to assist it in carrying out its obligations. Committee membership and responsibilities are reviewed by the Board in November of each year, and committee appointments are made by the Board in November of every fourth year. The principal responsibilities of each committee are described in the following paragraphs. The Audit Committee, comprised entirely of nonemployee directors, is primarily concerned with the effectiveness of the Company's accounting policies and practices, financial reporting and internal controls. Specifically, the Committee recommends to the Board the firm to be appointed as the Company's independent public accountants, subject to ratification by the shareholders; reviews and approves the scope of the annual examination of the books and records of the Company and its subsidiaries and 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; and provides oversight with respect to accounting principles to be employed in the Company's financial reporting. The Committee met three times during fiscal 1995. The Compensation Committee, comprised entirely of nonemployee directors, oversees the Company's compensation and benefit policies and programs, including administration of the Management Incentive Bonus Plan, Long Term Incentive Plan of 1990, and 1984 Long-Term Incentive Plan. It also recommends to the Board annual salaries, bonuses and stock option awards for elected officers and certain other key executives. The Committee met six times during fiscal 1995. The Executive Committee, comprised of three directors who are also officers of the Company and two nonemployee directors, 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 two times during fiscal 1995. The Finance Committee, comprised entirely of nonemployee directors, is charged with reviewing the Company's annual financing plan, including its projected financial condition and requirements for funds; approving certain long-term debt borrowing arrangements; advising the Board on all financial recommendations requiring Board approval; and monitoring the investment performance of the Company's pension funds and participant-directed investment accounts. The Committee met four times during fiscal 1995. The Nominating Committee, comprised of all the nonemployee directors and Mr. Smithburg as an ex-officio member, develops and recommends to the Board guidelines with respect to the size and composition of the Board and criteria for the selection of candidates for director. It also recommends the slate of director nominees to be included in the proxy statement, and recommends candidates to fill any vacancies that may occur and candidates for directorships created by an increase in the total number of directors. The Committee will entertain nominees for directorships recommended by shareholders. A shareholder recommendation should be sent to the Committee in care of the Corporate Secretary of the Company, accompanied by a statement of the nominee indicating willingness to serve if elected. The nomination should also state the shareholder's reasons for the recommendation and should disclose the principal occupations the nominee has held over the past five years and a list of all publicly held companies for which the individual serves as a director. The Committee met one time during fiscal 1995. The Public Responsibility Committee, comprised entirely of nonemployee directors, provides guidance on the Company's policies and programs in major areas of social responsibility and corporate citizenship, including product quality and safety and other consumer issues, environmental protection, equal employment opportunity and employee health and safety. It also reviews and approves policy guidelines and budgets for the Company's corporate contributions program. The Committee met two times during fiscal 1995. OWNERSHIP OF THE COMPANY'S SECURITIES Beneficial Owners of More Than 5 Percent As of September 1, 1995, each person or entity who may be deemed to have beneficial ownership of more than 5% of the Company's outstanding common stock based upon information furnished to the Company are set forth in the following table. Amount and nature of Name and address beneficial Percent of of beneficial owner ownership class The Quaker Employee Stock 10,580,901 (1) 7.73% (2) Ownership Plan 321 North Clark Street Chicago, Illinois 60610 Southeastern Asset 7,184,900 5.35% (3) Management 6075 Poplar Avenue Memphis, Tennessee 38119 (1) This amount includes 2,567,776 shares of common stock based on the conversion of 1,188,785 shares of ESOP Preferred Stock (at the conversion rate of 2.16 shares of common stock for each share of ESOP Preferred Stock) representing 100% of the issued and outstanding stock of that class. (2) In accordance with applicable rules of the Securities and Exchange Commission (SEC), this percentage is based upon the total of the 134,287,347 shares of common stock and the conversion of 1,188,785 shares of ESOP Preferred Stock (at the 2.16 conversion rate) that were outstanding on September 1, 1995. (3) In accordance with applicable rules of the SEC, this percentage is based upon only the 134,287,347 shares of common stock that were outstanding on September 1, 1995. Directors and Management As of September 1, 1995, 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. Shares subject to Name of individual or Amount and nature acquisition persons in group of beneficial within 60 ownership days (a) Frank C. Carlucci 7,062 (b)(c) 0 Silas S. Cathcart 24,504 (c)(d) 0 Kenneth I. Chenault 3,354 (c) 0 James F. Doyle 234,517 (e)(f) 211,412 Judy C. Lewent 1,626 (c) 0 Vernon R. Loucks, Jr. 11,512 (c) 0 Thomas C. MacAvoy 11,512 (c) 0 Philip A. Marineau 701,671 (e)(f)(g)(h) 587,978 Luther C. McKinney 433,805 (e)(f)(g) 360,624 Walter J. Salmon 18,094 (c) 0 William D. Smithburg 1,324,782 (e)(f)(g) 1,060,676 Robert S. Thomason 242,660 (e)(f)(g)(i) 204,764 William L. Weiss 10,392 (c)(j) 0 All directors and executive officers as a group 4,414,745 (e)(f)(g) 3,507,222 (a) Unless otherwise indicated, each named individual and each person in the group has sole voting power and sole investment power with respect to the shares shown. These shares represent less than 1% for every person, and approximately 3% for all directors and executive officers as a group, of the total shares outstanding, including shares subject to acquisition within 60 days after September 1, 1995. (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 these directors include an aggregate of 59,952 common stock units credited to them under The Quaker Oats Company Stock Retirement Plan for Outside Directors. (d) Of these shares, 13,560 are held in a trust of which Mr. Cathcart is a co-trustee and has a contingent beneficial interest and shares voting and investment power. (e) The figures shown for these executive officers include an aggregate of 92,662 shares (which includes 14,381 shares on the basis of the conversion of 6,658 shares of ESOP Preferred Stock at the conversion rate of 2.16) allocated to them in The Quaker Employee Stock Ownership Plan. The Named Executives each hold the following number of shares under this Plan: Mr. Smithburg, 12,967; Mr. Marineau, 7,320; Mr. Doyle, 6,182; Mr. Thomason, 3,121; and Mr. McKinney, 8,408. (f) The figures shown for these executive officers include an aggregate of 106,108 shares granted to them under The Quaker Long Term Incentive Plan of 1990 for which the restricted period has not lapsed. The Named Executives each hold the following number of shares under this Plan: Mr. Smithburg, 8,172; Mr. Marineau, 65,142; Mr. Doyle, 2,625; Mr. Thomason, 1,798; and Mr. McKinney, 1,042. (g) The figures shown for these executive officers include an aggregate of 47,893 shares representing their proportionate interests in the Quaker Stock Fund of The Quaker Investment Plan. The Named Executives each hold the following number of shares under this Plan: Mr. Smithburg, 965; Mr. Marineau, 0; Mr. Doyle, 0; Mr. Thomason, 653; and Mr. McKinney, 41,227. (h) Of these shares, 200 are owned jointly by Mr. Marineau and his mother, and 3,612 are held in trust of which his children have beneficial interest. (i) Of these shares, 15,000 are held directly by his wife and 1,600 are owned jointly by Mr. Thomason and his children. (j) Of these shares, 800 are held in a trust of which Mr. Weiss' wife is income beneficiary. Compliance with Section 16(a) Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, executive officers and persons who beneficially own more than 10% of a registered class of the Company's equity securities to file reports of ownership and changes in ownership with the SEC and the New York Stock Exchange (the "NYSE"). The Company inadvertently caused one report for Robert S. Thomason to be filed late with respect to a sale of common stock on December 10, 1993. To the best of the Company's knowledge, all other such reports required to be filed under Section 16(a) by the Company's directors and executive officers were timely filed. EXECUTIVE COMPENSATION The following table details annual and long term compensation paid during the Company's three most recent fiscal years to the Company's Chairman and Chief Executive Officer and four most highly compensated executive officers for fiscal 1995 (Named Executives).
SUMMARY COMPENSATION TABLE Long Term Annual Compensation Compensation Other Restricted Securities All Annual Stock Underlying Other Fiscal Salary Bonus Compensation Awards Options Compensation Name Year ($) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5) William D. Smithburg 1995 $855,014 $ -0- $ 3,419 $ 76,010 340,000 $174,622 Chairman and Chief 1994 $825,006 $570,000 $ 2,607 $ 83,316 340,000 $165,520 Executive Officer 1993 $795,000 $748,800 $ 2,208 $ 81,940 200,000 $175,074 Philip A. Marineau 1995 $620,840 $ -0- $ 3,248 $ 55,353 120,000 $124,750 President and Chief 1994 $595,834 $415,000 $ 3,261 $ 56,673 120,000 $116,530 Operating Officer 1993 $533,500 $500,700 $ -0- $1,974,811 120,000 $110,481 James F. Doyle 1995 $332,760 $217,600 $ -0- $ 42,449 48,000 $ 70,759 Executive Vice 1994 $299,208 $254,800 $ -0- $ 25,247 48,000 $ 55,753 President-Worldwide 1993 $270,790 $221,100 $ -0- $ 19,416 60,000 $ 54,938 Beverages Robert S. Thomason 1995 $358,520 $ 42,700 $ 3,216 $ 21,786 42,000 $ 62,830 Senior Vice 1994 $349,168 $163,200 $121,795 $ 31,958 48,000 $ 67,210 President-Finance 1993 $325,017 $249,400 $ 31,444 $ 9,667 42,000 $ 48,941 and Chief Financial Officer Luther C. McKinney 1995 $368,682 $ -0- $ -0- $ -0- 44,000 $ 68,594 Senior Vice 1994 $354,678 $199,300 $ -0- $ -0- 44,000 $ 64,984 President-Law 1993 $340,500 $255,700 $ -0- $ 21,766 60,000 $ 67,730 and Corporate Affairs (1)Amounts for fiscal 1995, 1994 and 1993 include the cash awards that have been paid under the Management Incentive Bonus Plan (MIB) based on the Company's financial performance and the Named Executive's personal performance for fiscal 1995, 1994 and 1993, respectively. Amounts for fiscal 1993 also include the portions of the MIB awards for fiscal 1992 which were withheld from the fiscal 1992 MIB award pool and put at risk, subject to achievement of certain Company financial objectives during the first half of fiscal 1993. The financial objectives were achieved in fiscal 1993, and the withheld 1992 MIB awards were paid in fiscal 1993 along with the 1993 MIB awards as follows: Mr. Smithburg, $123,800 and $625,000; Mr. Marineau, $75,700 and $425,000; Mr. Doyle, $31,900 and $189,200; Mr. Thomason, $9,700 and $239,700; and Mr. McKinney, $41,100 and $214,600. (2)Of the amounts shown for Mr. Thomason, $99,549 and $9,198 represent additional payments relating to his overseas assignment for 1994 and 1993, respectively. (3)Restricted stock award values reflect the fair market value of the Company's common stock on the date of each grant. With the exception of Mr. Marineau's restricted stock award in fiscal 1993, and Company matching awards of restricted stock under a broad-based long term incentive program, the Incentive Investment Program, no awards of restricted stock have been made to any Named Executive in fiscal 1995, 1994 and 1993.
In December 1993, vesting was accelerated by one month from January 1994 for the pro-rata portion of restricted stock awards granted in fiscal 1991 for Messrs. Smithburg and Marineau: respectively, 80,000 shares of the Company's common stock and 20,400 shares of Mattel Inc. common stock; and 13,336 shares of the Company's common stock and 3,401 shares of Mattel Inc. common stock. The primary purpose for this acceleration was for the Company to save approximately $60,000 in taxes. Dividends on restricted shares were and continue to be paid on an on-going basis at the same rate as paid to all shareholders. The aggregate number and value of restricted shares for each of the Named Executives, valued as of the last day of fiscal 1995 (6/30/95) are as follows: Number of Name Shares Description Value Mr. Smithburg 8,172 Quaker common stock $ 267,633 Mr. Marineau 65,142 Quaker common stock $ 2,133,401 Mr. Doyle 2,625 Quaker common stock $ 85,969 Mr. Thomason 1,798 Quaker common stock $ 58,885 Mr. McKinney 1,042 Quaker common stock $ 34,126 Upon a change in control (see "Pension Plans"), restricted shares outstanding on the date of the change in control will be cancelled and an immediate lump sum cash payment will be paid which is equal to the product of: (1) the higher of (i) the closing price of common stock as reported on the NYSE Composite Index on or nearest to the date of payment (or, if not listed on such exchange, on a nationally recognized exchange or quotation system on which trading volume in the common stock is highest) or (ii) the highest per share price for common stock actually paid in connection with the change in control; and (2) the number of shares of such restricted stock. (4)All stock option awards in fiscal 1995 and 1994 were granted with an exercise price that is equal to the fair market value of the Company's common stock on the date of the grant. Fifty percent of the stock option awards in fiscal 1993 were granted with an exercise price that is equal to the fair market value of the Company's common stock on the date of the grant. The remaining 50% were granted with an exercise price that is 125% of the fair market value of the Company's common stock on the date of grant. (5) Amounts shown are the total of the value of the stock allocations to the Named Executives under The Quaker Employee Stock Ownership Plan (ESOP), 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 ESOP. The following table contains information covering the grant of stock options to the Named Executives during fiscal 1995 under the Company's Long Term Incentive Plan. The exercise price for options granted is equal to the fair market value of the Company's common stock on the date of the grant.
OPTION GRANTS IN LAST FISCAL YEAR Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Individual Grants (1) Option Term (2) Number of % of Total Securities Options Underlying Granted to Name Options Employees Exercise Granted in Fiscal Price Expiration (#) Year ($/sh) Date 5% 10% William D. Smithburg 340,000 11.4% $40.35 09/13/04 $8,626,736 $21,861,843 Philip A. Marineau 120,000 4.0% $40.35 09/13/04 $3,044,730 $ 7,715,945 James F. Doyle 48,000 1.6% $40.35 09/13/04 $1,217,892 $ 3,086,378 Robert S. Thomason 42,000 1.4% $40.35 09/13/04 $1,065,656 $ 2,700,581 Luther C. McKinney 44,000 1.5% $40.35 09/13/04 $1,116,401 $ 2,829,180 (1) All options were granted on September 14, 1994. One-third of the options granted will vest on each of the three anniversaries following the date of grant. The options will be cancelled and a lump sum cash payment will be paid for realizable value upon the occurrence of a change in control. (See "Pension Plans".) (2) Based on fair market value on the date of grant and an annual appreciation at the rate stated (compounded annually) of such fair market value through the expiration date of such options. The dollar amounts under these columns are the result of calculations at the 5% and 10% stock price appreciation rates set by the SEC and therefore do not forecast possible future appreciation, if any, of the Company's stock price. However, the total of the "Potential Realizable Value" for the Named Executives would represent less than 0.5% of the incremental increase of approximately $3 billion and $8 billion respectively, in the Potential Realizable Value that shareholders would realize under both the prescribed 5% and 10% stock price appreciation rates.
The following table contains information covering the exercise of options by the Named Executives during fiscal 1995 and unexercised options held as of the end of fiscal 1995. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
Number of Value of Securities Underlying Unexercised, In-the- Unexercised Options at Money Options at Fiscal Year End (#) Fiscal Year End ($) (2) Shares Value Acquired on Realized Name Exercise (#) ($) (1) Exercisable Unexercisable Exercisable Unexercisable William D. Smithburg 7,566 $158,702.90 821,076 635,800 $4,315,782 $ 32,980 Philip A. Marineau -0- -0- 467,978 241,200 $2,790,807 $ 19,788 James F. Doyle -0- -0- 159,332 100,560 $ 671,397 $ 9,894 Robert S. Thomason 10,860 $244,859.33 160,784 88,440 $1,277,747 $ 6,926 Luther C. McKinney -0- -0- 296,224 64,400 $1,777,465 $ 9,894 (1) Represents the difference between the option exercise price and the fair market value of the Company's common stock on the date of exercise. (2) Represents the difference between the option exercise price and the fair market value of the Company's common stock on the last day of fiscal 1995 (6/30/95).
Pension Plans The Company and its subsidiaries maintain several pension plans. The Quaker Retirement Plan (the "Retirement Plan"), which is the principal 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, 1994 are set at the greater of (a) those earned or (b) 1% of Five-Year Average earnings to $22,700 plus 1.65% of earnings above $22,700, times credited years of service; and 2. Future Service Accrual -- For each year beginning January 1, 1994 and after, participants accrue benefits of 1.75% of annual earnings to 80% of the Social Security wage base plus 2.5% of annual earnings above 80% of the Social Security wage base. Eligible earnings used to calculate retirement benefits include wages, salaries, bonuses, contributions to The Quaker Investment Plan (a 401(k) Plan) and allocations under The Quaker Employee Stock Ownership Plan. Normal retirement age under the Retirement Plan is age 65. The Retirement Plan provides for early retirement benefits. Benefit amounts payable under the Retirement Plan are limited to the extent required by the Employee Retirement Income Security Act of 1974 (ERISA), as amended, and the Internal Revenue Code of 1986, as amended. If the benefit formula produces an amount in excess of those limitations, the excess will be paid out of general corporate funds in accordance with the terms of The Quaker 415 Excess Benefit Plan, and The Quaker Eligible Earnings Adjustment Plan. The Quaker Eligible Earnings Adjustment Plan also provides for payment out of general corporate funds, based upon benefit amounts which would otherwise have been payable under the Retirement Plan and The Quaker 415 Excess Benefit Plan, if the executive had not previously elected to defer compensation under the Executive Deferred Compensation Plan. The Quaker Supplemental Executive Retirement Program (the "SERP"), may also provide retirement benefits for officers of the Company designated as participants by the Compensation Committee. Benefit amounts payable under the SERP are intended to provide a minimum base retirement benefit and are therefore offset by amounts payable under the Retirement Plan, The Quaker 415 Excess Benefit Plan and The Quaker Eligible Earnings Adjustment Plan. The SERP benefit is based upon a participant's average annual earnings for the five consecutive calendar years during which earnings were highest within the last ten years of service multiplied by a percentage based upon the participant's age at his termination date. For the Chief Executive Officer this percentage ranges from 40% (for a termination from ages 50 to 55) to 60% (for a termination at age 65 or later), and for other participants from 35% to 50% (based upon such ages at termination). The estimated annual retirement benefits that the Named Executives would receive under the Retirement Plan, The Quaker 415 Excess Benefit Plan, The Quaker Eligible Earnings Adjustment Plan, and the SERP, if each retired at age 65, are as follows: William D. Smithburg, $856,175; Philip A. Marineau, $434,785; James F. Doyle, $240,591; Robert S. Thomason, $280,200; and Luther C. McKinney, $283,980. The amounts assume that the Named Executives will continue to work for the Company until their normal retirement dates and that their earnings will remain the same as in calendar year 1994 and that each will elect a straight-lifetime benefit without survivor benefits. (Payment options such as a 50% joint and survivor annuity or other annuities are available.) The Retirement Plan assures active and retired employees that, to the extent of sufficient plan assets, it will continue in effect for a reasonable period following a change in control of the Company without a reduction of anticipated benefits, and under certain circumstances may provide increased benefits. Generally, under the Retirement Plan, a change in control shall be deemed to have occurred in any of the following circumstances: (i) An acquisition of 30% or more of Quaker stock unless such acquisition is pursuant to an agreement with the Company approved by the Board before the acquirer becomes the beneficial owner of 5% of the Company's outstanding voting power; (ii) A majority of the Board of Directors is comprised of persons who were not nominated by the Board of Directors for election as directors; (iii) A plan of complete liquidation of the Company; or (iv) A merger, consolidation or sale of all or substantially all of the Company's assets unless thereafter: (a) directors of Quaker immediately prior thereto continue to constitute at least 50% of the directors of the surviving entity or purchaser; or (b) Quaker's securities continue to represent, or are converted to securities which represent, more than 70% of the combined voting power of the surviving entity or purchaser. For a five-year period following 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 a two-year period following such a change in control, the accrued benefits of members who meet specified age and service requirements and who are terminated will be increased. 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. Termination and Change in Control Benefits The Company has entered into Executive Separation Agreements (the "Separation Agreements") with the Named Executives and other executive officers. The Separation Agreements provide for separation pay should a change in control of the Company occur (as described for the Retirement Plan). The Separation Agreements were unanimously approved by the nonemployee directors. Under the Separation Agreements, the executive's employment must be terminated involuntarily, without cause, whether actual or "constructive" (demotion, relocation, loss of benefits, or other changes in the executive's terms of employment short of actual termination) following a change in control, for separation pay to be available. Under the Separation Agreements for Messrs. Smithburg and Marineau, 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 and bonuses awarded pursuant to the Management Incentive Bonus Plan and the value of life and health insurance coverage and pension credited service extended for each executive for a period of two years. The Separation Agreements provide that the amount of tax penalties under the Internal Revenue Code to be paid by any person shall be reimbursed to the executive officer by the Company. 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 (the "Protection Plan"). Under the Protection Plan, severance pay and benefits are provided should a change in control occur (as described for the Retirement Plan) and an employee's employment is terminated within two years thereafter for any reason other than death, physical or mental incapacity, voluntary resignation, retirement or gross misconduct. Severance payments may be paid in a lump sum or monthly installments (as determined by the Protection Plan's Administrative Committee). Severance payments shall be based on the amount of nine months pay, plus two weeks pay for each year of service over 20 years. Pay is to be based on an employee's current salary plus bonus, if any. Severance benefits are to be continued for a minimum of nine months, plus two weeks for each year of service over 20 years, and include all health and medical benefits, and life insurance coverage at the time of termination. The Board believes that the Separation Agreements and the Protection Plan assure fair treatment of the covered employees following a change in control. Furthermore, by assuring the executive of some financial security, the Separation Agreements and the Protection Plan 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 (the "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. Severance benefits will continue for a period based on years of service (nine months continuation for less than ten years of service and 12 months continuation for ten or more years of service). 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 MIB plan, and medical and life insurance coverage as in effect at the time of severance. Only the greater of the severance payment and benefits to be provided under the Program or the Protection Plan will be provided to an officer eligible under both, following a change in control. Under The Quaker Long Term Incentive Plan of 1990 (the "Incentive Plan"), upon the occurrence of a change in control (as described for the Retirement Plan), options and restricted stock outstanding on the date on which the change in control occurs shall be cancelled, and an immediate lump sum cash payment shall be paid to the participant equal to the product of: (1) the higher of (i) 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 (ii) the highest per share price for the Company's common stock actually paid in connection with the change in control (and with respect to options, reduced by the per share option price of each such option held, whether or not then fully exercisable); and (2) the number of shares covered by each such option, or shares of restricted stock. Upon the occurrence of a change in control, performance shares, performance units and other stock based awards provided for under the Incentive Plan, and still outstanding, shall also be cancelled, and any profit and/or performance objective with respect to performance shares and performance units shall be deemed to have been attained to the full and maximum extent. An immediate lump sum cash payment relating thereto shall be paid to the participant in an amount determined in accordance with the terms and conditions set forth in the applicable agreement. If making of payments pursuant to a change in control would subject the participant to an excise tax under Section 4999 of the Internal Revenue Code or would result in the Company's loss of a federal income tax deduction for those payments (either of these consequences is referred to individually as a "Tax Penalty"), then the Company shall reduce the number of benefits to be cancelled to the extent necessary to avoid the imposition of such Tax Penalty. In addition, the Company shall establish procedures necessary to maintain for the participants a form of benefit which may be provided under the Incentive Plan so that such participant will be in the same financial position with respect to those benefits not cancelled as he would have been in the ordinary course, absent a change in control and assuming his continued employment, except that the foregoing with respect to the cancellation of benefits, shall not apply if such participant (i) is entitled to a tax reimbursement for such Tax Penalty under any other agreement, plan or program of the Company, or (ii) disclaims any portion of or all payments to be made pursuant to or under any other agreement, plan or program of the Company in order to avoid such Tax Penalty. Disagreements as to whether such payments would result in the imposition of a Tax Penalty shall be resolved by an opinion of counsel chosen by the participant and reasonably satisfactory to the Company. The Company entered into a trust agreement, known as The Quaker Oats Company Benefits Protection Trust (the "Trust" or "Trust Agreement"). The Trust is to be used to set aside funds necessary to satisfy the Company's obligations to present and former executives and directors under deferred compensation programs and agreements, and with respect to certain retirement and termination benefits, in the event of a change in control (as described for the Retirement Plan). Following a change in control, the Trust Agreement becomes irrevocable, and the Trust shall be funded to provide for the payment of such obligations accrued at the time of a change in control. The Trust may also be funded for the purpose of paying legal expenses incurred by executives in pursuing benefit claims under such programs and agreements following a change in control. The Trust is currently funded only to a nominal extent. The Trust assets relating to Company contributions are always subject to the claims of the general creditors of the Company. No executive with any right or interest to any benefit or future payment under the Trust Agreement shall have any right or security interest in any specific asset of the Trust, nor shall he have any right to alienate, anticipate, commute, pledge, encumber, or assign any of the benefits or rights which he may expect to receive from the Trust or otherwise. COMPENSATION COMMITTEE REPORT The Company's executive compensation program is administered by the Compensation Committee of the Board (the "Committee"). All members of the Committee are nonemployee directors. The Committee determines the compensation of all executive officers of the Company, including that of the Named Executives. In reviewing the compensation of individual executive officers the Committee considers the recommendations of management and the input of leading compensation consultants. The Committee's determinations on the compensation of the Chief Executive Officer and other executive officers are reviewed with all nonemployee directors, who constitute a majority of the full Board. Overall Policy The Company's compensation programs have long been tied closely to Company performance leading to creation of shareholder value. The Company's compensation programs are therefore aimed at enabling it to attract and retain the best possible executive talent, and rewarding those executives commensurately with their ability to achieve increases in shareholder value. 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 insure that the programs are meeting their objective of creation of shareholder value, and that the Company's executive compensation programs remain consistent with competitive practice. In its review, the Committee considers data provided by management and by leading compensation consultants, with whom the Committee meets privately. The Committee met six times during the year. With respect to the proposed Internal Revenue Service regulations covering tax deductibility of compensation in excess of $1 million to the Named Executives (Section 162(m) of the Internal Revenue Code), the Internal Revenue Service continues to issue regulation drafts intended to provide guidance as to what types of changes would put companies in compliance with the provisions of Section 162(m). These proposed regulations may change significantly before final regulations are adopted. It is our intent to make all reasonable efforts to comply with the final regulations. The Committee believes that the effect of these tax limits on the Company's compensation tax deduction would not be material. Compensation Programs The Company's compensation programs consist of base salary, a short-term cash incentive program (the "Management Incentive Bonus Plan" or "MIB Plan"), and a long-term incentive program consisting primarily of a broad-based stock option program and selective use of restricted stock. At the executive officer level, the mix of compensation is weighted more heavily toward the performance-based elements of compensation (short-term and long-term incentive programs) rather than the more fixed elements of compensation. For example, only 30% of Mr. Smithburg's 1995 total compensation came from salary and benefit programs. The remainder of his compensation came from incentive programs. Base Salary Base salaries for executive officers are determined in the same manner as that of all other salaried employees. Salary guidelines are established by comparing the responsibilities of the individual's position to similar positions in other companies of comparable size and lines of business. Individual salary increases are determined considering the person's actual performance compared to personal performance objectives for the year, as well as the Company's performance versus its financial objectives. In September 1994, individual merit increases granted to executive officers ranged from 2% to 7%. The average salary increase of 4% for executive officers was the same as the average of salary increases granted to all employees. For the merit increases which were awarded in September 1995, individual increases in base pay for all salaried employees averaged 3%. People at the vice president level and above (including all executive officers and Named Executives) did not receive any merit increases in September 1995. Annual Incentive The Company's 675 key managers, including the executive officers, are eligible to receive an annual cash incentive award under the MIB Plan. Under the MIB Plan, individual target bonuses are established based on position level. Participants may receive more, or less, than the target bonus depending upon their performance compared to objectives established at the start of the year. In fiscal 1994, 30% of the total award was based on performance versus personal objectives and 70% of the total award was based on how well the business unit and Company performed compared to financial objectives. For fiscal 1995, the award is based on business unit and Company performance compared to financial objectives. This change is intended to produce greater performance- based variability for the MIB. Performance in accomplishing personal objectives is also considered in judging total compensation. The Company's financial performance is measured primarily by progress made toward Controllable Earnings (CE) targets. CE is calculated as operating income adjusted for certain financing costs, less a capital usage charge. Since CE incorporates a capital usage charge into the internal profit measure, its use holds all our key managers accountable for the cost of the Company's investment in their businesses. CE thus requires our managers to make an economic valuation of every business decision, helping us build long-term value for our shareholders. In addition to CE, the Committee also considers performance against other key financial measures such as sales growth, earnings per share, return on assets, return on equity and operating income. In order for the financial portion of the MIB to be paid at target levels, the Company must meet its internal financial targets and the Committee also considers whether that performance produces superior financial performance versus a comparison group of food and consumer products companies approved by the Committee. Long-Term Incentive The Company has long believed in the importance of stock ownership by all of its employees including management. Consequently, its long-term incentive plans are focused on stock-based vehicles. During fiscal 1995, the Company adopted share ownership guidelines for all vice presidents and above who will be expected to hold an amount of Company stock commensurate with their level in the organization. The primary long-term incentive vehicle is a broad-based stock option program in which approximately 675 key managers participate, 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. Stock options currently become exercisable over a three-year period (1/3 per year) and have a ten-year term. All stock options are priced at or above the fair market value of the stock on the date of grant. A second broad-based long-term incentive program applying to the same group of 675 key managers is the Incentive Investment Program (the "IIP") introduced in 1992. Prior to fiscal 1995 under the IIP, participants had the opportunity to invest up to 20% of their MIB awards in Company stock, with each three shares purchased by the participant matched by the Company with two shares of restricted stock. The vesting of the restricted stock, which occurs 50% at the end of three years and 100% at the end of five years, is contingent both upon the participant's continued employment and upon retaining the purchased shares. The Committee believes the IIP provides an incentive for key managers to purchase and hold Company stock, thus further aligning their interests with those of shareholders. In fiscal 1995, a change was made whereby participants in the IIP could increase their investment up to 50% of their MIB awards in Company stock. Amounts invested up to 25% of the MIB are matched at the former rate of two shares of restricted stock for each three shares of stock purchased by the participant. Amounts invested above 25% of the MIB will be matched at a lower rate of one share of restricted stock for each three shares of stock purchased by the participant. Allowing participants to invest a greater percentage of their MIB award further encourages the purchase and retention of Company stock. The Company also makes periodic use of restricted stock to motivate and retain selected key employees. In determining the appropriate restricted stock award, the Committee considers the person's job level, performance, potential for future contribution and competitive practice. The Committee also considers the timing and size of previous awards of options and restricted stock. No awards of restricted stock have been made to any executive officers since fiscal 1993, except matched shares under the IIP. CEO Compensation In determining Mr. Smithburg's compensation, the Committee considers the Company's financial and nonfinancial performance, as well as an analysis of Mr. Smithburg's total compensation in relation to that of CEOs in a comparison group of companies approved by the Committee. The primary financial objective considered in determining Mr. Smithburg's compensation is the Company's performance in CE. Other financial measures, such as sales and earnings per share, are also considered by the Committee. As stated earlier, the Committee retains a leading compensation consultant for the purpose of reviewing Mr. Smithburg's compensation. The Committee notes that the Company had a difficult year in financial performance, due to such factors as the Snapple beverage integration taking longer than expected and weak trends in certain lines of business such as hot cereals. The Committee also notes that during the year the Company undertook a major restructuring in order to obtain higher growth in the future and successfully disposed of several major non-core assets. Considering all the above factors, financial and nonfinancial, the Committee decided that Mr. Smithburg should receive no bonus for fiscal 1995. Mr. Smithburg received a 3.6% merit increase in September 1994 for fiscal 1994 performance. This compares to a 4.0% average merit increase for all employees for the same period. Like other senior managers of the Company (see discussion above), Mr. Smithburg did not receive a merit increase in September 1995. The Committee approved an award of stock options under the Long Term Incentive Plan of 340,000 options in September 1994. The same number of options was awarded in the prior fiscal year. The Committee considers that the award of stock options further aligns Mr. Smithburg's interests with those of shareholders. Consistent with recent practice, the stock options vest one-third per year for three years. The Committee considers Mr. Smithburg's total compensation to be appropriate in light of the Company's 1995 performance. The Committee feels that Mr. Smithburg's compensation, like that of other members of the Company's management team, must be reflective of what has been a most difficult and challenging fiscal 1995. MEMBERS OF THE COMMITTEE Silas S. Cathcart, Chairman Vernon R. Loucks, Jr. Gertrude G. Michelson 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 500 Stock Index and the Standard & Poor's Food Index for the period of five years commencing June 30, 1990 and ending June 30, 1995. Comparison of Cumulative Five-Year Total Return* Quaker Oats, S&P 500 and S&P Foods Fiscal Year Ending 6/90 6/91 6/92 6/93 6/94 6/95 Quaker Oats 100 134 135 186 177 172 S&P 500 100 107 122 138 140 177 S&P Foods 100 122 137 136 137 176 * Assumes $100 invested on June 30, 1990 with reinvestment of dividends. 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 the six-month fiscal transition period ending December 31, 1995, and is requesting ratification by the shareholders. (The six-month fiscal transition period relates to the change in the Company's fiscal year ending June 30 to the calendar year, beginning January 1, 1996.) Arthur Andersen LLP (formerly known as Arthur Andersen & Co.) 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 the six-month fiscal transition period ending December 31, 1995, will be permitted to stand unless the Board finds other reasons for making a change. During fiscal 1995, Arthur Andersen LLP performed recurring audit services including the examination of annual financial statements, pension plans and limited reviews of quarterly financial information. Fees for these services aggregated approximately $1.9 million. Arthur Andersen LLP also performed services for the Company in other business areas, including tax and accounting related services, for which fiscal 1995 fees aggregated approximately $4.2 million. Andersen Consulting LLP, the consulting arm of Arthur Andersen & Co., S.C., also performed various consulting services for the Company during fiscal 1995. Fees for these services aggregated approximately $.5 million. Representatives of Arthur Andersen LLP will attend the Annual Meeting and will have an opportunity to make a statement, if they desire to do so, and to respond to appropriate questions. Ratification of the appointment of Arthur Andersen LLP as independent public accountants requires the affirmative vote of a majority of votes cast thereon. The Board unanimously recommends a vote FOR this proposal. SHAREHOLDER PROPOSAL COMPENSATION DISCLOSURE Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Avenue, N.W. Suite 215, Washington, D.C. 20037, record holder of 200 shares of common stock of the Company, has given notice that she will introduce the following resolution and supporting statement at the Meeting: RESOLVED: "That the shareholders recommend that the Board take the necessary step that Quaker Oats specifically identify by name and corporate title in all future proxy statements those executive officers, not otherwise so identified, who are contractually entitled to receive in excess of $100,000 annually as a base salary, together with whatever other additional compensation bonuses and other cash payments were due them." REASONS: "In support of such proposed Resolution it is clear that the shareholders have a right to comprehensively evaluate the management in the manner in which the Corporation is being operated and its resources utilized." "At present only a few of the most senior executive officers are so identified, and not the many other senior executive officers who should contribute to the ultimate success of the Corporation." "Through such additional identification the shareholders will then be provided an opportunity to better evaluate the soundness and efficacy of the overall management." "If you AGREE, please mark your proxy FOR this proposal." Approval of the foregoing shareholder proposal requires the affirmative vote of a majority of the votes cast thereon. The Board unanimously recommends a vote AGAINST this proposal for the following reasons: The proposal is not currently relevant to the Company since it calls for disclosure only of contractual employment obligations and the Company does not maintain employment contracts for any of its executive officers. Moreover, the Company already provides extensive disclosure on compensation of executive officers in accordance with the rules and regulations of the Securities and Exchange Commission (the "SEC") that apply to all public companies. The proposal attempts to impose disclosure obligations beyond what is required by the SEC and beyond what is reported by other public companies. The SEC's compensation disclosure rules were significantly revised in 1992 after comprehensive review and comment from numerous reporting companies, investors and other interested persons. In accordance with these rules, this proxy statement discloses the compensation of the Company's five highest paid executive officers, as well as a Compensation Committee Report disclosing the Company's polices with respect to compensation for executive officers. The Board of Directors believes that the existing disclosure provides stockholders with a clear overview of the compensation structure for executive officers and provides an adequate basis for stockholders to evaluate the Company's use of resources for compensation. If the Company were to provide additional and specific disclosure related to a broader group of employees, the Board of Directors believes that the Company would be at a competitive disadvantage because it would have to provide more extensive compensation information than other companies. This could impair the Company's recruiting and compensation programs. Except when disclosure is required under SEC rules applicable to all public companies, the Company treats each employee's salary as a private matter. Compensation levels within the Company vary based on factors such as performance, experience, job classification and differences in geographic location. Disclosure of compensation information for a broad group of employees would invade employee privacy, compromise employee security and harm employee morale. SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING Shareholders may submit proposals appropriate for shareholder action at the Company's annual meetings consistent with regulations adopted by the Securities and Exchange Commission. Because of the Company's change in fiscal year, the 1996 Annual Meeting to be held May 8, 1996 will relate to the six-month fiscal transition period ending December 31, 1995. As a result, to be considered for inclusion in the Company's Proxy Statement and proxy for the 1996 Annual Meeting a proposal must be received by the Company no later than December 3, 1995. Proposals should be directed to R. Thomas Howell, Jr., Corporate Secretary, The Quaker Oats Company, P.O. Box 049001, Suite 25-6, Chicago, Illinois 60604-9001. OTHER BUSINESS The Board is not aware of any matters requiring shareholder action to be presented at the Meeting other than those stated in the Notice of Annual Meeting. Should other proper matters be introduced at the Meeting, those persons named in the enclosed proxy have discretionary authority to act on such matters and will vote the proxy in accordance with their best judgment. By order of the Board of Directors, /s/ R. Thomas Howell, Jr. R. Thomas Howell, Jr. Corporate Secretary October 2, 1995 This Notice of Annual Meeting and Proxy Statement is printed on recycled paper. THE QUAKER OATS COMPANY PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY [ ] [Quaker logo and "1995 Proxy" appears down the left margin] A vote FOR items 1 and 2 is recommended by the Board of Directors. 1.Election of Directors - For [ ] Withheld [ ] For All Except______ Nominees: F.C. Carlucci, S. S. Cathcart, V.R. Loucks, Jr., W.D. Smithburg and W.L. Weiss 2. Ratification of Appointment of For [ ] Against [ ] Abstain [ ] Independent Public Accountants 1995 P R O X Y PLEASE DATE, SIGN AND MAIL IN ENCLOSED RETURN ENVELOPE. A vote AGAINST item 3 is recommended by the Board of Directors. 3. Shareholder Proposal - For [ ] Against [ ] Abstain [ ] Compensation Disclosure THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATIONS MADE. IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2 AND AGAINST ITEM 3. Dated __________, 1995 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. THE QUAKER OATS COMPANY Proxy for Annual Meeting of November 8, 1995 This proxy is solicited on behalf of the Board of Directors. The undersigned hereby appoints Thomas C. MacAvoy, Philip A. Marineau, Luther C. McKinney 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 Hotel Nikko Chicago, 320 North Dearborn Street, Chicago Illinois, on Wednesday, November 8, 1995 at 9:30 a.m. (CST), and any adjournment thereof, as indicated on the proposals described in the proxy statement and all other matters properly coming before the Meeting. Total Shares IMPORTANT-This proxy must be signed and dated on the reverse side. -----END PRIVACY-ENHANCED MESSAGE-----